N4575
PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

OS NOS 19 & 33 OF 2011

JACOB KLEWAKI WAMA
Plaintiff

V

ALOIS JALLY
Defendant

Madang: Cannings J
2011: 16 December,
2012: 3, 10 February

Incorporated associations and companies – educational institution – Education Act, Section 101: "permitted school" – dispute over ownership and management of permitted school.

In 1987 a school was established and certified as a "permitted school" under the Education Act. The school was initially managed by an unincorporated group of interested persons, including the plaintiff. In 1991 an association was incorporated to run the school. The plaintiff was its original chairman. In 2002 the plaintiff incorporated a company, intending to use it as a vehicle to manage the school's affairs but he was subsequently convicted of misappropriation and served time in prison. In 2006 the defendant became chairman of the association but the plaintiff did not agree with his appointment and in 2011 sought to use the company to resume control over the school, which had in the meantime continued to operate under management of the association. The defendant resisted the plaintiff's attempts to take over management of the school. The plaintiff and the defendant each commenced proceedings by originating summons seeking orders and declarations against the other regarding ownership and control of the school. The proceedings were consolidated and a trial was conducted, the purpose of which was to determine which legal entity (the association or the company) owns and is entitled to control the school and the respective roles of the parties in that entity.

Held:

(1)	As the association was incorporated for the purpose of managing the school and its incorporation took place ten years prior to incorporation of the company and as it is the registered proprietor of the land on which the school operates and it has for 20 years been the entity that has been operating the school, it should be regarded as the owner of the school; and a declaration was made accordingly.

(2)	The plaintiff has no role in the affairs of the association as by virtue of the rules of the association he ceased to be a member of it upon his criminal conviction in 2002; and a declaration was made accordingly.

(3)	Further declarations and orders were made for the purposes of determining and clarifying that the association is the legal entity that owns and is entitled to control the school, the defendant is the chairman of the association and the plaintiff is not a member of and has no role in the association and has no role in control or management of the school except with the approval of the governing body of the association.

Cases cited

The following cases are cited in the judgment:

International Education Agency of Papua New Guinea Ltd v Francis Kulunga (2010) N3991
Young Wadau, Chairman of the Board of Governors, Tusbab Secondary School v Rose August, Acting Chairman, Teaching Service Commission (2009) N3614

ORIGINATING SUMMONSES

These were proceedings regarding a dispute over ownership and management of a non-government school.

Counsel

J Maingu & J K Wama (in person) for the plaintiff
Y Wadau, for the defendant

10 February, 2012

1. CANNINGS J: This case concerns a dispute over ownership and control of a non-government school, the Madang Christian Academy. The school is in Madang town and has about 400 students. It has been operating for 24 years as a "permitted school" under a certificate of registration granted by the Secretary for Education under the Education Act. The dispute is between:

•	the plaintiff Mr Jacob Klewaki Wama, who asserts that he is the person primarily responsible for establishment of the school and who in 2002 established a company in which he is the sole shareholder and director called Madang Christian Academy Ltd ("MCA Ltd") to operate it; and

•	the defendant Alois Jally, who claims chairmanship of the board of trustees of Madang Christian Academy Incorporated ("MCA Inc"), an entity established in 1991 under the Incorporated Associations Act to run the school.

2. The dispute came to a head at the beginning of last year when Mr Wama appointed a new principal of the school and attempted to install a new management team at the school premises at Section 157, Allotment 1, Madang, near the Provincial Government headquarters. There was almost a physical confrontation at the school between Mr Wama and various people aligned with him and Mr Jally and those aligned with him. They each commenced separate proceedings by originating summons, which have since been consolidated, and the court on 23 February 2011 made interim orders that allowed Mr Jally to manage the school until further order of the court, pending final determination at a trial of the issues of ownership and control. The specific issues are:

1	Which legal entity owns and is entitled to control the school? MCA Ltd or MCA Inc?

2	What roles do the plaintiff and the defendant have in the controlling legal entity?

3	What declarations and orders should the court make?

1	WHICH LEGAL ENTITY OWNS AND IS ENTITLED TO CONTROL THE SCHOOL?

The plaintiff's position

3. Mr Wama argues that his company, MCA Ltd, owns and should be entitled to manage the school. He says that he established the school, using his own money, in 1986. He provided his family's assets as security for bank loans and arranged acquisition of the land on which the school was established and still operates. He was at the time a senior pastor with the National Four Square Church, Lecturer in Bible Studies at the Madang Lighthouse Bible School, Village Court Chairman for Sisiak and Wagol and a former Mayor of Madang. His intention was to change lives through religious teachings.

4. Mr Wama says that Joel Banam, who has given evidence for the defendant, saying that he established the school, assisted only in a minor way in its establishment. Mr Banam's wife, Shirley Banam, was appointed as manager of the school when it first started but only on a caretaker basis.

5. Mr David Mulul has given evidence in support of the plaintiff's position. He testifies that he was the Education Adviser for Madang Province from 1984 to 1987 and his responsibilities included certification of permitted schools. Mr Wama approached him for assistance during that period, so he arranged a formal inspection of the school and recommended its certification as a permitted school for pre-school to grade 6. As a result the certificate of registration was granted in 1987.

6. Mr Wama says that in 1991 he placed the school under management of MCA Inc, which was incorporated that year, and that he was the original chairman and public officer of MCA Inc, which is the registered proprietor of the land on which the school is based. He doubts whether MCA Inc has ever had a registered constitution governing its affairs. The constitution that the defendant has adduced in evidence is, he says, "full of Christian fantasies" and was shelved before it was registered.

7. Mr Wama says that the school was well managed until the mid-1990s but in 1996 he learned that Westpac Bank was trying to impound the school's assets to satisfy a debt of K75,000.00, being the balance of a loan that had been improperly obtained in the school's name by Mr and Mrs Banam for private purposes. Mr Wama alleges that Mr and Mrs Banam left Madang for Bougainville "leaving the school at the mercy of the Bank".

8. Mr Wama was elected to the National Parliament in 1997 and says that this gave him less time to devote to school affairs. During 1998 and 1999 he employed Mr Gabriel Poka, an accountant, as project officer for the school. Mr Poka deposes that he bailed the school out of its financial difficulties and managed implementation of various projects sponsored by Mr Wama including extension of the library (worth K30,000.00), a new double classroom (K75,000.00), library books (K6,000.00) and a freezer (K4,000.00). Mr Andrew Morosa, former Campus Manager of Madang Teachers College, has given evidence that Mr Wama appointed him as caretaker manager of the school from 1999 to 2001. Specific tasks he completed were settlement of the outstanding loan with Westpac Bank and obtaining Department of Education approval for the school to enrol students to sit for the grade 10 national examinations. Mr Morosa says that Madang Christian Academy was widely regarded as a private school sponsored by Mr Wama.

9. Mr Wama says that concerns about mismanagement of the school, including misappropriation, led the board of trustees of MCA Inc to decide at a meeting on 24 October 2001 to establish MCA Ltd. He says that by that time the board consisted of only two persons, himself and Mrs Jossie Mari. The company was incorporated on 23 October 2002 and was intended to "replace" MCA Inc. Despite the school's "conversion" to a company the management ran down the finances and accumulated debts, almost forcing the school to collapse.

10. Mr Wama ceased being a member of Parliament in mid-2002. He acknowledges that on 19 December 2002 he was convicted by the National Court at Madang of four counts of misappropriation under Section 383A of the Criminal Code and sentenced to eight years imprisonment. He subsequently spent some years in prison. He claims that his conviction was not for a dishonesty offence. It was merely a 'technical crime", unlike stealing or fraud, as he did not personally benefit. The fact that he was in prison made it extremely difficult for him to monitor management of the school. No annual reports for MCA Ltd were lodged with the Registrar of Companies and on 31 March 2005 the company was de-registered.

11. Mr Wama challenges the legality of a meeting of the board of trustees of MCA Inc of 11 July 2006 at which Mr Jally was appointed chairman. He says that there was no board in existence at that time as the school's management had been vested in MCA Ltd, pursuant to the resolution of the board of trustees of MCA Inc of 24 October 2001. Further, the school's then principal, Mr Balthy Mugga, had unlawfully conducted board meetings. Mr Wama says that under Mr Jally's chairmanship the situation at the school got worse.

12. In October 2010, Mr Wama applied for reinstatement of MCA Ltd to the Companies Register. The application was granted and MCA Ltd was reinstated on 11 January 2011. Mr Wama says that it was always his intention to use MCA Ltd as the management vehicle for the school in view of the mismanagement of school funds over a number of years and deterioration in educational standards. On 30 January 2011, he commissioned an audit report on the school, prepared by Mr Popich Samol, a former senior officer of the Department of Education. Mr Samol reported that infrastructure was poorly maintained and there was a shortage of basic books and resource materials. Of 74 grade 10 students in 2010, only 7 (less than 10 per cent) were eligible to advance to grades 11 and 12. On 2 February 2011, four additional directors were appointed to MCA Ltd and on the same day Mr Wama appointed Mr Samol as principal.

13. Mr Wama's position is therefore that MCA Inc has ceased to function. It has no governing constitution and only one member of its board of trustees: himself. MCA Ltd was established with the authority of the board of trustees and has recently been reinstated and is entitled to own and control the school. Mr Jally was unlawfully appointed as chairman of the board of trustees of MCA Inc in 2006 and has no proper role in either MCA Inc or MCA Ltd.

The defendant's position

14. Mr Jally has presented evidence which gives a very different account of how the school was established and how he came to be appointed chairman of the board of trustees. He argues that MCA Inc has successfully managed the school since its incorporation in 1991. Mr Banam has given evidence in support of that proposition.

15. Mr Banam testifies that establishment of the school was his initiative, not Mr Wama's. Mr Banam and his wife saw that lawlessness was a major problem in many PNG communities and that Madang needed a school with a curriculum based on Christian principles. They opened Madang Christian Academy at the start of the 1987 school year with kindergarten and preparatory classes. He applied for its registration as a permitted school, which was granted by the Secretary for Education on 9 November 1987. For the first few years the school operated as an unincorporated organisation. However he and a group of concerned Christians from different denominations decided to apply for incorporation of the school as a non-profit body. He lodged the application in February 1991, and on 17 July 1991 MCA Inc was incorporated. He drafted its constitution in consultation with many parents who approved it. He was the original public officer and Mr Wama was the original chairman. Mr Banam says that he was the one who applied to the Department of Lands for allocation of the land on which to build classrooms. His application was approved by the Land Board and MCA Inc became the registered proprietor of Section 157, Allotment 1. He applied for the loan from Westpac Bank, which was granted, and proceeded to build three double classrooms and an ablution block. He enlisted the services of a competent accountant, Mrs Jossie Mari, to maintain the school accounts. In 1997 he left Madang for Bougainville to assist in resolution of the Bougainville Crisis, leaving the school in the hands of Mrs Mari, who managed the school's finances capably until her death in 2006. In 2006, when he realised that Mr Wama had somehow become public officer, he applied for and was granted reappointment as public officer of MCA Inc. Mr Banam says that it is still his intention to return to Madang so that he can resume a management role with the school.

16. Mr Jally testifies that he was appointed a member of the board of trustees of MCA Inc in 2004 when his children were students at the school. He was appointed chairman at a board meeting on 10 July 2006. At that time the board was very concerned about interference in the school's affairs by Mr Wama. A letter to Mr Wama from MCA Inc's lawyers was sent on 3 August 2006 asking him to refrain from interfering in the school and expressing concern over his attempt to change the school's status from an incorporated association to a company and fraudulently take over management of the school.

17. Mr Jally says that he has remained chairman of the board of trustees at all times since 10 July 2006. On 1 March 2007, the school was certified as a "permitted high school". He wants the court to declare that MCA Inc owns and is entitled to control the school, that he is the chairman of the board of trustees and that neither Mr Wama nor MCA Ltd has any role in managing the school.

The Court's determination

18. In determining which of the two entities owns the school, the first point to note is that though competing claims have been made in the evidence of Mr Wama and Mr Banam about who is primarily responsible for establishing the school, and whose brainchild it was, that issue is not directly relevant to the question of present day ownership and control. It is not really necessary for the court to make a finding of fact about who started the school. However, as there has been considerable evidence on the issue, I conclude that the truth lies somewhere in the middle of the two competing versions of the school's history that have been presented. It was Mr Banam who signed the application and accompanying documentation that led to the incorporation of MCA Inc. On the other hand it appears that Mr Wama did indeed use some of his own money to get the school started (it is not clear how much) and there is an acknowledgement of that by Mrs Mari in the minutes of the board meeting of 24 October 2001. Establishment of the school was a collaborative effort on the part of Mr Wama and Mr Banam and like-minded others who felt that Madang needed a new school with a curriculum based on Christian principles.

19. Another issue of fact that arose in the evidence concerned allegations of mismanagement and misappropriation of school funds. The allegations were vague and unsubstantiated and must be dismissed as baseless.

20. A more significant finding of fact is that MCA Inc was incorporated on 17 July 1991, four years after the school became a "permitted school", and has never ceased to exist. It was incorporated for the specific purpose of managing the school and has done so, the evidence shows, for an unbroken period of more than 20 years. Upon its incorporation, it assumed the right to conduct the school in accordance with the certificate of registration that had been granted to "Madang Christian Academy" by the Secretary for Education on 9 November 1987. Its exclusive right to conduct the school was reinforced by elevation of the school to "permitted high school" status on 1 March 2007.

21. MCA Inc was incorporated 11 years before incorporation of MCA Ltd. There was nothing inherently unlawful in the incorporation of MCA Ltd, though clearly there is a legitimate question-mark over the suitability of its name, given its similarity to MCA Inc. There has not, however, at any stage, been any transfer, assignment or conversion of the business or assets of the school from MCA Inc to MCA Ltd. The reinstatement of MCA Ltd to the Register of Companies in 2010 had no effect on ownership of the school, which remained at all times vested in MCA Inc.

22. Though it may have been Mr Wama's genuine intention, as chairman of the board of trustees of MCA Inc, in 2001, to "replace" MCA Inc with MCA Ltd, that intention was never implemented.

23. Furthermore it must be noted that though Mr Wama claims that the board of trustees of MCA Inc decided to hand over management of the school to MCA Ltd, there is no evidence of such a decision. The minutes of the board meeting of 21 October 2001 on which Mr Wama relies show clearly that the only other member of the board who was present, Mrs Mari, was non-committal about Mr Wama's proposal to establish a company to take over the school and call it MCA Ltd. There was no resolution in the terms contended for by Mr Wama.

24. Significantly, the land on which the school has been conducted for many years, Section 157, Allotment 1, is, in effect, owned by MCA Inc. MCA Inc is the registered proprietor and there is no evidence of transfer of its interest in the land to any other corporation or person. It owns the land and all the fixed assets on the land including the classrooms and other buildings. It follows that for all intents and purposes it owns the school.

25. Having carefully considered the competing evidence and submissions of the parties I therefore conclude that the legal entity that owns the school and is entitled to manage its affairs is MCA Inc.

2	WHAT ROLES DO THE PLAINTIFF AND THE DEFENDANT HAVE IN THE CONTROLLING LEGAL ENTITY?

26. I am satisfied that MCA Inc has a constitution to govern its affairs, which provides for a board of trustees as its governing body. It is inconsequential that the constitution, a copy of which is annexed to an affidavit by Mr Banam admitted into evidence in these proceedings, may not have been formally registered. There is no competing constitution. Although Mr Wama dismisses it as being full of "Christian fantasies" I am satisfied that it is an authentic document that sufficiently complies with the requirements of the Incorporated Associations Act and represents a bona fide attempt to prescribe the powers, functions, duties and responsibilities of MCA Inc. It adequately provides for membership of MCA Inc and for appointments to its governing body.

27. I am satisfied that Mr Jally was duly appointed on 10 July 2006 to the position of chairman of the board of trustees. The minutes of the meeting recording the decision to appoint him have been admitted into evidence and appear to provide a proper and orderly account of how the business of MCA Inc was transacted on that day. It was an urgent meeting, convened after the sudden passing of Mrs Mari, who, the minutes state, was chairperson of the board at the time of her death.

28. I reject Mr Wama's argument that the meeting of 10 July 2006 was unlawful. There is no evidence to support his claim that he was after Mrs Mari's death the only member of the board. I uphold the submission of Mr Wadau, for Mr Jally, that by virtue of Section 4(e) of Article IV and Section 5 of Article V of the constitution of MCA Inc, Mr Wama ceased to be a member of MCA Inc and also lost office as a member of the board of trustees on the date of his criminal conviction, 19 December 2002. Mr Wama's claim that the offences were "technical" in nature is irrelevant and absurd. He was convicted of dishonest application, to his own use and the use of others, of K150,000.00 of public money, K70,000.00 of which was intended to be applied to construction of a science room and a library at Madang Christian Academy.

29. There is no evidence to show that six other members of the board of trustees that the minutes record as being present at the meeting of 10 July 2006 were unlawfully appointed. Besides that, more than five years have passed since the date of Mr Jally's appointment, and it is now too late for questions to be raised about the legality of his appointment.

30. I conclude that Mr Jally is chairman of the board of trustees of MCA Inc and that Mr Wama is not a member of the board of trustees and has no other role in MCA Inc.

3	WHAT DECLARATIONS AND ORDERS SHOULD THE COURT MAKE?

31. In deciding what declarations and orders are necessary the court must not lose sight of the fact that it is dealing with the affairs of an educational institution. The advancement of the interests of the students of that institution must be given paramount consideration (International Education Agency of Papua New Guinea Ltd v Francis Kulunga (2010) N3991, Young Wadau, Chairman of the Board of Governors, Tusbab Secondary School v Rose August, Acting Chairman, Teaching Service Commission (2009) N3614). For the sake of the students, there must be certainty about who owns and controls Madang Christian Academy and who is entitled to manage it.

32. I will declare that the school is owned and shall be controlled by MCA Inc, and that the chairman of MCA Inc is Mr Jally. Consequential orders will be made to the effect that Mr Wama has no role in the affairs of MCA Inc or the school. That may appear harsh in view of Mr Wama's prominent role in establishment of the school but the fact is he is no longer a member of the incorporated association, MCA Inc, or the board of trustees. It is apparent that Mr Jally, and presumably other board members, do not want him to have any role in the school's affairs. It is not in the interests of the students to have any continuation of the dispute that plagued the school at the beginning of 2011. Furthermore there is a question-mark over Mr Wama's suitability to play a management role in the school in view of his criminal conviction for misappropriation in 2002. I will also make orders aimed at resolving any lingering confusion over the terms of the constitution of MCA Inc.

DECLARATIONS AND ORDERS

33. Declarations and orders will be made in the following terms:

(1)	The entity that owns and is entitled to control the business and assets of the permitted school, Madang Christian Academy, is Madang Christian Academy Inc.

(2)	For the purposes of Section 16 (rules of an incorporated association) of the Incorporated Associations Act, the rules relating to Madang Christian Academy Inc are the rules embodied in the document entitled "The Constitution Madang Christian Academy Inc, January 1991", being annexure JB2 to the affidavit of Joel Banam, filed 10 March 2011, exhibit D3 in these proceedings.

(3)	The chairman of the board of trustees of Madang Christian Academy Inc is the defendant, Alois Jally.

(4)	For the purposes of Section 13 (public officer) of the Incorporated Associations Act the public officer of Madang Christian Academy Inc is Joel Banam.

(5)	The plaintiff Jacob Klewaki Wama has no role in the ownership, management or control of MCA Inc or Madang Christian Academy and shall not without the approval of the chairman or the board of trustees enter the school's premises or engage in any conduct or attempt to engage in any conduct calculated to interfere in any way in the running of the school.

(6)	The lawyers for the defendant shall within 14 days after the judgment date furnish a copy of the judgment of the Court in these proceedings and a sealed copy of the declarations and orders of the Court on the following office-holders:

(a)	The Registrar of Companies;

(b)	The Secretary, Department of Education;

(c)	The Education Adviser, Madang Province;

(d)	The Provincial Administrator, Madang Province;

(e)	The Provincial Police Commander, Madang Province.

And those office-holders shall within 14 days after service of the judgment and orders make all necessary changes to public records under their control to reflect the judgment and orders of the Court.

(7)	The order of 23 February 2011 is dissolved.

(8)	Costs of these proceedings shall be paid by the plaintiff to the defendants, on a party-party basis, which, if not agreed, shall be taxed.

(9)	Time for entry of the order is abridged to the date of settlement by the Registrar which shall take place forthwith.

Orders accordingly.
______________________________________________
Thomas More Ilaisa Lawyers: Lawyers for the Plaintiff
Young Wadau Lawyers: Lawyers for the Defendant