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Mokun and Nondugul Tumbo Pty Ltd v Gispe [1997] PGNC 38; N1565 (11 April 1997)

Unreported National Court Decisions

N1565

PAPUA NEW GUINEA

[NATIONAL COURT OF JUSTICE]

O.S. NO. 184 OF 1992
BETWEEN
JOHN MOKUN - FIRST PLAINTIFF
AND
NONDUGUL TUMBO PTY LTD - SECOND PLAINTIFF
AND
DINGAN GISPE - DEFENDANT

Mount Hagen

Lenalia AJ
27 March 1997
11 April 1997

Counsel:

P Dowa for the Plaintiffs

M Tamutai for the Defendant

Cases Cited:

Barron v Potter [1914] UKLawRpCh 40; (1914) 1 Ch. 895

Acts Referred To:

Companies Act (Ch. No. 164)

Materials Referred To:

Modern Company Law by L.C.B. Go

Introduction to Law of Associations in Papua New Guinea by: MA Kimuli, HA Amankwah, JT Mugambwa

INTERLOCUTORY RULING

April 11 1997

LENALIA AJ: By an originating summons filed on 2nd January, 1997, the Plaintiffs sought orders in the same nature as in the Notice of Motion dated 26th March 1997 seeking a restraining and the following declaratory orders:

1. An order that the Defendant be restrained from selling or disposing off any of the Second Plaintiff’s Asset.

2. A declaration that the following people are the lawful directors of the Second Plaintiff Company:

a) Kambiye Mugul;

b) Phillip Karkoi;

c) John Mokun;

d) Noah Bal;

e) Dingan Gispe;

f) Kakap En; and

g) Zika Goi.

3. A declaration that he Defendant’s appointment to the position of Managing Director of the Second Plaintiff Company has been revoked on 17th April 1996.

4. A declaration that John Mokun is the Chairman of the Board of Directors, of the Second Plaintiff.

5. An order that the defendant be evicted from Nondugl Tumbo Plantation within 7 days, as of the date of the order.

6. An order that the defendant account for all monies and receipts and inventory of properties of the Second Plaintiff Company.

7. The time for entry of the Orders shall be abridged to the time of settlement by the Assistant Registrar which shall take place forthwith.

8. Costs of the proceedings.

9. Such other or further orders this Court deems fit.

The Plaintiffs evidence in support of their application is contained in the first plaintiff’s affidavit evidence dated and filed 2nd January, 1997, and that of Alfred Walis Kalio. There is evidence from both parties that the parties have come to Court a number of times. By reading a contempt judgement by His Honour Injia J, dated 9th February, 1996 the dispute has been on-going since 1992. The first plaintiff says in evidence that, by a National Court Order, all defendants named in the O.S. No. 184 of 1992 were all ordered to vacate the 2nd Plaintiff’s premises situated on Portion 21, and 491 commonly known as Nondugul Tumbo Plantation. To enforce the eviction orders the second plaintiff took out contempt proceedings against those contemnors. None of the first plaintiff or the defendant was a party then. The Court found contemnors guilty on the 9th of February, 1996. It may have been after the contemnors had been found guilty by His Honour Injia J that the Board of Directors sought to re-organize the company and seek a new management.

An urgent meeting was sought by the then Board of Directors and Shareholders 21 days after the decision against the alleged contemnors was pronounced, calling upon the Defendant to immediately convene an urgent meeting in his capacity as Chairman of the Board of Directors. In his affidavit, the Plaintiff alleges that for the last 9 years the Defendant has run the company as though it was a private company. Following that meeting, the first plaintiff wrote to the Defendant on 21st of March 1996, on behalf of the Board of Directors requesting the Defendant to summon the meeting for the Board of Directors and shareholders: (see ann. “A” for a copy of the letter).

The Plaintiff further deposed that, even after ten days, no response was forthcoming from the defendant and as the result a second notice was sent out to all Board of Directors and all shareholders to hold a general meeting by 17th of April, 1996: (see ann. “B” to affidavit of plaintiff). The plaintiff further say that on that same date most shareholders and members of the Board of Directors turned up in response to the notice. Two separate meetings were held on 17th April 1996. One for all shareholders together with the Board of Directors and after that meeting a second meeting was held for all board of directors. These meetings were held outside the Nondugul District Office: (see Ann. “C”, & “D” affidavit of plaintiff). It is now alleged by the plaintiff that in the Board of Directors meeting, the Chairman, of the Board of Directors, Mr Dingan Gispe was voted out and he (the plaintiff) was voted in as Chairman of the Board of Directors.

Upon assuming office as Chairman of the Board of Directors, the first Plaintiff wrote a letter to the defendant informing him of his termination as Chairman of the Board of Directors and the decision made by the Board of Directors. He spelt out in that letter why Mr Gispe was being terminated: (see Ann. “E” to plaintiff’s affidavit). He alleged further in that same letter that from 1987 to 1996 no board meetings have been held nor were there in the same period any Annual General Meeting. There was no declaration of share dividends and that the defendant had failed to attend 3 consecutive board meetings despite being given notice. Amongst these allegations is an assertion by the plaintiff that, there had not been any financial report between 1987-1986 and misuse of company assets including loss of K32,000 since 1987. In that same letter, the defendant was given 14 days notice to vacate the 2nd plaintiff’s premises.

In support of paragraph 7 of Mr Mokun’s affidavit he filed a copy of the Investment Promotion Authority of what is required to be done yearly and which include yearly preparation of accounts of the company and giving such accounts to its shareholders, and the giving of an Annual Return to the Registrar of Companies. These are all requirements of Companies Act Ch. No. 146.

The plaintiffs also filed a copy of the ruling by Injia J in support of the view that the decision only related to contempt proceedings and to which I quite agree after reading that judgement. His Honour further said that the question of whether Mr Gispe was properly removed was the subject of a separate proceedings. Mr Mokun also filed a copy of the Company Search conducted at the Office of the Registrar of Companies. The Search conducted on 28th August 1996 (see Ann. “I” to plaintiff’s affidavit) includes the following people who are currently;Board of Directors of Nondugl Tumbo Pty Ltd:

1. Kambiye Mugul;

2. Phillip Korikoi;

3. John Mokun;

4. Noah Bal;

5. Dingan Gispe;

6. Kakep En; and

7. Zika Goi.

Mr Alfred Walis Kalio in support of the plaintiff’s application deposed to almost the same evidence contained in the affidavit of the first plaintiff. He confirms that during the defendant’s term of office between 1987 to 1996, the Company was poorly managed.

The defendant filed a notice of intention to defend the motion on 20th March, 1997. He followed this up by filing an answering affidavit on 26 March 1992 pursuant to O. 4 r 44 (2) of the National Courts Rules. His evidence contains complete denial of allegations by the plaintiffs. Mr Gispe says in his evidence that as far as he is concern he is still the Chairman of the Board of Management and the Managing Director and Secretary of the other company Mt Uri Waka Enterprises and the Nondugul Tumbo Pty Ltd. He further said, the Plaintiff has been in the former Board of Directors under the management of Mr Alfred Kalio.

Mr Gispe relies much on another National Court Order dated 28th February, 1996 - (see Ann. “A”). Paragraph (2) of the set of orders that were given on 28th February 1996 provided that all contemnors were to vacate the Company premises and were to deliver up possession of the same to the second plaintiff, Mr Gispe and his executives. Paragraph 4 of the same order prohibited all parties from taking any further proceedings in relation to the administration of the second plaintiff until such time when all contemnors have moved out from the company premises.

Mr Gispe admits at par, 9, 10 & 11 of his affidavit that although he was there at the venue on which the General Meeting was being held, he objected to the meeting being held and chose not to attend. He merely informed the plaintiff and the board of directors present at the meeting that time that the meeting they were holding was illegal and he decided to leave. Mr Gispe further deposed that due to the activities of the first plaintiff and others has led to complete destruction of the second plaintiff’s assets including coffee trees worth thousands of kina. As regards to the contemnors Mr Gispe says at paragraph 20 of his evidence in affidavit that they have not yet moved out from the company premises.

The defendant now says that he opposes all orders sought in the motion. What I gather from the evidence for and against this application is that there are two dissident groups either supporting the plaintiff or the defendant. This appears clearly from all evidence. The defendant says at para. 24 of his affidavit that he has a new Board of Directors. Their names appear on Ann. “H” & “I” to his affidavit. They are:

1. Kambiye Mugul;

2. Philip Korkoi;

3. John Mokun;

4. Noa Bal;

5. Dingan Gispe;

6. Wakap Enn;

7. Zika Fioi;

9. Taiminal Noah;

9. Phillip Taimil;

10. Tumun Palange; and

11. John Guma.

This list contains 4 more additional board of directors than the list provided by the plaintiff in the Affidavit of Search conducted on 28th August 1996. (see Ann. “I” to plaintiff’s affidavit an affidavit of Search by Lilly Laui from the Registrar of Companies). The first 7 of the Plaintiff’s list all appear in that of the defendant while the 4 additional ones appear on the defendant’s list do not appear in the list provided by Plaintiff. What appears from this confusion is that, the affidavit of Search was conducted on 28th of August last year while the list of directors provided by the Defendant in Ann. “I” of the defendant’s affidavit was recently made on 8th of January, 1997. The list of directors provided by the Defendant is not supported by any affidavit of Search. The only Affidavit of search included in the defendant’s evidence is the one relating to another Company Mt Uri Waka Enterprises Pty Ltd, incorporated on 3rd November 1977 and the date of search was 11th of January, 1989. The list given by the defendant seems most recent however it is not supported by an affidavit of search nor is there any documentary evidence of any board of director’s minutes. The defendant partially pleads to this in paragraph 1 of Part III of his affidavit. He says that, the shareholders had voted the first plaintiff out and says he would provide all proper minutes latter. To date no evidence has been filed to support what the defendant has deposed to.

In 1996, it seems the parties came to Court several times and obtained two sets of judgements. On 9th of February, the contemnors were found guilty. On 28th of the same month, orders were issued in favour of the defendant and his executives to run the company and directed that the defendant and his board of directors to take possession of the plantation. On the same date the Court also directed that no one was to file any further proceedings until all contemnors had moved out.

There may be two issues to determine. The first is that contents of the orders obtained on February 28, 1996 were of specific direction that no further proceeding would be taken out by anyone of the parties until all illegal squatters had moved. By that time too, the running of the company was placed in the hands of the Defendant and his executives. Thus there must be evidence to the satisfaction of this Court whether the contemnors have moved out from the second plaintiff’s premises already or not. That is at least the requirement of the orders issued on 28th of February last year. There is evidence before this Court first by the plaintiff and Mr Alfred Walis Kalio (see paragraphs 3 and 18 of their respective affidavits) that all contemnors have moved out from the second plaintiff’s premises. I take that to mean the contemnors have complied with the Court Orders and have vacated the Nondugul Plantation grounds. On the other hand the defendant says at paragraph 5 of this affidavit that, the contemnors are still squatting on the second plaintiff’s premises. Phillip Taimil also deposed to this fact.

The second issue relates to allegations raised by the first plaintiff and his witness. Evidence of Mr Alfred Kalio highlight certain issues which I think worth mentioning. First there is allegation of non compliance with the Investment Promotion Authority Rules and lack of accountability for the last 9 years. There has also been no Directors meeting for the same period of time and no declaration of dividends has been made by the defendant’s management. These are not only breach of the Investment Promotion Authority rules but also a breach of the Companies Act Ch. No. 146. A general meeting is a meeting of all members of the company and all Members are entitled to attend and vote thereat. It is the supreme legislative authority of a company. It has powers to amend the company’s memorandum and articles and has other powers and duties as conferred to it by the Act. A “general meeting” or what is commonly known as “annual general meeting” is held at least once in every calendar year: see S. 144 (1) of the Companies Act. Other general meeting other than the annual general meeting are referred to as “extraordinary general meetings”.

If default is made in holding an annual general meeting (hereinafter referred to as AGM) the officer of the Company is guilty of an offence and a member may apply to the Court to order a general meeting, see S. 144 (4), see also Secretary for Law v New Guinea Development Corporation Ltd [1975] PNGLR 197. Failure to lodge annual returns also constitutes an offence under S. 166 (5) of the Act. The Act does not specify the business to be transacted at the AGM, because as usual that would be govern by the Article of Association. During the AGM matters like declaration of dividends, considerations of accounts, balance sheets, report of directors and auditors or even election of new directors in place of those retiring may be discussed.

I am hampered by the fact that, I have not had the benefit of having introduced to the evidence the articles of association of the second plaintiff to determine who was entitled to call the meeting deposed to by Mr John Mokun - see Ann. “B”. Section 145 (1) of the act requires that two or more members holding not less than 10% of the issued share capital or in the event that the company does not have a share capital, not less than 5% in number of the Members of the company may call a general meeting. In accordance with S. 146 (1) of the Companies Act, directors are required to convene an Extraordinary General Meeting on requisition of members who hold not less than 10% of the paid-up capital and who have voting rights and in the case of a company not having a share capital not less than 10% of the total voting rights S. 146 (1). The requisition must state the subject of the meeting and must be signed by the requisitionists and be posted to the Company’s registered office. This I find to have been complied with by the Notice of Intention to all directors dated 2nd April 1996. (see Ann. “B” to first plaintiff’s affidavit). I also find that there are two minutes one of a general meeting held by the board of directors and shareholders and another one by the board of directors themselves. (see Ann. “C” and “D” to plaintiff’s affidavit). There were more members present in those two respective meetings to form a quorum pursuant to S. 149 (1) of the Act. (see also the case of Howbeach Coal Co Ltd v Teague (1860) 175 E.R. 1136).

Both minutes dated 17th April 1996 show that the defendant showed up briefly then disappeared. He gave the following reasons to those present at the meeting held at 10.00 am that day. That the meeting would have to be arranged by himself and no other directors and they have no powers to organise meetings that he had his own board of directors and executive to hold meetings. Although he said he held his board meeting the same date there is no evidence to support that view. The third reason he gave was because the company had gone into bankruptcy when he took over. He may be referring to 1987 when he took over management of the Company.

In passing, I wish to say that, unless otherwise specified by the company’s articles powers are conferred on directors collectively as a board to be exercised at board meetings of which due notice has been given and at which a quorum is present: (see Modern Company Law by Gower at page 152). It has long been established that a casual meeting of directors at the company’s office cannot be treated as a board meeting at the motion of one or some of the directors against the will and intention of the other or others who has/have not received notice of the calling of such meeting: Barron v Potter [1914] UKLawRpCh 40; (1914( 1 Ch. 895)).

The defendant at least had until today to produce evidence to refute what the plaintiffs have said. The allegation of by the defendant that his new directors have approved the selling of the tractor parts in their meeting on the 20 September 1996 ought to be evidenced by the minutes of a meeting. What I have before me in annexure “H” to the defendant’s affidavit is a copy of the letter from H.R. Hagon - Managing Director of Wahgi Mek Plantation Pty Ltd, with the request to Mr Gispe to sign to signify his acceptance of sale. What appears at the bottom right hand of that exhibit is a hand written list of directors of the second plaintiff. It does not appear to me to be a valid meeting unless supported by any other evidence. The allegation deposed to in PART III paragraph 1 that the shareholders voted the first plaintiff out must be evidenced by a minute of the proceedings of the board of directors. The originating summons was filed and dated 2nd January, 1997 the alleged returns by the defendant Annexure “I” was compiled on 8th of the same month. This might have been done to counterattack the declarations sought by the plaintiffs in the originating summons. A company’s article would invariably place the management and control of the business and affairs of a company in the hands of the board of directors. It is the directors who plan the company’s business and ensure that there is money available for such business and they work out strategies to the company’s goods and services.

The learned authors of “Introduction to the Law of Business Associations in Papua New Guinea” say at page 100 that:

“...directors do not have a completely free hand when managing the company’s business and affairs. First, they must comply with the provisions of the Companies Act and the respective articles and memorandum of association. Second, they are at common law subject to two broad categories of duties: fiduciary duties of loyalty and good faith; and the duties of care, deligence and skill.”

I am satisfied on the balance of probabilities that all contemnors have moved out from the premises of the 2nd plaintiff as required by the Court order of 28th February, 1996. I am also satisfied that the records presented to this Court as evidence by the first plaintiff seem to have been done in accordance with the requirements of the Companies Act. There is a record of the two minutes of the two meetings convened on the 17 of February, 1996. There is a proper minute of the Board of directors which voted Mr Dingan Gispe out of office. He was duly served with the Notice of that meeting. Although being present, expressed dissatisfaction with the board of directors present at that meeting: (see Annexure “C” and “D”) and walked away. The defendant has not provided evidence of any board meetings he may have if he claims to have held one. He has not provided to this Court any evidence in relation to the second plaintiff’s accounts and has not sufficiently explained the transactions and financial position of the company. No loss of accounts and balance sheet were presented to the Court as evidence of any true record keeping pursuant to S. 169 (a) of the Companies Act. I must therefore grant the orders in terms of the Originating Summons. The Defendant shall meet the costs of this proceedings.

Lawyer for the Plaintiffs: Paulus Dowa Lawyers

First Floor Komkui Haus

Kuri Street

PO Box 1265

Mount Hagen

Lawyer for the Defendant: Matthew P Tamutai Lawyers

Suite F1 Hagen Plaza Building Hagen Drive

PO Box 1108

Mount Hagen