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National Court of Papua New Guinea |
PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE AT LAE]
O.S. NO. 418 OF 2003
BETWEEN:
MAINLAND HOLDINGS LIMITED
-Fist Plaintiff-
AND:
PAUL ROBERT STOBBS & THREE (3) OTHERS
- Defendants-
AND:
LAE: Injia, DCJ
2003: October, 17, 23-24, 29
CIVIL – Interim injunctions- Effect of - Extension contract of employment of company’s general manager which had expired - Application to dissolve interim injunction- Grounds- Change in relevant circumstances since grant of - Principles of equity on enforcement of private contracts for personal services discussed - Equity maxims "He who seeks equity must do equity" and "He who seeks equity must come with clean hands" applied- Interim injunctions dissolved.
Cases cited:
Adam P. Brown Male Fashions Ltd v. Philip Morris Inc (1981) CLR 170
Jimi Co-op Daries Ltd v Capital Diary Products Ltd [1989] NZHC 2119; (1989) 1 PRNZ 622
Modilon Automotive Pty Ltd v Southcomb [1997] PNGLR 158
Regent Oil Co. Ltd v L.J.Leavesly (Linchfield) Ltd (1968) 1 WLR 1210
Westgold Resources NL v St. Barbara Mines Ltd & Anor [2003] WASC 29
Williamson Robinson & Co Ltd v Heve [1898]2 CLR 451
Counsel:
I. Molloy with R. Pato for the Plaintiffs
M. Wilson with N. Merrick for the First and Fourth Defendants
B. Ovia for the Second and Third Defendant
29 October, 2003
INJIA, DCJ: The plaintiffs apply before me to dissolve the interim injunctive orders granted by Kirriwom J. on 29th August, 2003. Ordinarily, this motion should be moved before Kirriwom, J., but because His Honour declined to continue dealing with the matter, the motion came before me. The defendants contest the motion.
The injunctive order is the subject of an appeal and an application for stay filed in the Supreme Court at Waigani, both of which are pending determination. As to the proper approach to be adopted by this Court in assuming jurisdiction in this matter in the light of the pending appeal, I accept the position taken by both parties that the National Court has jurisdiction to vary or dissolve an interlocutory order notwithstanding an appeal and application for stay has been filed against the same order, which are pending hearing. There is extensive authority in support of this proposition, some of which have been cited by counsel.
It is also agreed between the parties that this discretionary jurisdiction is exercised where there are changes in relevant circumstances since the interlocutory order was made which render the continuation of the order no longer necessary or appropriate. However, there is some contention between the parties as to whether the interlocutory order should be varied or dissolved on other grounds such as where new facts which existed at the time of the injunctive order and not disclosed then but they are subsequently discovered; or where it is subsequently discovered that the order was granted on erroneous legal basis. Mr. Molloy for the plaintiffs argued in the affirmative and cited in support cases including Adam P. Brown Male Fashions Ltd v. Philip Morris Inc. (1981) CLR 170 at 178; Westgold Resources NL v. St. Barbara Mines Ltd & Or [2003] WASC 29 and Reqent Oil Co. Ltd v. J.T. Leavesly (Linchfield) Ltd [1968] 1 WLR 1210. Mr. Wilson for the First and Fourth defendants contends that the Court’s jurisdiction is restricted to change in relevant circumstances, and matters such as new or existing facts subsequently discovered and the appropriateness or legal correctness of the existing order are matters for the appellate court to address in the pending appeal.
In my view, the trial Court has wide discretionary powers to control the management of the case until its substantive disposition. In terms of its interlocutory proceedings, the Court has wide powers to grant or refuse to grant, vary or set aside, dissolve or discharge an interlocutory order either on application by an interested party or upon its own motion, in a wide range of situations including change in relevant circumstances which render the continuation of the order no longer necessary or appropriate. It is also in the Court’s discretion to vary or discharge an interlocutory order, where the conditions, if any, stipulated in the order have been met and it is no longer necessary or appropriate to sustain the order. Further, it is in the discretion of the Court to vary or discharge an interlocutory order if it is subsequently discovered by the Court that the interlocutory order was founded on wrong principle.
In the exercise of its regulatory jurisdiction, the Court also has wide discretion to protect itself or its process from abuse by parties aggrieved by its earlier order, seeking to have a second opportunity to re-argue the case in order to reverse its earlier decision. In cases where the earlier interlocutory order is subject of an appeal, the Court should be reluctant to engage in any deliberations on the facts and law which would or is likely to interfere or usurp the review powers of the appellate Court to review findings of fact or law. This is particularly so when a second judge is invited to vary or discharge an interlocutory order of the first judge. In this context, I find the text from the New Zealand case of Jimi Co-op Daries Ltd v. Capital Diary Products Ltd (1989) I PRNZ 622, at 627 submitted to me by Mr. Wilson persuasive, and I quote:
"It is in principle wrong that a litigant should have second opportunity merely to re-argue or to reinforce his case with evidence which was already available but which was not called. There is a reluctance on the part of any Judge and some difficulty indeed for a Judge to rehear and reconsider his own decision particularly where that has been subject to an extended argument, with evidence, and an occasion to consider his decision even if that may be for a short period. There is a reluctance on a Judge of coordinate jurisdiction to review the decision on the facts or even the law of another Judge. There is the possibility that if the right of review was free and open-ended there could be a repeated application for reconsideration and review of any interlocutory application before all the Judges that might be available."
In the present case, it is these principles which compel me to qualify what I said earlier, as to the wide discretion I have to review an existing interlocutory order. For this reason, I accept Mr. Wilson’s submissions in part - that generally speaking, the exercise of my discretion should be limited to the change in relevant circumstances since the order, which render the continuation of the interlocutory order, unnecessary or inappropriate in the circumstances. However, this does not necessarily follow that I cannot in the exercise of my discretion, revert to relevant circumstances on which the existing order is based, and established principles in determining the appropriateness of any order I propose to make. I am entitled to do so, not with a view to reviewing the earlier court’s exercise of discretion, but to determine the continuance of the order in the light of all relevant circumstances and principles.
Having reached this conclusion, I consider it important to look at the nature of the interlocutory order in this case, and determine the correct approach to be adopted.
In the Originating Summons, filed on 4th August, 2003, the plaintiffs seek substantive relief in terms of three (3) declarations: (1) the Second Defendants had no legal or equitable authority to dispose of or deal with the shareholding of the Third Defendant in the First Plaintiff, and any purported authority exercised by the Second Defendant was invalid: (2) A declaratory order that any transfers of shares by the First Plaintiff to the First Defendant (hereinafter referred to on Mr. Stobbs) and the Fourth Defendant was invalid: (3) A declaration that notice of extraordinary meeting of shareholders issued by the Mr. Stobbs on 12/8/03 was invalid. In the interim, the plaintiff sought interim restraining orders, some of which were in terms of the substantive relief.
It is not disputed that Mr. Stobbs, an Australian, was appointed the Group General Manager of the First Plaintiff on 5th February, 2003 pursuant to a written contract of employment. The contract was not for a fixed term but it provided for a 6 months notice period (of termination/renewal/resignation): see affidavit of Matap Embaku sworn on 22nd October, 2003, Annexure "A". The First Defendant was employed from 5th February 2000 to 5th February, 2003 which was a period of 3 years. After 5th February 2003, no notice was given by either party so he continued in his employment until 18th March, 2003 when he tendered his letter of resignation. The notice was received by the plaintiffs on 19th March, 2003. The notice said "with effect from today I hereby tender my resignation." If this letter were a notice under the contract of employment, the resignation would take effect on 19th September, 2003. The Plaintiffs would then, as from 19th September, 2003 be free to employ someone else. The First Plaintiff accepted the resignation and resolved to pay him out, it but it seems that decision was not implemented. It seems, and this is the position taken by both parties during argument, that an understanding was reached whereby Mr. Stobbs’ letter of resignation was taken as a notice, and Mr. Stobbs would continue employment until 19th September 2003, when the resignation took effect.
However, in August, 2003 the First Defendant applied before Kirriwom, J. to extend his contract of employment from 19/9/03 for a further 90 days because he claimed his continued employment was necessary to solve a "grain-crisis" by importing much needed grain from Hunter Grain Australia to supply Niugini Tablebirds and Crocodile Farm, both businesses owned and operated by the First Plaintiff. Kirriwom, J. granted the order sought saying the 90 days extension was "to ensure that the grain is supplied and long term solution is negotiated and put into place including engagement of a new management team. This issue plus all other related issues that ultimately may change the entire face or composition of the engine room of the company need to be properly addressed systematically through gradual process, not in a massive onslaught of change without properly addressing its ramification". In his ruling, His Honour also noted that Mr. Stobbs had vested interest in the First Plaintiff company because he had acquired 24.4 shares in the company. The wording of Kirriwom, J’s order is flexible and it reflects the conciliatory approach he was taking in order to ensure the survival of the First Plaintiff as a major business.
In granting the interim orders sought, His Honour said:
"Having said this it is my view that the status quo needs to be maintained for a period of ninety days as requested from the date of this order for the grain to be supplied by Hunter Grain notwithstanding that the first defendant’s contract expires in 14 days. The balance of convenience favours retaining the first defendant for at least a minimum period of 90 days for the sake of stability. The Court therefore makes the following orders:-
It is the first of these orders that the plaintiffs seek to dissolve. It is clear that this is an injunctive order and it appears to be interim in nature. Also the criteria and principles applied by His Honour such as maintaining the status quo and balance of convenience are applicable to interim injunctions And the motion before me is framed as such and no issue is taken of it.
The affidavit evidence placed before me, and the submissions made before me by both parties relate to the conduct or misconduct of the key players on both sides of the company management.
The plaintiff’s application is based on several grounds. First, they say the need for the supply of grain has now been resolved with the import of sufficient quantity of grain. Therefore, the need for Mr. Stobbs’ continued employment has passed. Secondly, the forced employment of Mr. Stobbs has created unworkable relationship between him and the workers. For instance he has dismissed a key employee, the Engineering Manager of Niugini Tablebirds. Also communication between Mr. Stobbs and the Board of Directors has and broken down and their relationship deteriorated or does not exist any more. Thirdly, he refused to comply with No. (3) of the injunctive order in that he failed to comply with the board’s directions and refused the board access to documents. He refused to comply with the Board’s decision to re-instate the engineering manager of Niugini Tablebirds. Also, he failed to comply with the board’s direction concerning approval and countersigning of cheques. As a result, the Directors cannot properly perform their Statutory financing obligations. Fourth, there is evidence of allegations of misconduct by Mr. Stobbs committed since the order. Fifth, Mr. Stobbs failed to perform his duties by taking a holiday in New Zealand from 7 – 22 October without the knowledge and consent of the board. Sixth, his presence is interfering with the company’s recovery program because he has denied the Directors access to the financial records of the company.
The plaintiffs rely on some twenty – one (21) untested affidavit evidence to support the above grounds. Whilst the defendants do not contest the resolution of the grain crisis, and do not contest the fifth ground, the rest of the grounds are refuted by Mr. Stobbs through his own affidavits and other affidavits.
In addition to the above evidence, there is one important development which took place on the day of the hearing on 24 October. On that day, Westpac Bank, which holds an equitable mortgage over the plaintiffs assets to secure a K30 million loan, moved to appoint a receiver under the Term of the Mortgage. Before the hearing of the part-heard motion commenced on Friday afternoon, Mr. Wilson advised the Court of this development and said Mr. Peter Lowing of counsel for Westpac Bank was present in Court to explain the development. In the course of argument, it was learnt that the total assets of the plaintiff was over K80 million. The defendants made an application to adjourn the proceedings for parties to take instructions from the receiver and pending that, they applied for a stay of the proceedings. I refused both applications because the terms of the equitable mortgage was confined to a specific loan amount which was well below the total assets of the plaintiff company. The company’s operational ability as a going concern was not affected.
Mr. Molloy submits that because of Mr. Stobbs conduct since the order, the relationships between him and the board has deteriorated to the company’s detriment, he has interfered with the staff and staff morale is low, his continued presence in the company is a source of much tension and he is an obstacle to the company’s continued operations. He submits his absence on holiday for two weeks when the company was in trouble when his presence was needed shows he is not concerned about the company. He submits the fact that the company has gone into receivership upon his return from holiday shows the company is suffering under his management. He also submits Mr. Stobbs has conflict of interest between his duty to the company and the presentation and prosperity of his own personal interest as a shareholder.
Mr. Wilson submits all the allegations of mismanagement and financial wrong-doing are refuted by Mr. Stobbs. All these issues were adequately addressed by Kirriwom J when he made the order, that the plaintiffs have not shown any change in circumstances since the order, and therefore, there is no justification to disallow the order. He submits Mr. Stobbs is a shareholder in the company, and that he has the welfare and continued survival of the plaintiff company at heart. If he is removed, the Company will suffer irreparable damage. Therefore he should remain as the Group Manager until the substantive proceedings are determined.
The plaintiffs then contend that in the event that the Court were to dissolve the injunctive order, the Board of Directors have already appointed Mr. McCardel who is ably qualified and experienced for the job, to take his place. Mr. McCardel is the manager of ABCO Transport which is owned by the plaintiffs. Mr. Wilson submits that Mr. McCardel’s involvement is in a restricted technical area of business and he has limited management knowledge and experience and compared to Mr Stobbs, he cannot perform the onerous responsibilities of a Group Manager of a large company. Only Mr. Stobbs can fill that role.
In my view, the relief here was correctly founded on the Court’s exercise of its equitable jurisdiction because the First Defendant’s contract of employment founded on law having expired on 19th of September, 2003 Mr. Stobbs had no legal right to employment, to enforce.
It is trite principle that an injunction, interim or permanent, positive or prohibitive, is an equitable remedy which is discretionary. Therefore, the determination of the present application must rest solely on equitable principles; the Court’s discretion exercised consistent with established principles on the grant of equitable remedies.
Generally, a Court of equity will not force strangers or unwilling parties to enter into new private contracts or renew contracts for personal services which has or is about to expire; nor will the Court order specific performance of a contract for personal services: Williamson Robinson & Co. Ltd v. Heve [1898] 2 CLR 451 at 452; adopted in Modilon Automotive Pty Ltd v. Southcomb [1997] PNGLR 158 at 163. Equity respects the right of the employer to hire and fire at will. But in a case such as the present where on grounds of "business efficacy", the Court has forced the employer to employ the employee by entering into a new contract for personal services, the continued existence of that forced contractual relationship is primarily dependent on the good conscience and good conduct of the parties. The employee is bound to ensure that his/her conduct is not detrimental to the employer’s interest and well-being. Likewise, the employer must allow or not hinder or obstruct the employee’s performance of his or her duties. A party seeking to set vary or discharge an injunctive order compelling the employer to employ an employee, must show that since the interlocutory injunctive order, the employee is guilty of some unconscionable conduct or misconduct which is detrimental to the interests of the employer and such that it is not in the interest of the employer that he/she should continue in employment.
In this respect, there are two maxims of equity which are applicable to this case: (1) He who seeks equity must do equity; and (2) He who seeks equity must come with clean hands. In determining the issues posed before me, I intend to apply these two maxims to determine the issue of whether in the light of changed circumstances, if any, the equitable relief granted by Kirriwom J should be allowed to continue or be dissolved.
I appreciate that the Originating Summons in the present case is related to other substantive proceedings in which the appointment of Mr. Stobbs and transfer of shares is in issue. But insofar as the present application is concerned, it should be determined on its own circumstances.
I accept Mr. Molloy’s submissions that the plaintiff’s evidence of Mr. Stobbs’ misconduct, mismanagement, misappropriation and financial wrongdoing since the order, is strong. Equally, I accept Mr. Wilson’s submissions that these allegations are strongly refuted by Mr. Stobbs. However, I am in no position to determine the truth of the allegations, because the evidence on both sides was not tested. From the facts put before me, which are either not contested or consented to, either expressly or by tacit implication, I am able to make some findings of fact and draw inferences from them, which may determine the outcome of this application.
There are two aspects of change in relevant circumstances disclosed by the evidence which may as well determine the result of this application. First, the "grain crisis" has been averted or solved with the import of grain. There is not much of a contention on this development.
Secondly, the conduct of the parties since the order. There is general acceptance by the parties that the plaintiff is a company in deep crisis. It has problems with appointment of directors; problems with appointment of manager or managers; problems with shareholding and transfer of shares; problems with asset management and transfer of assets; supply and stock crisis; sales crisis; staffing crisis; business profit/loss crisis; and more recently, debt crisis; and so on. Ordinarily, such crisis would be expected to be resolved through prescribed procedures under provisions of the Companies Act and in accordance with established business principles and practices, but the crisis has reached such proportion that it has become unmanageable from within. Those matters were then brought to this Court for resolution. When the substantive proceedings are pending determination, the fragile crisis-stricken company required very close attention by the management and the board to ensure that the operations of the company were not adversely affected and the company’s continued survival threatened. And Kirriwom J spoke at lengths about this in his ruling. The Board of Directors and Mr. Stobbs needed to co-operate and work closely in close proximity, particularly in the 90 day period graciously given to Mr. Stobbs by the Court.
Whilst the board on the one hand has made itself available and kept a close watch on the management of the company, on the other hand, Mr Stobbs has not. As the Group General Manager of the plaintiff, Mr. Stobbs plays a pivotal role in the management of the company. Yet, when the Court was gracious in granting him a further ninety (90) days extension of his contract of employment purely for reasons of "business efficacy", his management conduct has been wanting of a manager of a large company in deep crisis. Numerous allegations of misconduct and mismanagement of the affairs of the company have surfaced since the order. It is true that these allegations unproven as they are, remain mere allegations, but the fact that there is evidence that these allegations have arisen since the order, tells a story of a worsening "crisis" and a Court of equity cannot ignore those concerns.
And then when the "company in crisis" needed him close by, day by day, to oversee the company, he chose to go on a holiday in New Zealand for more than two (2) weeks, thereby stealing sixteen (16) days of the precious ninety (90) days of company time. Such a conduct is unbecoming of a concerned, caring and effective Group General Manager of a big company. I repeat what I said on 16th October, 2003 when dealing with the defendant’s application for adjournment of this motion:
"His conduct in choosing to absent himself from Lae and the jurisdiction on private holiday, is not fair to the plaintiff company and its shareholders, particularly when the company’s affairs are unsettled. Some sixteen (16) days of company time out of the fixed ninety (90) days is a substantial period, and at a time when the company requires his presence, it is unacceptable on his part to absent himself."
A company in deep crisis without its Group General Manager within the jurisdiction, cannot be expected to get better. In fact, the crisis it appears, has worsened. The company got into deeper trouble when he was away. Numerous allegations of mismanagement have surfaced. As a result, I am told one of the company’s major financiers, Westpac Bank Ltd, has appointed a receiver to enforce its equitable mortgage and the company, as of last Friday 24th October, went into receivership. This was only one day after Mr. Stobbs returned from holiday. The crisis has been further compounded by Mr. Stobbs’ own self-interest in the company. He holds substantial shares in the very same company and his controlling management position does well place himself in a conflict of interest situation. With suggestions of the company going into receivership, he cannot as a substantial shareholder, be expected to discharge his duties as a manager of the very same company in good faith with the interest of the company at heart. I am satisfied that his continued employment will lead to more crisis and possibly result in the demise of that company.
Applying the two (2) maxims of equity I set out earlier to the above circumstances, it is my opinion that Mr. Stobbs has not done equity to the company, to deserve this Court’s exercise of it equitable discretion in favour of allowing him to continue in employment for the balance of the ninety (900 days. He deserted the company and neglected it for sixteen (16) days on a holiday spree when the company needed his presence. As a result, the company’s debt servicing management and other problems have got worse. I am also of the opinion that he has not come to this equity Court with clean hands.
In summary, there were two basis upon which Kirriwom J granted the order – that is the "grain crisis" and the continued survival of the plaintiff company. On the evidence and information placed before me, I am satisfied that since the injunctive order, significant changes in relevant circumstances have taken place which render the continuation of the order no longer relevant, necessary or appropriate. I have found that the grain crisis has been resolved with the import of sufficient quantity of grain. And Mr. Stobbs’ conduct has been detrimental to the continued well-being and survival of the company. For these reasons, in the exercise of my equitable discretion, I discharge the injunction order granted on 28/9/03.
As to who should fill the vacuum left by Mr. Stobbs’ removal, that is up to the Company Board, the body that knows the interests
of the company best, to decide. I t is not for me to decide. If it has decided on Mr. Stobbs’ replacement already, then that’s
up to the company, to give effect to. Cost of this motion is awarded to the plaintiffs.
______________________________________________________________________
Lawyers for the Plaintiffs : Pato Lawyers
Lawyers for the First & Fourth Defendants : Warner Shand
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