N7550

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS NO.287 OF 2006

BETWEEN:
SIMON FILLOY BONI for himself and One Hundred and Twenty One individual members of the Inai-Obebiara and Sufalana Clans of Yaloge Village
First Plaintiff

AND:
AUBO SOLA for himself and Twenty Eight individual members of the Yumu-Humula Clan of Yaloge Village
Second Plaintiff

AND:
JOE BAGORO for himself and Seventy Nine individual members of the Ivida, Samakuma, Balai and Inaiya Clan of Inaina Village
Third Plaintiff

AND:
JOE BULIDA for himself and One Hundred and Five individual members of the Simalolo Clan of Inaina Village
Fourth Plaintiff

AND:
HENRY MONA for himself and Fifty Five individual members of the Balukuma-Urukai Clan of Inaina Village
Fifth Plaintiff

AND:
ANDREW AIA for himself and Fifty Four individual members of the Egesa Clan of Inaina Village
Sixth Plaintiff

AND:
WASANA BOTI for himself and Twenty Eight individual members of the Inaya-Biabina Clan of Inaina Village
Seventh Plaintiff

AND:
KORA EVESA for himself and Twenty Nine individual members of the Hokuma Clan of Inaina Village
Eighth Plaintiff

AND:
MATHEW HALLA for himself and Twenty Eight individual members of the Yumumadena Clan of Kasabadina Village
Ninth Plaintiff

AND:
PAUL MATHEW for himself and One Hundred and Forty Two individual members of the Yagamara, Mana and Koga Clans of Didibuna Village, Camp 5 & 48
Tenth Plaintiff

AND:
MICHAEL MONGO for himself and Twenty Seven individual members of the Ivida Yumu Clan of Wama Village
Eleventh Plaintiff

AND:
TOLUKUMA GOLD MINES LTD
First Defendant

AND:
HEVI-LIFT (PNG) LTD
Second Defendant

Waigani:  David, J
2018: 26 October & 2 November

COMPANY LAW – application for leave to continue legal proceedings – company put into liquidation – liquidation in progress – power to grant or refuse leave is discretionary - factors to be considered in the exercise of discretion – Companies Act 1997, Section 298(1)(c)(i).  

Cases cited:

Wilfred Pake Giru v Public Officers Superannuation Fund Board & Ors (2007) N3155

Counsel:

Lasen Tangua, for the Eighth Plaintiff
Ian Shepherd, for the liquidator for the First Defendant

JUDGMENT
2 November, 2018

1.	DAVID, J: INTRODUCTION:  By amended notice of motion filed on 24 October 2018, the eighth plaintiff, Kora Evesa representing himself and 29 others of the Hokuma clan of Inaina village, Goilala District of Central Province seeks leave pursuant to Section 298(1)(c)(i) of the Companies Act 1997 to continue these proceedings against the first defendant, Tolukuma Gold Mines Ltd.  

2.	In support of his application, the eighth plaintiff relies on the following documents:

1.	Affidavit of Kora Evesa sworn on 29 June 2018 and filed on 13 August 2018 (doc 212);
2.	Affidavit of Kora Evesa sworn and filed on 13 August 2018 (doc 217);
3.	Affidavit of Kora Evesa sworn and filed on 11 September 2018 (doc 221); and
4.	Amended Statement of Claim filed on 16 August 2006.

3.	The motion is opposed by the liquidator for the first defendant, Andrew Pini.  He relies on his own affidavits, the first one was sworn on 26 July 2018 and filed on 30 July 2018 and the other sworn on 5 September 2018 and filed on 10 September 2018.   

4.	By writ of summons endorsed with a statement of claim filed on 20 March 2006 and later amended by the Amended Statement of Claim filed on 16 August 2006, the plaintiffs including the eighth plaintiff instituted a claim for damages under various heads against the defendants founded on the tort of negligence and they also claim compensation pursuant to the provisions of the Environment Act 2000.  It is alleged that a canister of sodium cyanide manufactured, packaged and delivered to the first defendant’s base camp at Veimauri in the Central Province by Orica (Papua New Guinea) Limited weighing one thousand kilograms transported by air by a Russian Mil 171 helicopter owned and operated by the second defendant from the first defendant’s base camp at Veimauri and destined for the first defendant’s gold mine at Tolukuma in Goilala District of Central Province and which was placed inside the skid pallet or open sled secured to the helicopter via two slings dangling from the belly of the helicopter fell off from 3,500 feet above sea level into the dense jungle of a steep mountainside within the Yaloge area of the Goilala District causing it to burst and spilling its content of sodium cyanide and contaminating the soil and environment and subsequently into villages, creeks and waterways causing immeasurable damage including death of eight individuals, birds, fish, eels, river prawns, insects at the area of the spillage and downstream and many individuals becoming ill from consuming contaminated water and food sources.  In addition, it is alleged that as a result of the spillage, the plaintiffs, among other things, suffered frustration and depression and abandoned their usual communal, gardening, fishing and hunting sites and were relocated elsewhere.  It appears that the proceedings against the third defendant were discontinued by the filing of a notice of discontinuance on or about 21 February 2010.

5.	The defendants defend the proceedings. From the court documents I have been able to access in the court file which comprises a number of thick and voluminous files; the first defendant filed a Further Amended Defence on 7 July 2010; and the second defendant filed its defence on 24 May 2006.  The parties have not assisted the Court in their submissions or affidavits as to the true details of  the pleadings eg, the Further Amended Defence of the first defendant makes reference to a Further Amended Statement of Claim while Mr Tangua for the eighth plaintiff relies on the Amended Statement of Claim filed on 16 August 2006. However, it would be fair to state that from the documents I have accessed, the pleadings closed as against all the parties in or about 2010. 

6.	The eight plaintiff’s evidence is adduced by and through Kora Evesa and it is that:

1.	He is the Paramount Chief of the Hokuma tribe of Inaina village in the Goilala District of Central Province and is the lead plaintiff for the eighth plaintiff.
2.	The cause of action against the defendants in the tort of negligence arose as a result of a cyanide (chemical) spillage at the headwaters of Silolep Creek in his village sometime in March 2000 when a drum containing cyanide fell from a helicopter in the course of airlifting two tonnes of cyanide to the Tolukuma Gold Mines for mining purposes.
3.	The effect of the chemical spillage on the environment, food gardens, the communities and the people affected has been enormous and devastating.
4.	Eight people died.
5.	Since lodging their claim against the government, numerous State agencies and representatives of government have admitted responsibility and have made commitments to compensate them for the loss and damage suffered.
6.	His lawyers and consultant, Mr David Mol have approached the liquidator several times including writing to the liquidator on 2 May 2018 regarding the continuation of these proceedings, but the liquidator has not responded to that letter and has refused to give his consent and advised them to discontinue the proceedings.
7.	He has submitted through his agent Microbal Limited a Form 43, Claim by Unsecured Creditor, pursuant to Section 352(1) of the Companies Act. The amount claimed ranges from K97.5 million to K1.115 billion.

7.	The evidence adduced by Andrew Pini is that:

1.	He is a registered liquidator, company auditor and public accountant.
2.	On 7 February 2018, he was appointed by the Court to act as the liquidator of the first defendant company.
3.	The plaintiffs have never requested his consent to continue the proceedings against the first defendant company as they are required to do pursuant to Section 298(1)(c) of the Companies Act.
4.	The plaintiffs have lodged a claim in the liquidation for an amount which ranges from K97.5 million to K1.115 billion.
5.	He has received another claim from another group of landowners represented by one James Gabe in relation to the same incident for approximately K65 million in WS No.288 of 2006 and Supreme Court Review No.56 of 2016.
6.	He has explained to both groups that the major asset of the fifth defendant is its interest in the mining tenements some of which have expired and are awaiting renewal.  Without these tenements, the plant and equipment are of very little value and the company will be insolvent and will not have funds to distribute to unsecured creditors.  Until he successfully renews all of the tenements and have permission from the Minister for Mining to sell those tenements, he was unable to determine whether the company is or not going to be in a position to pay any of the creditors whose notices of claim he has received. 
7.	Once the company’s position is certain, the landowners can then decide whether to proceed with the proceedings to finality or should there be funds left in the liquidation, negotiate and out of court settlement with him prior to termination of the liquidation.
8.	With no cash in the bank and no assets other than the tenements and the plant and equipment, he is not in a position to fund an expensive legal proceedings, i.e., either WS 287 of 2006 or these proceedings particularly where the outcomes are uncertain and where those legal costs will be extensive due to the nature of the claims, i.e., in excess of K1 million.  
9.	As the first defendant has ceased operations that it was unable to pay its debts as they fall due and payable, it is not commercially viable for the liquidator to allow the current proceedings against the first defendant in liquidation to continue.
10.	Even if the plaintiffs obtain judgment in their favour, they will only rank as unsecured creditors in the liquidation and in his opinion, it is unlikely that they will receive any payment or even part payment of whatever judgment they may obtain. 
11.	He will not give his consent to the plaintiffs to continue with the proceedings against the first defendant in liquidation.
12.	His suggestion to the landowner claimants is that they agree to stay the proceedings until he is in a better position to determine whether:

(a)	he can successfully renew all the mining tenements; and
(b)	he will be permitted by the Minister for Mining and Minerals Resources Authority to advertise the tenements for sale on the open market; and
(c)	the proceeds of sale of the tenements and any other plant and equipment will result in a surplus of funds which may be available to pay unsecured creditors. 
13.	Consequently, James Gabe has consented to stay or discontinue the proceedings in WS 288 of 2006.    

8.	The main issue for my consideration and decision is whether the eighth plaintiff should be granted leave to continue these legal proceedings against the first defendant company? 

9.	Section 298(1)(c) of the Companies Act states:

“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.” 

10.	The power whether to allow the proceedings against a company in liquidation to continue is discretionary.

11.	The factors to be considered when deciding whether to grant leave to a person to continue legal proceedings against a company in liquidation were suggested by Hartshorn, J in Giru v Public Officers Superannuation Board [2007] N3155 following a review of decisions of courts in New Zealand and Australia that dealt with provisions similar to Section 298(1)(c).  His Honour observed that given those decisions concern judicial interpretations of corresponding provisions in those jurisdictions, they were of persuasive value.  I subscribe to those views. 

12.	The principal test to be affirmatively satisfied by an applicant is whether the claim has a solid foundation and gives rise to a serious dispute, i.e., the applicant must show that there is a serious question to be tried.

13.	Once the principal test is satisfied, numerous other factors that have been considered relevant to the exercise of discretion in the New Zealand and Australian courts are to be considered and these include:

1.	It is a cardinal principal that there must be equality among various creditors;
2.	It follows that the bringing of the proceedings should not produce an advantage to a particular creditor over other creditors;
3.	The assets of a company should not be dissipated in wasteful litigation particularly if there is a more convenient method for determining the claim;
4.	The onus is on the party seeking leave to satisfy the court that leave should be given;
5.	The applicant should demonstrate a claim that is not clearly unsustainable but that the court will not investigate the merits of the claim;   
6.	The amount and seriousness of the claim;
7.	The degree of complexity of the legal and factual issues involved;
8.	The stage to which the proceedings, if already commenced, may have progressed.

16.	Mr Tangua for the eighth plaintiff contends the Court should grant him leave to continue the proceedings against the first defendant company as the Amended Statement of Claim and the evidence adduced demonstrate that there are serious legal issues that need to be tried. 

17.	Mr Sheppherd for the liquidator of the first defendant concedes that there are serious issues to be tried, but contends that the Court should refuse to grant leave sought by the eighth plaintiff as:

1.	The eighth plaintiff has failed to provide any explanation as to why he has not progressed the matter to a trial for about 12 years.
2.	This is not a claim for a liquidated amount, but a claim for damages in negligence and the amount suggested for damages was in the vicinity of K1 billion.
3.	The first defendant company in liquidation has no assets and is in no financial position to settle this claim or any other claim. 
4.	Of the other plaintiffs totalling about 600 to 700, only the eight plaintiff representing 29 claimants was seeking to continue these proceedings against the first defendant company in liquidation and no evidence was adduced to demonstrate that the other plaintiffs supported the eighth plaintiff’s application. 
5.	If the liquidator were to engage lawyers to defend the claim upon grant of leave, it would be a costly exercise given the nature and complexity of the claim which would require calling of expert witnesses, engagement of senior counsel, etc.       

18.	In addition, Mr Sheppherd suggested that the proceedings be stayed pending the outcome of the liquidation. 

19.	It is common ground and I do agree that there are serious questions to be tried.

20.	Given the principal test has been met, I need to consider other factors alluded to earlier in deciding whether to exercise my discretion in favour of the eighth plaintiff.

21.	In the present case:

1.	The assets of the first defendant company should not be dissipated in wasteful litigation until the true financial position is ascertained by the liquidation.
2.	The amount and seriousness of the claim does not warrant the continuation of the proceedings if the current position of the company is demonstrated by the fact that it is unable to pay its debts as they fall due and payable. 
3.	The degree of complexity of the legal and factual issues does not warrant continuation of the proceedings as it will be a very costly exercise on both ends.
4.	No explanation has been provided by the eighth plaintiff as to why the proceedings have not been progressed to trial despite pleadings having been closed in or about 2010.

22.	In addition, I adopt and accept Mr Shepperd’s submissions.  

23.	The eight plaintiff has failed to satisfy the Court that leave should be granted.

24.	Consequently, in the exercise of the Court’s discretion, I will refuse to grant leave to the eighth plaintiff to continue these proceedings against the first defendant company in liquidation.

25.	Unless cause is shown by the other plaintiffs as to why the proceedings against the first defendant company in liquidation should not be stayed pending the outcome of the liquidation, I accept the suggestion by Mr Shepherd and order the stay.  

ORDER

26.	The formal orders of the Court are:

1.	The application moved by the eighth plaintiff by amended notice of motion filed on 24 October 2018 seeking leave pursuant to Section 298(1)(c)(i) of the Companies Act 1997 to continue these proceedings against the first defendant, Tolukuma Gold Mines Ltd is refused.  
2.	The proceedings against the first defendant is stayed pending the outcome of the liquidation.
3.	The eighth plaintiff shall bear the costs of the liquidator of the first defendant to be taxed if not agreed.
4.	Time for the entry of these orders is abridged to the date of this order.

Orders accordingly.

________________________________________________________________
Baniyamai Lawyers:  Lawyers for the Eighth Plaintiff		
Ashurst: Lawyers for the Liquidator of the First Defendant