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Kruse v Geita [2015] PGSC 92; SC1849 (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 matter the Court found certain impropriety in respect to the performance of the appellant’s duties and responsibilities as the liquidator in the proceeding. At paragraphs 92 - 94 of the trial Judge’s judgment the Court made the following findings in respect of the conduct of the Liquidator:


“92. As to delay, I note also Mr. Constantino’s evidence as deposed to in paragraph 13 of that affidavit that:


“as to the delay in making the application, the same was due to the understanding reached between the parties at the first appearance in Court that the matter would be amicably resolved between the parties and liquidation terminated accordingly. Whilst the meeting of 8th November, 2013 was fruitful and all parties agreeing to terminate the Liquidation upon making provision for settlement of other creditors, the Liquidator has persisted with the Liquidation and eventually wind-up of the Company.”


93. I find there is no delay. But why did the Liquidator persist with the Liquidation? He has not filed an affidavit explaining. Which reaffirms the earlier statement I made that the Liquidator and the Petitioning Creditor have not been open and transparent with this Court.


94. Indeed no evidence has been brought by the Petitioning Creditor and the Liquidator responding to this evidence and all other evidence”


11. It is apparent that the appellant appeared and was represented during the hearing. This is not disputed by the parties. The records and transcript of proceeding also confirm this position. The transcript shows that the appellant appeared through counsel and vigorously opposed the application by the respondents.


12. As we observed the National Court has very broad powers to make orders for costs. The powers include making an order for a party and non-party in a proceeding in appropriate circumstances to pay legal cost. We note that amongst the cases referred to the Court were Pololi case (supra) and Uboi Timbers case (supra) where legal cost had been ordered against non-parties to a proceeding.


13. At this juncture we note that this appeal is against an exercise of judicial discretionary and therefore it is important that we remind ourselves of the principles applicable in respect to the appellate court’s power in reviewing the exercise of judicial discretion by a trial Judge. The principles are now well established in this jurisdiction by the decision of the Supreme Court in Curtain Bros (PNG) Limited and Curtain Bros (Qld) Pty Limited v. University of Papua New Guinea (2005) SC788. In that case the Court stated that an appellate court should be slow in disturbing or interfering with the exercise of judicial discretion unless an identifiable error can be clearly shown, in that, the exercise of discretion is plainly wrong in law or fact or both that should not be allowed to stand. The rationale behind this principle is that there is a strong presumption as to the correctness of the decision of the trial Judge and that there must be finality to litigation.


14. In this case the question is; did the trial Judge properly exercise her judicial discretion in the circumstances of the case? There is no doubt that the appellant was ordered to pay costs for conduct which the trial Judge considered was “not ... open and transparent”. There can also be no argument that appellant is a non-party to the proceeding. The Court has the power to order a non-party to pay legal cost in a proceeding. In Pololi case (supra) his Honour Justice Hartshorn had the occasion to review the authorities in both this jurisdiction and other common law jurisdictions on the question of whether the Court can order costs against a non-party to a proceeding and concluded that such an order maybe made. His Honour discussed the general principles as laid down in those cases including a leading decision of the Privy Council in Dymocks Franchise Systems (NSW) Pty Ltd v Todd & Ors (No. 2) (New Zealand) [2004] UKPC 39 and stated the following main principles in his judgment at paragraph 43:


“(a) Although costs orders against non-parties are to be regarded as exceptional, exceptional means no more than outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense. The ultimate question in any such “exceptional” case is whether in all the circumstances it is just to make the order.


(b) Generally, the discretion will not be exercised against a non-party with no personal interest in litigation, who does not stand to benefit from it, is not funding it as a matter of business, and in no way seeks to control its course.


(c) Where the non-party not merely funds the proceedings but substantially also controls or at any rate is to benefit from them, justice will ordinarily require that if the proceedings fail, he will pay the successful party’s costs. The non-party in these cases is seen as gaining access to justice for his own purposes and is the “real party” to the litigation.”


15. We fully agree and endorse the statement of the main principles in respect to awarding of cost against a non-party in a civil proceeding as expounded by Hartshorn J in Pololi case (supra).


16. In this case the appellant was appointed by the Court as the liquidator and was merely performing his duties and responsibilities in the liquidation as an officer of the Court. We agree with the appellant that as such he had no discretion to voluntarily terminate the liquidation. This can only be done by the Court on application by persons authorized under s. 300(2) of the Companies Act 1997.


17. As an officer of the Court his principal duty in liquidation proceeding is to take possession of assets of the company, sell or dispose of the assets and pay off creditors from the proceeds of the sale: Salvatore Algeri v Patrick Leslie (2001) N2119. His principal duty is therefore to the creditors and the Court. In that respect he does not pursue or defend the claims, rights and interests in the proceeding. Neither does he fund the proceeding nor seeks to control its course. He certainly cannot be regarded as someone who is gaining justice in the liquidation proceeding.


18. For these reasons based on the general principles we are satisfied that ordinarily no order as to cost ought to have been made against the appellant particularly in circumstances where irregularity in the service of notice of statutory demand and the petition had occurred prior to his appointment and which events are completely beyond the power and control of the appellant.


19. However, there is evidence before the trial Judge suggesting misconduct by the liquidator which may warrant making an order for cost against the appellant. We have earlier referred to the finding by the trial Judge at paragraphs 92 – 94 of the judgment. For that reason, there appears to be sound basis for the trial Judge to consider whether the circumstances warrant an order to be made.


20. Having considered the circumstances of the case and bearing in mind the relevant principles, the reasons for dismissing the proceeding which is basically due to irregularity in service of notice of statutory demand and the petition, and the primary duty of the appellant, we conclude that an order for cost against the appellant would be deemed “exceptional” and outside the ordinary run of cases.


21. In our opinion where a Court considers in the circumstances of a particular case that an order for cost should be made against a non-party, the principles of natural justice demand that, that party, must be given an opportunity to be heard, before an order for cost be made against that party. The minimum requirement of the principles of natural justice under the Constitution, s. 59(2) emphasized the fundamental principle that, there is a duty to act fairly and in principle to be seen to act fairly. It means that, where conduct of a non-party may be described as improper, unreasonable or blameworthy, that warrants punishment in terms of cost, that party should be given an opportunity to be heard before an order for cost is made against that party. In PNG Aviation Services Pty Ltd v Geob Karri (2009) SC1002 the Supreme Court stated the general principle that a party ought to be given an opportunity to be heard before an order for cost be made against that party. The Court said:


“The discretion in relation to an order for costs (on a solicitor-client basis) must be exercised judicially: having regard to the principles of natural justice by providing an opportunity for the party against whom the order has been sought to be heard and by making a decision which is supported by the reasons.”


22. Although, the Karri case (supra) relates to the conduct of a lawyer, who is a non-party in the proceeding, we consider that, the principle is just as relevant and applicable to the facts of the instant case because a liquidator is not only a non-party in the court proceeding, he is also an officer of the Court, a position akin to lawyers who are officers of the Court by virtue of their professional and ethical duty.


23. Generally, a party in a proceeding is given notice in respect of an order for cost which is being sought. This is usually the case in both the substantive and interlocutory proceedings. In this case, there were two interlocutory applications (notices of motion) filed by the respondents which were heard together by the trial Judge; the first was filed by the second respondent on 15 October 2013, and the other was filed by the first respondent on 21 October 2013. Both motions were seeking the same principal relief, that is, termination of the liquidation under s. 300 of the Companies Act 1997. None of them sought specific order for costs against the appellant.


24. It is apparent from the transcript of proceeding that when the trial Judge reached a conclusion as to the appellant’s conduct during the liquidation, the appellant was not given an opportunity to be heard on the question of cost. Instead, the trial Judge heard submissions on the merits of the applications and proceeded to making orders against the appellant and the petitioning creditor.


25. The two reasons put forward by the appellant as to why no order for cost should have been made against him seem to have substantial merit and on that basis, it is our considered view that natural justice ought to have been accorded to the appellant in the circumstances. As to whether, the reasons would be accepted by the trial Judge is a different matter and not to the point. The fundamental principle is that at the very least, the appellant should have been given the opportunity to be heard. This was not done and hence a denial of natural justice. We think that it is only just and fair that the appellant be heard before the order for cost is made against him.


26. In the circumstances, we are satisfied that an identifiable error has been demonstrated in this case in that the appellant was denied natural justice and the justice of the case requires that this Court must intervene to correct the error.


27. Under s. 16 of the Supreme Court Act, this Court has power, amongst others, to give judgment as ought to be given in the first instance or remit the matter for a rehearing. After considering all the facts and circumstances of the case we take the view that it would not be appropriate to remit the matter for a rehearing because the same facts, evidence and arguments that will be raised in the Court below are before this Court and we are able to decide the issue.


28. It is implicit that the trial Judge’s finding of the appellant’s conduct was due to the fact that the appellant omitted to file an affidavit providing an explanation in relation to the efforts by the parties to terminate the liquidation. The orders sought and the grounds relied upon in relation to the two interlocutory applications before the trial Judge had nothing or little to do with the actions of the appellant as the liquidator. We have perused the notices of motion and supporting affidavits filed by the respondents. There is no direct allegation contained in the materials impinging upon the conduct of the appellant as the official liquidator. Therefore, in our view, there is no obligation on the part of the appellant to file an affidavit responding to the factual allegations.


Orders


29. In the upshot we consider that the following orders would be appropriate in all the circumstances of the case and we do so order:


1. The appeal is upheld.


  1. The part of the National Court orders whereby the appellant was ordered to pay costs of the application in the proceedings, and the liquidation for NC Resource Limited, Beatrice Geita and George Nicholas Constantinou is quashed forthwith.
  2. The National Court order against the petitioning creditor (Monier Limited) to pay costs of the application, the proceeding, and the liquidation for NC Resource Limited, Beatrice Geita and George Nicholas Constantinou, is affirmed.
  3. The respondents pay the appellant’s cost of and incidental to the appeal including the application for leave.

_______________________________________________________
Ashurst Lawyers: Lawyer for the Appellant
Williams Attorneys: Lawyer for the Respondents


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