N2017

PAPUA NEW GUINEA

[In the National Court of Justice]

OS 402 OF 1998

BETWEEN:

GAMAN HOLDINGS PTY LTD
-Plaintiff-

AND:

LABU HOLDINGS PTY LTD
-Defendant-

Lae: Injia, J.
2000: 9th October

Civil - Practice and procedure - Ex parte orders - Sought and 	
obtained in terms of substantive relief sought in Originating Summons under pretext of urgent interim injunctive orders - Undesirability of practice - Orders set aside - National Court Rules, O12 r8(3)(a).	

No cases are cited in the judgment.

Counsel:
S. Tedor for Def/Applicant
R. Saulep for Plaintiff/Respondent

9th October, 2000

INJIA, J.: This is the defendant’s motion under Order 12 r8(3)(a) of the National Court Rules to set aside certain ex parte orders obtained by the plaintiff on 7 August 1998 (principal order) and further orders thereupon, obtained on 24/3/99 and 7/4/99. The motion is supported by the affidavit of Luke Wangi sworn on 12/9/00. Mr. Wangi is the Chairman of the Board of Directors of the defendant company.

Proceedings were commenced at Waigani by Originating Summons.

The 3 ex parte orders were made by the National Court at Waigani. The proceedings were transferred to Lae on the 16 November, 1999, principally, I suppose because the business operating base of the two companies is based in Lae, the nature of business being stevedoring business located in the premises of the Lae Main Wharf. 

I set out hereunder the full text of these 3 ex parte orders and the substantive relief sought in the Originating Summons filed on 6/8/98. The substantive relief sought in the Originating Summons are -

"The Plaintiff Claims:

1.	Pursuant to Section 104 of the Companies Act, 1997 the Annual General Meeting of Labu Holdings Pty Ltd be called on or before 10 September 1998.
	
2.	Such meeting shall be called for the purposes, namely:
	
2.1	To present the Auditors Financial Report;
	
2.2	To present the Annual Report;
	
2.3	To present a legal report (with recommendations) as to current legal situation of company’s share structures and other matters;
	
2.4	To elect a new Board of Directors;
	
2.5	To rectify company records to properly reflect shareholding as against subscriptions, for each subscribing villager in each village, namely Labu Miti, Labu Tali and Labu Butu.
	
3.	An independent auditor (not having any connection directly or indirectly with the Defendant company) shall be appointed forthwith to carry out an Independent Financial Audit, from any one of the following three firms:
	
(a)	Coopers & Lybrands - Lae;
	
(b)	Unitech Development Corporation - Accounts Division - Lae;
	
(c)	Richard Hill & Associates - Port Moresby.
	
4.	The Board of Directors of the Defendant shall make available to the Independent Auditor, all Banking documents, accounts, records, cheque books or financial document or company records wherever held, immediately upon request.
	
5.	Until the Annual General Meeting the Defendant shall be prohibited from transacting its Bank South Pacific (Lae Branch) Accounts and such other accounts in such other bank(s), save and except provisions for the following necessary expenses; payable only upon presentation and approval of invoice:	
1.	Auditing Fees - K6,000.00
	
2.	Legal Fees (Saulep Lawyers) - K3,500.00
	
3.	Administration Expenses of company until AGM - K6,500.00
	
4.	Travel & Accommodation Expenses of Plaintiff 
x 2 trips to Pom - K2,000.00
	
6.	The three villages, namely Labu Miti, Labu Tali and Labu Butu shall each be represented by one person only for voting purposes at the Meeting, who shall be the Village Councillor, a church representative or other literate person, who shall exercise such voting rights in the capacity of Trustee. Such person or representative shall be nominated and the Plaintiff notified of such appointment fourteen (14) days prior to the date of the meeting.
	
7.	The only persons who will vote at the annual general meeting are the following:
	
(a)	Gaman Holdings Pty Ltd represented by Mr. Philip Gaman or his nominee or proxy;
	
(b)	1 x representative of Labu Miti;
	
(c)	1 x representative of Labu Tali;
	
(d)	1 x representative of Labu Butu".	

The ex parte order of 7 August 1998 reads:

"Order

THE COURT ORDERS (per Sheehan J.)

1.	Pursuant to Section 104 of the Companies Act, 1997 the Annual General Meeting of Labu Holdings Pty Ltd be called on or before 10 September 1998.
	
2.	Such meeting shall be called for the purposes, namely:
	
2.1	To present the Annual Report;
	
2.2	To present the Auditors Report for 1994 - 1998 inclusive;
	
2.3	To elect a new Board of Directors.
	
3.	An independent auditor shall be forthwith appointed to carry out the audit of the Company’s accounts for the year 1994, 1995, 1996, 1997 and 1998 and the Board of Directors of the Defendant shall make available to the Independent Auditor, all Banking documents, accounts, records, cheque books or financial document or records wherever held, immediately upon request.
	
4.	Until the Annual General Meeting, the Defendant Company shall not dispose of any funds of the Company and/or make payments of any accounts, other than payments made to employees or to meet such documented accounts as are submitted by the accountant as being due and payable by the Company.
	
5.	The three villages, namely Labu Miti, Labu Tali and Labu Butu shall each be represented by one person only, for voting purposes at the Meeting, who shall be the Village Councillor, a church representative or other literate person, who shall exercise such voting rights in the capacity of Trustee. Such person or representative shall be nominated and the Plaintiff notified of such appointment fourteen (14) days prior to the date of the meeting.
	
6.	The only persons eligible to vote at the annual general meeting are the following shareholders:
	
(a)	Gaman Holdings Pty Ltd represented by Mr. Philip Gaman or his nominee or proxy;
	
(b)	1 x representative of Labu Miti;
	
(c)	1 x representative of Labu Tali;
	
(d)	1 x representative of Labu Butu".
	
7.	Costs of this Application awarded to the Plaintiff.
	
8.	Time be abridged for the entry of these orders which shall be forthwith by the Court.	

The ex parte order of 24 March 1999 reads:

"ORDER

THE COURT ORDERS (per Sheehan J)

1.	Lae Port Services Limited be restrained from paying dividends to the Defendant, its agents, servants or representatives.
	
2.	The Defendant be restrained from transacting any bank accounts it currently holds with the Australian & New Zealand Banking Limited, Lae Branch or any other Bank anywhere in Papua New Guinea.
	
3.	The Defendant show cause why it should not forthwith deliver the final audit report of the Defendant in accordance with the Court Orders of 7th August, 1998;
	
4.	applicant/Plaintiff file and serve Defendant and relevant parties with Notice of Motion and Affidavit in Support".	

The ex parte order of 7 April 2000 reads: 

ORDER

THE COURT ORDERS (per Sevua J)

1.	The Interim Orders of Sheehan J. dated 24th March 1999 be extended to 21st April 1999;
	
2.	Smiths Chartered Accountants forthwith deliver to the Plaintiff’s Lawyers within five (5) days, a copy of their statement of account relating to the preparation and release of the Audit Report;
	
3.	Costs of this application awarded to Plaintiff;
	
4.	Time be abridged to the time of settlement by the Registrar which shall take place forthwith".	

It is not disputed that the principal order of 7/8/98 was obtained ex parte, so are the other two subsequent orders. The principal orders were purportedly "interim orders" but these were in terms of the substantive relief sought in the Originating Summons. Mr. R. Saulep of counsel for the plaintiff concedes to suggestions from the bench that there was a fundamental flaw in the procedural manner in which these substantive orders were obtained because substantive orders should not be applied for and obtained ex parte under the pretext that they are in the nature of urgent interim relief, injunctive or otherwise, pending determination of the substantive relief. This is because the process invariably results in the denial of natural justice to the defendant in that it is denied the opportunity to be heard on the substantive relief. Mr. Saulep submits however that notwithstanding this fundamental flaw, it has not been shown by the defendant that any injustice was caused to the defendant because (1) they did not apply to set aside the ex parte order promptly. They were served the various orders promptly but either their present lawyer or their former lawyer Mr. Nigel Morrison of Milner and Associates did not take issue with the orders. The present motion was filed only recently on 12/9/00. (2) The plaintiff had a clear case against the defendants because as a non-Labuan villager shareholder of the defendant company, he was given a rough time by the other shareholders which comprise of Labuan villagers and that he suffered grave injustice as a result of the alleged mismanagement of the Company’s affairs. Therefore, he applied for and obtained the said orders ex parte under S.104 of the Companies Act 1997. These orders Mr. Saulep submits are not unreasonable to both parties. (3) The defendant had not taken issue with the orders and in fact complied with some parts of the order, such as subjecting the Company’s finance records to accounting. Even now, the defendant is prepared to settle out of Court the relief sought in Clause 1 - 4 of the Originating Summons.

Mr. Tedor of counsel for defendant submits that the defendant has suffered grave injustice as a result of the ex parte nature of the 3 orders which encompass the whole of the substantive relief in the Originating Summons, that they have been continually subjected to the threat of imprisonment under the Contempt proceedings which were only recently determined in his client’s favour, that their attention was focussed on defending the contempt proceedings arising from the alleged breach of the three ex parte orders and that they had no time and peace of mind to make the present application earlier. He submits his client did not concede to any of those orders and now that the contempt proceedings have been determined it is prepared to "negotiate" an out of Court settlement in respect of the relief sought in clause 1 - 4 of the Originating Summons. He submits the 3 ex parte orders were obtained in Port Moresby in succession and his clients were never given an opportunity to contest the substantive orders; and that as a result, the freezing of the company’s operating accounts, this has halted the company’s operations and exposed it to the risk of being petitioned for liquidation by its creditors. 

Mr. Saulep submits in reply that Order No. 4 of Order of 7/8/98 allows the company to function in that the defendant can pay employees or meet documented accounts of the company and that the normal operations of the company can continue whilst these proceedings are being determined.

In my view, whilst I agree with Mr. Saulep that the defendant has somewhat not promptly applied to set aside these ex parte orders for reasons which appear unconvincing to a lawyer, I believe the principal orders and the two orders which followed, are coloured by the fundamental procedural flaw referred to above. First of all, although there is no provision in the Company’s Act which entitles a shareholder to seek these orders under S.104 ex parte, I suppose there is provision in the National Court Rules under Order 14 Div. 2 ("interim preservation") which could entitle a person to seek, in urgent cases, interim injunctive relief ex parte to preserve the property, etc pending determination of the substantive relief. But the orders obtained here are not in the nature of interim injunctions. They are final orders in terms of the substantive relief sought in the Originating Summons. Following the issue of the substantive orders, the plaintiff went straight into enforcement action, culminating in the institution of contempt proceedings which was dismissed by this Court last month on procedural technicality grounds. Then there is another subsequent motion for contempt filed recently still pending. I agree with Mr. Tedor that it amounts to a denial of the defendant’s fundamental right to be heard, for substantive relief to be applied for and obtained ex parte, under the pretext of some urgent interim injunctive relief, without giving any opportunity at all to the defendant to be heard. It may be that the plaintiff may feel that it has clear case against the defendant and that the defendant need not be heard before the substantive relief is applied for and obtained, but this is a misconception. The strength of the plaintiff’s case is not a valid ground to found an ex parte order in terms of the substantive relief sought in the Originating process. Unless the defendant expressly waives his right to be heard on the application for substantive relief, the application should not be advanced and determined in the defendant’s absence. In the present case, there is no evidence to show that the defendant conceded to these substantive orders before or at the time they were made. 

For these reasons, I set aside the ex parte orders of the Court made on 7/8/98, 7/4/99 and 24/3/99. I further order that normal operations of the Company continue pending the determination of the substantive action, under the management of the incumbent executive of the defendant company. Costs of this motion follow the event. The substantive action is stood over to the next civil call-over to be held in November 2000 for appointment of a hearing date.
_________________________________________________________

Lawyer for the plaintiff 	:	Saulep Lawyers
Lawyer for the Defendant	:	Sialis Tedor & Associates