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Mitio v Gardner [2005] PGNC 158; N2792 (16 February 2005)

N2792
PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE AT WAIGANI]

OS 44 of 2005

BETWEEN:

RICKY M. MITIO
First Plaintiff

AND:

PUGMA KOPI
Second Plaintiff

AND:

WILLIAM G. GARDNER
First Defendant

AND:

TEINE WAPI
Second Defendant

AND:

JOE KURA
Third Defendant

AND:

RODERICK FONOVEE
Fourth Defendant

AND:

MITA MAFUNGE
Fifth Defendant

AND:

JERRY KAPKA
Sixth Defendant

AND:

BOB BOBOLO
Seventh Defendant

Waigani: Davani, .J
2005: 10, 16 February

ADMINISTRATIVE LAW – revocation of appointments of Chief Executive Officer of Statutory Authority and Chairman of Board to Statutory Authority – Application for Declaration – Procedure fvocation of appo appointments prescribed by Statute and Constitutional law - when Declaration will lie

COMPANY LAW – company constitution – circular resolution passed – effect on statute – Companies Act ss. 29, 138, schedule 4.7(1)

PRACTICE AND PROCEDURE – incorporated Regulatory Statutory Authority – whether a company – distinction between company and Regulatory Statutory Authority – non-compliance with statutory and constitutional procedures on revocation of appointments – circular resolution to revoke appointments – deemed null and void – Coffee Industry Corporation (Statutory Functions and Powers) Act 1991; Regulatory Statutory Authorities (Appointment to certain offices) Act 2004 (No. 3 of 2004) Part II and III; Constitutional Amendment No. 29 (Regulatory Statutory Authorities) Part VIIA

Texts and cases cited:

• Bell Resources Ltd v Turnbridge Pty Ltd (1988) 6 A.C.L.C. 970
• Francis Damem, Secretary and Attorney-General Department of Justice and Attorney- General v Honourable Maipakai, MP, Minister for Justice and Honourable Sinai Brown, MP, the Minister for Public Service and Ken Kaia the Government Printer and the Independent State of Papua New Guinea N2730

• ApplicationsJudicial Revieweview, Law and Practice G. Aldous and J. Alder (London: Butterworths 1985)
• Understanding Company Law (4th edn.) by P. Lipton, A. Herzberg (Sydney: Law Book Company Ltd 1992).

Counsel:

M. Wilson for First and Second Plaintiffs

P. Mawa for all Defendants

DECISION

16th February 2005

Davani .J:

On 2nd February, 2005, the plaintiffs filed an Originating Summons where they sought the following orders;

"1. A declaration that the purported resolution of the Board of Directors of the third plaintiff which read ‘Appointment of Mr Ricky Mitio as the Chief Executive Officer of the Coffee Industry Corporation Limited is revoked forthwith and all entitlements for the remaining period due payable to him under the Employment Contract be paid’ is invalid and of no effect.

A declaration that the appointment of Mr Saki Ipata as the Acting Chief Executive Officer of the Coffee Industry Corporation Limited (‘CIC’) is invalid and of no effect.
A declaration that the second plaintiff be removed as the Chairman of the Board of Directors of the CIC is invalid and of no effect.
A declaration that Mr William G. Gardner elected as the Chairman of the Board of Directors of the CIC is invalid and of no effect.
Such other orders this Honourable Court deems fit."

The first plaintiff was the then Chief Executive Officer (‘CEO’) of the Coffee

Industry Corporation Limited (‘CIC’) Limited and the second plaintiff was the then

Chairman of the Board of Directors of the CIC Limited.

On 30th January, 2005, the Board of Directors of the CIC Limited by a resolution in writing signed by seven Directors, terminated the employment of the first plaintiff as the CEO of CIC Limited and further resolved that all contractual entitlements for the remaining period of three months due and payable to him under his Contract of Employment be paid to him. The Board also appointed Mr Saki Ipata as the acting CEO for CIC Limited.

Again, on the same day, and by the same resolution, the Board of Directors of the CIC Limited resolved to remove the second plaintiff as the Chairman of the Board of Directors of CIC Limited. The Board further resolved and appointed Mr William G. Gardner as the Chairman of the Board of the CIC Limited. He is the first defendant in these proceedings.

On 3rd February, 2005, the plaintiffs filed an amended Notice of Motion and sought the following orders;

"1. Until further order, the defendants are restrained from interfering with the management of the Coffee Industry Corporation Limited;

Until further order, all orders and directions that have been made by the defendants and the servants and/or agents or otherwise following their purported resolutions to take over the operations of the CIC from the first and second defendants are hereby revoked and the staff of the CIC affected are to follow the directions of the first and second plaintiffs only with regard to the management and administration of the CIC;
In the event that the defendants appear in these proceedings, they are to disclose to the court by way of affidavit all actions they have taken under their purported resolution including the release of confidential information to the media and/or other third parties;
Until further order, the first defendant is restrained from holding himself out as the Chairman of the Directors of the CIC;
Until further order, the defendants are prohibited from entering the premises of the CIC on Airport Rd, Goroka or approaching any of the staff or executive of the CIC or talking to them by telephone or harassing them or otherwise interfering with their work;
Until further order, the first and second plaintiffs immediately resume their duties as Chief Executive Officer of the CIC and Chairman of Board of Directors of the CIC respectively with their powers as provided for under the Coffee Industry Corporation Statutory Powers and Functions Act (‘the CIC Act’) undiminished;
Until further order, an order that the second plaintiff may join the Coffee Industry Corporation Limited as the third plaintiff in these proceedings and bring a derivative action on its behalf in accordance with s. 143 of the Companies Act, 1997;
The orders herein be served by facsimile upon the defendants care of the offices of the CIC on fax number 372 1351;
The orders herein are returnable in fourteen (14) days;
Such other order this Honourable Court deems fit."

On 3rd February, 2005, His Honour Deputy Chief Justice Injia adjourned the hearing of the plaintiffs’ amended Notice of Motion to 9th February, 2005. In the interim, certain orders were granted by consent to maintain the status quo pending the final determination of the orders sought in the Amended Notice of Motion. These orders read;

"1. The Amended Notice of Motion by the plaintiffs filed on the 3rd day of February, 2005 (‘the Amended Motion’), is adjourned for hearing on 9th February, 2005 by consent before His Honour Mr Deputy Chief Justice Injia;

The adjournment above is made on the condition that the purported resolution of Directors of the Coffee Industry Corporation Limited (‘the CIC’) dated the 28th January, 2005 is not to be implemented by the Defendants until the outcome of the hearing of the Amended Motion referred to in the last preceding paragraph;
The first and second plaintiffs and Mr Saki Ipatas are not to act in their respective position as Chief Executive Officer of the CIC (‘CEO’), Chairman of Directors of the CIC (‘Chairman’) and Acting Chief Executive Officer of the CIC (‘Acting CEO’), which are the subject of dispute in these proceedings, until the Amended Motion is determined;
Until the outcome of the hearing of the Amended Motion, the CIC is to carry on normal operations without the involvement of the first plaintiff and Mr Saki Ipatas as CEO and Acting CEO respectively;
The normal operations of the CIC shall continue until the Amended Motion is determined but no funds are to be released for payments of any extraordinary items provided that provision is to be made for the payment of wages, which are due on Friday 4th February, 2005;

6. Time for entry of this orders be abridged forthwith."

Although several affidavits were filed by both parties in support of the applications, I noted after hearing both counsel at the brief pre-trial conference on 9th February, 2005, that the only issues before the court were legal issues. I urged counsel to agree to those issues, which was done and filed. The Agreed Issues filed on 9th February, 2005, is in these terms;

"1. It is agreed that there was a ‘circular resolution’ signed by seven directors of the Coffee Industry Corporation Limited (the ‘CIC’) as set out in the affidavit of Joe Kua sworn and filed on 8th February, 2005;

The legal issues for determination is whether the circular resolution referred to above is valid and legal and binding on the CIC and the parties to those proceedings;
If the circular resolution is legal and binding upon the parties whether the first and second plaintiffs are terminated thereby;
If the circular resolution is found not to be legally binding on the parties, whether the first and second plaintiffs are to resume their respective positions with the CIC forthwith."

The agreed issues signed by both Mr Wilson of Warner Shand Lawyers, for the plaintiffs and Mr Mawa of Mawa Lawyers, for the defendants, in effect enabled the court, together with both counsel, to reach agreement that it was not the hearing of the motions before the court that was to be determined, but the substantive matter. The order sought are set out in the amended Originating Summons filed by the plaintiff and which amendment the court endorsed on 9th February, 2005, to include orders that the plaintiff will be seeking permanent injunctions, the additional orders sought being;

"5. That the defendants are restrained from interfering with the management of the Coffee Industry Corporation Limited (the ‘CIC’);

7. Costs."

I remind myself of the agreed issues referred to earlier and look now to the Companies Act 1997, and the Constitution of the CIC.

The existence of the CIC is governed by Coffee Industry Corporation (Statutory Functions and Powers) Act 1991. It is defined in that act to be a corporation, limited by guarantee, incorporated under the Companies Act (Chapter 146).

S. 5 of the Coffee Industry Corporation (Statutory Functions and Powers) Act 1991, the provision on the appointment of Directors of the CIC, is repealed and replaced by the Regulatory Statu#16y&Authorities #160;(Appointment ofain Offn Offices) Act 2004 (No. 3 of 2004). This is referred to in Schedule 2 of that Act which states tllowip> "5. ntmenDirectors of the Cohe Coffee ffee IndusIndustry Ctry Corporation;

The Coffee Inee Industry Corporation’s nominees to the Board of the Corporation, which number of nominees shall not exceed the number of vacancies on the Board, shall be appointed in accordance with the Regulatory Statutory Authorities Act 2004."

(my emphasis)

I note that s. 5 (above) is in mandatory terms.

Schedule 2 is the part of that Act which sets out the bodies or entities declared by the Act in Schedule 1 to be a Regulatory Statutory Authority. The Coffee Industry Corporation Limited is listed therein as a Regulatory Statutory Authority.

S. 3 of the Regulatory Statutory Authorities (Appointment to Certain Offices) Act states the importance and significance of a Regulatory Statutory Authority. It reads;

"3. DECLARATION OF REGULATORY STATUTORY AUTHORITIES

(1) The Minister may, by notice in the National Gazette, declare a Regulatory Statutory Authority to be a body to which Part VIIA (Regulatory Statutory Authorities) of the Constitution and this Act applies.

(2) On the publication of a notice under Subsection (1) –

(a) the Regulatory Statutory Authority is subject to the provisions of Part VIIA (Regulatory Statutory Authorities) of the Constitution and this Act; and

(b) the Act or other instrument of incorporation under which the Regulatory Statutory Authority is established is to be read subject to Part VIIA (Regulatory Statutory Authorities) of the Constitution and this Act; and

(c) notwithstanding any provision in the Act or other instrument of incorporation under which that Regulatory Statutory Authority is established, the manner of –

(i) appointment, suspension and dismissal of the chief executive officer; and

(ii) appointment of a non ex officio member of the Board, of that Authority is as specified under Part VIIA (Regulatory Statutory Authorities) of the Constitution and this Act.

(3) For the purposes of this section –

(a) the bodies specified in Schedule 1 are Regulatory Statutory Authorities; and

(b) the Acts specified in Schedule 2 are subject to Part VIIA (Regulatory Statutory Authorities) of the Constitution and this Act; and

(c) the bodies or entities created by the Acts specified in Schedule 2 are Statutory Regulatory Authorities."

I should also point out that the Regulatory Statutory Authorities (Appointment to Certain Offices) Act 2004 states in no uncertain terms in its implementation Clause that it is an Act;

"...to implement part VIIA of the Constitution relating to –

(a) the declaration of Regulatory Statutory Authorities;

and

(b) the appointment, Suspension and Revocation of appointment of Chief Executive Officers of Regulatory Statutory Authorities; and

(c) The appointment of non ex-officio members of Boards of Regulatory Statutory Authorities;

and for related purposes."

S. 2, the interpretation provision defines a ‘Board’; ‘Chief Executive Officer’; ‘Merit-based appointment process’ and ‘Regulatory Statutory Authorities’. It reads;

"2. INTERPRETATION

In this Act, unless the contrary intention appears –

‘Board’, in relation to a Regulatory Statutory Authority, means the Board of Directors or other controlling or governing body, by whatever name known, established to perform the functions, exercise the powers and manage and direct the affairs of that authority;

‘chief executive officer’; In relation to a Regulatory Statutory Authority, means the person appointed as the chief executive officer or the head of the staff of that authority responsible for the management and the carrying out of the functions of that authority;

‘merit-based appointment process’ means the process of appointment specified in s. 5;

‘Regulatory Statutory Authority’ means –

(a) a body corporate established by an Act of Parliament to perform specific statutory functions; and

(b) a body corporate incorporated by authority of an Act of Parliament, and declared under s. 3 to be a body to which Part VIIA (Regulatory Statutory Authorities) of the Constitution and this Act applies;

‘this Act’ includes the regulations."

Part 2 of the Regulatory Statutory Authorities (Appointment to Certain Offices) Act sets out the procedure for selection and appointment of Chief Executive Officers. Part III of that same Act sets out the procedure for revocation of appointment etc of Chief Executive Officers. These I set out in full in the latter part of this decision.

The resolutions reached by the defendants in relation to the first and second plaintiffs, set the present status quo of the CIC and all parties to these proceedings and which I set out in full below;

"Resolutions:

(a) Appointment of Mr Ricky Mitio as the Chief Executive Officer of the Coffee Industry Corporation Limited is revoked forthwith and all entitlements for the remaining period due payable to him under the Employment Contract to be paid;

(b) Appointment of Mr Saki Ipata as the acting Chief Executive Officer to take effect forthwith."

"Resolutions;

(a) Vote of no confidence is moved against Mr Pugma Kopi as the Chairman of the Board of Directors of the CIC, and he is removed as the chairman of this Board forthwith.

(c) Mr William G. Gardner is elected as Chairman of the Board of Directors of the CIC to take effect forthwith."

Submissions from both counsel are both written and verbal.

The plaintiff submits that clause 17.6 of CIC’s Constitution should not be read on its own but must be read together with Schedule 4.7(1) of the Companies Act and s. 138 of the Companies Act. Set out in full below are these provisions;

"138. Proceedings of Board

Subject to the Constitution of the Company, the provisions set out in Schedule 4 govern the proceedings of the Board of a Company."

"Schedule 4

...

7. Unanimous Resolution

A resolution in writing, signed or assented to by all directors then entitled to receive notice of a Board Meeting, is as valid and effective as if it had been passed at a meeting of the Board duly convened and held.

Any such resolution may consist of several documents (including a document sent or received by facsimile machine, telex, computer or other electronic device that provides and documents, a copy of that document, to a person in a permanent form or image, including an electronic or magnetic form of image) in like form each singed or assented to by one or more directors.

A copy of any such resolution shall be entered in the Minute Book of Board Proceedings."

The plaintiff submits further that the proper reading of clause 17.6 of the Constitution and Schedule 4.7(1) of the Companies Act is that the resolution must be unanimous. The plaintiff submits this is so because;

• A company is a collective enterprise;

• The business of a company is done through and by directors’ meetings;

It is at these meetings that the directors then decide on the business of companies;

Circular resolutions are to deal only with urgent or trivial matters and do not require the expense of a meeting.

The plaintiff submits that important issues such as the removal of the Chief Executive Officer must be done by way of a meeting. This is because the Chief Executive Officer is the attorney or agent for the Board and that he cannot be removed by a simple resolution and in this case removal by seven members of the Board.

That the Chairman of Board of Directors also plays an important role in the running of the company and that his removal should also be a matter for consultation by Board members and deliberation at a meeting;

One director was not served with a resolution (see affidavit of George Metpes sworn on 8th February, 2005, par. 2 and 3);

That government representatives on the Board representing Finance and Treasury Department, being Hanson Omega alternate director from the CIC and Mathew Kanua, Secretary for the Department of Agriculture and Livestock and also a director on the CIC’s board refused to sign the circular because they noted the circular to be irregular for various reasons. (see affidavit of Mathew Kanua sworn on 9th February, 2005 and the affidavit of Hanson Omega sworn on 5th February, 2005). I will not discuss the reasons for their refusal to sign because Mr Mawa for the defendant has raised objections in relation to various paragraphs in those affidavits. Nonetheless, it is not necessary for me to consider those reasons, it being suffice only to say that the both noted the circular to be irregular for various reasons.

That the sixth defendant’s signature on the resolution was unauthorized and that it is on that basis that there was a lack of quorum.

The defendants submit to the contrary.

The defendants’ contention is that the resolution in writing signed by the seven directors is valid and effectual as if it had been passed at a meeting of the Board duly convened and constituted as it is in compliance with Clause 17.6 of the Constitution of CIC Limited.

The defendants further contend that because their resolution in writing is valid and effectual for all intents and purpose within the meaning of clause 17.6 of the Constitution of CIC Limited, the resolution for the termination of the Contract of Employment of the first plaintiff and the removal of the second plaintiff as the Chairman of the CIC Limited is also valid.

The defendants contend that the plaintiffs contention that the resolution of the Board in writing (‘circular resolution’) should be signed by all the directors in order for it to be valid is misconceived, erroneous and a clear misconstruction of the true meaning, tenor and effect of Clause 17.6 of the Constitution of CIC Limited.

The defendants submit further that the cumulative effect of all defendants affidavits is that clause 17.6 and other provisions of the Constitution of the CIC Limited was complied with and that the resolution which was signed by all the directors is valid and effectual for all intents and purposes.

As I have heard, the defendants urge the court to read clause 17.6 on its own. They submit that notwithstanding the existence of Schedule 4 of the Companies Act, that s. 138 of the Companies Act is clear and specific in that it states ‘subject to the Constitution of the Company...’. Mr Mawa submits that this then means that the court is bound by the terms of Clause 17.6 of the Constitution of CIC Limited.

Mr Mawa also referred the court to s. 29 of the Companies Act which reads;

"29. Effect of Act on Company not having a Constitution

Where a company does not have a Constitution, the company, the Board, each director, and each shareholder of the company have the rights, powers, duties, and obligations set out in this Act."

Mr Mawa submits that if there are provisions in the Constitution of the Company governing the rights, powers, duties and obligations of a shareholder of a company, then they take precedence over the existing provisions in the Companies Act which have the same effect. Having said that, Mr Mawa referred the court to s. 28 of the Companies Act which reads;

"28. Effect of Act of Company having Constitution

Where a company has a Constitution, the Board, each Director, and each shareholder of the company have the rights, powers, duties and obligations set out in this Act except to the extent that they are negated or modified in accordance with this Act, by the Constitution of the company."

To understand fully the arguments raised by both counsel and to then properly determine the agreed issues, it is necessary that I set out in full the relevant provisions of the Constitution of the CIC Limited and provisions from the Regulatory Statutory Authorities (Appointment to Certain Offices) Act on revocation of appointments of Chief Executive Officers and Chairman. In relation to the CIC Constitution, the provisions set out below are those governing the powers of the Board of Directors, the position of the Chief Executive Officer and the proceedings of the Board of Directors. These relevant clauses from the CIC Constitution are clause 15, 16 and 17. They read;

"CLAUSE 15: POWERS OF THE BOARD OF DIRECTORS

15.1 The affairs of the Corporation shall be managed by the Board, who may exercise all such powers of the Corporation and do on behalf of the Corporation all acts as may be exercised and done by the Corporation and as are not by statute or by this Constitution required to be exercised or done by the Corporation in general meeting or any person, subject nevertheless to this Constitution, to the provisions of the Companies Act and to such regulations, not being inconsistent with the aforesaid regulations or provisions, as may be prescribed by the Corporation in general meeting, but no regulation made by the Corporation in general meeting shall invalidate any prior act of the Board which would have been valid if such regulation had not been made.

15.2 Subject to Clause 16.1(a) the Board shall appoint and remunerate a Chief Executive Officer and shall delegate to the Chief Executive Officer its powers in accordance with 16.1(b).

CLAUSE 16: CHIEF EXECUTIVE OFFICER

16.1 (a) There shall be a Chief Executive Officer of the Corporation who shall be appointed on a full time basis by the Board for a term of three (3) years. The Chief Executive Officer shall not be a Director or a member of the Corporation. The remuneration of the Chief Executive Officer shall from time to time be settled and agreed between the Chief Executive Officer and the Corporation in general meeting. The Chief Executive Officer must be resident in Papua New Guinea and must be a citizen of Papua New Guinea and shall possess such knowledge and experience of the coffee industry as, in the Board’s opinion, is desirable. The Chief Executive Officer shall not absent himself from Papua New Guinea without the sanction of the Board.

(b) For so long as a Chief Executive Officer has been appointed pursuant to this Constitution and continues to hold office the Board shall entrust to and confer upon the Executive Officer any of the powers exercisable by them and functions capable of being performed by them which are not by statute expressly directed or required to be exercised or done by the Corporation in General Meeting or by the Board including, without limiting the generality thereof:

(i) appointment and at the Chief Executive Officer’s discretion removal or suspension of such Company Secretary, Managers, Secretaries, Officers, Clerks, Agents and servants for permanent, temporary or special services as he may from time to time think fit and investment of them with such powers, authorities and discretions as he may think expedient, and fixing of their salaries or emoluments;

(ii) providing for the management of the affairs of the Corporation in such manner as he thinks fit, upon such terms and conditions and with such restrictions as the Board may think fit, and either collaterally with or to the exclusion of and in substitution for the Board’s powers and may from time to time revoke, withdraw, alter or vary all any such powers.

16.2 The Chief Executive Officer shall cease to hold office;

(a) upon his death; or

(b) if he gives written notice of resignation to the Board, upon the expiry of any period of notice therein; or

(c) if he becomes bankrupt or makes any arrangements or composition with his creditors generally; or

(d) upon his becoming ineligible by virtue of the Companies Act or any other law in force in Papua New Guinea; or

(e) if he becomes prohibited from being the Chief Executive Officer by reason of any order made under the Companies Act; or

(f) if he becomes of unsound mind or a person whose person or estate is liable to be dealt with in any way under the law relating to mental health.

CLAUSE 17: PROCEEDINGS OF THE BOARD OF DIRECTORS

17.1 (a) The Board may meet together for the dispatch of business adjourn or otherwise regulate its meetings as it thinks fit. For so long as their appointing members severally remain members, seven (7) directors four (4) of whom are appointed by Grower Association members shall constitute a quorum for all purposes. In the event that any of the members referred to in this Constitution cease to be members, the number of Directors required to constitute a quorum shall be correspondingly adjusted.

(b) The Company Secretary shall on the requisition of a minimum of three (3) directors at least two of whom shall be a director appointed pursuant to Clause 8 (d) (i) – (iv) inclusive or the Chief Executive Officer summon a meeting of the Board. Due notice of the meeting shall be given by the Board or the Secretary, as the case may be, together with the time and place by posting or telegraphing notice to the address given by each director of the Board as the address to which notices are to be sent.

17.2 Subject to Clause 10 the Board may elect a Chairman and Vice Chairman of its meetings. Such election shall be made by all members of the Board and each member shall have one (1) vote in respect of that election. The Chairman and Vice Chairman shall hold such positions whilst they are members of the Board but may be removed and replaced at a meeting of the Board by a majority vote and the Chairman and Vice Chairman shall be entitled to one (1) vote in respect of such election provided however that the Chairman shall not have a casting vote in the case of an equality of votes in such election. If at any meeting the Chairman or Vice Chairman is not present at the time appointed for holding such meeting the directors present shall choose a Chairman.

17.3 Questions arising at any meeting of the Board shall be decided by a majority of votes and in the case of an equality of votes the Chairman of the meeting shall have a second or casting vote.

17.4 A meeting of the Board at which a quorum is present shall be competent to exercise all the authorities, powers and discretions for the time being vested in the Board generally.

17.5 The Board shall cause proper minutes to be made of all appointments of officers made by it and of the proceedings of all meetings of the Corporation and of the Board and all business transacted at such meetings, and any such minutes of such meetings signed by the Chairman thereof or by the Chairman of the next succeeding meeting shall be prima facie evidence without any further proof of the facts therein stated.

17.6 A resolution in writing signed by all the members for the time being of the Board in Papua New Guinea (not being less than the number of required to constitute a quorum) shall be as valid and effectual as if it had been passed at a meeting of the Board duly convened and constituted.

17.7 The Board may act notwithstanding any vacancy in their number but if and so long as their number is reduced below the number fixed by or pursuant to this Constitution as the necessary quorum of the Board, the continuing members of the Board may act solely for the purpose of increasing the number of members of the Board to that number by convening a general meeting of the Corporation to appoint further members.

..."

Relevant provisions from the Regulatory Statutory Authorities (appointment to certain offices) Act read;

"PART III. PROCEDURE FOR REVOCATION OF APPOINTMENT, ETC., OF CHIEF EXECUTIVE OFFICERS.

7. INVESTIGATIONS OF GROUNDS FOR DISMISSAL.

(1) Where, in relation to a Regulatory Statutory Authority, the Board believes that grounds exist for the dismissal of the chief executive officer, it shall cause an investigation into the conduct, activities or performance of the chief executive officer.

(2) The grounds for dismissal referred to in subsection (1) shall be consistent with the grounds for dismissal as specified in the chief executive officer’s contract of employment which include breach of contract, misconduct, poor performance, incompetence and ill health, as prescribed in the Regulations.

(3) Where the Board has made an investigation under subsection (1), it shall submit a report on its investigation together with its recommendations to the Public Services Commission.

(4) On the receipt of a report under subsection (3), the Public Services Commission –

(a) shall consider the evidence provided and the recommendations of the Board; and

(b) may make, or cause to be made, and consider such further investigations (if any) as it considers necessary; and

(c) shall, on the basis of the report and the results of further investigations (if any), inform the Board by way of a recommendation whether or not the appointment of the chief executive officer should be revoked.

(5) The Board shall convey its recommendation to the Minister and, in the event that the National Executive Council approves the recommendation of the Minister to revoke the appointment of the chief executive officer, the National Executive Council shall advise the Head of State to revoke the appointment of the chief executive officer.

8. SUSPENSION OF A CHIEF EXECUTIVE OFFICER

(1) Where a Board is to carry out an investigation into the conduct, activities or performance of a chief executive officer under s. 7(1) and is in receipt of material information from credible sources that the conduct of the chief executive officer is such that serious charges of misconduct may be brought against the chief executive officer, it shall determine whether grounds exist for the suspension of the chief executive officer during the period of the investigation.

(2) The grounds for the suspension of the chief executive officer shall be consistent with the grounds for dismissal or suspension as prescribed and contained in the chief executive officer’s contract of employment.

(3) Where the Board determines that grounds exist for the suspension of the chief executive officer, it shall advise the relevant Minister to recommend to the National Executive Council the suspension of the chief executive officer on full pay for the duration of the investigation.

(4) In the event that the National Executive Council approves the recommendation of the Minister for the suspension of the chief executive officer, it shall advise the Head of State to suspend the chief executive officer.

9. ACTING APPOINTMENT OF CHIEF EXECUTIVE OFFICERS

(1) Where, in relation to a Regulatory Statutory Authority –

(a) the chief executive is unable to undertake his duties for any reason;

or

(b) the Board considers it necessary to make an acting appointment pending a new substantive appointment,

the Board shall recommend to the Minister a suitable person to act for a period not exceeding three months, from a pre-selected list of suitable persons endorsed by the Public Services Commission based upon an assessment of the prescribed minimum person specification.

(2) On receipt of a recommendation under subsection (1), the Minister shall recommend to the National Executive Council to make an acting appointment, and the National Executive Council shall make the acting appointment.

..."

Part II of that same Act sets out extensive procedures for selection and appointment of the Chief Executive Officer which I also set out in full below. These are;

"PART II. PROCEDURES FOR SELECTION AND APPOINTMENT OF CHIEF EXECUTIVE OFFICERS

4. VACANCY IN OFFICE OF CHIEF EXECUTIVE OFFICER

(1) Where the office of the chief executive officer of a Regulatory Statutory Authority is vacant, or is likely to become vacant, the Board shall –

(a) by notice in the National Gazette and in at least one newspaper circulating generally in Papua New Guinea, declare the office vacant; and

(b) advertise the vacancy and invite applications for appointment to the office.

(2) The Board shall, following the merit-based appointment process specified in s. 5 –

(a) prepare from the applications received a ranked list of five candidates in the order of preference; and

(b) submit the list to the Public Services Commission for its consideration.

(3) Where, in relation to an advertised vacancy, the applications received are less than five, the Board shall prepare a ranked list of the applications to the Public Services Commission who shall consider whether the position is to be re-advertised or whether it shall proceed to consider the applications.

5. MERIT-BASED APPOINTMENT PROCESS

Regulations may prescribe a merit-based appointment process which shall involve the following –

(a) the advertisement of a vacancy in an office in the prescribed format together with minimum person specification for applicants to the position;

(b) the assessment of each applicant’s curriculum vitae, submitted in a prescribed format, and their competency to perform the prescribed duties as measured against the minimum person specification for the position;

(c) a ranked ordered assessment of all applicants for the advertised position in terms of their relative competency to perform the prescribed duties;

(d) the merit-based assessment described in this section shall be the primary consideration of the Public Services Commission in making a recommendation to the Board; and

(e) all other considerations not related to the process described in this section shall have no bearing in the recommendation of the Public Services Commission and of the Board.

PROCEDURE FOLLOWING MERIT-BASED APPOINTMENT PROCESS

(1) On the receipt of a list under Section 4(2), the Public Services Commission shall prepare a list, using the merit-based process, of not less than three suitable candidates in the order of preference, either from the list submitted by the Board or from the original applicants to the position, and shall submit its recommendations to the Board.

(2) On the receipt of the recommendations under subsection (1), the Board shall either –

(a) forward the list to the relevant Minister who shall submit his recommendation to the National Executive Council for its consideration within one month of the receipt of the list from the Board; or

(b) determine that the position be re-advertised and shall advise the Public Services Commission accordingly.

(3) The National Executive Council may, in considering the submission from the Minister under subsection (2) (a) –

(a) select one of the candidates recommended by the Minister and shall advise the Head of State to make the appointment of the selected candidate to the position; or

(b) reject any recommendation for appointment in which case, the Board shall re-advertise the position.
..."

Part 4 of that same Act (s. 10), also sets out the procedure for appointment of non ex officio members of boards. It states and sets out extensive procedure which briefly is that if an appointment is to be made of a member to a Regulatory Statutory Authority, and that the appointment "is required to be made in accordance with the Act or other instruments of incorporation under which the Regulatory Statutory Authority is established..." (see s. 10 of that Act) that the appointment shall be made by the Head of State acting on advice, "notwithstanding any provisions to the contrary."

A prepared list is then submitted to the Public Service Commission for its consideration. The Public Service Commission then considers whether the applicants satisfy ‘the fit and proper person criteria’ test and shall then make the appropriate recommendations and advice on appointment to the Minister. On receipt of the list and advice, the Minister shall make a submission on an appointment, to the National Executive Council for its consideration. If the National Executive Council approves the recommendations by the Minister, it will then advise the Head of State to make that appointment to the Regulatory Statutory Authority.

It is at this time that I should refer to part VIIA (Regulatory Statutory Authorities) of the Constitution. This Act is Constitutional Amendment No. 29 which was certified on 27th July, 2004, and which commenced on 12th August, 2004. It was gazetted in Gazettal G. 92/04. This amendment alters the Constitution by making provisions relating to –

(a) the declaration of Regulatory Statutory Authorities; and

(b) the appointment, suspension and revocation of appointment of Chief Executive Officers of Regulatory Statutory Authorities; and

(c) the appointment of non ex officio members of boards of Regulatory Statutory Authorities. (see interpretation provisions of this constitutional amendment).

This amendment is a new part inserted to part VII of the Constitution and which comprise of sections 208A and 208B of the Constitution. I set these provisions out in full. I also set out the transitional and savings provisions. They read;

"2. NEW PART VIIA.

The Constitution is amended by inserting after Part VII the following new Parts –

"PART VIIA. – REGULATORY STATUTORY AUTHORITIES.

"208A. DECLARATION OF REGULATORY STATUTORY AUTHORITIES.

(1) The following are Regulatory Statutory Authorities for the purposes of this Part –

(a) a body corporate established by an Act of Parliament to perform specific statutory functions; and

(b) a body corporate incorporated by authority of an Act of Parliament,

and declared by an Act of Parliament to be a body to which this Part applies.

"(2) An Act of the Parliament may make provision for or in respect of other Regulatory Statutory Authorities to which this Part applies.

"208B. APPOINTMENTS TO CERTAIN OFFICES OF REGULATORY STATUTORY AUTHORITIES.

(1) This section applies to and in respect of the following offices and positions –

(a) all offices of chief executive officers of Regulatory Statutory Authorities; and

(b) all offices of non ex officio members of Boards of Regulatory Statutory Authorities; and

(c) such other offices and positions as are prescribed by an Act of Parliament for the purpose.
"(2) All appointments (whether temporary or substantive) to offices to which Subsection (1) (a) applies shall be made by the Head of State, acting with, and in accordance with, the advice of the National Executive Council given after considering recommendations from the relevant Minister, acting on the advice of the relevant Board in accordance with the recommendation from the Public Services Commission, following procedures prescribed by an Act of Parliament.

"(3) All temporary appointments (whether temporary or substantive) to offices to which Subsection (1) (a) applies shall be made by the National Executive Council given after considering recommendations from the relevant Minister, acting on the advice of the relevant Board in accordance with the recommendation from the Public Services Commission, following procedures prescribed by an Act of Parliament.

"(4) The revocation of appointments of persons appointed under Subsection (1) (a) shall be made by the Head of State, acting with, and in accordance with, the advice of the National Executive Council given after considering recommendations from the relevant Minister, acting on the advice of the relevant Board in accordance with the recommendation from the Public Services Commission, following procedures prescribed by an Act of Parliament.

"(5) The suspension from office of persons appointed under Subsection (1) (a) shall be made by the Head of State, acting with, and in accordance with, the advice of the National Executive Council given after considering recommendations from the relevant Minister, acting on the advice of the relevant Board in accordance with the recommendation from the Public Services Commission following procedures prescribed by an Act of Parliament.

"(6) All appointments (whether temporary or substantive) to offices to which Subsection (1) (b) applies shall be made by the Head of State, acting with, and in accordance with, the advice of the National Executive Council given after considering recommendations from the relevant Minister following procedures prescribed by an Act of Parliament.".

3. TRANSITIONAL AND SAVINGS

(1) a Chief Executive Officer of A Regulatory Statutory Authority or a non ex officio member of the Board of a Statutory Regulatory Authority referred to in Section 208B (appointment to certain offices of Regulatory Statutory Authorities) of the Constitution who –

(a) was, before the coming into operation of this Law, validly appointed (whether substantively or temporarily); and

(b) immediately before that coming into operation held that office (whether substantively or otherwise),

shall, on that coming into operation, be deemed to be validly appointed (substantively or temporarily, as the case may be) under Section 208B (appointment to certain offices of Regulatory Statutory Authorities) and shall continue to hold that office (substantively or temporarily, as the case may be) until the expiry of the term of his appointment or until the cessation of his appointment otherwise according to law, whichever shall first happen.

(2) A chief executive officer of a Regulatory Statutory Authority referred to in Section 208B (1) (a) (appointment to certain offices of Regulatory Statutory Authorities) of the Constitution who –

(a) was, before the coming into operation of this Law, validly suspended from office; and

(b) immediately before that coming into operation was so suspended from office,

shall, on that coming into operation, be deemed to be validly suspended from that office in accordance with 208B (1) (a) (appointment to certain offices of Regulatory Statutory Authorities) of the Constitution, and shall continue to be so suspended from office until the suspension is lifted or until he ceases to hold that office according to law, whichever shall first happen."

It is established law that the CIC Limited is a body corporate incorporated by authority of an act of Parliament and declared under s. 3 of the Regulatory Statutory Authorities (Appointment to certain offices) Act to be a body to which part VIIA (Regulatory Statutory Authorities) of the Constitution and that Act apply. (see s. 2 of Regulatory Statutory Authorities (appointment to certain offices) Act). In accordance with s. 3 (2) (a) (b) (c) of the Regulatory Statutory Authorities (Appointment to Certain Offices) Act, on declaration by gazettal that the CIC is a body to which part VIIA (Regulatory Statutory Authorities) of the Constitution apply, the CIC is then subject to the provisions of part VIIA (Regulatory Statutory Authorities) of the Constitution and the Regulatory Statutory Authorities (appointment to certain offices) Act. In this case, the CIC Limited as we have seen, is a Regulatory Statutory Authority.

Furthermore, the Regulatory Statutory Authorities (Appointment to certain offices) Act and the CIC Limited Constitution, which is the ‘other instrument of incorporation’ referred to in s. 3 (2) (b) of the Regulatory Statutory Authorities (appointment to certain offices) Act must be read subject to part VIIA (Regulatory Statutory Authorities) of the Constitution. Any appointments, suspensions and dismissal of Chief Executive Officers or a non ex officio members of the Board, must be done in accordance with clause 3 (2) (c) of the Regulatory Statutory Authorities (Appointment to certain offices) Act and part VIIA (Regulatory Statutory Authorities) of the Constitution.

In relation to the manner in which the CIC Limited’s CEO and Chairman’s appointment were revoked, I find that the defendants did not follow procedure set out in ss. 4, 5, 6, 7, 8, 9, 10 of the Regulatory Statutory Authorities (Appointment to certain offices) Act. In saying that, I then refer to constitutional amendment No. 29. S. 2 and the new s. 208B of that act is the procedure in relation to appointments to the office of the Chief Executive Officer and non ex officio members of boards, in this case the chairman. S. 208B (1) (a) states that all appointments shall be made by the Head of State, acting with and in accordance with the advice of the National Executive Council (NEC) given after considering recommendations from the relevant Minister acting on the advice of the relevant Board in accordance with the recommendations from the Public Services Commission, following procedures prescribed by an act of Parliament. The act of Parliament in this case is the Regulatory Statutory Authorities (Appointment to certain offices) Act. The provisions to be read together are part 2 of that Act which consists of ss. 4, 5, and 6.

As to temporary appointments, this is also done by the NEC after considering recommendations from the Minister acting on the advice of the Board in accordance with recommendations from the Public Services Commission following procedures prescribed by an act of Parliament (see s. 208B (3) of Constitutional Amendment No. 29). This section should be read together with s. 9 of the Regulatory Statutory Authorities (Appointment to certain offices) Act.

Again, in relation to the revocation of persons appointed, that this shall be made by the Head of State, acting with, and in accordance with, the advice of the National Executive Council given after considering the recommendations from the relevant Minister, acting on the advice of the relevant Board in accordance with the recommendation from the Public Services Commission, following procedures prescribed by the act of Parliament, in this case, the Regulatory Statutory Authorities (Appointment to certain offices) Act. (see s. 208B (4) of Constitutional Amendment No. 29). The relevant sections to be read together with s. 208B (4) of the Constitutional Amendment No. 29 are s. 7 and 8.

Again, in relation to the office of the chairman, who is described as non ex officio member, that all appointments whether temporary or substantive shall be made by the Head of State acting with, and in accordance with the advice of the National Executive Council, given after considering recommendations from the relevant Minister following procedures prescribed by an act of Parliament. (see s. 208B (6) Constitutional Amendment No. 29). This provision should be read together with part 4 of the Regulatory Statutory Authorities (Appointment to certain offices) Act which consists of s. 10 (1) to (7) and which is the ‘act of Parliament’ referred to in s. 208B (6) of Constitutional Amendment No. 29.

In this case, none of the procedures were complied with. The defendants, relying on a practice within the CIC, as is evident from the evidence before me (see annexure ‘C’ to Joe Kura’s affidavit sworn on 8th February 2005), then signed a document which they refer to, as a resolution, revoking the plaintiffs’ appointments. In this case, the plaintiffs both hold very important offices governed by the Coffee Industry Corporation (Statutory Functions and Powers) Act of 1991. The CEO’s duties relate to the control and regulation production, processing, marketing and export of coffee, amongst others. The manner in which he carries out his duties is important for the proper administration and administering of the production of coffee in this country. It is a very important office and his removal has serious implications and ramifications on his personal and professional standing and integrity, and on the body that he heads and on the coffee industry in this country.

The dismissal, suspension and appointment of the CEO and chairman is given considerable importance by the various legislations I have referred to and most importantly, by the Constitution of this country, which is the superior law. The suspension procedure set out in the statutory and constitutional provisions I have referred to are fairly extensive and in mandatory terms. The Public Services Commission is given a key role in the appointment and suspension process. This is to ensure that these procedures are strictly followed and in that process, the politicization and personality clashes is minimized. It also ensures that due process according to law is considered and applied when effecting the CEO or chairman’s suspension and appointment and that the public interest and confidence in these high offices are guarded against disciplinary action motivated by litigious and personal considerations. In saying that, I refer to Francis Damem, Secretary and Attorney-General Department of Justice and Attorney-General v Honourable Maipakai, MP, Minister for Justice and Honourable Sinai Brown, MP, the Minister for Public Service and Ken Kaia the Government Printer and the Independent State of Papua New Guinea N2730 decided on 24th November, 2004. Although this was a case relating to an application for judicial review, which dealt in detail with the suspension of Departmental Heads and the procedure prescribed by statutory and constitutional law and the necessity for various bodies concerned to comply with procedures stipulated therein, that case demonstrated the lack of consultation by departments of the existing legislation and the Constitution. This is one such case.

As to whether the circular resolution is valid and legally binding, it is apparent that the CIC constitution, more specifically clause 17.6, should not be read on its own because of the CIC’s peculiar and unique nature as a Regulatory Statutory Authority. It means and demands that all persons involved with it must comply with provisions set out in the Regulatory Statutory Authorities (Appointment to certain offices) Act of 2004 and Constitutional Amendment No. 29 - Regulatory Statutory Authorities. Clause 17.6 should not be read on its own as an ordinary company constitution where the norm is that the will of a general meeting is expressed by the passing of resolutions. Of course there are business transactions in a company which require decision and which are done at a general meeting and which resolutions when passed may vary in importance but which require that directors comply with provisions in the Constitution. (e.g see annexure ‘C’ to Joe Kura’s affidavit sworn on 8th February 2005). Also, there are different types of resolutions, some which only require a simple majority in order to be passed called ordinary resolutions and others more important with respect to matters that may require special notice or a majority greater than a simple majority.

Again, in an ordinary company and in relation to the signing of resolutions, a rule known as the ‘duomatic’ principle is where all shareholders entitled to attend and vote at a general meeting of a company, assent with full knowledge and consent to some matter that could have been carried into effect at a general meeting. The assent, is as binding as a resolution in a general meeting would have been. It is open for all shareholders to agree to disregard the formalities associated with the calling of a meeting. This doctrine does not operate where substantial rights are varied or where shareholders are not fully aware of the effect of the matter agreed to on their right. (see ‘Understanding Company Law’ P. Lipton and A. Herzberg pg. 376). Again, in such cases, the transaction must be honest and must be for the benefit of the company. Only the consent of voting members is required for such an informal meeting. (see re Duomatic Ltd [1969] 2CH. 365). But such is not the case here.

I note also that neither counsel have tendered to the court copies of properly kept minutes which may or can confirm the decision made. Where minutes are properly entered and signed, the particular meeting is deemed to have been duly held and convened. The recorded proceeding are deemed to have duly taken place and any recorded appointments of offices or auditors are deemed to have been validly made. These presumptions are subject to contrary proof. (‘Understanding Company Law’) (supra). A meeting can be declared invalid for lack of minutes.

However, in this case, as opposed to non-compliance with the company Constitution and the Company’s Act, there is a statutory requirement to comply with procedure. Here, there is clearly a procedural irregularity. As to the procedural irregularity now apparent, the common law is that they are not invalidated unless the court is of the opinion that the irregularity has caused or may cause substantial injustice which may not otherwise be remedied by order of the court. In such cases, the court has power to declare the proceedings invalid. (see ‘Understanding Company Law’ (supra) pg. 376; Bell Resources Ltd v Turnbridge Pty Ltd (1988) 6 A.C.L.C. 970).

Notwithstanding the above, the unique nature of the CIC Limited as a Regulatory Statutory Authority requires that the Board comply with provisions set out in the various legislations I have referred to when making appointments to the Board, suspension of members from the Board and decisions relating to the office of the CEO and the chairman, more specifically that of appointment and suspension.

Considering all the above, I find that the manner in which the circular resolution was passed is invalid. Relying on the transitional and savings provisions in s. 3 of Constitutional Amendment No. 29, I rule that the both plaintiffs were validly appointed and shall continue to hold that office until expiry of the term of their appointment or until the cessation of their appointment, whichever shall first happen.

In relation to the permanent injunctions, both counsel have not made submissions on that aspect so I need not deal with it. In any event, I do not consider it necessary that an injunction be placed because the legislations I have referred to are clear, that if the board is dissatisfied with the plaintiffs’ performance, that the procedure in relation to an anticipated decision to suspend or revoke is referred to in legislation and must be complied with.

As to the declarations sought, the common law is that a declaration will lie when a decision is a nullity. Thus any defect which makes a decision ultra vires is a principle reviewable by means of a declaration. In this respect, the declaration is capable of achieving the same result as any of the prerogative orders. Like Certiorari or Prohibition, it can expose the nullity of an existing or prospective decision and like Mandamus, can declare that the authority has a duty to decide according to principles laid down by the court. (see ‘Applications for Judicial Review, Law and Practice’ G. Aldous and J. Alder pg. 59).

In this case, I find all defendants action to be ultra vires the provisions of Constitutional Amendment No. 29 and the Regulatory Statutory Authorities (Appointment of Certain Offices) Act and will made the orders sought by the plaintiff. These are the courts formal orders;

A declaration that the circular resolution signed by the defendants on 30th January, 2005, revoking the first plaintiff’s position as the Coffee Industry Corporations Chief Executive Officer and for payment of entitlements to him for the duration of his term, is invalid and of no effect;

A declaration that the defendants resolution to appoint Mr Saki Ipata as the Acting Chief Executive Officer of the Coffee Industry Corporation Limited (‘CIC’) made on 30th January, 2005, is invalid and of no effect;

A declaration that defendants resolution of 30th January, 2005, to remove the second plaintiff as the Chairman of the Board of Directors of the CIC, is invalid and of no effect;

A declaration that the defendants resolution made on 30th January, 2005, that the first defendant William G. Gardner be elected as the Chairman of the Board of Directors of the CIC, is invalid and of no effect;

That the defendants shall pay the plaintiffs’ costs of these proceedings, to be taxed if not agreed.
_________________________________________________________________

Lawyer for First and Second Plaintiffs : Warner Shand Lawyers

Lawyer for all Defendants : Mawa Lawyers

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