N3759

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

O.S.NO. 587 OF 2007 & 433 OF 2008

BETWEEN:

BARAVA LIMITED
First Plaintiff

AND:

BENJAMIN MURLIU, ALBERT LIVINGSTONE, JOSEPH MANIKOT, 
BENJAMIN WAONGO, PETER OSWIN, TILITA PAULA, CHARLES VOVONO,
 AISOLI JACK & KOVUT VANINARA
Second Plaintiffs

AND

BENJAMIN MURLIU (In trust of members of Gunanba Village) and 
ALBERT LIVINGSTONE (In trust of members of Bitavavar Village)
Third Plaintiffs

AND

JOSPEH BUIDAL
First Defendant

GIREGIRE ESTATES LIMITED
Second Defendant

AND

REGISTRA OF COMPANIES
Third Defendant

Kokopo: Lenalia; J.
2009: 14th September & 1st October

PRACTICE & PROCEDURE – Application to dismiss for frivolity – No reasonable cause of action shown on pleadings – Abuse of the Court’s process – Motion to dismiss proceedings for failure to disclose reasonable cause of action and abuse of process – National Court Rules, Order 12, Rule 40 (frivolity etc).

PRACTICE & PROCEDURE – Action against another company – Action not derivative in nature pursuant to Section 143 of the Companies Act – What is derivative action.

PRACTICE & PROCEDURE – Motion and application to review – Taxing Officer’s decision on what had been properly assessed and taxed – National Court Rules, Order 22 Rule 60. 

Cases cited:

Papua New Guinea Cases

PNG Forest Products Pty Ltd & Inchape Berhad v. The State and Genia [1992] PNGLR 85 
Ronney Wabia v. BP Exploration & Ors (1998) N1697
Odata v Ambusa Copra Oil Mill Ltd (2001) N2106

Overseas cases

Salomon v Salomon & Co Ltd (1897) A.C.22
Yorkshire Miners’ Association v Howden [1905] A. C. 256
Edwards v Halliwell [1950] 2 All. E. R. 1064
British America Nickel Corp. v O’Brien [1927] A. C. 369
Burland v Earle [1902] A. C. 83
Hubbuck & Sons Ltd v Wilkinson Heywood & Clark Ltd [1899] A11 E. R. 244
Grierson v The King (1938) CLR. 431

Counsel:

E. Paisat, for the Respondent/Plaintiffs
N. Saroa, for the Applicant/Defendants

1st October, 2009

1. LENALIA; J. In these proceedings, there are two applications on foot. On OS 587 of 2007 there is an application by the lawyer for the plaintiffs/applicants to review the decision by the Taxing Officer pursuant to Order 22 Rule 60 of the National Court Rules. 

2. Secondly on OS 433 of 2008, Nelson Lawyers through Mr. Saroa applied for dismissal of the proceedings because they say there is no reasonable cause of action disclosed. The later application is made under Order 12 Rule 40 of the Rules.

3. I take the application to dismiss first. Order 12 Rule 40 states:

"40. Frivolity, etc.

(1) Where in any proceedings it appears to the Court that in relation to the proceedings generally or in relation to any claim for relief in the proceedings—

(a) no reasonable cause of action is disclosed; or

(b) the proceedings are frivolous or vexatious; or

(c) the proceedings are an abuse of the process of the Court, the Court may order that the proceedings be stayed or dismissed generally or in relation to any claim for relief in the proceedings.

(2) The Court may receive evidence on the hearing of an application for an order under Sub-rule (1)."

4. On the application for review of taxation, Order 22 Rule 60 (1) – (4) of the National Court Rules state:

"60. Application for review of taxation 

(1) Any party to any taxation proceedings who is dissatisfied with the allowance or disallowance in whole or in part of any item by the taxing officer, or with the amount allowed by the taxing officer in respect of any item, may apply on motion to a Judge to review the decision in respect of that item.

(2) An application for review of the taxing officer's decision shall be made within 14 days after the date of the decision objected to or within such further time as the Court may allow.

(3) Every applicant for review under this Rule must at the time of making his application deliver to the taxing officer objections in writing specifying the list of items to which the applicant objects and must state concisely the nature and grounds of each objection.

(4) An applicant for review under this Rule shall serve a copy of the objections on each other party (if any) who attended the taxation of those items and any other person whom the taxing officer directs shall be served."

5. The two lawyers made brief submissions on their respective applications and each made brief replies to each other. Mr. Saroa of counsel for the applicant/defendants in OS No. 433 of 2008 submitted that there is no evidence to show why the Second Defendant can be struck off from the register of Companies as there was no leave sought by the Plaintiffs in these proceeding. 

6. Secondly, counsel argued that there is no evidence to show that, either the Second or Third Plaintiffs are directors or shareholders of the Second Defendant. The last leg of the applicants/defendants’ counsel submission is that the First Plaintiff Company is not a related company to the Second Defendant and thus has no legal standing. 

7. On the application to dismiss, the law is that whenever a plaintiff brings a case to court, an originating document, as in the instant case, the originating summons, the pleadings in the claim must demonstrate that the plaintiff has a ‘cause of action’. The document must clearly set out the legal ingredients or the elements of the claim relied on, and the facts that support the elements of the claim. 

8. I have read the documents and affidavits on this action and noted the Registrar of companies is named as the Third Defendant on the originating summons. I have also read the affidavit evidence filed on 3rd October 2008 by the First Defendant. 

9. In that affidavit, Mr. Buidal says that he is not pursuing his own interests as alleged by the Plaintiffs. There is evidence from the First Defendant that, he is the Director and Secretary of the Second Defendant. 

10. An important aspect of Mr. Saroa’s submission is that, there is no legal basis for the plaintiffs to seek orders to strike off the Second Defendant from the register of companies. Counsel further argued that, no leave had been sought to institute these proceedings as required by the Companies Act. 

11. It is clear from the submission that, there is a separate proceeding OS No. 285 of 2008 in which the First and Second Defendants were granted leave for judicial review. In the affidavit of the First Defendant, he refers to this fact in paragraph 5 and also attaches a copy of the judgment by His Honour Lay, J dated 4th June 2008. (See Ann "D" of First Defendant).

12. For the Respondents/Plaintiffs, Mr. Paisat replied by conceding to the submission by the counsel for the Applicant/Defendants and submitted that, even earlier than the motion for dismissal was filed, they had indicated that, they wanted to withdraw these proceedings. Counsel asked the court to withdraw this case. 

13. In proceedings OS.No.433/08, the plaintiffs seek orders to make two declarations and make two orders in relation to the management of or concerns by shareholders and directors of two companies namely BARAVA Limited and GIREGIRE ESTATES Limited. These companies are legal persons governed very much by law, in this case the Companies Act 1977 and related legislations.

First Issue

14. There are two issues affecting continuation of OS.No.433/08. First according to s.143 (1) of the Companies Act, leave ought to have been sought to bring the current proceedings. This proviso states:

"(1) Subject to Subsection (3), the Court may, on the application of a shareholder or director of a company, grant leave to that shareholder or director to —

(a) bring proceedings in the name and on behalf of the company or any related company; or

(b) intervene in proceedings to which the company or any related company is a party for the purpose of continuing, defending, or discontinuing the proceedings on behalf of the company or related company, as the case may be.

(2) Without limiting Subsection (1), in determining whether to grant leave under that subsection, the Court shall have regard to—

(a) the likelihood of the proceedings succeeding; and

(b) the costs of the proceedings in relation to the relief likely to be obtained; and

(c) any action already taken by the company or related company to obtain relief; and

(d) the interests of the company or related company in the proceedings being commenced, continued, defended, or discontinued, as the case may be.

(3) Leave to bring proceedings or intervene in proceedings may be granted under Subsection (1), only where the Court is satisfied that either—

(a) the company or related company does not intend to bring, diligently continue or defend, or discontinue the proceedings, as the case may be; or

(b) it is in the interests of the company or related company that the conduct of the proceedings should not be left to the directors or to the determination of the shareholders as a whole.

(4) Notice of the application shall be served on the company or related company.

(5) The company or related company—

(a) may appear and be heard; and

(b) shall inform the Court, whether or not it intends to bring, continue, defend, or discontinue the proceedings, as the case may be.

(6) Except as provided in this section, a shareholder is not entitled to bring or intervene in any proceedings in the name of, or on behalf of, a company or a related company."(Emphasis added).

15. In the circumstances of this case, no leave was obtained as required by Subsection (1) & (3) of the above section. It is established law that the test to determine whether a reasonable cause of action is disclosed where it is plain and obvious from the pleadings that the Court can say at first glance that the statement of claim as it stands is insufficient even if proved to entitle the plaintiff to what he claims for: Hubbuck & Sons Ltd v Wilkinson Heywood & Clark Ltd [1899] A11 E.R.244; see Odata Limited v Ambusa Copra Oil Mill Limited and National Provident Fund Board of Trusties (2001) N2106. 

16. The same test was applied in Grierson v The King (1938) CLR.431 where it was said that, no reasonable cause of action is disclosed if the purported cause of action pleaded is "obviously contestably bad". The above test was adopted and applied in a number of cases in this jurisdiction such as PNG Forest Products Pty Ltd & Inchuape Berhad v The State and Genia [1992] PNGLR.85 and in Ronney Wabia v BP Exploration & Ors. (1998) N1697.

17. In the above cases, the Courts there held that a party has a right to have his case heard as guaranteed by the Constitution and the laws of this country all uphold such right and such right cannot be lightly set aside; PNG Forest Products Pty Ltd & Inchape Berhad v. The State and Genia (supra), see also Ronney Wabia v. BP Exploration & Ors (supra). 

18. The question I should ask myself is what is the relationship of the First Plaintiff to the Second Defendant? I do not see any links between the First Plaintiff and the Second Defendants which would qualify under s.143 (3) of the Companies Act and to qualify in terms of the principles stated in Odata v Ambusa Copra Oil Mill Ltd (2001) N2106. Simply put no evidence has been put before this court to show the relationship of the two companies except for the fact that the natural parties may come from Gunanba and Bitavavar villages. 

19. The Plaintiffs in these proceedings should not seek orders to strike off the Second Defendant from the Companies register because it is not a related company to the Second Defendant. Though the Second Plaintiffs may have some association with the Second Defendant, the law is clear that, when a company is duly incorporated and whilst it is a going concern, in the eyes of the law it is a legal person or legal entity distinct from its members and officers: Salomon v Salomon & Co Ltd (1897) A.C.22.

Second Issue

20. Secondly, the court has examined the documents in the file and the pleadings in the originating process and it does not show how the First Plaintiff is related to the Second Defendant. By reading some of the affidavits filed by the Second and Third Plaintiffs, it is not clear if the instant action is a derivative action or an action by shareholders of the company against the company itself.

21. If a duty to be enforced is owed to the company, the primary remedy for its enforcement is an action by a company against those in default. For instance, if a complaint is made that the directors have broken their duties of loyalty, care or skill, the company is the proper plaintiff: Foss v Harbottle (1843) 2 Hare 461.

22. There is no clear evidence to show if proceedings OS.433/08 is a derivative action. Such action is usually brought by a minority of company member in their own names seeking a remedy from the company in respect of a wrong done to it. Such action is exceptional and usually an action is brought by the company itself for a wrong done to it. (See Gower’s ‘Principles of Modern Company Law’ Fourth Edition Ch.26). 

23. There is no evidence to show if the Second and Third Plaintiffs are shareholders of the Second Defendant, though there may have been in the past some kind of associations between the people of Gunanba and Bitavavar villages. Generally, the law is that a shareholder or a group of them can sue the company under four circumstances. 

24. First in a case where there is a complaint that the company is acting or posing to act ultra vires: Yorkshire Miners’ Association v Howden [1905] A.C.256. Secondly, where the act complained of may not be ultra vires, but if it is desired that the company could be resolved by more than a simple majority vote and where it is alleged that a special or extraordinary resolution is required as it may have not been validly passed: Edwards v Halliwell [1950] 2 All.E.R.1064.

25. Thirdly in the present action, there is no evidence before this court to show that, personal rights of the shareholders example as of the Second and Third Plaintiffs have been infringed or about to be infringed by the Second Defendant, if such infringement could not be rectified by an ordinary resolution of the Second Defendant: British America Nickel Corp. v O’Brien [1927] A.C.369.

26. For the Plaintiffs to sue and seek orders in terms of the originating summons there must be evidence to show that the Second and Third Plaintiffs are shareholders of the Second Defendant and they must show that, those who are controlling it (Second Defendant) are perpetrating a fraud on a minority: Burland v Earle [1902] A.C.83.

27. An example of that type of fraud would be in a case where there is expropriation of the company’s property, or where there is ‘insider dealing’ in relation to the duties of the directors of a company: Burland v Earle (supra, and see also ‘Principles of Modern Company Law’ Ch. 25 & 26 supra).

28. The court finds under s.143 (1) (3) of the Companies Act, if the Plaintiffs were proper complainants, in the sense that, if they were somehow shareholders of the Second Defendant, they would have to seek leave of the Court to seek such declarations against the Second Defendant in terms of the originating summons. 

29. Leave was not sought and as such, the court should dismiss these proceedings for disclosing no reasonable cause of action. The court orders that proceedings OS.No. 433 of 2008 are dismissed for disclosing no reasonable cause of action. The Plaintiffs shall pay for the First and Second Defendant’s costs on solicitor-client basis.

30. On the Notice of Motion seeking the review of the decision by the Taxing Officer, I have read the affidavit filed by Mr. Benjamin Murliu and one by the Applicant’s counsel (Mr. Paisat). 

31. I am satisfied that, no proper service and notice was affected on the Applicants and they have properly applied for the review of the taxing officer’s decision under Order 22 Rule 60 of the Rules.

32. The court orders that, the Certificate of Taxation of the Bill of Costs be set aside and that, the taxation of costs on OS. NO. 587 of 2007 filed on 7th August be remitted to the Taxing Officer for re-taxing. 

33. The court orders that the Respondents/Defendants pay for the costs of this application. 

______________________________

Motuwe Lawyers: Lawyer for Plaintiffs
Nelson Lawyers: Lawyer for the Defendants