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Manu trading as Manu and Associates Lawyers v Vele [2006] PGNC 87; N3097 (10 October 2006)

N3097
PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

MP NO. 571 OF 2006

BETWEEN:

EDWARD MANU trading as MANU & ASSOCIATES LAWYERS
Respondent/Petitioner

AND:

ANDERSON VELE
Applicant/Respondent

Waigani: Davani, .J
2006: 5, 10 October

Counsel:
L. Kari, for the applicant/respondent
G. Konjip, for the respondent/petitioner

INSOLVENCY – adjudication of insolvency – acts of insolvency – Creditors Petition – form of Creditors Petition – Insolvency Act Chap. 253 s. 21; s. 30 (1) (2) (3)

INSOLVENCY – adjudication of insolvency – process of service of Creditors Petition must be complied with – Creditors Petition must be in the proper form – adjudication of insolvency taken out on defective Petition – order is irregular – Creditors Petition a nullity – will be set aside – National Court Rules O. 1 Rs 8 & 9; O. 12 R. 8 (5) Insolvency Act Chap. 253 s. 30 (1) (3) (a)

Cases cited:
Application for review by Martin Negai (1988) N1764
Leo Hannet v Elizabeth Hannet and ANZ Banking Group (PNG) Ltd (1996) SC 505

DECISION

10 October, 2006

1. DAVANI .J: The Applicant/Respondent (‘applicant’) applies by way of Notice of Motion, to set aside an Insolvency order taken out against him on 20 September, 2006, where he was adjudged insolvent. The Notice of Motion filed by PNG Legal Services on 29 September, 2006, states that the application is moved pursuant to O.12 R. 8 (3) (a) of the National Court Rules (‘NCR’).

Preliminaries

2. I should point out that the applicants lawyer Mr Kari had sought leave of the court to amend the motion to include the correct order on which he relied, that is, O. 12, from the original"Order 8 Rule 3(a)". With the insertion of "Order 12", the application now reads; "pursuant to Orders 12 Rule 8 (3) (a)". Although asked by the court, Mr Konjib for the respondent/petitioner (‘respondent’) did not raise any objections. On that basis, I granted the amendments. However, after Mr Kari completed his submissions for the applicant, Mr Konjib for the Respondent raised objections on the amendment. I asked why he was doing that now when he could have done so when Mr Kari first mentioned the intended application and I ruled on it. Notwithstanding, I asked if he was misled by the amendment. He said he was not, that the Notice of Motion was clear in that it was seeking to set aside ex parte orders obtained on 20 September. I again, for the second time, over ruled the objections.

Application

3. The grant or not of insolvencies is governed by the Insolvency Act Chapter No. 253 (the ‘Act’). Proceedings for insolvency taken out by the respondent were done under the Act, by way of a Creditors Petition.

4. The application to set aside the Insolvency orders is made pursuant to O. 12 R. 8 (3) (a) of the National Court Rules (‘NCR’) and s.149 and s.150 of the Act.

O. 12 R. 8 (3) (a) reads;

"8. Setting aside or varying judgment or order

...

(3) The Court may, on terms, set aside or vary an order –

(a) where the order has been made in the absence of a party, whether or not the absent party is in default of giving a notice of intention to defend or otherwise in default, and whether or not the absent party had notice of motion for the order; or

..."

Section 149 and s.150 of the Act reads;

"149. Dealing with matters in Chambers

A Judge –

(a) may sit in Chambers for the dispatch of such business as may be heard in Chambers without detriment to the public advantage arising from the discussion of questions in open court; and

(b) when sitting in Chambers has the same powers and jurisdiction as when sitting in open court."

"150. Power of review

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

5. Apart from these provisions, Mr Kari did not present any authorities for my consideration or any other submissions on the law. Mr Konjib’s submissions were very meagre and unhelpful despite the many questions raised by the court in relation to whether or not his client complied with process under the Act when applying for the orders for Insolvency. I must say both counsel were very unhelpful, to that extent.

i. Background

6. Edward Manu’s affidavit sworn on 19 May, 2006 deposes that the respondent owed his firm, the respondent, the sum of K29,914.72 in outstanding legal costs. That amount is the aggregate of two taxed bills of costs for the amounts of K11,483.78 and K18,430.94. On 1 May 2006, the respondent obtained an order against the applicant to pay it the sum of K29,914.72 including interest and costs.

7. Failing payment, the respondent then filed a Creditors Petition on 19 May, 2006 seeking that the applicant be adjudged insolvent.

8. On 20 September, 2006, the court made orders declaring the applicant, insolvent.

9. The applicant through Mr Kari relies on two grounds in support of this application;

- That at no time did the respondent inform the applicant of the process it employed in relation to the obtaining of court orders to pay the outstanding amounts;

- That the applicant was not personally served with the Insolvency proceedings, contravening s. 30 of the Act.

ii. The law –

10. I deal with the two grounds together. Mr Kari emphasized that because the applicant was never served with the Insolvency application, that the orders should be set aside. S. 30 of the Act reads;

"30. Service of petition

(1) A creditor’s petition shall be served on the debtor.

(2) The copy of the petition served on the debtor shall have endorsed on it a summons in Form 4, signed by the Registrar and sealed with his official seal.

(3) Service of a creditor’s petition may be effected –

(a) personally; or

(b) in any other prescribed manner; or

(c) in such manner as the Court, on application by the petitioner, directs."

11. Mr Konjib could not assist the court in his submissions on whether his firm had complied with process under the Act or not. Mr Kari’s submissions on the aspect of service were brief but concise, focusing more on the process leading up to the adjudication of insolvency. I find that to be irrelevant at this stage because the applicant must first deal with the insolvency because that order has now taken priority. The applicant’s lawyer must focus on whether the insolvency can be set aside. But I have not been assisted by Mr Kari. Nonetheless, it is the courts role now to assess whether the insolvency order can be set aside. As Kapi DCJ (as he then was) said in Application for Review by Martin Negai (1988) N1764, that it was not open for the Court to question the summary judgment because that could be set aside upon application or by an appeal to the Supreme court. That the applicant could not do that under that present application for review of the order for insolvency under s. 150 of the Insolvency Act. His Honour said "He has not pursued any application to set aside the judgment under the Rules. In my view he cannot now by way of application for review under s. 150 of he Act question the summary judgment."

12. In that case, Mr Negai applied under s. 150 of the Act to rescind insolvency order taken out against him. But his submissions was that Summary Judgment was wrongly entered against him because there were four partners who owed in excess of K100,000.00 to the Bank. But the court ruled otherwise, as intimated earlier, deciding that the applicant should submit on grounds to rescind the Insolvency order, rather than focus on the summary judgment.

13. The rules in relation to setting aside of judgments that are not default judgments are set out in O. 12 R. 8 (1); 3 (a) (b); 4 and 5.

These rules read;

"8. Setting aside or varying judgment or order

(1) The Court may, on terms, set aside or vary a direction for entry of judgment where notice of motion for the setting aside or variation is filed before entry of the judgment;

...

(3) The Court may, on terms, set aside or vary an order –

(a) where the order has been made in the absence of a party, whether or not the absent party is in default of giving a notice of intention to defend or otherwise in default, and whether or not the absent party had notice of motion for the order; or

(b) where notice of motion for the setting aside or variation is filed before entry of the order.

(4) In addition to its powers under sub-rules (1), (2) and (3), the Court may, on terms, set aside or vary any order (whether or not part of a judgment) except so far as the order determines any claim for relief or determines any question (whether of fact or law or both) arising on any claim for relief and excepting an order for dismissal of proceedings or for dismissal of proceedings so far as concerns the whole or any part of any claim for relief.

(5) This Rule does not affect any other power of the Court to set aside or vary a judgment or order."

14. In this case, the order was entered on 25 September, 2006. And application to set aside must be filed before entry of judgment. I have heard submissions that the applicant was not aware of the adjudication of insolvency until after the publication in the daily newspapers. This was why he could not file earlier. Publication of the orders was done in the National Newspaper on 28 September 2006. (see Annexure ‘D’ to Edward M. Waifaf’s affidavit sworn on 28 September, 2006). The motion to set aside was filed on 29 September, 2006, a day after the publication.

15. In this case, the applicant claims he was not served with the Creditors Petition. Section 30 of the Act is specific, that a creditors petition "shall be served on the debtor" (s. 30 (1) (1) of Act). And what if the respondent has not complied with the rules on service under the Act? Order 1, Rule 8 of the NCR reads;

"8. Non-compliance with the Rules not to render proceedings void.

Non-compliance with any of these rules, or with any rule of practice for the time being in force, shall not render any proceedings void unless the court so directs, but the proceedings may be set aside, either wholly or in part, as irregular, or may be amended or otherwise dealt with, in such a manner and upon such terms, as the court thinks fit".

16. Which means the court can exercise its powers to set aside what appears to be an irregularly entered judgment. And this power is set out in Order 1 Rule 9 of the NCR. It reads;

"9. Application to set aside for irregularity

An application to set aside any proceeding for irregularity shall not be allowed unless it is made within a reasonable time, or if made after the party applying has taken any fresh step with knowledge of the irregularity."

17. In such a case, applications must be made "within a reasonable time", or must be made before a party has taken a fresh step in the proceedings.

18. Here, application to set aside is filed a day after the adjudication became public knowledge. And the applicant has not taken any other step apart from this application to set aside. Which means this application can be entertained by this court.

19. Did the applicant comply with process under the Act when it filed the Creditors Petition? I ask these questions because these are issues critical to the existence of the Creditors Petition and one of these is the existence of ‘acts of insolvency’. Section 21 of the Act sets out the definitions of acts of insolvency. The applicants case falls within s. 21 (1) of the Act, that there is in existence, an unsatisfied judgment debt.

20. And what of the form of the Creditors Petition? The applicant has not taken issue with it but it is an important factor in the whole process. Section 30 (2) of the Act is specific, that the copy of the petition shall have endorsed on it a summons in Form 4 signed by the Registrar and sealed with the official seal. In this case, the Creditors Petition filed by Manu & Associates is devoid of a summons signed by the Registrar. Is this an irregularity falling within the ambit of O. 1 R. 8 of the NCR? Is this an irregularity that can be corrected by an amendment? Is this an irregularity that can be set aside ex debito justitiae? Section 150 of the Act states that the court may review, rescind or vary any order made under this Act. In line with that is the courts power to set aside proceedings as being irregular or a nullity. In this case, the Creditors Petition is clearly defective in that the Registrar’s summons is not endorsed to it. Secondly, the Petition was not personally served. The affidavit of Dickson Gabi sworn on 5 June, 2006 and filed by the respondent firm deposes that on 5 June, 2006, he attended at Wari Vele Agencies and served copies of the Creditors Petition and Affidavit in support upon one Konji Minok. That I find is not personal service upon the applicant.

21. So clearly, there are two obvious deficiencies in the whole process;

1. that the Creditors Petition is defective in form;

2. and that the Creditors Petition was not personally served.

22. No amount of amendment can cure the fact that the applicant was made insolvent by the courts reliance upon a defective process. You cannot amend a nullity, which is the case here. In fact the difference between a nullity and irregularity is that "it is too late to start again". (see Leo Hannet v Elizabeth Hannet and ANZ Banking Group (PNG) Ltd (1996) SC 505 discussion by the Supreme Court on the difference between an irregularity and a nullity).

23. Proceedings for Insolvency are instituted, in this case, where a debtor has not satisfied a judgment debt. And the effects of an Insolvency upon an individual are very serious in that, after adjudication of insolvency, amongst others, a Creditors meeting is called and a trustee appointed to oversee the management of the insolvents debts (part IV of Act). And which is why any applicant must ensure all steps are properly complied with, more particularly personal service of the Creditors Petition. e.g if he or she is properly served, there is avenue available to them under the Act to dispute the debt or at least, present a case, s.25 to s.38 of Act, and which was not done in this case, because of the apparent lack of proper service.

Orders

24. Which is why this court, exercising powers available to it under s. 150 of the Act, O. 1, R. 8 and R.9 of the NCR and O. 12 R. 5 of the NCR, will make orders that will bring to an end what was from the beginning, a defective process.

25. As to costs, the respondent is a legal firm. It has no excuse for filing defective proceedings and for allowing it to proceed to a stage where the applicant was declared insolvent. Costs must reflect the seriousness of this matter and for the applicant to be duly compensated.

1. The order of 20 September, 2006 declaring the petitioner insolvent, is hereby rescinded forthwith; and

2. The entire proceedings are dismissed as being a nullity.

3. The respondent/petitioner shall pay the applicant/respondent’s costs of the proceedings, on a solicitor/client basis, to be taxed if not agreed;

4. Time is abridged to time of settlement which shall take place forthwith.
___________________________________________
Manu & Associates: Lawyer for the applicant/respondent
PNG Legal Services: Lawyer for the respondent/petitioner