N3155

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS 1507 OF 2002

BETWEEN:

WILFRED PAKE GIRU,
Customary Administrator of the Estate of
FLORENCE TELE, Deceased
Plaintiff

AND:

PUBLIC OFFICERS
SUPERANNUATION BOARD
First Defendant

AND:

THE INDEPENDENT STATE OF
PAPUA NEW GUINEA
Second Defendant

AND:

WORKERS MUTUAL
INSURANCE (PNG) LIMITED
Third Defendant

Waigani: Hartshorn, J.
2007: 25 July,
16 August

COMPANY LAW – interim liquidator appointed – commencement of liquidation - s.298(1)Companies Act - leave to continue proceedings once liquidation of company commences - factors to be considered in exercise of discretion of court

Cases cited 

Papua New Guinea
Bishop Shipping Services Pty Ltd v. The M.V. Pedro [1980] PNGLR 247
Ace Guard Dog Security Services Ltd & Anor v. Telikom PNG Ltd (2004) SC757, 
Benny Diau v. Gamini Kinigama & Anor (2005) Unreported OS 852 of 2002, Waigani,
Bexhill Funding Group Ltd v. Basumel Ltd (2006) N3092

Overseas Cases
Century Mercantile Co. v. Auckland Fruitgrowers’ Society [1921] NZLR 272,
Vagrand Pty Ltd (in liq) v. Fielding (1993) 41 FCR 550,
Capita Financial Group Ltd v. Rothwells Ltd (1989) 15 ACLR 348,
Fisher v. Isbey (1999) 13 PRNZ 182,
Hook v. Gulf Harbour Development Ltd (In Liquidation) & Ors [2005] NZHC 282, 
Tolhurst Druce & Emmerson v. Maryvell Investments Pty Ltd (in liq) [2007] VSC 271,

Counsel:
L. Tilto, for the Plaintiff

16 August, 2007

1. HARTSHORN, J. Introduction: Mrs. Florence Tele died as a result of injuries she sustained in a car accident in May 1999. Mr. Giru is suing as the customary administrator of Mrs. Tele’s Estate for payment under an alleged life insurance policy and for damages. One of the defendants, Workers Mutual Insurance (PNG) Ltd (WMI) had an interim liquidator appointed to it by this court on 19 July 2006.

Mr. Giru seeks leave of this court pursuant to s. 298(1)(c) of the Companies Act to have this proceeding listed for trial and by doing so is seeking to continue this proceeding against WMI.

Issue

2. (a) whether leave is required by Mr. Giru to continue this proceeding against WMI. 	
 (b) if so, should leave be granted?

Requirement for leave 

3. The only evidence before the court in this proceeding as to the status of WMI is contained in the affidavit of Tyson Boboro dated 15 August 2006. Annexed to this affidavit is a copy of an order of this court dated 19 July 2006 in proceeding MP 252 of 2005. That order appoints David Guinn as the interim liquidator of WMI pursuant to s. 296 Companies Act.

4. Section 298(1) Companies Act is as follows:

(1)	With effect from the commencement of the liquidation of a 	company—

(a)	the liquidator has custody and control of the company's 	assets; and

(b)	the directors remain in office but cease to have powers, functions, or duties other than those required or permitted to be exercised by this Part; and

(c)	unless the liquidator agrees or the Court orders otherwise, a person shall not—

(i)	commence or continue legal proceedings against  the company or in relation to its property; or

(ii)	exercise or enforce, or continue to exercise or enforce, a right or remedy over or against property of the company; and

(d) unless the Court orders otherwise, a share in the company shall not be transferred; and

(e) an alteration shall not be made to the rights or liabilities of a shareholder of the company; and

(f) a shareholder shall not exercise a power under the constitution of the company or this Act except for the purposes of this Part; and;

(g) the constitution of the company shall not be altered.

5. Section 291(4) provides that, "The liquidation of a company commences on the date on which the liquidator is appointed". Section 290(1) provides inter alia, that unless the contrary intention appears "liquidator" includes an interim liquidator. Accordingly, upon the appointment of David Guinn as interim liquidator the liquidation of WMI commenced and unless Mr. Guinn agrees or this court orders otherwise, Mr. Giru shall not continue his legal proceeding against WMI. 

6. Mr. Giru has purportedly given proof of his claim with supporting documentation to Mr. Guinn, while giving notice that he reserves his rights to pursue his claim in court. Mr. Giru says that he has not received a reply from Mr. Guinn. There is no evidence before the court that Mr. Giru has requested Mr. Guinn for his approval, or that Mr. Guinn has either agreed or disagreed for this proceeding to continue. There is evidence that Mr. Guinn was given notice of Mr. Giru’s application but there was no appearance on behalf of Mr. Guinn on the hearing of the application.

Should leave be granted

7. What factors should the court consider in determining whether to allow proceedings against a company in liquidation to continue?

The predecessor to s. 298(1), s. 230(3), was considered in this jurisdiction in Bishop Shipping Services Pty Ltd v. The M.V. Pedro [1980] PNGLR 247. Section 298(1) has been considered in Ace Guard Dog Security Services Ltd & Anor v. Telikom PNG Ltd (2004) SC757, Bexhill Funding Group Ltd v. Basumel Ltd (2006) N3092 and Benny Diau v. Gamini Kinigama & Anor (2005) Unreported OS 852 of 2002, Waigani, Davani J., but those cases did not specifically consider when proceedings against a company that is placed in liquidation should be allowed to continue.

8. In the Bishop Shipping case (supra), Pratt J. cited with approval the New Zealand case of Century Mercantile Co. v. Auckland Fruitgrowers’ Society [1921] NZLR 272, in which the following words from Lindley on Companies were quoted:

"The only material question to be considered is whether there are any circumstances which render it necessary that the action should be continued, or whether the claim of the plaintiff is not one which can be as easily dealt with in the winding up as in any other way."

9. The court granted leave for the defendant to proceed with a counterclaim against the plaintiff as it was of the view that the majority of the pleadings had been served in the proceedings, there were substantial and complex issues to be tried between the parties, and that if the liquidator were to deal with the claim, he would certainly have doubt as to the legal situation and would apply to the court for its advice and direction.

10. Section 248(1) (c) of the Companies Act 1993 of New Zealand is the same as s. 298(1) (c). In the High Court case of Hook v. Gulf Harbour Development Ltd (In Liquidation) & Ors [2005] NZHC 282, Doogue AJ., in considering s. 248(1) (c) was guided by the principles established in Fisher v. Isbey (1999) 13 PRNZ 182 which are: 

(a) It is a cardinal principle that there must be equality among various creditors: Steel & Tube Co of NZ Ltd v. Barker & Pollock Ltd and Anor [ 1973] 2 NZLR 30, 32;

(b) It follows that the bringing of the proceedings should not produce an advantage to a particular creditor over other creditors: Langley Construction (Brixham) Ltd v. Wells [1969] 1 WLR 503; 2 All ER 46 (CA);

(c) The assets of a company should not be dissipated in wasteful litigation particularly if there is a more convenient method for determining the claim: McPhail v. Durbridge Developments Ltd (in 	liq) (1998) 8 NZLC 261;

(d) The onus is on the party seeking leave to satisfy the Court that leave should be given: McPhail v. Durbridge Developments Ltd (in liq) (supra);

(e) There is a difference of legal opinion as to the test to be applied. The first position is that the application must show that there is a serious question to be tried. The second position is that the claim should not be clearly unsustainable but that the Court will not investigate the merits of the claim;

(f) The Court must determine whether the procedure for determining creditors’ claims provided in the Companies Act and the Court's power of review in the Companies Act is appropriate and if not whether the claims should be established in civil proceedings commenced by leave: Pacific Produce Co Ltd v. Franklin Cool Growers Ltd (in liq) [1969] NZLR 65 (CA); Loyal Ltd v. Standard Tobacco Co Ltd (in liq) [1935] NZLR 83.

11. An equivalent section to s. 298(1) in Australia is s.471B of the Corporations Act. This section and the factors to be taken into account in determining whether proceedings against a company in liquidation should continue were considered in Tolhurst Druce & Emmerson v. Maryvell Investments Pty Ltd (in liq) [2007] VSC 271. It was noted in that case that an applicant for leave must as a necessary pre-condition establish that its claim amounts to "a prima facie case"; Capita Financial Group Ltd v. Rothwells Ltd (1989) 15 ACLR 348 or "a serious claim and a real dispute"; Vagrand Pty Ltd (in liq) v. Fielding (1993) 41 FCR 550. In Vagrands case (supra) the Full Federal Court concluded that:

"Upon a close reading of the relevant authorities, it is apparent to us that the courts have not in fact required applicants for leave to demonstrate a prima facie case against the company in liquidation, in the technical sense of that term. They have required to be affirmatively satisfied that the claim has a solid foundation and gives rise to a serious dispute. Having regard to the course actually taken by the courts, "prima facie case" is misleading. Perhaps it should be avoided in the future. ……. The test which has actually been applied is akin to that now used in considering whether interlocutory relief should be granted: ‘a serious question to be tried’." 

Once this pre-condition has been satisfied, other factors which might be relevant according to Ford’s Principles of Corporations Law reproduced in Tolhurst's case (supra) include:

" ‘…. the amount and seriousness of the claim, the degree of complexity of the legal and factual issues involved, and the stage to which the proceedings, if already commenced, may have progressed’: Ogilvie-Grant v. East (1983) 7 ACLR 669 at 672; 1 ACLC 742 at 744-5. It does not necessarily follow from the claim being much larger than other claims against the company that leave should be granted. The fact that proceedings have already been in train does not of itself lead to a grant of leave: Meehan v. Stockman's Australian Café (Holdings) Pty Ltd (1996) 22 ACSR 123; 15 ACLC 62 (a case on similar provisions in s. 444E relating to companies under a deed of company arrangement).

12. Given that the respective provisions in the Australian and New Zealand Company and Corporations legislation are similar or the same as s. 298(1), the judicial interpretations of the corresponding sections in those jurisdictions are persuasive authorities which bear consideration by this court.

13. The first question to determine is whether as a pre-condition, the plaintiff should demonstrate either a serious question to be tried or a case that is not clearly unsustainable.

14. Section 298(1) attempts to ensure that assets of a company in liquidation are administered in accordance with the Companies Act by the liquidator and that the assets are not dissipated in wasteful litigation or by a multiplicity of proceedings.

15. A pre-condition that the plaintiff merely has to show that his claim is not clearly unsustainable with the court not investigating the merits of the claim would in my view, likely result in the majority of such claims being allowed to commence or progress, thus leading to a multiplicity of proceedings. This would in addition, reduce the effect of the legislation.

16. The requirement that a court is affirmatively satisfied that the claim has a solid foundation and gives rise to a serious dispute - a serious question to be tried - as found to have been required by Australian courts, Vagrand’s case (supra), is to my mind, the appropriate standard to be met.

17. Adopting that standard, in this instance, can the court be affirmatively satisfied that Mr. Giru’s claim against WMI has a solid foundation and gives rise to a serious dispute - a serious question to be tried?

18. WMI was added as a defendant to the proceeding on 12 May 2003 upon the application of the Public Offices Superannuation Fund Board, 6 months after the proceeding was commenced. There has not been any amendment to the statement of claim. WMI has filed a defence, but there are no allegations and no relief sought against WMI in the statement of claim. 

19. In my view, on the pleadings, it cannot be said that Mr. Giru has a serious question to be tried or even that he has a case that is not clearly unsustainable against WMI. 

20. When regard is had to the other factors that have been considered in the Australian and New Zealand jurisdictions, the following appear relevant to the present circumstances:

•	The pleadings do not reveal that Mr. Giru's case against WMI is one where there are complex legal and factual issues involved.
•	If the interim liquidator rejects Mr. Giru’s claim, s.332(1)(b) Companies Act provides for Mr. Giru to seek the leave of the court to reverse that decision.
•	 As equality must be maintained between the unsecured creditors, to allow a continuation of the proceeding may produce an advantage to Mr. Giru over other unsecured creditors.

Conclusion

21. The appropriate standard to be met by an applicant seeking to commence or continue proceedings against a company in liquidation is that it has a serious question to be tried. If that standard is met, numerous other factors are to be considered by the court in determining whether it should exercise its discretion in favour of the applicant.

22. In the present circumstances, Mr. Giru has not satisfied the court that he has a serious question to be tried. The other factors that are considered by the court in determining whether leave should be granted to commence or continue proceedings against a company in liquidation do not support the court exercising its discretion in Mr. Giru's favour.

23. Consequently Mr. Giru's application is refused.

__________________________________

Kari Bune Lawyers: Lawyers for the Plaintiff