IN THE COURT OF APPEAL OF TONGA
Court of Appeal, Nuku'alofa

AC 23/2009

Hoar anor

v

Du Bois anor

Burchett, Salmon, and Moore JJ 
6 July 2009; 10 July 2009 

Practice and procedure – application for leave to appeal – against orders setting aside default judgment – judgment should not have been granted – application refused 

The proceedings related to a resort known as the Royal Sunset Island Resort situated on a small island close to Tongatapu. The resort was held under a lease to the second appellant (PIR). In 2006, the then shareholders of PIR agreed to sell their shares to a company controlled by the 1st appellant (Mr Hoar) called Banjo Becc Pty Ltd. Final settlement was not effected until June 2007 although Mr Hoar's group ran it from October 2006. Because of a dispute between vendors and purchasers the second respondent (IPR) was formed to enable a bank trading account to be operated. The shareholders in IPR were Mr Hoar, the 1st respondents and other investors. Mr Hoar acknowledged that his purchase of the resort was on behalf of a group of investors including the 1st respondents. In November 2007, Mr Hoar issued proceedings CV 1034/07 in the Supreme Court. The defendants in those proceedings were PIR, the respondents in this appeal and the ANZ Bank. At this stage Caroline du Bois was the manager of the resort. The Statement of Claim pleaded difficulties that had arisen between Mr Hoar and Mrs du Bois and sought a declaration that Mr Hoar was the majority shareholder in, and was entitled to be appointed as, a director of PIR. The proceedings also sought an order seeking the release of information and damages. Ultimately the Supreme Court referred these proceedings to mediation. The mediation resulted in an agreement signed by all the interested parties. The ANZ Bank, although a party to the proceedings, decided it had no interest to protect and took no part in the mediation proceedings. For that reason it did not sign the agreement. Clause 10.1 of the agreement provided for the discontinuance of CV 1034/07. Pursuant to that agreement the proceedings were struck out by Ford CJ on 17 April 2008. The next event was the commencement of proceedings under CV 159/08 by Mrs Du Bois and IPR against Mr Hoar and PIR alleging breaches of the agreement and seeking compliance and restraining orders. The defendants filed a statement of defence and counterclaim which was intituled only "Statement of Defence". Counsel for the Plaintiff in that proceeding did not file a defence to the counterclaim within the prescribed and an extended time and claimed pressure of work and the inadequate intituling as reasons for not doing so. The counterclaim alleged breaches of the mediation agreement by the plaintiffs (ie. Mrs Du Bois and IPR) and sought an order that the mediation agreement was null and void for breach, and the relief sought in CV 1034/2007. Counsel for the plaintiffs obtained an extension of time for filing a Statement of Defence to the 23rd March 2009. On the 17th April no defence still having been filed, Shuster J entered judgment for the defendants on the Counterclaim in terms of the prayer for relief. On the 29th May after considering an application made by the Plaintiffs with an affidavit in support from counsel and a draft Statement of Defence, Shuster J set aside the default judgment and ordered a Statement of Defence to the Counterclaim to be filed within 2 days. It was against that order that this appeal was lodged. The appellants applied for leave to appeal against orders made by the Supreme Court setting aside a default judgment. 

Held:

1. The judgment by default should never have been entered in the first place. It sought remedies which were not able to be given. The Counterclaim pleaded that obligations set out in the mediation agreement had not been complied with. On this basis it sought that the agreement be declared null and void. Such a remedy was not available for breaches of the agreement. A contract can only be declared void for specific reasons such as illegality and may be voidable for reasons of duress, misrepresentation, minority etc. None of the grounds for declaring a contract void were pleaded. Additionally it was pleaded that because the agreement was void, CV 1034/2008 remained operative, and the relief sought by those proceedings was claimed. However these proceedings were struck out and could not be brought to life again in the manner pleaded. 

2. Leave to appeal was refused. The Respondents were entitled to costs. The mediation agreement remained in force and CV159/08 should be disposed of by hearing or otherwise. There was no need for a further mediation. 

Cases considered: 
 Evans v Bartlam [1937] AC 473, [1937] 2 All ER 646 
 Fonua v TCC Ltd AC 11 A/2004 

Counsel for the appellant : Mr Garrett 
Counsel for the respondent : Mr Tu'utafaiva

Judgment

[1] This is an application for leave to appeal against orders made by Shuster J on 29/5/08. His Honour made the following orders: 

"1. The Judgment in default dated 17 April 2009 is set aside, along with any other prior Court Orders in respect of this file.  

2. Leave is granted extending time for the Plaintiffs to file and serve a statement of defence to the Defendants' counterclaim within 2 days from the date of this Order.  

3. Costs of the application and this Order shall be in the course. (sic) 

4. A mediation hearing is fixed for 10th June 2009 at 09:30am before the A/Registrar and the Australian Mediator." 

The appellant seeks the following orders: 

"1. The Orders made by Mr. Justice Shuster on 29 May 2009 be quashed; 

2. The Resort known as Royal Sunset Island Resort situated on Atata Island with all its assets; chattels, buildings, boats, outboards and anything belonging to the said resort wherever they may be, (the Resort) be declared the property of the Second Appellant;  

3. The First Appellant on behalf of the Group of Investors he represents have full authority, control and ownership of the Second Appellant as the sole director and shareholder thereof, and that he be granted the right to take possession and occupy the Resort and declare any person attempting to enter the Resort a trespasser. 

4. The Commander of the Tonga Police shall assign such officers and other resources as he deems necessary to prevent any breach of the peace that may be occasioned as a result of the Appellants enforcing these Orders, and remove such persons from the Resort that the first Appellant identifies as trespassers. 

5. Costs of the Defendants in the matters of CV1034/07, CV159/08 from inception to date of both matters and costs of this Appeal are awarded to the appellants." 

Background 

[2] These proceedings relate to a resort known as the Royal Sunset Island Resort situated on a small island close to Tongatapu. The resort is held under a lease to the second appellant (PIR). In 2006, the then shareholders of PIR agreed to sell their shares to a company controlled by the 1st appellant (Mr Hoar) called Banjo Becc Pty Ltd. Final settlement was not effected until June 2007 although Mr Hoar's group ran it from October 2006. 

[3] Because of a dispute between vendors and purchasers the second respondent (IPR) was formed to enable a bank trading account to be operated. The shareholders in IPR were Mr Hoar, the 1st respondents and other investors. Mr Hoar has always acknowledged that his purchase of the resort was on behalf of a group of investors including the 1st respondents. 

[4] In November 2007, Mr Hoar issued proceedings CV 1037/07 in the Supreme Court. The defendants in those proceedings were PIR, the respondents in this appeal and the ANZ Bank. At this stage Caroline du Bois was the manager of the resort. The Statement of Claim pleaded difficulties that had arisen between Mr Hoar and Mrs du Bois and sought a declaration that Mr Hoar was the majority shareholder in, and was entitled to be appointed as, a director of PIR. The proceedings also sought an order seeking the release of information and damages. 

[5] Ultimately the Supreme Court referred these proceedings to mediation. The mediation resulted in an agreement signed by all the interested parties. The ANZ Bank although a party to the proceedings decided it had no interest to protect and took no part in the mediation proceedings. For that reason it did not sign the agreement. Clause 10.1 of the agreement provided for the discontinuance of CV 1034/07. Pursuant to that agreement the proceedings were struck out by Ford CJ on 17 April 2008.

[6] The next event was the commencement of proceedings under CV 159/08 by Mrs Du Bois and IPR against Mr Hoar and PIR alleging breaches of the agreement and seeking compliance and restraining orders. The defendants filed a statement of defence and counterclaim which was intituled only "Statement of Defence". Counsel for the Plaintiff in that proceeding did not file a defence to the counterclaim within the prescribed and an extended time and claimed pressure of work and the inadequate intituling as reasons for not doing so. The counterclaim alleged breaches of the mediation agreement by the plaintiffs (ie. Mrs Du Bois and IPR) and sought an order that the mediation agreement was null and void for breach, and the relief sought in CV 1034/2007. Counsel for the plaintiffs obtained an extension of time for filing a Statement of Defence to the 23rd March 2009. On the 17th April no defence still having been filed, Shuster J entered judgment for the defendants on the Counterclaim in terms of the prayer for relief. On the 29th May after considering an application made by the Plaintiffs with an affidavit in support from counsel and a draft Statement of Defence, Shuster J set aside the default judgment and ordered a Statement of Defence to the Counterclaim to be filed within 2 days. It is against that order that this appeal was lodged.

[7] To complete the narrative the Statement of Defence was filed within the time allowed. It pleads that the mediation agreement is lawful and binding, that it could not be declared null and void as a result of failure to comply with obligations under it, and that there were other parties to the action who had not been joined in the proceedings. It also noted the discontinuance and striking out of CV 1034/07 by the Chief Justice.  

The Arguments in this Court 

[8] Mr Garrett for the Appellants argued that there were no legal grounds for setting aside the default judgment. He submitted that any justifiable reason for setting aside the judgment expired on the 23rd March at the expiration of the extension of time. However this ignores Order 14 Rule 4 which enables an application to be made setting aside a judgment by default which is what happened. Mr Garrett further submits that the requirements of that Rule as to when an order setting aside may be made have not been met. Those requirements are: 

"(a) there was good reason for the failure to file a defence in time; 

(b) there is an arguable defence; and 

(c) the plaintiff will not suffer irreparable injury if the judgment is set aside." 

[9] Mr Garrett referred to a number of decisions to support his contention that an affidavit as to the merits of the defence was necessary and none had been filed in this case.  

[10] Mr Garrett also submitted that urgent orders should be made by this Court giving Mr Hoar control over the resort. This Court is not in a position to make such orders. We do not have the information before us that would enable us to rule on the opposing contentions of the parties. 

[11] For the respondents Mr Tu'utafaiva noted that a draft statement of defence was filed with the application to set aside the default judgment which set out the grounds of defence. We accept that this was so and that those grounds are not such as to need to be established by affidavit.

Consideration 

[12] The cases referred to by Mr Garrett far from supporting his case tend rather to support that of the respondent. They are illustrations of the principle enunciated by Lord Atkin in Evans v Bartlam [1937] AC 473, [1937] 2 All ER 646 that if an applicant can show merits to which the Court should pay heed, the Court would not want to uphold a judgment on which there had been no proper adjudication such as a default judgment. The important issue is to prevent an injustice being done. In this case Mr Tu'utafaiva accepted total responsibility for the failure to file a Statement of Defence and as this Court said in Fonua v TCC Ltd AC 11 A/2004 at p.7 ". . . the failure of a legal adviser to take proper steps can be regarded as establishing sufficient cause to extend time...". In this case we consider that Order 14 Rule 4 has been complied with. Mr Tu'utafaiva's acknowledgment provides a reason for the failure to file the Statement of Defence. That statement sets out an arguable defence and we are satisfied that the respondents will not suffer irreparable injury within the meaning of the rule if the judgment is set aside.

[13] But there are other compelling reasons why this appeal must fail. The judgment by default should never have been entered in the first place. It sought remedies which were not able to be given. The Counterclaim pleaded that obligations set out in the mediation agreement had not been complied with. On this basis it sought that the agreement be declared null and void. Such a remedy is not available for breaches of the agreement. A contract can only be declared void for specific reasons such as illegality (see Chitty on Contracts 29th Ed Vol 1 para 1-070) and may be voidable for reasons of duress, misrepresentation, minority etc. (Chitty para 1-072) None of the grounds for declaring a contract void have been pleaded in this case. Additionally it is pleaded that because the agreement is void CV 1034/2008 remains operative, and the relief sought by those proceedings is claimed. However as earlier mentioned these proceedings were struck out by Ford CJ. They cannot be brought to life again in the manner pleaded.  

Conclusion

[14] Leave to appeal is refused. The Respondents are entitled to costs. The mediation agreement remains in force and CV159/08 should be disposed