Leo Hannet and Elizabeth Hannet v ANZ Banking Group (PNG) Ltd

• Jurisdiction: Papua New Guinea
• Judge: Kapi DCJ, Los J, Salika J
• Judgment Date: 16 August 1996
• Citation: (1996) SC505
• Court: Supreme Court
• Year: 1996
• Judgement Number: SC505

Supreme Court: Kapi DCJ, Los J, Salika J

Judgment Delivered: 16 August 1996

SC505

PAPUA NEW GUINEA

[In the Supreme Court of Justice in Waigani]

CA NO. 32 OF 1994

BETWEEN;

LEO HANNET

First Appellant

AND:

ELIZABETH HANNET

Second Appellant

AND:

ANZ BANKING GROUP (PNG) LTD

Respondent.

Waigani: Kapi DCJ, Los, Salika JJ.

17 June, 16 August 1996

Practice and procedure — Application to set aside judgement by default —

Discretion — Matters going to exercise of discretion — Application under O 12 r 8 (2) (a) and (3) (a) of the National Court Rules -

Practice and procedure — Distinction between irregularity outside the

National Court Rules and a mere irregularity within the Rules — O 1 r 8 of the National Court Rules.

Practice and procedure — Application to set aside will not be allowed if

party has taken fresh step with knowledge of irregularity — O 1 r 9 National Court Rules.

CASES CITED:

Anlaby v. Praetorions (1988) 20 QBD 764

Green & Company Pty Ltd v. Green [1976] PNGLR 73

Smeeton v. Davara House Pty Ltd [1979] PNGLR 324

Page P/L v. Malipu Balakau [1982] PNGLR 140

Bank of South Pacific v. Spancer [1983] PNGLR 239

Barker v. The Government of Papua New Guinea,

Davis and Bux [1976] PNGLR 340

In re Pritchard, dec'd, Pritchard v. Deacon and Others [1963 Ch 502.

LEGISLATION CITED:

National Court Rules

J F Aisa for the Appellants

K Naru for the Respondent

16 August 1996

By The Court. The appellants are husband and wife. They are both directors and shareholders of a company known as Liz and Krist Enterprises Pty Lt. On 12 January 1989 the appellants executed a guarantee and indemnity deed with the respondent for a credit account and banking facilities to accommodate the management and operations of the said company. This credit facility included an overdraft facility which increased to about K53, 220.47 by the 12 August 1992. The respondent served a Notice of Demand for the payment of the balance owing by the appellants under the guarantee but the appellants did not meet the demand.

Subsequently, the respondent instituted legal proceedings (WS No. 670 of 1992) in the National Court on 2 September 1992 to recover the amount of money owing.

The writ of summons was served on the first appellant and subsequently a default judgment was entered against him on 7 October 1992. We are not concerned with the default judgment entered against the first appellant.

A default judgment was entered against the second appellant on 22 March 1994 for the sum of K70, 895.08. On 14 June 1994 an application was made to the National Court to set aside the default judgment on the basis that there was no proper service of the writ of summons on the second appellant.

The motion came on for hearing before the Chief Justice on 20 July 1994. His Honour found that the second appellant was not served personally with the writ of summons in accordance with the National Court Rules, and then further concluded in the following words:

"It is trite that it is strictly unnecessary to show defence on the merits in order to apply to set aside an irregularly obtained judgment. However I support the proposition that it is advisable even in such a case to set out the facts disclosed on the Defence of the merits because there is nothing to be lost and indeed maybe a good deal to be gained by doing so."

His Honour later continued in his judgment:

"The Second Defendant has not filed or deposed to a proposed defence but Counsel has advised that he has instructions to file such defence. I propose therefore in those circumstances to defer ruling and direct that the Second Defendant file Affidavit of Defence and proposed Defence by tomorrow Thursday 21st of July 1994 and serve it upon the Applicant Plaintiff. Motion stands adjourned to Friday 22nd July 1994 Motions."

Subsequently, the second appellant filed a proposed defence and further submissions were made by the parties. The Chief Justice then handed down his final decision in the matter on 29 July 1994. In his reasons for decision His Honour restated his earlier finding "that technically the default judgment was irregularly entered on the basis of the Writ of Summons not having been properly served upon the second Defendant".

On the question of defence on the merits he finally concluded that:

"So that in the end result I am not satisfied that demonstrated to me prima facie defence on the merits such that this default judgment should be set aside for this matter to proceed to a trial."

The second appellant has appealed against this decision. This case falls to be decided on the following ground of appeal:

"That His Honour erred in law and in fact in refusing to set aside the Default Judgment which was entered without required service under National Court Rules and therefore was irregular."

Counsel for the second appellant submitted that once the Chief Justice reached the conclusion that the judgment was entered irregularly, namely, that there was no proper service in accordance with the National Court Rules, he had no discretion but to set aside the default judgment. He submitted that His Honour erred in directing the second appellant to prove a defence on the merits.

Counsel for the respondent on the other hand submitted that while the Chief Justice found that the judgment was entered irregularly, he did not fall into error when he directed the second appellant to file evidence of a defence on the merits. He submitted that there is a wide discretion in the National Court to require that the second appellant to prove a defence on the merits under O 12 r 8 (2) (a) and (3) (a) of the Rules. It is necessary to set out the terms of these rules:

"8. Setting aside or varying judgment or order.

(1).....

(2) The Court may, on terms, set aside or vary a judgment-

(a) where the judgment has been entered pursuant to Order 12 Division 3 (default judgment);

(b)...

(c)...

(3) The Court may, on terms, set aside or vary an order-

(a) where the order has been made in the absence of a party, whether or not the absent party is in default of giving a notice of intention to defend or otherwise in default, and whether or not the absent party had notice of motion for the order;"

It is clear from the terms of these rules that the National Court has a wide discretion in setting aside a default judgment. There are two broad categories of cases. The first relate to judgments that are entered irregularly and the second relate to judgments which are entered regularly.

In the present case we are concerned with judgments entered irregularly. The question then arises; how should the Court exercise its discretion where the judgment is obtained irregularly?

The Courts in Papua New Guinea have quoted authorities from England as well as Australian States on this issue. The most often quoted authority on this issue is Anlaby v Praetorius (1888) 20 QBD 764 which stands for the proposition that if a judgment is entered irregularly, the defendant is entitled to set it aside ex debito justitiae (as required in the interests of justice). This principle was approved in Green & Company Pty Ltd v Green [1976] PNGLR 73; Smeeton v Davara House Pty Ltd [1979] PNGLR 324; Page P/L v Malipu Balakau [1982] PNGLR 140. This authority is also referred to in Bank of South Pacific v Spencer [1983] PNGLR 239.

Upon a close analysis of Anlaby v Praetorius (supra) there is a further distinction to be made between judgments entered irregularly in acting under a rule and a judgment obtained irregularly independently of the rules. This distinction was clearly drawn by Greville Smith J. in Page P/L v Malipu Balakau (supra) at pages 145 to 146. At page 145 he made reference to O'Leary J. in Green and Co Pty Ltd v Green (supra) and continued:

"This passage which is 'obiter dicta' because his Honour then went on to find that the judgment before him had in fact been regularly entered, cannot in any event be lifted as a general statement of principle without distinguishing between an irregularity in acting under a rule and an irregularity independently of the rules. What his Honour said is true of the second but not of the first. If it were true of both then O 93 r 17 would have no meaning or effect. In Anlaby v Praetorius (supra) Fry LJ at p 769:

'But in the present case we are not concerned with an instance of non-compliance with a rule, nor with an irregularity in...