Tsang v Credit Corporation (PNG) Ltd [1993] PGSC 18; [1993] PNGLR 112 (30 April 1993)

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APPEALS - Appeal against interlocutory judgment - Application for leave to appeal filed outside the 40-days limit - Competency of the appeal.

SUMMARY JUDGMENT - Guarantee and indemnity - Variation of terms of principal contract - Whether guarantee also varied or whether guarantor discharged from liability - Where the law and facts are not in dispute - Should the summary judgment be set aside?

N1>1. Application for leave to appeal against an interlocutory judgment must be filed within the 40-days limit. The supplementary notice of appeal is incompetent.

N1>2. On the facts supplied by the appellant, when he varied the contract as director of the principal debtor company, he was fully aware of his liabilities as guarantor. There is no issue to be tried.

KAPI DCJ SHEEHAN BROWN JJ: Sakai Management Services Pty Ltd obtained financial advances from the respondent and the appellant guaranteed these advances. As at 22 October 1990, about K1.1 million was owing to the respondent. The respondent sued the appellant as guarantor of Sakai Management Services Pty Ltd for the sum owing.

On 14 December 1990, the respondent filed a motion for summary judgment pursuant to O 12 r 38 of the National Court Rules.

On 14 February 1991, the appellant filed a motion pursuant to O 5 r 2 of the National Court Rules seeking to join Sakai Management Pty Ltd as a second defendant in the action.

These two motions came on for hearing before Hinchliffe J on 22 February 1991. He handed down his decision on 11 April 1991 in which he allowed the application for summary judgment and refused leave to join Sakai Management Services Pty Ltd as second defendant.

The appellant filed a notice of appeal against the decision of the National Court on 21 May 1991. A supplementary notice of appeal was filed on 4 November 1991. A further supplementary notice of appeal was filed on 15 May 1992.

At the hearing of the appeal, counsel for the respondent raised a preliminary issue. In essence, it relates to the competency of the appeal now before the Court in relation to the ruling by the trial judge refusing the application to add Sakai Management Services Pty Ltd as a second defendant. The issue has arisen in this way. When the original notice of appeal was filed, it sought to appeal against the whole of the decision. The notice of appeal is expressed to be without leave of the Court. Counsel for the respondent argued that that part of the decision that relates to joinder of parties is an interlocutory order and no appeal can lie to the Supreme Court except with the leave of the Court under s 14(3) of the Supreme Court Act Ch 37.

The appellant sought to overcome this by filing a supplementary notice of appeal on 4 November 1991 with the following amendment:

N2>"1A. Leave to appeal is sought to the extent that the whole or any part of the judgment appealed from is an interlocutory judgment of the National Court."

We note from the record that the respondent filed a notice of objection to competency of the notice of appeal on 22 October 1991. This matter came on for hearing on 31 October 1991, but the Supreme Court dismissed the notice on the basis that it was filed outside the 14 days limit set by O 7 r 14 of the Rules of the Supreme Court.

However, this does not prevent the respondent from raising the same issue at this stage. The issue of the competence of an appeal remains open, and the Court may address it at any time before judgment; see Lowa v Akipe [1992] PNGLR 399. The respondent filed another notice of objection to competency of the supplementary notices on 16 June 1992. It is this objection which has been raised by the respondent for determination by this Court.

There is no dispute that the ruling by the trial judge in relation to the joinder of parties is an interlocutory judgment and, therefore, requires leave of the Court.

The Supreme Court Act deals with two separate issues in civil cases, an appeal to the Supreme Court as of right (see s 14(1) and 14(1)(b)) and an appeal to the Supreme Court by leave only (see s 14(1)(c), s 14(3), s 14(4)). The Rules of the Supreme Court also deal with these two issues separately (see O 7 Div 1 and 2, which deal with applications for leave, and O 7 Div 3 and 4, which deal with appeals to the Supreme Court). They are not one and the same.

The notice of appeal in ground (3)(g) appeals against the decision not to join Sakai Management Services Pty Ltd as a second defendant. This part of the decision is interlocutory and an appeal against such a decision is clearly prohibited by s 14(3) of the Supreme Court Act. No leave has been sought to appeal against this part of the judgement. The appellant is not entitled to be heard on this ground.

The question then arises whether the supplementary notice of appeal can be regarded as providing the necessary application to obtain leave to appeal against the interlocutory judgment.

Counsel for the respondent submitted that the appellant has failed to obtain leave within 40 days, as required by s 17 of the Supreme Court Act, and the supplementary notice of appeal was filed some 5 months after the date of the judgment. It is submitted that no extension of time can be obtained in which to file an application for leave to appeal under s 17 of the Supreme Court Act and, therefore, the supplementary notice of appeal is incompetent.

Counsel for the appellant has submitted that the notice of appeal has effectively been amended by the supplementary notice of appeal and that there is, in effect, an application for leave to appeal. It was submitted in the alternative by counsel for the appellant that, in any case, this Court should amend the notice of appeal by inserting the application for leave to appeal.

We will first consider the submission that the notice of appeal has effectively been amended by the supplementary notice pursuant to O 7 r 24 of the Rules of the Supreme Court. The index to the appeal book was settled on 15 July 1992. The supplementary notice of appeal was filed on 4 November 1991.

O 7 r 24 enables an appellant to amend a notice of appeal without leave before the date of the settlement of the index to the appeal book. However, this relates only to appeals to the Supreme Court as of right. It does not apply to any application to obtain leave. The power to amend such an application would come under O 11 r 11. We will come back to this rule later. Under O 7 r 24, any appellant may amend the notice of appeal without the leave of the court. Such an amendment must relate to an appeal as distinct from the right to apply to obtain leave to appeal. As we have pointed out before, they are two separate issues. A close examination of the supplementary notice of appeal shows that no amendments were made to the appeal. The appellant has introduced an entirely new matter, namely, an application to obtain leave to appeal. The appellant would have been able to raise such a matter in this manner if the supplementary notice of appeal was filed within the 40-days limit required by s 17 of the Supreme Court Act. Strictly speaking, this would not be an amendment to the notice of appeal but an institution of a new matter, namely, an application for leave to appeal. A notice of appeal cannot and does not include an application for leave to appeal and vice versa. They are different and must be specifically stated; see Forms 7 and 8 in the Rules of the Supreme Court.

Can this Court allow such an amendment under O 11 r 11 of the Rules? Counsel for the appellant relied very heavily on the case Kunangel v The State [1985] PNGLR 144. This was an appeal against conviction and sentence on a charge of misappropriation of property under the Criminal Code. Apart from grounds relating to questions of law and mixed questions of law and fact, the notice of appeal raised questions of fact alone, but without any formal request for leave. The Court concluded that the notice of appeal contained grounds which included questions of fact and all the necessary documentation, particulars and grounds in support of an application for leave to appeal and in the exercise of its discretion, the Court amended the notice of appeal so as to include a formal request for leave to appeal. The real basis of the exercise of the discretion was based on the fact that the notice of appeal itself shows by the particulars of the grounds that leave was required even though no formal request was made. In essence, the notice of appeal, by its very grounds, questioned the findings of fact by the trial judge. The notice of appeal was filed within the 40 days required under the act.

The notice of appeal in the present case does not set out any grounds for leave to appeal against the interlocutory judgment; see Form 8 in the Rules of the Supreme Court. It only sets out the grounds of appeal. It cannot be said that ground 3(g) of the notice of appeal, by its nature, "shows that an appeal lies with leave", especially when the notice of appeal specifically states that the appeal lies without leave.

The case before us deals with a different circumstance which requires leave. The grounds for application for leave to appeal against findings of facts are not necessarily the same as those that are required for leave to appeal against an interlocutory judgment. The case which deals with the same circumstance as the present case is Shelly v PNG Aviation Services [1979] PNGLR 119. That was a case in which s 14(3) of the Supreme Court Act was considered. The Court concluded that the judgment in question was an interlocutory judgment without any request for leave to appeal. The appeal was dismissed on the basis that no leave had been sought.

In Damane v The State (unreported judgment SC 412 of the Supreme Court, dated 5 August 1991,) the question arose as to whether an appellant may amend a notice of appeal by raising a new subject matter outside the 40 days limit. In that case, Kapi DCJ said at p 6:

"A case in which an appellant appeals against severity of sentence only and then seeks in an application to amend the notice of appeal to raise new grounds relating to the question of conviction after the time has expired, the situation is different. It is different in the sense that whatever new ground is raised with regards to the question of sentence, the question of conviction cannot be affected by any such ground. An application which raises the issue of conviction for the first time outside the time limitation raises a completely different subject matter. In this regard, Prentice CJ and Andrew J in Schubert at p 68 expressed the following dicta:

'We think it is also timely to draw attention to the fact that a fresh ground of appeal may well be regarded as being more than an amendment of existing grounds and amount to a new notice of appeal, in which case it will invariably be struck down by s 27 of the Supreme Court Act 1975.'

In my view, that is a correct statement of the law in these circumstances. Where an appellant fails to appeal within time, either personally or through his lawyer, that is the end of the matter as far as the Supreme Court Act and the Rules are concerned. This is clearly illustrated in the case of Avia Aihi v The State [1981] PNGLR 81. The court held that the right of appeal is regulated by statute and the statute gives an appellant only forty days in which to appeal or to apply for extension of time in which to appeal. The court found that Avia Aihi failed to appeal or failed to apply for extension of time. She also failed to instruct a lawyer until about twelve months after her sentence. The court found that there was nothing under the Supreme Court Act or the Rules of the Supreme Court which could restore this right to appeal. That is the law."

There is a long line of authorities which support the proposition that, where an appeal is not filed within 40 days as required by s 17 of the Supreme Court Act, there is no power in the Supreme Court to hear such a matter under the Supreme Court Act; see Avia Aihi v The State (supra); Shelly v PNG Aviation Services (supra); Dillingham Corporation v Diaz [1975] PNGLR 262; Wood v Watkins (PNG) [1986] PNGLR 88; PNG v Colbert [1988] PNGLR 138.

Applying these principles to the present case, the appellant cannot introduce a new matter, that is, application for leave to appeal, outside the 40 days period. The appellant has failed to apply for an extension of time in which to file an application for leave to appeal. The supplementary notice of appeal is, therefore, incompetent in so far as it relates to the decision of the National Court on joinder of parties. No amendment can be allowed in these circumstances. This part of the decision of the National Court cannot be reviewed under the Supreme Court Act.

The further supplementary notice of appeal simply adds a further relief sought in the appeal, namely, an order that Sakai Management Services Pty Ltd be joined as a second defendant. This can only be argued if leave to appeal is granted. As such leave cannot be granted in the circumstances of this case, the appellant will not be entitled to such an order.

The only matter which remains to be considered is the appeal against the decision for summary judgment.

The application for summary judgment was brought under O 12 r 38 of the National Court Rules:

N2>"38(1) Where, on application by the plaintiff in relation to any claim for relief or any part of any claim for relief of the plaintiff:

(b) there is evidence given by the plaintiff or by some responsible person that, in the belief of the person giving the evidence, the defendant has no defence to the claim or part, or no defence except as to the amount of any damages claimed,

the Court may, by order, direct the entry of such judgment for the plaintiff on that claim or part, as the nature of the case requires."

N2>(b) that the plaintiff or some responsible person gives evidence that in his belief there is no defence.

As to the second element, the plaintiff must show in absence of any defence or evidence from the defendant that, in his belief, the defendant has no defence. If a defence is filed or evidence is given by the defendant, as in this case, the plaintiff must show that, upon the facts and/or the law, the defendant has no defence. The plaintiff will not be entitled to summary judgment if there is a serious conflict on questions of fact or law. Whether a case should go to trial on these issues will be determined on the facts of each case. However, the authorities show that the summary jurisdiction should only be invoked in a clear case; see Chief Collector of Taxes v T A Field Pty Ltd [1975] PNGLR 144.

Counsel for the appellant has submitted that the appellant raised matters of fact and law in his affidavit which ought to be tried, and the trial judge erred in entering summary judgment. The main contention by the appellant is that there is substantial grounds for defence in that there had been variations to the agreement without the consent of the appellant as guarantor and, therefore, he has been discharged from his obligations arising under the guarantee.

The appellant is a director of Sakai Management Services Pty Ltd. He had full knowledge of the lease arrangements entered into with the respondent. The appellant's company was involved in logging and had lease arrangements with the respondent for logging machinery. When the lease rentals fell into arrears, the representatives of the respondent met with the appellant as a director of Sakai Management Services Pty Ltd and agreed that the respondent should take over the logging operations of the company. The respondent would recoup the outstanding lease rentals in this way. Counsel for the appellant submitted that the appellant was not consulted and did not agree to the variations as guarantor.

It is clear law that, where there is material variation to the terms of the principal contract without the consent of the appellant as a guarantor, the obligation of the appellant will be discharged. The question which arises in this case is whether the appellant, the guarantor, who became involved in the variations as a director of the principal debtor company, also by implication in the circumstances consented to the variations as guarantor?

In the present case, there is no dispute that the appellant, being a director of the principal debtor company and the guarantor, was fully aware of his liabilities when the variation was made to the lease arrangements. The question is whether he impliedly consented as guarantor when he agreed to the variations as a director of the company? This is a question of fact. In Polak v Everett [1876] UKLawRpKQB 52; (1876) 1 QBD 669, a surety, also a director of principal debtor company, was present at a meeting of directors of the company when a decision was taken which altered the original contract. The surety did not intervene, nor did he warn the creditors that the change would affect his position as guarantor. The Court of Appeal held that the surety was discharged and further held that he was under no obligation to warn the creditor of the consequences. The fact that the surety had knowledge of his liabilities as guarantor and non action on his part in warning the creditor did not amount to implied consent to the change as guarantor. The basis of this decision is that the other directors who took part in the decision were not guarantors.

In Winstone Ltd v Bourne [1978] 1 NZLR 94, the guarantors were also directors of the principal debtor company, and they altered the original contract with full knowledge of their responsibilities as guarantors. Mahon J distinguished the facts of Polak v Everett at p 96:

"That case is the forerunner of other authorities to like effect, that the surety is under no obligation to intervene and to warn the other party to the contract of suretyship that a pending step by that party may release the surety from his obligations. But that was not, as I see it, the present case. Here the defendants as directors of the company desired to implement the proposed overdraft arrangements with the commercial Bank of Australia....

This is a question as to the existence of factual knowledge and consent of a variation in the principal contract in respect of which the defendants were sureties. On the facts, bearing in mind the clear knowledge of the defendants of their liabilities as guarantors, I cannot hold that their informed and endorsed assent as directors of that company to the alteration in the debenture was not also an informed though unrecorded assent as guarantors of the plaintiff's debt to that same part-surrender of priority which would inevitably increase their personal liability. Knowledge is, of course, a different thing from consent, but for the reasons which I have indicated I find it impossible to say that knowledge of the reduction in the value of the plaintiff's debenture was not also knowledge of the increase or potential increase in the defendant's liability under the contract of guarantee, and both those species of knowledge being present I think it inevitable that on the facts the defendants did not only know but also impliedly assented on or about 1 October 1971 to the effect of the modification executed on that date which brought about the ultimate result of potential variation in their own liability."

In the present case, the appellant has supplied the relevant facts. As we have pointed out before, the appellant is a director of the principal debtor company as well as the guarantor of moneys lent to the company. Whilst it is true that the appellant did not expressly consent to the changes as guarantor, such a consent may be implied from the circumstances of the case. In our view the facts in this case fall within the circumstances in Winstone Ltd v Bourne (supra). From the facts supplied by the appellant, the appellant was fully aware of his liabilities as guarantor and, in view of the fact that the company could not keep up the lease instalments, agreed to the proposal by the creditor to run the logging operations to recover the outstanding accounts. We conclude from all the circumstances that the appellant, in agreeing to the proposal for change by the creditor, also agreed as guarantor. In our view, the defence proposed to be raised by the appellant cannot be successful. The appeal against summary judgment is dismissed.

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Supreme Court of Papua New Guinea

Tsang v Credit Corporation (PNG) Ltd [1993] PGSC 18; [1993] PNGLR 112 (30 April 1993)

PNG Law Reports 1993