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Chow v Chow [2009] PGNC 206; N3593 (13 February 2009)

N3593

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]
WS. NO. 147 of 2008

BETWEEN:

CLAIRE CHOW
Plaintiff

AND:

DELORES CHOW
First defendant

AND:

CONRAD HAODA
Second defendant

Lae: Manuhu J
2009: 9 & 13 February

JUDGMENT

COMPANY LAW – transfer of shares – transfer of share documents signed while transferor was resting in bed and recovering from attempted suicide – transferor was led to believe she was signing for different shares – transferor was not thinking properly – transferor was subjected to constant and sustained abuse and assault - transfer was manifestly unfair, and unconscionable.

Cases cited:
Papua New Guinea Cases

Papua New Guinea National Stevedores Pty Ltd v Andrew Baing (2001) N2069,
The Papua Club Inc v Nasuam Holdings Ltd & Ors (2004) N260,
Pinpar Developer Pty Ltd v TL Timber Development Pty Ltd (2006) N3075,
In The Matter of an Application by Timothy Mathew O’Dwyer trading as O’Dwyer & Bradley Solicitors of Brisbane, Australia v Arnold Theodorus Derks (2007) N3226,
Kore Gene v MVIT [1995] PNGLR 244,

Overseas Cases

Knupp v Bell (1968) DLR Vol. 67 (2d.) 256.

Counsel:

Anthony Pryke, Lawyer for the Plaintiff
Luke Vava Jr, Lawyer for the Defendants

13 February, 2009

1. MANUHU, J.: Claire Chow, wife of Henry Chow Jr, is the mother of Delores Chow. Conrad Haoda is Delores’s partner. Conrad is a passive but appropriately joined as a party to the proceeding. He was not present at the hearing. Claire is aggrieved by the transfer of her two ordinary shares to her daughter in a company she co-owned with Henry. The substantive dispute is between Claire and Delores. Company registry records show that Claire’s two shares in Wai Chung Limited are now owned by Delores. Claire wants her shares returned. Delores has refused to return the shares. Claire has commenced this action to recover the shares.

2. The substantive issue, therefore, is whether the transfer of shares from Claire to Delores was properly and lawfully done.

3. Out of the three shares in Wai Chung Limited, Claire held two shares and Henry held the remaining one share. The family also owned other companies including Kimbe Farming Limited which operated a Mobil Service Station in Lae. The family business was managed by Claire and Henry until Easter 2006 when Henry left for Sydney. The management of the business was entrusted solely into Claire’s care.

4. The initial indication on change of management surfaced in September 2007. On 2nd September 2007 or thereabouts, Delores claims that she was asked by her father to take over management of Kimbe Farming Limited because her mother was running down the family business. It was alleged that there was, among other things, a huge debt of K300,000 owing to creditors. Claire was in Sydney at that time receiving further treatment in relation to her cancer problems. Delores explained that change of management was a resolution reached by the family in a meeting and that she and Conrad would take over from Claire. Delores further claims that her mother consented to the change of management as well as the transfer of her two shares. In addition, assets of Wai Chung Limited would be sold to settle the debts.

5. Consistent with the advice from the father, Delores and Conrad took necessary steps to seize management of the business from Claire. Claire was unhappy about the take over. Eventually, on 1st January 2008, Claire’s 17 year old son Michael handed to her a document, a Notice of Change of Shareholders, a Form 13, under the Companies Act. Claire had just attempted suicide two days earlier and was in bed at home when she was approached by Michael. Claire signed the document and thereby gave up her two shares. Conrad submitted the documents to the appropriate office and the shares are now in Delores’s name.

7. Accordingly, Delores argues that Claire signed the relevant transfer document as agreed and without threats, inducements, assaults and coercion.

8. At the outset, it is nearly unimaginable that we could have such a dispute between mother and daughter. A mother-daughter relationship is usually a symbol of trust, love and peace. A dispute of this nature is, however, not unheard of. When we come across one, it means that something has seriously gone wrong and there is a reason compelling enough for the mother to sue her daughter.

9. In this case, the pertinent questions to ask are whether there was a family business meeting in Sydney? What were the resolutions passed? Did Claire agree in such a meeting for her shares to be transferred to her daughter without consideration? Claire was in Sydney at the relevant time but she is not aware of any meeting and any resolution for her to transfer her shares. There is also no evidence from the father to support the daughter’s claim that a resolution was made in a family meeting in Sydney. Delores herself did not attend any meeting in Sydney. Her evidence is hearsay.

10. Most importantly, there is no evidence of any instrument or statement, written or oral, by Claire that her two shares were to be transferred to her daughter. Even if Delores is truthful about what her father might have said to her, as a daughter, she could have simply approached her mother and verify whether she had indeed agreed to transfer her shares.

11. The argument that Claire mismanaged the Service Station, if true, is understandable but company management matters and transfer of shares can be isolated. Delores is part of the Chow family. Claire, I would like to think, is part of the Chow family too. What difference does it make to a company that is attempting to manage its debts for the mother’s shares to be transferred to the daughter without consideration? It does not bring extra cash to assist in the repayment of the company’s debts. Delores virtually acquired the shares for free, and there is no evidence that they were gifts from her mother.

12. Ultimately, I am not satisfied that there was a family business meeting in Sydney. I am not satisfied that any resolution was passed for the change of management. I am not satisfied that Claire agreed to part with her two shares in Wai Chung Limited.

13. The onus, however, is on Claire to establish her case. In that connection, Claire’s evidence on the circumstances and her condition at the time she signed Form 13 is not disputed. Claire stated that her husband wanted to transfer his shares to Delores as an incentive for her to manage the business with Conrad. When she was in Sydney for medical check up there was a lot of discussions between her husband and Delores about the family business. She returned to PNG on 8th September 2007. Sometimes later, Delores and Conrad uninvitingly took over management of the company. Claire was unhappy. The relationship between Claire and Delores turned sour then.

14. On one occasion, Delores asked Claire as to when the shares would be transferred. Claire did not answer and the two began having constant arguments and disagreements. Delores became abusive and constantly screamed at her mother. From 27th to 30th November 2007, Claire stayed in a hotel room to avoid contacts with Delores and Conrad. But Delores continually sent phone text messages in relation to the transfer of shares. Claire was depressed.

15. On 2nd December 2007, Claire presented herself to Dr Laki of Good Samaritan Clinic with a migraine headache. She was advised to avoid stressful conditions. She was treated and supplied with mediation.

16. When she returned home, the situation between herself, Delores and Conrad did not improve. Delores and Conrad usually kept to themselves. Claire started to worry about herself generally and became more concerned for her recovery from her cancer problems. She was aware that depression would not aid the recovery process.

17. Claire resorted to suicide on 30th December 2007. She found a number of travel sickness tablets and some panadeine forte and took them. She would have died then. But she regained her consciousness in Dr Laki’s Clinic. She was attended to and given an injection to neutralize her condition. Claire was still ill and was vomiting a lot as a result of the attempted suicide.

18. On 1st January 2008, two days after the attempted suicide, her son Michael gave her a document to sign. She was told it was for the transfer of Henry’s shares, which she already knew about. Obviously, Claire did not realize that the father should have signed for the transfer of his shares. Obviously, she was still recovering from the attempted suicide and was not thinking properly. This is a woman who had attempted suicide two days earlier.

19. Claire saw Dr Laki again on 2nd January 2008 and was given medication for migraine. Delores and Conrad moved to another house but on 10th January 2008, Delores returned to the house where Claire was and had an argument with Claire. In the course of the argument, Claire remembers (she wrote them down) Delores saying: Too bad, what can you do? You have already signed yourself out. You signature is already on the paper. Conrad has a close relative working for IPA and he is going to do it."

20. Understandably, Claire felt cheated and lost after she realized that she had signed for the transfer of her shares. She could not believe that she could be treated in that manner by her own children even after she nearly took her own life. She was so depressed she resorted to suicide for the second time. She took 40 to 50 valium tablets to end her life. But she woke up in her bedroom and learned later that she had been taken to Dr. Laki’s Clinic one more time.

21. Despite the difficult time Claire was in, Delores confronted her on the very day she had attempted to take her own life. While Claire was resting in her bed, Delores held Claire and shook her very hard. She hit her head very hard against the stereo which was nearby and the bed head. Delores screamed at her sick mother while Michael witnessed the assault. Michael told Delores to stop but she didn’t stop. Claire was manhandled and pushed to the corridor where she fell. She blacked out for a brief moment and was taken back to her bed by Conrad.

22. She thought the assault would stop. But Delores returned to her bedroom, grabbed her feet and dragged her to the edge of the bed and she fell onto the floor. This was her mother who had just swallowed 40 to 50 valium tablets. It was painful and tormenting for Claire. She remained on the floor until the pain subsided.

23. Claire has also described other instances of subsequent animosity and confrontations between herself and her daughter. In fact she attempted suicide for the third time on 12th January 2008. But I will stop here because Claire’s condition and state of mind are sufficiently demonstrated by the events immediately before, during and immediately after the execution of Form 13. And it seems that Claire and Delores are still far apart.

24. One must wonder why and how the Chow family, a fairly wealthy family, has been driven into this conflict. Delores’s dislike for her mother is obvious. Michael was not an adult. I accept Claire’s explanation that Michael was instructed to give her the papers to sign. He was on her sister’s side in relation to the affairs of the family business. Henry did not seem to worry too much about her. When Dr. Laki rang him up concerning Claire’s depression, he showed no concern at all for the sufferings Claire was going through. Claire’s father in law, Sir Henry F. Chow appears to be supportive of Claire. He gave evidence for Claire in the course of the proceeding but his evidence is unrelated to the share dispute.

25. I suspect that Claire’s medical condition and the alleged mismanagement of the company has driven the family members and Henry into considering change of management and transfer of shares. Claire was disliked for allegedly mismanaging the family business and when she attempted suicide the family saw the urgency for the share transfer. Michael and Delores made sure she signed for the transfer.

26. Whatever the reason and motive for the conflict, one thing is certain. Claire must first consent to the transfer of her shares with or without consideration. The transfer of her shares, or any share, must be done properly and lawfully.

27. In this case, I find that Delores and her father wanted Claire out altogether from the family business with little or no reward. Discussions on the transfer of her shares were held discreetly and with sinister purpose. Claire was pushed around, isolated, and tormented. She was so depressed she attempted suicide. Two days after the attempted suicide, Form 13 was taken to her bed and she was misled when she signed it.

28. Claire was never in a position to be signing legal documents or instruments. Delores knew all the time that her mother was sick and depressed yet she got Michael to give her the papers to sign. I am satisfied to the required standard that Claire never properly consented to the transfer of her shares. The circumstance of Claire’s execution of Form 13 is an embarrassment to the family’s standing in the community. In law, Claire’s purported transfer of her shares was manifestly unfair and unconscionable.

29. It was manifestly unfair within the meaning of Section 5 of the Fairness of Transaction Act 1993, which reads:

"5. Review of transactions, grounds, etc.

(1) A transaction to which this Act applies may be reviewed by a court on the application of any party, if the Court is satisfied that the transaction was not genuinely mutual or was manifestly unfair to a party.

(2) Without limiting the generality of Subsection (1), unless the Court is satisfied that the transaction was entered into on an equal footing in all material respects, a transaction shall be deemed not to be genuinely mutual or manifestly unfair if a party to the transaction complaining unfairness shows—

(a) that he did not understand the transaction and no genuine effort was made to explain its terms to him prior to entering into the transaction; or

(b) that the other party was in such a predominant position (whether economically, socially, personally or otherwise), that an ordinary person with the background of the complainant was not likely to exercise a true freedom of choice in relation to the transaction; or

(c) that the other party had or should have had at the time of entering into the transaction or immediately thereafter information affecting the fairness of the transaction which was not disclosed to the complainant; or

(d) that he was mistaken in or had miscalculated the likely consequences of the mistake or miscalculation to such an extent adverse to his interests that he could not reasonably be held responsible for such consequences."

30. Furthermore, the circumstances of the transfer was unconscionable within the meaning of the equitable doctrine of unconscionability and equitable fraud: see Papua New Guinea National Stevedores Pty Ltd v Andrew Baing (2001) N2069, The Papua Club Inc v Nasuam Holdings Ltd & Ors (2004) N260, Pinpar Developer Pty Ltd v TL Timber Development Pty Ltd (2006) N3075, In The Matter of an Application by Timothy Mathew O’Dwyer trading as O’Dwyer & Bradley Solicitors of Brisbane, Australia v Arnold Theodorus Derks (2007) N3226 and Kore Gene v MVIT [1995] PNGLR 244. See also Knupp v Bell (1968) DLR Vol. 67 (2d.) 256 which involved sale of a farm by an elderly woman suffering from illness which severely affected her mental ability.

31. As this is a dispute within the family, Delores and Claire may want to come together like mothers and daughters do and deal with their differences. Whether they like it or not, they are eternally mother and daughter. For now, they must both return to the position they were in prior to the transfer of the shares. The Court will take them there. In addition, there is an ongoing confrontation between Claire and Delores. It is a concern that Claire has three times attempted suicide and is entitled to the protection of the law. It is necessary, therefore, to have orders in place to prevent further confrontation between Delores and her mother.

32. Accordingly, the Court declares and orders as follows:

1. That the transfer of two ordinary shares in Wai Chung Limited from the Plaintiff to the First Defendant was manifestly unfair to the Plaintiff within the meaning of Section 5 of the Fairness of Transaction Act 1993.

2. That the transfer of two ordinary shares in Wai Chung Limited from the Plaintiff to the First Defendant was unconscionable conduct within terms of the equitable doctrine of unconscionability and equitable fraud.

3. That the transfer of the two ordinary shares in Wai Chung Limited from the Plaintiff to the First Defendant is set aside.

4. That the Registrar of Companies shall forthwith, after service of the Court’s Orders upon him, rectify the register of companies to the extent necessary to show that shareholders of Wai Chung Limited are:

- Claire Chow – 2 ordinary shares

- Henry Gabriel Chow – 1 ordinary share

5. That the First and Second Defendants by themselves their servants, agents or otherwise howsoever shall not approach or communicate directly with the Plaintiff and from interfering with the Plaintiffs person, the Plaintiffs rights and the Plaintiffs property in anyway howsoever.

6. Arguments on costs is deferred.

___________________________________

Pryke & Janson: Lawyer for the Plaintiff
Paraka Lawyers: Lawyer for the Defendants