James Kruse v Beatrice Geita and George Nicholas Constantinou and NC Resource Limited (2015) SC1849

• Jurisdiction: Papua New Guinea
• Judge: Gavara-Nanu J, Manuhu J & Yagi J
• Judgment Date: 27 February 2015
• Court: Supreme Court
• Citation: (2015) SC1849
• Docket Number: SCA NO. 17 OF 2014
• Year: 2015
• Judgement Number: SC1849

Full Title: SCA NO. 17 OF 2014; James Kruse v Beatrice Geita and George Nicholas Constantinou and NC Resource Limited (2015) SC1849

Supreme Court: Gavara-Nanu J, Manuhu J & Yagi J

Judgment Delivered: 27 February 2015

SC1849

PAPUA NEW GUINEA

[IN THE SUPREME COURT OF JUSTICE]

SCA NO. 17 OF 2014

BETWEEN:

JAMES KRUSE

Appellant

AND:

BEATRICE GEITA

First Respondent

AND:

GEORGE NICHOLAS CONSTANTINOU

Second Respondent

AND:

NC RESOURCE LIMITED

Third Respondent

Waigani: Gavara-Nanu J, Manuhu J & Yagi J

2014: 16th December

2015: 27th February

CIVIL APPEAL – Practice & Procedure - appeal against an order for cost – liquidation proceeding under the Companies Act 1997 – proceeding dismissed on basis of irregularity in service of Notice of Statutory Demand for Payment of Debt – adverse finding against the conduct of the Liquidator and Petitioning Creditor – costs awarded against Liquidator and Petitioning Creditor – Liquidator not given opportunity to be heard before order for cost made – principles of natural justice – right to be heard – Courts power to award cost is discretionary – principles on appeal against exercise of discretion considered – whether discretion was properly exercised.

Cases Cited:

Papua New Guinea Cases Cited

Curtain Bros (PNG) Limited and Curtain Bros (Qld) Pty Limited v. University of Papua New Guinea (2005) SC788

Julius Pololi v Bryan James Wyborn (2013) N5395

PNG Aviation Services Pty Ltd v Geob Karri (2009) SC1002

Salvatore Algeri v Patrrick Leslie (2001) N2119

Umboi Timbers Investment Limited v Precision Logging Limited (2008) N3346

Overseas Cases Cited

Dymocks Franchise Systems (NSW) Pty Ltd v Todd &Ors (No. 2) (New Zealand) [2004] UKPC 39

Counsel:

Mr. I. Shepherd, for the Appellant

Mr. W. Hagahuno, for the Respondents

DECISION

27th February, 2015

1. BY THE COURT: The appellant appeals against a part of a judgment of the National Court in Waigani delivered on 27 January 2014 in proceedings MP No. 15 of 2013. It is an appeal in respect to an order for cost in which the appellant was ordered to pay cost in a liquidation proceeding under the Companies Act 1997. As it is an appeal only in respect to costs, leave to appeal is required by virtue of s. 14(3)(c) of the Supreme Court Act. In this case leave was sought and granted on 2 April 2014.

Background Facts

2. The relevant facts in brief are that, on 30 August 2013 a creditor of the third respondent (Monier Limited) petitioned the National Court seeking a winding up order against the third respondent. The petitioning creditor alleged that it had served on the third respondent a notice of statutory demand for payment in accordance with the provisions of the Companies Act 1997 and the third respondent had failed to settle the debt within the prescribed time. On that basis the petitioning creditor sought orders, amongst others, to liquidate the third respondent. The National Court granted the petition and made orders for the winding up of the third respondent. Consequently, the appellant was appointed by the Court as the liquidator of the third respondent who performed his duties and responsibilities accordingly.

3. About 5 weeks after the winding up order was made, the third respondent paid to the petitioning creditor the outstanding debt in full. The payment was made on 14 October 2013. On 15 October 2013 the second respondent, in his capacity as a director, filed an application seeking, amongst others, an order to set aside and discharge the winding-up order on the basis that the service of the notice of statutory demand and the petition were improper or irregular and hence contrary to s. 431 of the Companies Act 1997. The first respondent, in her capacity as a director and company secretary, also filed a similar application on 22 October 2013.

4. The National Court heard and upheld the applications. The Court found that the notice of statutory demand for payment and the petition for winding-up were not properly served on the third respondent. Accordingly, the Court made orders dismissing the liquidation proceeding and discharged the appellant from his duties and responsibilities as the liquidator. As a consequence, the Court also made orders against the petitioning creditor and the appellant to pay the cost of the application and the proceeding.

Grounds of appeal

5. The appellant raised 3 grounds in this appeal. They are as follows:

“(a) Her Honour erred as a matter of law or mixed fact and law in that she should have not exercised her discretion in the manner in which she did by ordering the Appellant as well as the Petitioning Creditor to pay the First, Second and Third Respondents’ costs.

(b) Her Honour erred as a matter of law or mixed fact and law in that she failed to appreciate that the Appellant had been appointed by the Court on 7 October 2013 and prior to that had no involvement in the proceedings or in service of either the Creditors’ Statutory Demand for Payment on 3 July 2013 or the Petition on 24 September 2013 and any defect or error in relation to service of those documents should not have been attributed to the Appellant.

(c) Her Honour erred as a matter of law or mixed fact and law in that she failed to appreciate that once the Appellant was appointed as Liquidator, on 7 October 2013, he became an officer of the Court and was duty bound to conduct the liquidation in accordance with the provisions of the Companies Act until such time as the liquidation was completed, he resigned, or the liquidation was terminated and the Trial Judge ought not to have awarded costs against him in those circumstances.”

Issue

6. It is apparent, in our view; the grounds of appeal give rise to one fundamental issue, and that is; whether the trial Judge erred in the exercise of her judicial discretion in making an order for the appellant to pay legal cost in the proceeding in the Court below. As a matter of fact, counsel for the appellant submits to this Court that all three grounds are substantially the same.

Submissions by the Appellant

7. The appellant essentially submits that, whilst the trial Judge has the discretion to award cost pursuant to Order 22 Rule 11 of the National Court Rules, the exercise of judicial discretion must be made for good reason. He relies on the decision of Hartshorn J in Julius Pololi v Bryan James Wyborn (2013) N5395 and also that of Kirriwom J in Umboi Timbers Investment Limited v Precision Logging Limited (2008) N3346 in support of the argument. It is submitted the exercise of the discretion in this case was unreasonable for two reasons; firstly, the basis for the decision to dismiss the proceeding was due to events that transpired prior to the appellant’s appointment by the Court, and secondly; the appellant was merely performing his duties and responsibilities as an officer of the Court, and as such, has no discretion to voluntarily terminate the liquidation. Moreover, it is submitted, the exercise of discretion was unreasonable because the appellant as the liquidator and an officer of the Court is a non-party to the proceeding and was not given any notice that cost is being sought against him.

Submissions by the Respondents

8. As for the respondents, it is contended that, the trial Judge committed no error on the basis that notwithstanding the fact that the appellant was not involved in relation to events pertaining to irregularity in the service of the notice of statutory demand and the petition, the Court found that the appellant’s conduct during the liquidation proceeding in the circumstances where he acted beyond his power to defend the application was reprehensible giving rise to sufficient cause warranting a penalty in terms of cost. The respondents rely on Quan Resources Pty Limited (In Liquidation) v ANZ Banking Group (PNG) Limited [1997] PNGLR 687 in support of their argument, which case stands for the proposition that a liquidator does not have the power to challenge a winding up order.

Whether the Trial Judge erred in the exercise of her judicial discretion

9. It is trite principle that a trial Judge’s general power to make an order for cost against a party in a civil proceeding is discretionary. The Court’s power in this regard is provided under Order 22 of the National Court Rules and more specifically Rules 4(1), 5(1) and 11 which are reproduced below:

“4. Powers of the Court generally.(52/4)

(1) The powers and discretions of the Court in relation to costs shall be exercised subject to and in accordance with this Order.

(2) ……………………………”

“5. Time for dealing with costs.(52/5)

(1) The Court may, in any proceedings, exercise its powers and discretions as to costs at any stage of the proceedings or after the conclusion of the proceedings.

(2) ……………………………..”

“11. Following the event. (52/11)

If the Court makes any order as to costs, the Court shall, subject to this Order, order that the costs follow the event, except where it appears to the court that some other order should be made to the whole or any part of the costs.”

10. In this case the appellant was not a party in the proceeding. However, in the course of the Court’s deliberation on the...