Mula v Bank South Pacific Ltd [2022] PGSC 21; SC2220 (10 March 2022)

SC2220

PAPUA NEW GUINEA
[IN THE SUPREME COURT OF JUSTICE]

SCA 86 OF 2021

BETWEEN:
JAPSON MULA
Appellant

AND
BANK SOUTH PACIFIC LIMITED
Respondent

Waigani: Logan J
2022: 10^th March

PRACTICE & PROCEDURE – application for stay – where appeal lies from orders of the National Court refusing to set aside default judgment – where no evidence of good defence on the merits – where balance of convenience does not favour the grant of a stay – application dismissed

Facts:

Mr Japson Mula was the recipient of certain financial accommodations by the Bank of South Pacific Limited (Bank). Those accommodations were secured by a mortgage in favour of the Bank over properties owned by Mr Mula.

In or around early 2018, there was a fire at one of the properties over which the Bank held security. The resulting damage materially impacted Mr Mula’s capacity to service his loan. He fell into arears. This in turn amounted to a default under the terms of the Bank’s facility with Mr Mula. The Bank sought to exercise its rights under its mortgage to enter into possession and exercise its power of sale to recover the arears.

Proceedings for possession were instituted in the National Court by the Bank for this purpose. A writ of summons was served on Mr Mula. No defence was filed in response to that writ. Accordingly, on 11 November 2020, judgment in default was entered in the Bank’s favour.

Mr Mula applied to the National Court to set aside the default judgment entered against him. That application was unsuccessful. For reasons given ex tempore, Mr Mula’s application was dismissed.

Mr Mula filed a notice of appeal against the National Court’s orders refusing to set aside the default judgment. Mr Mula applied, concurrently, for a stay of the operation of the orders of the National Court.

Held:

The granting of a stay involves the exercise of judicial discretion: McHardy v Prosec Security and Communication Ltd [2000] PNGLR 279 referred to. It is inappropriate to grant a stay in circumstances where the applicant has not shown that there is, on a preliminary assessment, an arguable case on appeal.

Cases Cited:

McHardy v Prosec Security and Communication Ltd [2000] PNGLR 279
Provincial Government of North Solomons v Pacific Architecture Pty Ltd [1992] PNGLR 145; SC422

Legislation

National Court Rules 1983

Counsel:

Mr. R. Pokea, for the Appellant
Mr S. Ahabh, for the Respondent

Oral decision delivered on
10^th March 2022

1. LOGAN J: In December 2017, Mr Japson Mula borrowed a sum of K3,032,060 from the Bank South Pacific Limited (Bank). The borrowing was made pursuant to a written loan agreement (Loan Agreement). It was supported by way of security pursuant to the Bank’s standard mortgage provisions. The mortgage was registered on the title of properties respectively described as allotments 19 and 20, section 115, Hohola, National Capital District, contained in State Lease volume 121 folio 120 and allotment 5 section 502 Hohola, National Capital District, contained in State Lease volume 37 folio 97 (collectively, the Properties).
2. Early in 2018, Mr Mula had the considerable misfortune to see the improvements on section 115 allotments 19 and 20 destroyed by fire. That had, what one might term, a domino effect in terms of his ability to service the loan from the Bank, as he frankly states in his affidavit filed on 18 January 2022: document 7 on the court file. That fire caused a default and loan arrears.
   
3. There is a dispute between Mr Mula and his insurer in relation to his indemnification pursuant to a policy of insurance. That is the subject of separate proceedings in the National Court: WS 131 of 2021 – Japson Mula v Tower Insurance (PNG) Limited. Those proceedings are presently pending in the National Court.
   
4. For present purposes, however, the relevant proceeding is that between the Bank and Mr Mula in respect of the alleged default under the Loan Agreement and the related ability, asserted by the Bank, to enter into possession of the Properties subject to mortgage security and to sell the same so as to recover arrears. The Bank instituted proceedings by writ for recovery of the sum alleged to be owing under the Loan Agreement together with recovery of possession of the Properties and the issuing of a related writ of possession.
   
5. That writ of summons was served on Mr Mula. However, he did not within the time allowed under the National Court Rules 1983, file and serve a notice of defence. Accordingly, on 11 November 2020, judgment in default was entered in the National Court. By the order made that day, judgment was entered in respect of the total sum of K3,742,187.37 and for the possession of the Properties. An order for delivery of the possession of the Properties was made and leave was granted to the Bank to issue a writ of possession.
   
6. Mr Mula applied to the National Court to set aside that default judgment. On 6 July 2021, the court, for reasons, delivered ex tempore, dismissed Mr Mula’s application to set aside the default judgment. In so doing, the court accepted that reasons related to the present order to the prevailing COVID-19 pandemic, provided a reasonable explanation for why it was that the application to set aside the default judgment had been made some months after entry of judgment in default.
   
7. However, the court took the view that the application to set aside the default judgment was irregularly made in that the notice of motion concerned did not particularise the alleged irregularities in the entry of default judgment: see paragraph 30 of the reasons for judgment. The court concluded that it was a requirement of Order 1, Rule 10 of the National Court Rules that such particularity be given in the notice of motion.
   
8. Mr Mula filed on 30 June 2021 a notice of appeal against the court’s orders refusing to set aside default judgment and, related to that, dismissing the application to file out of time a defence. The grounds specified in that notice of appeal challenged the refusal to set aside the default judgment on the basis stated by the learned primary judge, i.e., his Honour’s conclusion as to the meaning and effect of Order 1, Rule 10 of the National Court Rules. The grounds also challenged an absence of reasoning in relation to the asserted existence of a good defence on the merits to the claim made by the Bank.
   
9. The application for resolution today is whether or not to stay the orders made, the effect of which is to leave in place the default judgment. It is common ground, at least for the purposes of the stay application, that the refusal to set aside the default judgment constituted a final order, such that leave to appeal was not necessary: see Provincial Government of North Solomons v Pacific Architecture Pty Ltd [1992] PNGLR 145; SC422.
   
10. Mr Mula has given the usual undertaking as to damages. In his affidavits in support, he states that the facts as set out in the first of those affidavits between paragraphs 5 and 19 are indicative of the existence of a good defence on the merits. An immediate difficulty about that, as highlighted on behalf of the Bank, is that no draft defence was exhibited (apparently) in the material before the learned primary judge. Nor, for that matter, do I have the benefit of what is said to be the defence in the material relied upon from Mr Mula in support of the application for a stay.
    
11. The fact that Mr Mula’s insurer declined to indemnify him is, in relation to proceedings as between the Bank and him, something of a side wind. As to his statement in paragraph 9 of the earlier affidavit in support made by him, a statement that he was not served with a letter of demand by the Bank or if it was ever served, it was served on other persons who had no instructions to accept service, that does not fully address the terms of clause 13.2(A)(ii) of the Loan Agreement, which provides for means of service other than personal service. The same may be said in relation to the further statement in paragraph 9 of the affidavit as to non-service of a notice to vacate by the Bank.
    
12. Mr Mula does not, in turn, provide any evidence that none of the alternative methods specified in that clause of the Loan Agreement were engaged by the Bank.
    
13. As I have already mentioned, he confesses to being in default. It is common ground between the parties that the principles to be applied in relation to whether to grant a stay were canvassed in McHardy v Prosec Security and Communication Ltd [2000] PNGLR 279. Whether to grant a stay calls for the exercise of a judicial discretion.
14. I do not have any detailed evidence in relation to Mr Mula’s financial resources. I do have evidence that he has been embarrassed by the declining of an indemnity by the insurer. I also have evidence that he is in default.
    
15. Yet, further, there is evidence that he has used his own moneys in an endeavour to address the damage done to structures on the relevant property by the fire. Obviously enough, were the Properties to be sold and were those improvements to be in the nature of fixtures to the land, the worth of that expenditure would go with the sale of the Properties; conversely, of course, the fact that they are improved might be expected to lead to a higher price on sale.
    
16. The Bank pointed to the lapse of time between the filing of the notice of appeal and the filing of the application for a stay, some five months have lapsed. It is inferentially likely that the impact of the fire on cashflow may have impacted on the ability to retain Mr Mula’s ability to retain lawyers. Nonetheless, five months is a considerable time and, in that time, events have moved on. By that, I mean the Bank has moved to progress the sale of the Properties.
    
17. Also, necessary to consider, as a matter of impression, is whether Mr Mula has an arguable case on the proposed appeal. There is, with respect, a nice point of construction raised as to whether Order 1, Rule 10 in the National Court Rules admitted of the construction adoption by the learned primary judge. That centers around the meaning to give the word “proceeding” where it appears in that rule. The rule, on its face, requires that:
    

“Where an application is made to set aside any proceeding for irregularity the several objections intended to be insisted on shall be stated in the notice of motion.”

18. “Proceeding” is a term which admits of several meanings. As put on behalf of Mr. Mula, it could be that it is the entire proceeding instituted by the writ of summons. Another meaning though could be that particular phases in the course of the disposal of a case could be regarded as a proceeding. In other words, the entry of judgment by default could be regarded as a proceeding. Sometimes though, of course, that type of event is termed a step in a proceeding.
    
19. So, as a matter of preliminary assessment, it does seem to me that that particular point may be arguable. However, it would be utterly pointless to allow an appeal in circumstances where there was in any event no demonstrated irregularity in the setting aside of a default judgment and even if it be regular, no apparent defence verified by affidavit.
    
20. I have already adverted to the absence of a draft defence and to the limited facts put forward by Mr Mula, in any event, in affidavit form at present as to the basis for a defence. Suffice it to say as well, it is not apparent what was put before the learned primary judge in terms of facts which might amount to a defence.
    
21. At the moment, as a matter of preliminary assessment, it seems to me that any defence is shadowy.
    
22. As I have mentioned, personal service of notices was not required under the Loan Agreement. Further, there was a confession in respect of default by Mr Mula. As to irregularity, the orders sought on the writ were mixed. The claim in respect of moneys owing under the loan agreement was, in my view, a liquidated demand for the purposes of Order 12, Rule 27 of the National Court Rules. Order 12, Rule 30 of the National Court Rules provided for particular proof as set out in Order 12, Rule 30(2) in respect of the entry of judgment for possession of land.
    
23. The difficulty for Mr. Mula today is that while it is apparent that there was an affidavit in support of the entry of default judgment, he has not placed before this court that affidavit. The onus of proving that there is sufficient reason to grant a stay is on the applicant for that stay.
    
24. It is just not possible to determine on the evidence to hand whether the requirements of Order 12, Rule 30 were or were not observed. What follows then is that, on the material to hand, a loan for a large sum was made by the Bank. There has been default in the payment of that loan according to the terms of that loan. It has not been shown that there is an arguable case in terms of preliminary assessment in relation to there being any point in the setting aside of the default judgment entered, even assuming that the argument in relation to the construction of Order 1, Rule 10 is successful. To grant a stay in these circumstances would be to keep the Bank out of the exercise of rights which it enjoys in circumstances where it is just not apparent that there is a good defence on the merits.
    
25. Of course, the sale of the properties would inflict hardship on Mr. Mula but to stay would also inflict hardship on the Bank. Again, as I have mentioned, it is not apparent on the material to hand that the undertaking as to damages which I do not doubt was given in good faith is of any worth.
    
26. The further order that is made is that the costs of and incidental to the application for a stay be costs in the proceedings. I also order that the orders be passed and entered forthwith.
    

Orders

1. A copy of the submissions for the appellant/applicant on the application for a stay be placed on the Court file.
2. The application for a stay be dismissed.
3. Costs of and incidental to the application for a stay be costs in the proceedings.
4. These orders be passed and entered forthwith.

__________________________________________________________________
Pokea & Associates Lawyers: Lawyers for the Appellant
BSP In-House Lawyers: Lawyers for the Respondent