N4710 

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

OS NO. 194 OF 2012
•	
BETWEEN

PACIFIC RIM CONSTRUCTORS – SINGAPORE PTE LIMITED
Plaintiff

AND

HUALA HIRE & CONSTRUCTION LIMITED
Defendant

Waigani: Davani, J
2012: 13th, 20th June,

COMPANIES – Statutory Demand – company seeking to set aside – debt disputed by company – must be a genuine dispute – Statutory Demand must be set aside – s 337& s338 of Companies Act.

COMPANY LAW – Statutory Demand – Company has a separate legal personality – Company not correctly named – Company non-existent – Statutory Demand will be set aside.

Facts

Huala Hire and Constructions Limited, the named Defendant, served a Statutory Demand upon the Plaintiff company, which demand sought payment of monies outstanding for services purportedly rendered to the named Plaintiff, Pacific Rim Constructors – Singapore Pty Limited. However, the Defendant Company disputed the debt stating that it did not authorize a lot of the work done by the Plaintiff company.

Apart from that, the Statutory Demand was issued in the name of a company that was described as "Huala Hire and Constructions (PNG) Limited". The company search conducted by the Plaintiff company revealed the company as "Huala Hire and Constructions Limited". However the Statutory Demand and Company extract bore the same company no. 76205.

The Court held that if the debt is disputed to a large extent, that a Statutory Demand must be set aside. Additionally, the Court also held that if a debtor company is incorrectly named on a Statutory Demand, then the Statutory Demand must be set aside because the entity named is non-existent, notwithstanding the fact that the Company no. is the same on the extract of company search and on the Statutory Demand.

Orders

1.	The Creditors Statutory Demand for payment of debt dated 8th March, 2012 issued by entity described as Huala Hire and Construction (PNG) Limited, is set aside;

2.	The Defendant named in the proceedings, Huala Hire and Construction Limited, will pay the costs of the application to set aside, and other related costs;

3.	Such costs to be taxed if not agreed.

Cases Cited
Papua New Guinea Cases

AGC (Pacific) Ltd v. Woo International Pty Ltd [1992] PNGLR 100
Moran Development Corporation Ltd v. Akida Investments Ltd (2003) N458
PNG Balsa Co. Ltd v. New Britain Balsa Co. Ltd (2004) N2520

Overseas Cases Cited

Salamon v. Salamon & Co. Limited [1897]

texts cited

Odgers on Pleadings and Practise 13th Edition
Supreme Court Practise Vol. 2 1973
Halsburys Laws of England Third Edition Vol. 6

Counsel:

Mr. R. Manrai, for the Plaintiff/Applicant 
Mr. A. Chillion, for the Defendant/Respondent

DECISION

20th June, 2012

1. DAVANI J: Before the Court is Originating Summons filed on 5th April, 2012 by Manrai Lawyers which seeks to set aside a Statutory Demand issued by Huala Hire Construction Limited, such application made pursuant to Section 338 of the Companies Act 1997 ('Companies Act').

2. This Originating Summons is supported by notice of motion also filed on 5th April, 2012 which seeks the same orders as pleaded in the Originating Summons, together with the affidavit of Jan Aili sworn on 3rd April, 2012 and filed on 5th April, 2012, and the further affidavit of Jan Aili sworn on 18th May, 2012 and filed on 31st May, 2012.

3. The application is opposed by the Defendant, through its lawyers. They rely on the affidavit of Paul Charlaff sworn on 3rd May, 2012 and filed on 4th May, 2012, the deponent being the Defendant's General Manager.

Background

4. Huala Hire and Constructions Limited ('Huala Hire') issued a Statutory Demand, relying on Section 337 of the Companies Act, upon Pacific Rim Constructors – Singapore PTE Limited ('Pacific Rim'). The Statutory Demand was issued after Huala Hire claimed that debts owing to it by Pacific Rim remained owing and outstanding.

5. According to Mr. Manrai for Pacific Rim, the Statutory Demand is in respect of debts allegedly owing by Pacific Rim to Huala Hire for services allegedly rendered but not paid for. These services are summarized in Mr. Manrai's written submissions as:

i.	Septic tank pumping services at LNG Portion 152 site, pumping and transportation and disposal for the month of September, 2011;
ii.	Servicing two portable toilets at K350.00 per toilet for 15 days in the month of October 2011;
iii.	Daily fuel delivery to all Pacrim Equipment and Wagpac Equipment at job sites (LNG job sites in Central Province) for the month of September, 2011;
iv.	Septic tank pumping services at LNG Portion 152 site, pumping and transportation and disposal for the month of October 2011;
v.	Septic tank pumping services at LNG Port 152 site, pumping and transportation and disposal for the month of November, 2011; and 
vi.	Servicing three portable toilets at K350.00 per toilet for 16 days in the month of November, 2011.

6. Huala Hire deposes in its affidavits that these services commenced on 13th April, 2011 when the both parties agreed by e-mails exchanged to commence operations, which saw Pacific Rim issuing purchase orders followed by Huala Hire issuing invoices. Huala Hire claims that it continuously provided those services and that it is Pacific Rim who either failed to comply or was dilatory in completing its obligations under the 13th April, 2011 Agreement, where payments were to have been made monthly for services rendered by Huala Hire to Pacific Rim but which were not paid. 

7. Huala Hire claims that the Plaintiff has failed to settle invoices and these are listed at pars. 20 (a) to (f) of Paul Charlaff's affidavit sworn on 3rd May, 2012 and filed on 4th May, 2012. These are:

(a)	Septic Tank pumping services at LNG Portion 152 Site, pumping and transportation and disposal for the month of September, 2011 (Invoice No. PACRIM-310911-00032).

(b)	Servicing two portable toilets at K350.00 per toilet for 15 days in the month of October, 2011 (Invoice No. PACRIM-311011-00036).

(c)	Daily fuel delivery to all PacRim Equipment and Wagpac Equipment at job sites (LNG job sites in Central Province) for the month of September 2011 (Invoice No. PACRIM-311011-00038).

Copies of Purchase Orders, delivery dockets and invoice for services rendered in October, 2011 are attached.

(d)	Septic tank pumping services at LNG Portion 152 Suite, pumping and transporting and disposal for the month of October, 2011 (Invoice No. PACRIM-311011-00039).

(e)	Septic Tank pumping services at LNG Portion 152 Site, pumping and transporting and disposal for the month of November, 2011 (Invoice No. PACRIM-301111000040).

(f)	Servicing three portable toilets at K350.00 per toilet for 17 days in the month of November 2011 (Invoice No. PACRIM-301111-00041).

Annexed hereto and marked with the letter "J" are true copies of the Purchase Order, delivery dockets and invoices for services rendered in November, 2011.

8. According to Jan Ailey of Pacific Rim, the Statutory Demand was sent to Ashurst Lawyers, formerly Blake Dawson Waldron Lawyers. There is no issue as to service. 

9. However, there is an issue as to the correct name of the Defendant Company, which I will discuss below.

Analysis of Evidence and the Law

10. The relevant provisions on Statutory Demands and the setting aside of Statutory Demands are found in the Companies Act. Division 5 of part XVII of the Companies Act deals with the liquidation of Companies. That division starts with section 335 and ends with section 339. The right to serve a Statutory Demand is provided in section 337 of that Act. It reads:

"337. STATUTORY DEMAND

(1) A statutory demand is a demand by a creditor in respect of a debt owing by a company made in accordance with this section.

(2) A statutory demand shall–

(a)	be in respect of a debt that is due and is not less than the prescribed amount; and
(b)	be in the prescribed form; and
(c)	be served on the company; and
(d)	require the company to pay the debt, or enter into a compromise under Part XV, or otherwise compound with the creditor, or give a charge over its property to secure payment of the debt, to the reasonable satisfaction of the creditor, within one month of the date of service, or such longer period as the Court may order."

11. This process is available to a Creditor of a Company and its purpose is as stated in subsection 2(d) above which is to get a Debtor Company to enter into a compromise or, compound with the Creditor or, give a charge over a property to secure payment of the debt and that this must be to the Creditor's satisfaction all to be done within one month of date of service or such longer period as allowed by the Court.

12. This only applies where there is no dispute. However, where there is a dispute, the next provision provides that a Statutory Demand may be set aside and this is done upon application. This is provided in section 338 of the Companies Act, which reads:

"338. COURT MAY SET ASIDE STATUTORY DEMAND.

(1)	The Court may, on the application of the company, set aside a statutory demand.
(2)	The application shall be made, and served on the creditor, within one month of the date of service of the demand.
(3)	No extension of time may be given for making or serving an application to have a statutory demand set aside, but, at the hearing of the application, the Court may extend the time for compliance with the statutory demand.
(4)	The Court may grant an application to set aside a statutory demand where it is satisfied that–

(a) there is a substantial dispute whether or not the debt is owing or is due; or
(b) the company appears to have a counterclaim, set-off, or cross-demand and the amount specified in the demand less the amount of the counterclaim, set-off, or cross-demand is less than the prescribed amount; or
(c) the demand ought to be set aside on other grounds.

(5) A demand shall not be set aside by reason only of a defect or irregularity unless the Court considers that substantial injustice would be caused if it were not set aside.
(6) In Subsection (5), "defect" includes an immaterial misstatement of the amount due to the creditor and an immaterial misdescription of the debt referred to in the demand.
(7) An order under this section may be made subject to conditions."

13. The relevant subsections are ss. (4) and (5). Pacific Rim submits that there is a substantial dispute as to whether the debt is owing. It also submits that the Statutory Demand does not bear the name of the correct entity issuing the Statutory Demand. In my view, that submission is made under section 338(5) of the Companies Act. I discuss this below.

14. The combined effect of ss. 338 (4) and (5) together with s. 337 (1) when read together is that upon being served with a Statutory Demand, a company can either dispute the debt, provide a counter claim or state good reasons as why the Statutory Demand should be set aside. If it can do so, then it should not be forced into meeting the demand, or, more seriously, be subjected or forced into liquidation. Instead, it should attempt to prove why it asserts that the Statutory Demand should be set aside and it will do that by evidence. (See also Moran Development Corporation Ltd v. Akida Investments Ltd (2003) N458).

15. The issue as to whether or not the Statutory Demand should be or ought to be set aside is subject very much as to whether the debt is genuinely disputed. Mr. Chillion for Huala Hire is adamant in his submissions that there is no substantial dispute in relation to the debts owing allegedly because Pacific Rim's only submissions are that there are no corresponding purchase order numbers on the invoices' and therefore it should not or will not pay. Mr. Chillion submits that this does not constitute a substantial dispute, a requirement under section 338 (4)(a) of the Companies Act. He submits that the works were indeed carried out by Huala Hire under existing purchase orders and invoices were issued in September, October and November, 2011. That even if purchase orders do not correspond, the work has been carried out by Huala Hire and delivery dockets were acknowledged and signed by Pacific Rim's officers. (See par. 10 of Jen Aili's affidavit filed on 31st May, 2012). 

16. Mr. Chillion's submissions are supported by Huala Hire's representative, Mr. Charlaff and is countered by Pacific Rim's Jan Aili in his affidavit sworn on 18th May, 2012 and filed on 31st May, 2012. Jan Aili deposes at pars. 7 to 12 of that affidavit, to the lack of absence of purchase orders upon work allegedly done by the Pacific Rim. He said:

"7. At paragraph 11 of the Paul Charlaff's affidavit, he refers to PO # 90. However, there is no such PO # shown at annexure "C" of the said affidavit.

8. At paragraphs 14 and 15 of Paul Charlaff's affidavit, there is mention of an open PO. However, there is no evidence of any open PO. Annexure "D" of Paul Charlaff's affidavit does not disclose any open PO.

9. Paragraphs 16, 17, 18 and 19 of Paul Charlaf's affidavits are not true. The Plaintiff only hours proper POs duly signed and authorized by the PO authorizing officer.

10. In respect of paragraph 19 of Paul Charlaff's affidavit, there is no evidence of any POs the basis upon which the Defendant issued the statutory demand. Signing of a delivery docket by the Plaintiff's representative does not mean it had been authorized. Any deliveries can be received by any officer of the Plaintiff responsible for accepting delivery. In order for the Plaintiff to be liable to pay, there must be a formal signed PO in existence before service can be provided.

11. Except where there were no proper POs, the Plaintiff did pay only authorized work where POs had been issued and authorized.

•	Annexure "A1" is a true copy of a tax invoice #310711 – 00023 in the sum of K13,090.00 which was paid through direct wire transfer through online banking via Westpac Bank and annexure "A2" is a copy of the Westpac bank payment details printout.

•	Annexure "B1" is a true copy of a tax invoice # 310811 – 00025 in the sum of K18,480.00 which was paid through direct wire transfer through online banking via Westpac Bank and annexure "B2" is a copy of the Westpac Bank payment details printout.

•	Annexure "C1" is a true copy of a tax invoice # 310911 – 00034 in the sum of K27,813.61 which was paid through direct wire transfer through online banking via Wesptac Bank and annexure "C2" is the copy of the Westpac Bank payment details printout. Annexure "C3" is a copy of the delivery docket summary in respect of the invoice.

•	Annexure "D1" is a true copy of a tax invoice # 310911 – 00033 in the sum of K17,325.00 which was paid through direct wire transfer through online banking via Westpac Bank and annexure "D2" is a copy of the Westpac Bank payment details printout.

•	Annexure "E1" is a true copy of a tax invoice # 310811 – 00026 in the sum of K16,594.04 and annexure "E2" is a true copy of a tax invoice # 310811 – 00027 in the sum of K39,600.00. Both invoices were paid together in the total sum of K56,194.04 which was paid through direct wire transfer through online banking via Westpac Bank and annexure "E3" is a copy of the Westpac bank payment details printout. Annexure "E4" is a copy of the delivery docket summary in respect of the invoice.

12. There were some invoices issued but there were no POs issued or no evidence of any purchase orders shown on the invoices.

•	Annexure "F" is a true copy of a tax invoice # 311011 – 00036 in the sum of K11,550.00, but it refers to PO# 00302.

•	Annexure "G" is a true copy of a tax invoice # 311011 – 00038 in the sum of K5,864.54 but no. PO#.

•	Annexure "H" is a true copy of a tax invoice # 311011 – 00039 in the sum of K2,200.00 but no PO#.

•	Annexure "I" is a true copy of a delivery docket summary for October 2011 which does not disclose any PO#."

17. Once the Court determines or notes from evidence that the debt is not as straight forward as it is made out to be and that it is disputed, then the Court must be hesitant in allowing the Statutory Demand to remain because that will mean that the matter will proceed to a liquidation when the debt is disputed. This was the position taken by Lenalia .J in PNG Balsa Co. Ltd v. New Britain Balsa Co. Ltd (2004) N2520 where His Honour was faced with a scenario such as this. His Honour was greatly assisted by counsel in that case where several New Zealand cases were handed up to him specifically on this point and which cases stated the principles in applications to set aside Statutory Demands. I restate these principles which are:

i.	That the evidence in support of the application must demonstrate that there is arguably a genuine and substantial dispute and which goes towards supporting the claim that the debt is indeed disputed;
ii.	That there must be evidence to show that the debtor company owes monies to the creditor and that these debts have been adequately itemized;
iii.	That mere assertion that there exists a debt or debts are not sufficient;
iv.	That where proof has been given that there exists a substantial dispute, the matter must be resolved by other means, meaning the Statutory Demand must be set aside.

18. His Honour adopted the principles held in the New Zealand cases as he was required by duty to develop an underlying law for Papua New Guinea as required by schedule 2.3(1)(d) of the Constitution.

19. I find this case is not as straight forward as it is made out to be, rather, that Huala Hire must resort to other methods to recover what it claims to be debts owing to it from Pacific Rim because there is evidence or proof of a substantial dispute. (see PNG Balsa Co. v. New Britain Balsa Co. Ltd (supra)).

20. In relation to the second leg of Mr. Manrai's submission that the Creditor's name on the Statutory Demand is incorrect and that therefore, the Statutory Demand is defective, Mr. Manrai referred me to the company name in the extract of company's search. It is not the same name as that stated in the Statutory Demand. In the Statutory Demand, the creditor is described as "Huala Hire and Construction (PNG) Limited, Company No: 1-76205". In the extract of company search taken out on 29th March, 2012 attached as annexure 'B' to Jan Aili's affidavit sworn on 10th April, 2012, it is described as "Huala Hire and Constructions Limited, Company No: 1-76205".

21. Mr. Chillion submits that the creditor named in the Statutory Demand is the same company as that described in the company search extract referred to above because the company no. is the same on both documents, "1-76205".

22. That may be true, if it were not for the fact that a company, once it is registered, is a separate legal personality or entity. This is confirmed by section 16 of the Companies Act. That section reads:

"16. SEPARATE LEGAL PERSONALITY

- A company is a legal entity in its own right separate from its shareholders and continues in existence until it is removed from the register."

23. Halbury's Laws of England, Third Edition volume 6 at p.444 states:

"A company registered under the Companies Act 1948, or the Act which it replaces, is a body corporate and can only sue or be sued in its corporate name."

24. The English practice is also stated in The Supreme Court Practice, Volume 2 1973 ED, PIR 2034 at 605 in similar terms as follows:

"Corporations incorporated by Charter, Special Act of Parliament or registered, and companies incorporated by special Act or registered under the Companies Act must sue and be sued in their corporate title or registered name as the case maybe."

25. Odgers on Pleadings and Practice 13th Edition at 19 states;

"A corporation and limited company sue and are sued in corporate names; they are legal persons."

26. The general concept of the separate personality of a company and its entity as distinct from each shareholders was established by the house of lords in Salamon v. Salamon & Co. Limited [1897] AC 22. In Gore Browne on Company (42nd Edition ED 1972 at 6) the author said;

"Notwithstanding the principle of Salamon v. Salamon & Co. Ltd [1897] AC 22 there are certain situations where the Courts have shown themselves willing to "lift the veil of incorporation", that is to ignore or set aside the separate legal personality of a company. It is not possible to formulate any single principle as the basis for these decisions, nor are all the decisions as to when the separate legal entity of the companies must be respected or when it maybe disregarded, entirely consistent with one another. It is well established that the Courts will not allow corporate form to be used for the purposes of fraud, or as a device to invade a contractual or other legal obligation."

27. Another celebrated authority in this country where the concept of a corporations' separate legal personality and the lifting of the corporate veil is discussed is AGC (Pacific) Ltd v. Woo International Pty Ltd [1992] PNGLR 100, decision by Sakora AJ, as then was.

28. No doubt, the concept of a corporations separate legal personality has drawn a lot of discussion in both the civil law and common law jurisdictions, the main emphasis being that a Corporation has a separate legal personality hence its name, and therefore with emphasis, that it must be correctly and accurately described. Therefore, it is important to note that when suing, the correct company name must be used, failing which it is suffice for any Court to conclude that because the entity's name is incorrect, that the entity is non-existent. A number given by the company's office is an administrative decision made by the Registrar of Companies and is one issued in the normal process. It is not for a Court to compare numbers and say that it is the correct entity that is suing or that is being viewed. In my view, the Court is guessing and that is indeed dangerous. The repercussions of that rushed, careless finding can be fatal to a company and its shareholders and directors. I emphasize again that the correct name must be used in the Originating Process for it then to have that recognition as a separate legal personality. The Corporation must also be registered as at the date the Writ of Summons and Statement of Claim or any other process is filed and served.

29. Therefore I find the submission by Mr. Manrai to be a strong submission and must be upheld. I find the Statutory Demand is issued against a company that is non-existent and therefore, must be set aside.

Conclusion

30. Having found that the debt is disputed, I order that the Statutory Demand issued by Huala Hire upon Pacific Rim and dated 8th March, 2012 must be set aside because the debt is disputed to a large extent. Additionally, the same Statutory Demand is issued on an entity that is non-existent and must be set aside. I also order that Huala Hire pay Pacific Rim's costs of the application, such costs to be taxed.

Formal Orders

31. These are the Court's formal orders:

1.	The Creditors Statutory Demand for payment of debt dated 8th March, 2012 issued by entity described as Huala Hire and Construction (PNG) Limited is set aside;
2.	The Defendant named in the proceedings, Huala Hire and Construction Limited, will pay the costs of the application to set aside, and other related costs;
3.	Such costs to be taxed if not agreed.

__________________________________________________________
Manrai Lawyers: Lawyers for the Plaintiff/Applicant
Allens Arthur Robinson Lawyers: Lawyers for the Defendant/Respondent