James Kond v National Development Bank Limited (2015) SC1432

• Jurisdiction: Papua New Guinea
• Judge: Lenalia J, David J & Yagi J
• Judgment Date: 05 June 2015
• Court: Supreme Court
• Citation: (2015) SC1432
• Docket Number: SCA No 89 of 2010
• Year: 2015
• Judgement Number: SC1432

Full Title: SCA No 89 of 2010; James Kond v National Development Bank Limited (2015) SC1432

Supreme Court: Lenalia J, David J & Yagi J

Judgment Delivered: 5 June 2015

SC1432

PAPUA NEW GUINEA

[IN THE SUPREME COURT OF JUSTICE]

SCA No.89 0F 2010

BETWEEN:

JAMES KOND

Appellant

AND:

NATIONAL DEVELOPMENT BANK LIMITED

Respondent

Waigani: Lenalia J, David J & Yagi J

2012: 28 June

2015: 5 June

ADJUDICATION OF INSOLVENCY - creditor’s petition for an adjudication of insolvency - creditor’s petition initiating insolvency proceedings signed by petitioner’s lawyer – allegation by debtor that summons endorsed on petition not signed and sealed by Registrar of the National Court - Appellant adjudged insolvent - Appellant sought to rescind or in the alternative set aside the adjudication order or dismiss the insolvency proceedings in their entirety for being non-compliant with Insolvency Act, Sections 27, 28 and 30(2) – appeal dismissed.

WORDS & PHRASES – whether the word “shall” in Insolvency Act, Section 27 is mandatory or directory?

Cases Cited

Papua New Guinea cases:

In re Moresby North East Election Petition, Patterson Lowa v Goasa Damena [1977] PNGLR 429

Safe Lavao v The State [1978] PNGLR 15

Madang Timbers Ltd v Valentine Kambori (2009) SC1000

Reference by the East Sepik Provincial Executive (2011) SC1154

Overseas cases cited:

Re Tomkins & Co. [1901] 1KB 476

Ex p Hinds re Penboss [1972] 2 NSWLR 542

Liverpool Borough Bank v Turner (1861) 30 LJ Ch 379

Howard v Boddington (1877) 2 PD 203

Treatise cited:

Halsbury’s Laws of England, Vol.3 (2), Fourth Edition, Reissue

Counsel:

Charlie J. Wara, for the Appellant

Jack Nalawaku, for the Respondent

JUDGMENT

5 June, 2015

1. BY THE COURT: INTRODUCTION: The appellant, James Kond appeals against the whole of the judgment of Hartshorn J (the primary judge) given at Waigani on 22nd June 2010 in insolvency proceedings instituted in the National Court by MP No.842 of 2006 (the insolvency proceedings) by the respondent, National Development Bank Limited as the petitioning creditor (hereinafter called “the Respondent”) and the appellant, James Kond as the debtor (hereinafter called “the Appellant”). The appeal is brought pursuant to Amended Notice of Appeal filed on 5th November 2010.

BACKGROUND

2. By way of background facts, the Respondent filed a creditor’s petition dated 23rd October 2006 seeking to adjudge the Appellant insolvent. The creditor’s petition initiating the insolvency proceedings was signed by the Respondent’s lawyer, Mr. Robert Bradshaw. It was alleged by the Appellant that the summons endorsed on the petition was not signed by the Registrar of the National Court. On 7th December 2009, the primary judge adjudged the Appellant insolvent (the adjudication order). By a Notice of Motion filed on 4th June 2010, the Appellant sought to rescind or in the alternative set aside the adjudication order or the insolvency proceedings be dismissed in its entirety on the basis that the creditor’s petition was not signed in accordance with Section 27 of the Insolvency Act (the application to set aside the adjudication order). The application to set aside the adjudication order was heard by the primary judge on 15th June 2010 and His Honour dismissed it on 22nd June 2010.

GROUNDS OF APPEAL

3. The grounds of appeal are set out at paragraph 3 of the Amended Notice of Appeal and these are:

“3.1 The learned Judge erred in law and fact or in mixed law and fact in holding that the word “shall” in section 27 of the Insolvency Act 1951 is directory and not mandatory in that:

3.1.1 Section 27 and Section 28 of the Insolvency Act 1951 exhaustively enlist persons or class of persons who are authorised to sign a petition under Section 27 of the Insolvency Act 1951 which would otherwise not be necessary if compliance with Section 27 was directory.

3.1.2 The requirement to comply with Section 27 and Section 28 of the Insolvency Act 1951 is mandatory in that a Creditor’s Petition is an originating process which purpose is to invoke the jurisdiction of the court to declare a person insolvent, which represents a pronouncement of failure and humiliation attended by the fear of unknown consequences and the susceptibility to criminal punishment, as such any person or entity seeking to subject another to the law of bankruptcy should himself strictly observe the requirements of the of the Insolvency Act 1951.

3.1.3 The requirement for a person authorised under Section 27 of the Insolvency Act 1951 to sign a Creditor’s Petition is a requirement essential to the validity of the Creditor’s Petition and the invoking of the Court’s jurisdiction in the first instance. This requirement is made essential by the use of the imperative “shall” and also the fact that Section 27 and Section 28 exhaustively identify persons or class of persons so authorised to sign a Creditor’s Petition.

3.1.4 Section 27 and Section 28 of the Insolvency Act 1951 do not allow for Creditor’s Petition by a company or a legal entity to be signed by a person other than a person authorised under Section 28 to verify a Creditor’s Petition.

3.1.5 The purpose of Section 27 and Section 28 of the Insolvency Act 1951 is to ensure that proceedings commenced by Companies, Corporations or other corporate entities are duly authorised and as such the requirement of compliance with Section 27 and Section 28 of the Insolvency Act 1951 is essential to the fulfilment of this purpose, especially when effect of or consequence of an adjudication of insolvency represents a pronouncement of failure and humiliation attended by the fear of unknown consequences and the susceptibility to criminal punishment, and is accordingly a mandatory requirement.

3.2 The learned Judge erred in law and acted in excess of his powers in holding that the Creditor’s Petition may be signed by lawyers of the Petitioning Creditor in that:

3.2.1 The said decision of His Honour Justice Hartshorn will amount to His Honour introducing a new class of persons authorised to sign creditor’s petition when Parliament and or the Legislature has already exhaustively prescribed, under Section 27 and Section 28 of the Insolvency Act 1951, persons or class of persons authorised to sign Creditor’s Petition.

3.2.2 The said decision of His Honour Justice Hartshorn amounting to His Honour introducing a new class of persons authorised to sign creditor’s petition when Parliament and or the Legislature has already exhaustively prescribed, under Section 27 and Section 28 of the Insolvency Act 1951, persons or class of persons authorised to sign Creditor’s Petition, is tantamount to His Honour assuming the role of the Parliament or the Legislature contrary to the principles or doctrine of Separation of Powers under Section 99 of the Constitution of the Independent State of Papua New Guinea.

3.3 Furthermore, the learned Judge erred in law and fact or in mixed law and fact in failing to consider the Appellant’s submission that:

3.3.1 The summons endorsed on Creditor’s Petition was not duly signed by the Registrar of the National Court and is therefore defective pursuant to Section 30(2) of the Insolvency Act 1951.

3.3.2 The lack of the Registrar’s signature on the Summons endorsed on the Creditor’s Petition is essential to the validity of the said summons and consequently the validity and or competency of the Creditor’s Petition and therefore renders the said summons void and a nullity and consequently the whole proceedings incompetent and a nullity.

3.4 The learned Judge erred in law and fact or in mixed law and fact in not dismissing the proceeding MP No.842 of 2006 between National Development Bank Ltd and James Kond in that:

3.4.1 The whole proceedings was commenced on a defective Creditor’s Petition which lack the proper signature mandatorily required under Section 27 of the Insolvency Act 1951 and is therefore defective and incompetent; and

3.4.2 The Creditor’s Petition is endorsed with a Summons that lack National Court Registrar’s signature mandatorily required under Section 30(2) of the Insolvency Act 1951 and is therefore defective and incompetent.” (sic)

RELIEF SOUGHT

4. The Appellant seeks the following relief in this appeal:

“4.1 The order of Justice Hartshorn ordered on the 22nd June 2010 dismissing the Appellant’s Notice of Motion dated and filed on the 4th June 2010 be quashed.

4.2 That the Insolvency Orders ordered by the Court be rescinded or in the alternative set aside.

4.3 The proceeding MP No.842 of 2006 between National Development Bank Ltd and James Kond be dismissed.

4.4 Costs against the Respondent on a solicitor/client basis.

4.5 Any other or further orders this Court deems fit to so order.”

LEGAL ISSUES

5. In our view, the grounds of appeal give rise to the following principal issues:

1. Whether or not the primary judge erred in law and fact or in mixed fact and law when he held that the word “shall” in Section 27 of the Insolvency Act was directory and not mandatory?

2. Whether or not the primary judge erred in not rescinding or setting aside the adjudication order or not dismissing the insolvency proceedings for the petition...