N2723

PAPUA NEW GUINEA

[IN THE NATIONAL COURT OF JUSTICE AT WAIGANI]

WS 942 of 2002

BETWEEN:

DAMANSARA FOREST PRODUCTS (PNG) LIMITED (IN LIQUIDATION)
Plaintiff

AND:

R H TRADING LIMITED
Defendant

Waigani: Davani, .J
2004: 	19 August
1 September

Liquidation – appointment of liquidator – validity of liquidators appointment – liquidators power to commence proceedings – S. 310 and Schedule 8 (a) of Companies Act.

Practice and Procedure – Application for entry of judgment for defendant – Judgment, only in a clear case – O. 10 R. 14 of National Court Rules

Cases cited:
 Vian Guatal -v- the State [1981] PNGLR 230 at pg. 234

Counsel:
M. Varitimos and P.B. Andrew for the Plaintiff
J. Shepherd and D. Wood for Defendant

RULING
(Trial)

1st September 2004

Davani .J:	The plaintiff proceeds by amended statement of claim filed on 28th June 2004 seeking to recover a steel flat top dumb barge "PM 188"with crawler crane no. 196 and its equipment ("the equipment"). The plaintiff also seeks declaratory orders that any purported conveyance, transfer or disposition of the equipment by the plaintiff to the defendant whether pursuant to a writ of levy of property dated 23 November 1999 or otherwise, is void pursuant to s. 340 of the Companies Act. 

The plaintiff seeks further declaration that it is entitled to immediate possession and ownership of the equipment and that the equipment should be immediately returned to it.

The defendant defends the action by its amended Defence filed on 27th February 2004 where it states that it is lawfully entitled to possession of this equipment because it has lawful title to it. It states in support of this contention that:

1.	The defendant gained possession of the equipment by virtue of execution proceedings taken out by the defendant against the plaintiff in proceedings WS 705 of 1998 resulting in writ of levy of property dated 23 November 1999 being issued at the defendants request against the plaintiff;

2.	That both the plaintiff and the defendant settled the matter on or about 9th February 2002 whereby the defendant agreed to accept the equipment in satisfaction of a judgment debt of K550,275.00 plus interest of K53,067.60 and which judgment was handed down on 11th October 1999 in WS 705 of 1998;

The defendant submits that the equipment has been in its lawful custody since 30 July 2002.

I should state at the outset that both parties consented to this trial proceeding as a split trial, to deal firstly with the issue of liability, and thereafter, if in the plaintiffs favour, to then proceed to assessment of damages.

Plaintiff’s case

Apart from its amended statement of claim, the plaintiff also relies on its amended reply filed on 5th August 2004.

In its amended reply to amended defence, the plaintiff pleads that although it made demand upon the defendants for the immediate return of the equipment, the defendant has refused to return the equipment to the plaintiff. The plaintiff also pleads that at the time of the transaction referred to as the settlement in the plaintiff’s amended statement of claim, that the plaintiff was unable to pay its debts as they became due in the ordinary cause of business and that as such any agreement entered into by the parties would be held to be void ab initio pursuant to s. 340 (2) of the Companies Act.

The plaintiff commenced its evidence by introducing various materials which the court marked as exhibits. These were;

1.	Two (2) affidavits of Peter Brian Andrew sworn on 17th August 2004, an affidavit of three (3) paragraphs and the other, of four (4) paragraph marked ‘A1’ and ‘A2’ respectively.

2.	Bundle of documents in blue arch lever file marked ‘B1’ to ‘B21’.

3.	Document to have been inserted in blue arch lever file, letter from the plaintiff to the defendant dated 5th January 2000 marked exhibit ‘BB12’.

4.	Letter from Maladinas Lawyers dated 13th August 2004 to Blake Dawson Waldron Lawyers marked exhibit ‘C1’.

5.	Letter from Maladina’s lawyers to Blake Dawson Waldron Lawyers dated 13 August 2004, marked ‘C1’ to which was attached copy of Board resolution recommending liquidation of the plaintiff dated 28th February 2000 and copy of shareholders resolution appointing liquidator dated 28th February 2000 marked ‘C2’ and ‘C3’ respectively. These were the Board resolutions of Damansara Forest Products (PNG) Pty Limited, and shareholders resolution, also of the plaintiff company, respectively.

6.	Affidavit of search of Gideon Kehara filed by Blake Dawson Waldron Lawyers and sworn on 18th August 2004, marked exhibit ‘D’.

This affidavit confirmed search of the plaintiff company’s records at the Registrar of Companies office.

7.	Liquidator Robert Southwell’s report marked exhibit ‘E’.

8.	Consent of liquidator dated 17th December 1999 filed by Robert Southwell of KPMG Accountants marked exhibit ‘F’.

9.	Damansara Forest Products (PNG) Limited’s list of 1999 fixed assets register marked as exhibit ‘G’.

The plaintiff only called the liquidator Mr Robert Southwell as its witness. His report was tendered through him. Mr Southwell is a chartered accountant of several years experience practicing exclusively in the field of insolvency and liquidations. He is employed by KPMG Accountants. 

In relation to the plaintiff’s liquidation, the liquidators evidence is that on 28th February 2000 it was resolved by special resolution that the plaintiff be liquidated. By special resolution, the liquidator was appointed and has been the liquidator since that date. The liquidator’s report states that at the date of the liquidation on 28th February 2000, the estimated deficiency of the company was K39,843,715.99. He states that this is an excess of liabilities over assets of nearly K40 million. He states further that the plaintiff company’s cash in bank and on hand as at the date of liquidation, was only K8155.69.

A letter from the Deputy Sheriff of the Supreme and National Courts of Papua New Guinea addressed to the defendant dated 14th February 2000, tendered into court by consent and marked exhibit ‘B19’, which letter confirms that a writ of levy of property was issued in proceedings WS 705 of 1998 against the plaintiff company on 23 November 1999. This writ was served on the plaintiff on the 30th November 1999 and the assets of the company were seized the same day relying on a notice of seizure. This was when members of the sheriff's office attended at Aitape, West Sepik to seize and take possession of all the plaintiff’s assets. It was then, in the first week of February 2000, that the sheriff's office personnel seized the equipment, which included the steel flat top dumb barge "PM 188".

The letter also states that the defendant informed the sheriff’s office of a settlement between the both parties in satisfaction of the judgment debt and that thereafter, on 10th February 2000, the sheriff’s office handed over to the defendant all the seized equipment which included the barge. 

In support of its contentions that it is in liquidation, the plaintiff tendered its board resolution recommending liquidation to shareholders, its shareholders resolution resolving that the company cannot continue business because of its liabilities and that it appoint Mr Robert Southwell, Chartered Accountant, as liquidator. 

The plaintiff submits that settlement was never reached between the parties and hence the liquidation took its course. However the defendants submit to the contrary and additionally, that the liquidator was not properly appointed. In submitting the latter, the defendants pointed out to the court that it was by late discovery on 13th August 2004, that it discovered the resolution titled "Shareholders Resolution in lieu of meeting pursuant to s. 291 of the Companies Act 1997 and dated 28th day of February 2000," which then prompted it to make the application referred to below.

This now takes me to the defendant's application where he elaborates on the arguments raised above.

Defendant's application

At the close of the plaintiff's case, the defendant made application under O. 10 R. 14 of the National Court Rules for judgment to be entered against the plaintiff, judgment being that the proceedings should be dismissed because the liquidator was not properly appointed. O. 10 R. 14 reads;

"14.	Judgment by direction

(1)	Where the plaintiff is the beginning party, a defendant may, at any time after the conclusion of the evidence for the plaintiff in his case in chief, move the Court for an order directing the entry of judgment for that defendant in the proceedings generally or on any claim for relief in the proceedings on the ground that, on the evidence given, an order directing the entry of judgment for the plaintiff could not be supported.
(2)	Where the ground of a defendant’s motion under sub-rule (1) of this Rule is established, the Court may direct the entry of judgment for the defendant accordingly.
(3)	Where a defendant’s motion under sub-rule (1) of this Rule is refused, the defendant may not, without leave of the Court, adduce evidence in the proceedings or on the claim for relief in question, as the case may be.
(4)	Where fewer than all defendants apply under sub-rule (1) of this Rule, the Court may refuse to make an order under sub-rule (2) of this Rule until the conclusion of the evidence given for all the parties."

The various provisions Mr Shepherd relies on are ss. 86 (1), 88 (1), 103 (1), 101, 103 (6), 103 (8), 291 (1), (2) s. 310 and schedule 8 (a) of the Companies Act. Mr Shepherd submits that the statutory procedure for valid appointment of a liquidator had not been observed by the holding of a special meeting and passing and signing of a special resolution by both Damansara Realty Berhad and Haris Bin A. Hamid as the holder of the 1 remaining share out of the 100 issued shares (Damansara Realty Berhad holding the other 99 issued shares), to then appoint a liquidator, thereby breaching s. 102(a) of the Companies Act. He submits that on that basis, the liquidator has no power under s. 310 and schedule 8 (a) of the Companies Act to commence proceedings WS 942 of 2002. He submits these proceedings are void ab-initio as is the purported liquidation and that the proceedings must be dismissed with costs to the defendant because the plaintiff is not lawfully in liquidation and the liquidator is bereft of all lawful power to exercise the statutory duties of a liquidator. 

It is imperative that I firstly consider Mr Varitimos’s response to the legal arguments raised by Mr Shepherd.

Mr Varitimos for the plaintiff, submits that Mr Shepherd’s submissions contradict O. 8 R. 14 of the National Court Rules. He submits that O. 8 R. 14 is specific in that it states that there are certain matters that must be specifically before a party can properly raise it. This rule reads;

"14.	Matters for specific pleading

In a defence or subsequent pleading the party pleading shall plead specifically any matter, for example, performance, release, any statute of limitation, fraud, or any act showing illegality –

(a)	which he alleges makes any claim, defence or other case of the opposite party not maintainable;
(b)	Which, if not pleaded specifically, may take the opposite party by surprise;
or
(c)	Which raises matters of fact not arising out of the preceding pleadings."

Mr Varitimos submits that at paragraph 8 of its amended statement of claim, the plaintiff pleaded the special resolution of shareholders. In response to that in its amended defence, the defendant only pleads that it does not know and does not admit allegations contained in paragraphs 8, 9 and 11 of the statement of claim. Mr Shepherd’s response to that argument is that it was not until 13th August 2004, by late discovery, that the defendant discovered the board resolution and shareholders resolution referred to as annexure ‘C2’ and ‘C3’. He submits that this was the reason why the defendant did not plead the legal issues it now raises, in its amended Defence filed on 27th July 2004.

I note that the plaintiffs amended reply filed on 5th August 2004, did not make any reference to the validity or not of the shareholders or boards resolution, obviously because the defendant did not plead the validity or not of these resolutions, in its amended Defence.

The law is well settled in Papua New Guinea in relation to matters for specific pleadings. In saying that, I refer to the case Vian Guatal -v- the State [1981] PNGLR 230 at pg. 234 where His Honour Miles .J said;

"…and all grounds of defence or reply must be pleaded, which if not raised, would be likely to take the opposite by surprise or would raise issues of fact not arising out of the present pleadings. Ordinarily speaking, then, if a party wishes to raise an issue which has not been pleaded he will have to amend his pleadings and it is perfectly clear why this is so; to enable the other party to know exactly the case he has to meet, to enable the court hearing the action to know the issues of fact and law between the parties to be decided and to enable a appellate court to know what these issues were when they were decided".

The Supreme Court practice with reference to the English O. 18 R. 8 which is the equivalent of our O. 8 R. 14 refers to a number of references where specific pleadings are necessary and where it is emphasized that:

"this rule enforces one of the cardinal principles of the present system of pleading viz., that every defence or reply must plead specifically any matter which makes the claim or defence in the preceding pleading not maintainable or which might take the opposite party by surprise or raises issues or fact not arising out of the proceeding pleading. Put shortly, wherever a party has a special ground of defence or raises an affirmative case to destroy a case or defence, as the case may be, he must specifically plead the matter he relies on for such purpose."

Having said that, I note now that on discovery by the defendant of the legal defects it claims is contained in the special resolution, that this must now be properly pleaded before the matter can proceed any further, more particularly in its amended defence. This is not a clear cut case where judgment can be handed down because judgment for the plaintiff could not be supported, but a case where there are various legal issues that must firstly be properly pleaded before the matter proceeds to trial. These matters to be specifically pleaded and which I have noted on hearing submissions from both counsel are;

1.	whether the settlement between the parties did take place;

2.	The various provisions in the Companies Act the defendant relies on in saying the liquidation is void ab-initio.

Decision

Mr Varitimos submits that the proceedings should be adjourned to allow the defendant to properly plead the aspect of illegality it now relies on. Although Mr Shepherd submits that an adjournment would not achieve any further benefit to either party and that the plaintiff is in difficulty in proving the essential elements of its case, that a valid special resolution has not been complied with, I find that these matters claiming illegality, must be specifically pleaded before these arguments can then be raised in court and determined. 

I make the following orders;

1.	The defendant’s application for judgment is refused;
2.	That within a week from today, 1st September 2004, the plaintiff may amend its statement of claim to plead any issues relating to the winding up or any other issues relevant to the final determination of this matter;
3.	That within seven (7) days from 8th September 2004, the defendant shall file its amended defence to plead the various provisions in the Companies Act it relies on, in its claim that the liquidator’s appointment is null and void and that the liquidation is void ab-initio;
4.	Thereafter, the plaintiff has seven (7) days from 17th September 2004 to file its amended reply;
5.	On closure of pleadings, inclusive of interlocutories, the parties thereafter shall endeavour to have the substantive matter set down for hearing;
6.	Costs shall be in the cause;
7.	Time is abridged to time of settlement to take place forthwith.

____________________________________________________________________

Lawyer for the Plaintiff	:	Maladinas Lawyers
Lawyer for Defendant		:	Blake Dawson Waldron Lawyers