N2301

PAPUA NEW GUINEA

[In the National Court of Justice]

W.S. NO. 155 OF 2001

BETWEEN:

MOCHON PETER
Plaintiff/Cross-Claimant

AND:

GERONIMO MANGALUS
First Defendant/Cross-Claimant

AND:

PHOENIX NO. 3 LIMITED
Second Defendant

KOKOPO	:	Lenalia, J.
2002	:	24, 26, 27 July, 26 Sept, 11 Oct.

Civil Law – Law of Trusts & Trustees – Contractual agreement to hold shares in trust – Trustee in terms of shareholder – Property in terms of shares – Shareholder/Director – Shares held by shareholder/director for benefit of minors.

Law of trusts and trustees – Equitable obligation – Obligations imposed on trustee – Shares held in trust for "cestuis que trustent"(cestui que trust) – Cestuis que trustent being infants – Children of mixed parentage – Requirement of law.

Civil Law – Private trusts – Essential elements – Certainty of Intention – Certainty of subject matter – Certainty of Objects – Trustee status evidenced by declaration of trust – Transfer of shares to biological father being of foreign citizenship – Certainty of intention, subject-matter and objects established.

Civil Law – Cross/Claim – Evidence of monies advanced – Plaintiff/Cross-Defendant liable.

CASES CITED:
The following cases are cited.
Knight -v- Knight (1840) 3 Beav. 148
Curtain Bross (Qld) Pty Ltd –v- The Independent State of Papua New Guinea [1993] PNGLR 285.
Nelson –v- Larhalt [1948] 1 KB 399
Vintel –v- Diplock [1948] Ch. D. 465
Pung Nimp -v- Robi Ramants [1987] PNGLR 96.

Counsel:
K. Latu,	for the Plaintiff
D. Lidgett,	for the First/Defendant Cross-Claimant and Second Defendant

11 October, 2002

DECISION

27 September, 2002

Lenalia, J.	The Plaintiff/Cross-Defendant claims by a Writ of Summons, that at the material times he was a shareholder and one of the company directors of the Second Defendant. Evidence by the First Defendant Cross-Claimant and his witnesses show that back in 1994, the First Defendant /Cross-Claimant and his wife Lynn Peter talked and thought about creating a company as a fall-back position to cater for the First Defendant/Cross Claimant’s termination of his employment as an overseas or expatriate contract officer with the Department of Works and Supply with the Government of Papua New Guinea.

The First Defendant/Cross-Claimant is an engineer by profession and was a contract officer at the material times and he is married to Lynn Peter a Papua New Guinea woman whilst the First Defendant/Cross-Claimant is a citizen of the Philippines. The idea then was that, because the First Defendant/Cross Claimant was and is married to Lynn being a PNG woman from Manus Province and has some three children, if he was required to leave PNG, his wife and three children would benefit if a small family company was created. The evidence shows that, the First Defendant/Cross-Claimant also has a wife with other children in the Philippines.

EVIDENCE

Evidence by the Plaintiff/Cross-Defendant is that he had been at all the material times a shareholder and one of the company directors of the Second Defendant since the company was formed in 1994. The Plaintiff/Cross-Defendant’s evidence reveals quite clearly that, he paid actually and virtually not a toea in order for him to be a shareholder and a company director. His evidence further reveals that, he himself held three ordinary shares whilst his sister who is the wife of the First Defendant/Cross-Claimant had three shares. Evidence called by and on behalf of the First Defendant/Cross-Claimant show on the other hand that Lynn Peter had 6 shares being the Chairperson of the board of directors and the First Defendant/Cross-Claimant only has three.

The Plaintiff/Cross-Defendant said in evidence that he went on vacation to the Philippines in September, 1999 and upon his return to PNG, he was surprised to find out that, the First Defendant/Cross-Claimant had unilaterally and secretly transferred his three ordinary shares held by him in the Second Defendant to the First Defendant. The Plaintiff Cross-Defendant testified in evidence that while him and the First Defendant/Cross – Claimant and his family were having breakfast a day after his return from the overseas trip, he was called into the office of the First Defendant/Cross-Claimant and without explaining to him, he was made to sign certain company documents relating to his resignation as a company director of the Second Defendant which the Plaintiff claims that he did not know what company documents was he signing.

All evidence both for the Plaintiff/Cross-Defendant and the two Defendants particularly the First Defendant/Cross-Claimant and all evidence called on his behalf show that when Lynn Peter had obtained legal advice in relation to the creation of the company which is now the Second Defendant, she contacted her brother who is now the Plaintiff/Cross-Defendant who then resided in Alotau, Milne Bay Province and expressly informed him, he would become a shareholder in a company to be soon formed or created and that he was to be a trustee for his nephews Jerome Mangalus and Gerolyn Mangalus. The Plaintiff/Cross-Defendant said after a short time, he realised that he had been forcefully resigned by documents, which he did not read nor understood what they were and why he had signed them.

Then on 24th of November 2000, the Plaintiff sought advice from Tengdui & Associates an Accounting Firm with the view to resign as a shareholder and one of the company’s directors and with view to selling his shares to the Second Defendant. It was at this time that the Plaintiff was informed that he had already resigned and his shares were already sold to the First Defendant/Cross-Claimant.

Having discovered his predicament, the Plaintiff/Cross-Defendant wrote to the First Defendant/Cross-Claimant a letter of demand dated 4th December, 2000 (see Ex. "C:") on which the Plaintiff/Cross-Defendant expressed concern that he was not aware of his cessation of the directorship and he demanded he be paid his shares or it’s value and benefits and a compensation of K600,000.00 for maliciously exploiting his name.

The Plaintiff/Cross-Defendant said in evidence that he is a small businessman dealing in second-hand clothing in Kokopo, and with two established branches in Kavieng and Manus. The Plaintiff’s evidence confirmed that of the defence that while he was in Alotau, his sister, Lynn Peter sent him a parcel of documents through EMS with instructions to travel to Port Moresby to see and call in at Warner Shand Lawyers office to sign some company related documents.

Upon receipt of such instruction by phone from Lynn Peter, the Plaintiff/Cross-Defendant proceeded to Moresby and says that the lady who served him asked him to sign documents or a document which document or documents he could not read because he does not understand English nor the document or documents were read to him to understand before he signed. An interesting element of the Plaintiff/Cross-Defendant’s evidence is the fact that, he never knew that he was a company director which evidence is totally in conflict and contradicts with his earlier evidence that, he went to Tengdui & Associates to give instructions to them to effect cessation of his directorship position. Apart from this, the Plaintiff said, he never attended any shareholders or directors meetings. I shall return to this piece of evidence later.

The evidence show that the documents which the Plaintiff signed and which he claims he did not know nor understood what they were was in fact a Declaration of Trust dated 19th of April, 1995 which document bares the signature of the Plaintiff/Cross-Defendant. A common ground relied upon by the Plaintiff in these proceedings is that, he does not know how to read complicated English nor would he write. I find this to be far from the truth. The Plaintiff/Cross-Defendant is a Grade 6 leaver and although he may not be able to read hard English, he said he can read but do not understand the English language well. The Declaration of Trust and its contents read as follows:

"DECLARATION OF TRUST

BY THIS DEED I, MOCHON JOHN of Post Office Box 2161, Rabaul, Est New Britain Province, Papua New Guinea, HEREBY DECLARE that three (3) shares in the capital of PHOENIX NO.3 PTY LIMITED ("the Company") which are registered in my name in the register of members of the company, are held by me in trust for JEROME MANGALUS and GEROLYN MANGALUS (as tenants in common in equal shares) ("the Owners") of Post Office Box 2161, Rabaul, East New Britain Province of Papua New Guinea.

1.	THAT I will at all times and from time to time hereafter deal with, transfer and dispose of the shares and the dividends and proceeds thereof and any rights or privileges now or hereafter appertaining thereto in accordance in all respects with the instructions from time to time to me by the Owner and not otherwise.

2.	THAT I will at all times and from time to time hereafter whenever requested by the Owner sign, execute and deliver proxy form, receipt, notice or other instruments relating to the shares or any such dividends, proceeds, rights and privileges as aforesaid submitted to me by the Owner.

3.	THAT I will not vote at any meetings of the Company in respect of the shares contrary to any directions of the Owner.

DATED this 19th day of April 1995.

SIGNED SEALED and DELIVERED 	)
by the above-named				)	P. MOCHAN
MOCHON JOHN				)	(Signed)

In the presence of:

J. Ealedona (Signed).
Witness’ Signature

Name:
Address:
Occupation:"

The wife of the Plaintiff/Cross-Defendant is a Filipino by origin however it is not clear whether she holds dual citizenship passports. What is clear is she has been in PNG for the last 10 or so years now until she got married to the Plaintiff/Cross-Defendant in 1999. Her evidence confirms that of her husband in relation to the Plaintiff signing documents, which the husband could not understand. As well Menchu’s evidence quite overwhelmingly support the defence case in regard to certain monies owed by the Plaintiff/Cross-Defendant to the First Defendant/Cross-Claimant. Her evidence also confirms that, the husband and herself, own and operate a company known as "M & M Enterprises Ltd". This witness was rather careful not to reveal any declaration of profits for whatever reasons that may be but one can understood her situation being one of the proprietors of M & M Enterprises Ltd. She however admitted to her husband being given a sum of K10,000.00 but denied knowledge of the other two sums stated in the Cross-Claim namely K3,900.00 and K6,000.00.

The defence case categorically refutes the Plaintiff’s claims, as their evidence shows three basic elements. This was the case of a private trust and they say, there was certainty of intention, certainty of the subject matter and finally right from the creation of trust, there was certainty of objects. I will further highlight on these three elements when I discuss the law. The First Defendant/Cross-Claimant is a Filipino national and is currently the General Manager of the Second Defendant whilst his wife Lynn Peter comes from Manus and they have three children and Lynn Peter is one of the Directors and Company Secretary of the Second Defendant.

The defence case suggests that all allegations by the Plaintiff/Cross Defendant are baseless and there are, no such evidence to support the Plaintiff’s claim. Ms. Joanne Ealedona was called by the defence to testify to how she attended and served the Plaintiff/Cross-Defendant when he went to Moresby to sign documents which the Plaintiff said in his evidence he did not understand nor could he read them or understand them due to his limited understanding of English. Joanne was and is still a Legal Secretary as well as a Commissioner for Oaths with Warner Shand Lawyers. Joanne recalls a young man whom she attended to and served in their Moresby Office in about 1994 or 1995 but she cannot remember the appearance of the Plaintiff. The reason she gave for her fading memory is because around about that same period of time, many customers attended Warner Shand Lawyers Office in Moresby for incorporation of the group of PHOENIX shelf companies.

Despite her inability to specifically remember the Plaintiff/Cross-Defendant by sight and appearance, she recalls that in her career as Legal Secretary, she never ever made or tell people to sign documents without first reading them or where a person cannot read, she makes sure, she reads documents to them and asks them if they do understand the contents, then only then she invites them to sign. In the instant claim, Joanne said, she is sure beyond doubt that, she could not just let the Plaintiff/Cross-Defendant sign if he did not understand the document. As established by the evidence, the document, which the Plaintiff/Cross-Defendant went to sign before Ms. Joanne Ealedona, was the Declaration of Trust and other company documents in relation to the holding of shares in PHOENIX NO.3 LIMITED.

Lynn Peter’s evidence corroborates that of her husband and the idea to create a company was a pressing issue since her husband who is the First Defendant/Cross-Claimant’s contract with the Department of Works would soon end because the Department wanted to strictly abide by a policy decision to localise all senior and managerial positions within the Department. As appears from her evidence and that of her husband, the First Defendant/Cross-Claimant could not hold shares whilst still being employed by the Department of Works as there was and I suppose there is still a strict policy guidelines prohibiting conduct of business for gain outside their normal and official employment with the Public Service and the First Defendant being a Public Servant was not immune from such policy.

Lynn’s evidence reveals the type of personality who was very determined to set up a small business, to cater for her and the family as a whole and more particularly in her case where, she is married to a non-citizen as well as her husband being married to a woman from his own country with the other children to support. Lynn sought legal advice as to the formation and structure of a company, she was informed that the law requires it was necessary to have two shareholders. Once her husband and herself had reached the decision to purchase Phoenix, Lynn said she then contacted her brother (Plaintiff/Cross-Defendant) in Alotau and mailed him the necessary documents plus tickets for the trip to Moresby. Lynn was quite adamant that, her instructions to her brother, (Plaintiff) was to hold shares and be a trustee for her children Jerome and Gerolyn Mangalus.

Evidence by Lynn Peter and her husband linked up with their ownership of the Second Defendant and their assets in relation to certain properties such as buildings on certain blocks of land in this Province. But the evidence by Lynn and her husband also reveals a concern being shared by themselves in common and when the Plaintiff/Cross-Defendant returned to PNG from his trip to the Philippines he was called into a meeting at the matrimonial home of Lynn and the First Defendant/Cross Claimant where the Plaintiff was expressly informed that there was arrangement in place for him and his new wife whereby another new shelf company would be purchased for the Plaintiff and his wife so the two could set up their own business apart from Pheonix. Such arrangement came to a reality when the Plaintiff and his wife created a company known as "M & M Enterprises Ltd".

The evidence is clear that, during that meeting the Plaintiff was presented with forms, which I understand to be the transfer certificates of shares from the Plaintiff/Cross-Defendant to the First Defendant/Cross-Claimant. Once more the evidence by the Plaintiff/Cross-Defendant in relation to his signing company documents in the matrimonial home of the First Defendant/Cross-Claimant and Lynn Peter, suggest, he did not know what he was signing for because the papers were hidden from him. The Plaintiff’s evidence contradicts that of Lynn and her husband.

Clearly, the evidence shows that the First Defendant Cross-Clamant was the person who controlled and managed the Second Defendant from it’s inception through to it’s reorganisation in 1999 but not because, it was for the benefit of the First Defendant or even his Filipino family but because for the interest of Lynn Peter and the offsprings of their marriage. Evidence by Faulkington Bid show that all company documents were completed by Tendui & Associates through its service company Dahill Management Services on the instruction from the management of Phoenix No.3 Ltd.

The First Defendant/Cross-Claimant filed a cross-claim claiming that by certain dates in 1999 and 2000 he made various cash advances to the Plaintiff /Cross-Defendant and that despite repeated request to repay such sums, the Plaintiff has ignored such demands. In Lynn Peter’s evidence on cross-examination, she said, on the sum of K10,000.00, the Plaintiff/Cross Defendant requested for it and after considering the request with her husband, a decision was reached to advance the money to him. This sum was applied for the creation and formation of a second hand clothing shop first in Kokopo then it extended to Manus and Kavieng.

The Plaintiff/Cross-Defendant also requested and was advanced a further sum of K3,900.00 to purchase a shelf company from Tengdui & Associates through its services company Dahill Management Services Limited. Another and a further sum of K6,000.00 was advanced to the Plaintiff/Cross-Defendant which was used for the purchase of stock items upon Lynn Peter’s request.

On the Cross-Claim, the evidence is clear both by the Plaintiff/Cross-Defendant and the First Defendant/Cross Claimant that the later and his wife advanced the three sums stated on the Cross-Claim to the Cross-defendant. The only issue on the cross-claim is for the Court to determine what were, the basis of those payments particularised in the cross-claim. The reasons advanced by the Plaintiff for receiving these sums are that, although it was true he received the monies, those sums were advanced to him unconditionally on the basis and understanding that Lynn Peter was and is his sister and they were not to be repaid.

I am thankful to Mr. Lidgett of counsel for the First Defendant/Cross-Claimant and the Second Defendant for your helpful submissions. There was no reply to those submissions by the lawyer for the Plaintiff/Cross-Defendant. Despite the time limitations directed and ordered at the end of this trial in July, it has taken a long time for the Court to wait for the submissions. For these reasons, I did not want to wait any longer because, the parties are eager and they are quite entitled to and to know the results of these two proceedings. I have acted on my own volition to forgo the long awaited submission by the Plaintiff’s lawyers.

ISSUES

The issue in the original writ is did the Plaintiff hold the shares in the Second Defendant in his own right absolutely or was he a trustee holding shares to the benefit of others. Likewise on the cross-claim were the sums of moneys contained in the Cross-Claim advanced unconditionally?

THE LAW

I find from all evidence, this was a case of trust and trustee. Sir Arthur Underhill in his book "Law of Trusts and Trustees" defines trust in the following terms:

"A trust is an equitable obligation imposing upon a person (who is called a trustee) the duty of dealing with property over which he has control (which is called the trust property) for the benefit of persons (who are called beneficiaries or cestuis que trustent) of whom he may be himself be one; and any one of whom may enforce the obligation".

A trustee on the other hand is defined by Osborn’s Concise Law Dictionary the Sixth Edition as:

"A person who holds property on trust for another".

In law the prime duty of a trustee is to carry out the terms of the trust and preserve safely the trust property. He is required to use the utmost diligence in discharging the trust duties and as regards the exercise of his or her discretion, he must act honestly and use as much diligence as a prudent man of business would exercise in dealing with his or her own affairs. Generally speaking all kinds of property, real and personal may be held in trust. In practice most trust property may include such property as land, stocks, money and shares. The concept of trust is widely employed today for protecting the interest of those who from legal or physical incapacity are unable to look after their affairs such as minors and disabled persons or large groups of persons.

As I find, the instant claim concerns a private trust as compared to a public one. For in the original claim I find from the evidence by the defence a convincing argument that the Plaintiff held certain shares for and on behalf of the children of Lynn Peter and the Second Defendant. Essential elements of an expressed private trust were laid down in the case of Knight -v- Knight (1840) 3 Beau. 148 on which case Lord Langdale declared that in order for a private trust to be created there must be three elements namely certainty of intention, certainty of subject matter and certainty of objects.

In certainty of intention, the creator must show by his evidence that a trust was created. As in the circumstances of the instant claim, it is quite evident that right from the beginning of the creation of the trust for and on behalf of Jerome and Gerolyn Mangalus, the Plaintiff signed a Declaration of Trust which document I have quoted in toto earlier on. I find from the evidence that the trust the subject of the proceedings on the writ was created specifically for and on behalf of the two minors of Lynn Peter and the First Defendant. The terms of the declaration are imperative and not precatory. The terms are a positive and imperative command for the Plaintiff in the Writ the subject of these proceedings to hold the three shares for and on behalf of Jarome and Gerolyn Mangalus. The holding of the three shares as I find was the subject matter and I also find that the two minors of the First Defendant named in the declarations were the objects of the trusts created on 19th of April in 1995.

I am therefore satisfied that there was a breach of trust on the part of the Plaintiff to sue either for the value or damages as I find from the evidence that he was in law a trustee for the two minors named in the Declaration of Trust. The beneficiaries have a right in "rem" to follow the trust property into the hands of the person who has received it: Nelson -v- Larholt [1948] 1 KB 399, Vintle -v- Diplock [1948] Ch. 465. As the evidence shows, the Plaintiff accepted the undertaking to hold in trust the three shares for and on behalf of Jerome and Gerolyn Mongalus. This was the core of the matter, and the rights of the beneficiaries hinge on the duties of the trustee to discharge fairly the obligations entrusted to him by the Declaration of Trust: Pung Nimp -v- Robi Rumants [1987] PNGLR 96.

There are two claims before me, the Writ of summons and the cross-claim and the law requires me to conduct the proceedings on the cross-claim as nearly as may be the course of proceedings on a writ of summons and the trial should as far as practicable be carried on together with the trial with similar steps as in a writ of summons. The National Court Rules 1983 and Order 8. Division 3 regulates such proceedings and Rule 44 of the above Order provides:

"44.	Conduct of proceedings generally.

(1)	Subject to this Division, the proceedings on a cross-claim shall follow as nearly as may be the course of proceedings on a writ of summons.

(2)	Subject to this Division, and without limiting the generality of Sub-rule (1), these Rules apply to a cross-claim and the proceedings arising from it as they apply to a writ of summons and the proceedings arising from it.

(3)	Sub-rules (1) and (2) apply as if—
(a)	the cross-claim were a writ of summons; and
(b)	the cross-claimant were a plaintiff; and
(c)	the defendant to the cross-claim were a defendant.

(4)	A plaintiff in a writ of summons need not give notice of intention to defend a cross-claim in the same proceedings.

(5)	A notice of intention to defend given by a party to the proceedings shall, on service of a cross-claim on him, operate as a notice of intention to defend the cross-claim.

(6) Subject to this Division, the trial and all other steps in the proceedings on the cross-claim shall as far as practicable be carried on together with the trial and similar steps in the proceedings on the writ of summons".

All assertions by the Plaintiff that he did not know or understand that the documents he signed before witness Joanne Ealedona at the Moresby Warner Shand Lawyers office is baseless and cannot be used to play down his role as being a trustee for his two nephews. I am entitled in law to infer from the dealings of the parties in the writ that the terms of the trusteeship arrangements were fully made known to the Plaintiff/Cross Defendant. There is nothing in the evidence to suggest to the Court as to why witness Joanne Ealedona would tell lies before this Court. Nor would I expect her to have forgone the requirement of either requiring the Plaintiff/Cross Defendant to read or she herself reading to the Plaintiff the terms of the Declaration. Evidence by Joanne is clear, she either read or required the Plaintiff to read the documents before he signed them. There was nothing to stop the Plaintiff from asking questions, if he was not sure of anything done or said by Joanne.

There is even no evidence as such to suggest to this Court the view or proposition that, the First Defendant merely and maliciously wanted to use or even exploit the Plaintiff by using his names as an upfront cover for the interests of the First Defendant as a Filipino national as the evidence shows, Lynn Peter and the First Defendant hold almost equal shares since the transfer of shares from the Plaintiff to the First Defendant on 30th of September 1999.

It is a principal in law that where the terms of the contract are clear and contained in writing no evidence should be allowed to be added to or to be subtracted from, vary or qualify the written contract: Curtain Bros (Qld) Pty Ltd -v- The Independent State of Papua New Guinea [1993] PNGLR 285. I am in agreement with that decision. The terms contained in the declaration are quite unambiguous. They were clearly presented and the Plaintiff clearly signed the Deed of Trust. As to matters of weight to succeed in his claim the Plaintiff need to establish to the Court’s satisfaction on the balance of probabilities that he was not only the legal owner but also he must show that he was the beneficial owner of the three shares the subject of these proceedings and any damages claimed by the Plaintiff must be proved on the civil standard.

Quite obviously the Plaintiff is not that ignorant. At one stage during the course of his evidence, the Court had to intervene and admonish him to wait for the English language to be translated into Pidgin for purposes of recording before he answered or gave his reply. This part of the Plaintiff’s evidence illustrates and demonstrates a credibility gap between his assertions that he does not understand English and his ability to answer certain questions put in English without being translated into Pidgin, which he answered in Pidgin quite eloquently as though he perfectly understand English. I am entitled in law to infer that the Plaintiff knew and understood the terms of the Declaration of Trust and he signed such documents, as he knew what they were.

The above is further confirmed by the evidence of Lynn Peter that she rang the Plaintiff in Alotau and gave him clear instructions to act as a trustee for Jerome and Gerolyn Mangalus. I cannot find any reasons in all the evidence both by the Plaintiff and the Defence as to how such dealings could be interpreted to mean the Plaintiff was meant to be a legal and beneficial owner of the shares as he claims. I am not satisfied on the balance of probabilities that the Plaintiff/Cross-Defendant was, the legal owner nor was he the beneficiary as intended. I must dismiss the claim on the writ.

On the cross-claim however, I find there is sufficient evidence as it is clear all the monies claimed by the First Defendant/Cross-Claimant were advanced through Lynn Peter to the Plaintiff/Cross-Defendant. In today’s business world, nobody would give away a sum of K10,000.00 for nothing. Such sum was advanced to the Plaintiff/Cross Defendant to start up his second hand clothing business. The other two sums namely K6,000.00 and K3,900.00 were also received by the Plaintiff/Cross-Defendant. The Cross-Defendant on the cross-claim now says that, he was advanced those sums unconditionally. I accept the evidence by the First Defendant/Cross Claimant and that of his wife that all the monies advanced to the Plaintiff/Cross-Defendant were done so conditionally and with view to be repaid. I find for the First Defendant/Cross-Claimant on the Cross-Claim in the sum of K19,900.00 less K2,000.00 which the Cross-Claimant abandons from the sum of K6,000.00 and which money was being used to purchase stock items at Lynn Peter’s request.

The Plaintiff shall meet the costs of these two proceedings to be taxed if not agreed upon by the parties.

Orders accordingly.
___________________________________________________________________
Lawyer for the Plaintiff/Cross-Defendant		:	Latu Lawyers
Lawyer for the First Defendant/Cross Claimant and
Second Defendant					:	Warner Shand Lawyers