Home | Databases | WorldLII | Search | Feedback National Court of Papua New Guinea

Rural Development Bank Ltd v Kond [2010] PGNC 237; N5876 (22 June 2010)

N5876

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

MP 842 of 2006

IN THE MATTER OF THE
INSOLVENCY ACT

AND:

RURAL DEVELOPMENT
BANK LIMITED
Petitioner

AND:

JAMES KOND
Respondent

Waigani: Hartshorn J.
2010: 15th, 22nd June

INSOLVENCY - Application to set aside adjudication of insolvency – s. 150 Insolvency Act, Order 12 Rule 8 National Court Rules – Creditor's Petition signed by lawyer on behalf of petitioning company - whether "shall" in s. 27 Insolvency Act mandatory or directory

Cases cited:

Barker v. The Government of Papua New Guinea & Ors [1976] PNGLR 340
Re Moresby Northeast Election Petition; Patterson Lowa v. Goasa Damena [1977] PNGLR 429
Safe Lavao v. State [1978] PNGLR 15
Leo Hannet & Anor v. ANZ Banking Group (PNG) Ltd (1996) SC505
Leo Duque v. Avia Andrew Paru [1997] PNGLR 378
Manu Trading as Manu and Associates Lawyers v. Vele [2006] N3097
Mirupasi v. Tulapi (2007) N3249
Madang Timbers Ltd v. Valentine Kambori (2009) SC1000
Yamanka Multi Services Ltd v. NCDC (2010) N3904

Counsel:

Mr. H. Namani, for the Petitioner
Mr. J. Kennedy, for the Respondent

22nd June, 2010

1. HARTSHORN J: The respondent, Mr. James Kond applies for the orders of this court pursuant to which he was adjudicated insolvent (adjudication order), to be rescinded or set aside or the proceedings dismissed, as the creditor's petition was not signed in accordance with s. 27 Insolvency Act. This is because the creditor's petition was signed by the petitioner's lawyer and not by an authorised officer of the petitioner, the Rural Development Bank Ltd (RDB).

2. The application is made pursuant to Order 12 Rules (1) and 8 (4) National Court Rules, and s. 150 Insolvency Act.

3. RDB concedes that the creditor's petition was signed by its lawyer, but submits that he was authorised by RDB to do so. Further, the affidavit verifying the creditor's petition was properly sworn by a duly authorised officer of RDB and that there has been delay by Mr. Kond in making this application on this issue.

4. The adjudication order was made by me. Counsel for both parties are aware of this and no objection was made to me hearing this application.

5. Section 27 Insolvency Act that Mr. Kond submits that RDB has breached is:

"A creditor's petition shall be signed by the petitioner or a person authorised by Section 28 to verify the petition."

6. Section 28 Insolvency Act is:

"(1) Subject to this Act, a creditor's petition shall be verified by the oath of the petitioner.

(2) Where the petitioning creditor is a corporation, joint-stock company or company authorized to sue in the name of a public officer, the petition may be verified by the manager, secretary or other authorized officer of the corporation or company.

(3) Where the petitioning creditors are two or more persons in partnership, the petition may be verified by one only of the partners.

(4) Where the petitioning creditor is out of the country, the petition may be verified by his duly authorized attorney or agent in the country.

(5) The verification shall be-

(a) by affidavit in Form 3; and

(b) annexed or subscribed to the petition.

(6) Where a petition is verified by a person other than a petitioner, he shall also show in the affidavit verifying the petition that he is authorized under this Act to verify the petition."

7. Counsel for Mr. Kond submits that 'shall' in s. 27 Insolvency Act is mandatory and cites amongst others the decision of Injia DCJ (as he then was) in Mirupasi v. Tulapi (2007) N3249. As to s. 27 Insolvency Act, His Honour said:

"The requirement that the petitioner must sign his own petition is a mandatory requirement of a statute. Failure to comply with this mandatory requirement is fatal to the validity of a petition in the first place. It also follows that any proceedings conducted on an invalid petition are vitiated by this fundamental flaw in the procedure."

8. In Mirupasi v. Tulapi (supra), the creditor's petition was signed by the petitioner's lawyer. The petitioner however, was not a company or corporation and because of that fact and others, this case is distinguishable from the one now under consideration. Further, it is apparent that the order of adjudication that was set aside had been made ex parte. I also note that no cases were cited in this decision. This is most likely an indication that no cases were cited by the counsel for the petitioner or the respondent in person for His Honour's consideration.

9. As to the reading of "shall" in s. 27 Insolvency Act, the question is whether it should be read as mandatory and obligatory as opposed to directory. This question has been considered on numerous occasions in this jurisdiction.

10. In the Supreme Court case of Re Moresby Northeast Election Petition; Patterson Lowa v. Goasa Damena [1977] PNGLR 429, Pritchard J. referred to 2 English cases on this question:

"In Liverpool Borough Bank v. Turner [1860] EngR 1276; (1861) 30 L.J. Ch. 379 at p. 380 Lord Campbell said "No universal rule can be laid down as to whether mandatory enactments shall be considered directory only or obligatory with an implied nullification for disobedience. It is the duty of the courts of justice to try to get at the real intention of the legislature by carefully attending to the whole scope of the statute to be construed. "In Pearse v. Morrice (1834) 2 A. & E. 84 at p. 96, Taunton J. said that he understood "the distinction to be, that a clause is directory where the provisions contain mere matter of direction and nothing more, but not so where they are followed by such words as 'that anything done contrary to the provisions shall be null and void to all intents'."

and in Safe Lavao v. State [1978] PNGLR 15 His Honour cited again the passage from Liverpool Borough Bank v. Turner (supra) and then cited a passage of Lord Penzance in Howard v. Bodington [1877] UKLawRpPro 14; (1877) 2 PD 203 at 211:

"I believe, as far as any rule is concerned, you cannot safely go further than that in each case you must look to the subject-matter; consider the importance of the provision that has been disregarded, and the relation of that provision to the general object intended to be secured by the Act; and upon a review of the case in that aspect decide whether the matter is what is called imperative or only directory."

11. In the recent Supreme Court case of Madang Timbers Ltd v. Valentine Kambori (2009) SC1000, the Safe Lavao case(supra) was referred to. The Court said:

"Pritchard J. went on to agree with two propositions. The first was that there is no universal rule which governs the question of whether the word "shall" is mandatory or directory since each case involves the court trying to ascertain the real intention of the statute. The second proposition was that in each case it is necessary to look at the subject matter, consider the importance of what has been disregarded and the general object of the Act in order to decide the issue. In concluding that the word "shall" was mandatory in that case, reference was made to not only the words of the statute but also the legislative history.

The court was also referred to the decision of the High Court of Australia in Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at 390-391 where it was suggested that the question to ask was whether it was the intention of the statute that an act done in breach of the provision should be invalid and, in order to discern that intention by considering not merely language of the relevant provision but the scope and object of the whole statute."

12. I now apply the principles enunciated in the above cases to determine whether "shall" in s. 27 Insolvency Act is mandatory or directory.

Subject matter of the statute

13. The subject matter of the statute is insolvency and includes the procedure for an adjudication and the distribution of insolvent estates.

Importance of what has been disregarded

14. What has been disregarded in this instance is the requirement that the person who signed the creditor's petition for a company petitioner was not an officer of the company petitioner but was the lawyer duly authorised by the company petitioner. The affidavit verifying the petition was sworn by an authorised officer of the company petitioner.

15. If it was not a requirement that a creditor's petition be verified, the importance of the authorised person signing on behalf of a company petitioner would have more significance. As verification is required however, the creditor's petition does not stand on its own and its critical content, the grounds for insolvency, are confirmed by someone duly authorised by the company petitioner.

16. In addition, the verification serves as confirmation by the company petitioner that the person who signed the creditor's petition on its behalf was authorised to do so. It is not likely in my view, that a creditor's petition will be properly verified by an authorised officer of the company petitioner if the creditor's petition was signed by someone who was not authorised by the company petitioner to do so.

General object of the Insolvency Act in deciding the issue

17. One of the objects of the Insolvency Act to my mind, is to provide for a safe, fair and appropriate procedure for an adjudication upon the petition of a petitioner who is aware of the consequences of his actions. For this to occur, a procedure is required that ensures that the petitioner is aware and is in control of his petition. Hence the requirement for verification of a creditor's petition.

18. The procedure in the Insolvency Act also recognizes that in some circumstances someone other than a petitioner should be permitted to sign on its behalf and that this is in accordance with the general objects of the Insolvency Act. This is reflected in ss. 27 and 28 Insolvency Act. I note also that s. 158 Insolvency Act provides that:

"A corporation may prove a debt, vote and otherwise act in any insolvency by a duly authorised agent."

19. In the circumstances therefore, I am of the view that "shall" in s. 27 Insolvency Act is directory and not mandatory.

20. Consequently, the signing of a creditor's petition of a company petitioner by a lawyer so authorised to sign but who is not an officer of the company, does not render the creditor's petition a nullity. Further, when such a petition is properly verified as in this instance, the omission of the person signing the creditor's petition not being an officer of the company petitioner is not such that the creditor's petition should be rescinded or set aside or that the proceedings in which it was issued should be dismissed.

21. If however, "shall" is mandatory and not directory, the next issue is whether the creditor's petition should be rescinded or set aside or dismissed.

22. Mr. Kond relies upon s. 150 Insolvency Act which provides that:

"The Court may review, rescind or vary any order made by it under this Act."

23. Unlike other jurisdictions, there are no rules or regulations that are specifically concerned with the Insolvency Act. Order 1 Rule 2 National Court Rules provides that the National Court Rules apply to all proceedings commenced or instituted on or after the commencement date of the Rules with the exception of Order 21 which relates to Admiralty Proceedings.

24. Counsel for RDB did not object to the reliance by Mr. Kond upon the National Court Rules and I note that Davani J. relied upon the National Court Rules in Manu Trading as Manu and Associates Lawyers v. Vele [2006] N3097. That case also concerned an application to set aside an insolvency order.

25. Mr. Kond relies upon Order 12 Rule 8 (4) National Court Rules to rescind or set aside the adjudication order. In Yamanka Multi Services Ltd v. NCDC (2010) N3904, I reviewed the authorities concerning the exercise of the court's discretion in setting aside judgments under Order 12 Rule 8. The same principles are applicable in respect to the setting aside of orders.

26. The Supreme Court decision of Leo Hannet & Anor v. ANZ Banking Group (PNG) Ltd (1996) SC505 sets out the matters that an applicant must show for a court to be able to exercise its discretion to set aside a judgment.

27. For a judgment that has been obtained regularly, the court cited with approval the matters listed in Barker v. The Government of Papua New Guinea & Ors [1976] PNGLR 340 namely:

a) there must be an affidavit stating facts showing a defence on the merits;

b) there must be a reasonable explanation why judgment was allowed to go by default; and

c) the application must be made promptly and within a reasonable time.

28. For a judgment that has been obtained irregularly, the Supreme Court in Hannet (supra) in essence said that if the irregularity is not a nullity and falls within Order 1 Rule 8 National Court Rules:

a) the applicant must show a defence on the merits (adopting the opinion of Greville-Smith J. in Page Pty Ltd v. Malipu Bus Balikau [1982] PNGLR 140 that the practice in relation to judgments obtained regularly should apply to judgments obtained irregularly.)

b) the applicant shall not have taken a fresh step in the proceeding with knowledge of the irregularity, (a requirement of Order 1 Rule 9 National Court Rules.)

29. As the Supreme Court took into account the provisions of Order 1 Rule 8 and required compliance with part of Order 1 Rule 9, the other requirement of Rule 9 and associated Rule 10 by implication, must also be met. These other requirements are:

a) that the application is made within a reasonable time: Order 1 Rule 9 and,

b) the several objections intended to be insisted on, as to the irregularity, shall be stated in the notice of motion: Order 1 Rule 10.

30. In this instance, the adjudication orders were made inter partes. The requirements that should be satisfied for the adjudication order to be set aside are that there must be an affidavit stating facts showing a defence on the merits to an adjudication order being made, there must be a reasonable explanation as to why the adjudication order was allowed to be made and the application to set aside must be made promptly.

31. As to whether there is such an affidavit, there is an affidavit sworn by counsel for Mr. Kond in which it is deposed that amongst others, his counsel discovered that the creditor's petition was sworn by a lawyer for RDB and not an officer. There is no affidavit by Mr. Kond filed in support of the notice of motion to set aside.
32. To satisfy the court that it has a defence on the merits, or a good defence to a plaintiff's claim, the defendant or a responsible person on its behalf should disclose the basis of a draft defence. The Supreme Court in Leo Duque v. Avia Andrew Paru [1997] PNGLR 378 said:

"It is clear to us from the authorities we have set out earlier in our judgment and subsequent cases in this jurisdiction that as a matter of practice, an applicant must in an affidavit state material facts showing a defence on the merits."

"A proposed defence prepared by the lawyer is not capable of serving this purpose. The expression of opinion by the lawyer that there is good prospect of success can only amount to a legal opinion. It is not capable of raising the material facts."

33. The same principles apply here. There is also no explanation as to why the adjudication order was allowed to be made.

34. As to whether the application was made promptly, the adjudication order was made on 7th December 2009 which is 6 months ago. In addition, the ground upon which Mr. Kond relies, the signing of the creditor's petition, has been an issue that could have been raised by him since the creditor's petition was issued in October 2006; more than 3 years 6 months ago. There is no explanation for the delay in making the application.

35. Taking the above into account, I am satisfied that Mr. Kond has not satisfactorily met the requirement to show a defence on the merits to the adjudication order and why the adjudication order should not have been made. Mr. Kond has also not given any explanation as to why the adjudication order was allowed to be made. In addition, in regard to the ground relied upon by Mr. Kond concerning the signing of the creditor's petition, there has been a considerable and substantial delay in bringing the application to set aside on that ground but no reason has been given for the delay.

Conclusion

36. The fact that the creditor's petition was signed by an authorised lawyer of RDB is not an irregularity that renders the creditor's petition void or is such that it should be rescinded or set aside or that the proceedings should be dismissed as "shall" in s. 27 Insolvency Act is directory and not mandatory.

37. If "shall" is mandatory, the orders of adjudication should not be set aside as Mr. Kond has not satisfactorily shown a defence on the merits, has not given any explanation as to why the adjudication order was allowed to be made and there has been a substantial delay in bringing the application to set aside which has not been explained.

Orders

38. The Orders of the Court are:

a) the relief sought in the notice of motion of the respondent filed 4 June 2010 is refused.

b) the costs of and incidental to the notice of motion are to be paid to the petitioner by the respondent.
_____________________________________________________________

Namani & Associates: Lawyers for the Petitioner
Waisi Lawyers: Lawyers for the Respondent