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Lavu v Tuka [2018] PGNC 500; N7598 (7 December 2018)

N7598

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

OS NO. 776 OF 2018

ALOIS LAVU, DOMINIC KAUMU, EWALD GARE, THOMAS KEMBU & WILFRED GIRU
Plaintiffs

V

VICTOR TUKA, URBAN ROA, HERMAN PINDA & JAMES RAKA
First Defendants

AND
KAVUGARA DEVELOPMENT LIMITED
Second Defendants

AND
INVESTMENT PROMOTION AUTHORITY
Third Defendant

AND
CLARANCE M HOOT as Managing Director Investment Promotion Authority for the time being
Fourth Defendant

Kimbe: Miviri AJ
2018: 09^th November, 7^th December

PRACTISE & PROCEEDURE – INJUNCTION – originating summons – notice of motion – interim injunction – no serious question raised – no arguable case – balance of convenience – damages an alternative adequate remedy – materials pleaded insufficient to grant – motion denied.

COMPANY LAW– dispute over management and control of company – right of shareholders or directors to sue – suing by derivative action –leave of court required before suing – Companies Act 1997 –section 143 – company separate entity from shareholders and directors – Companies Act 1997 – section 16 – no leave granted to plaintiffs to sue under name of company – court proceeding defective and incompetent – motion refused – cost follow

Cases cited:

Golobadana No 35 Ltd v Bank of South Pacific Ltd [2002] PGNC 36; N2309

Magasaki Ltd v Bai [2007] PGNC 75; N3221

National Housing Corporation v Yama Security Services Pty Ltd [2000] PNGLR 69

Saile v Posai [2008] PGNC 117
Counsel:

A Kumbari, for Plaintiffs

No appearance, for Defendants

RULING

07^th December, 2018

1. MIVIRI AJ: This is the ruling of the court pursuant to a notice of motion filed by the plaintiffs 22^nd October 2018 whereby they seek the following orders :
   

(i) Pursuant to Order 01 Rule 7 of the National Court Rules the Plaintiff dispenses with the requirements of service of court documents on the defendants and the court proceeds to the hearing of the matter.

(ii) Pursuant to section 143 & 145 of the Companies Act 1997 leave be granted to the Plaintiff’s shareholders by this court as having authority to act in the matter.

(iii) Pursuant to Order 14 rule 9 (a) of the National Court Rules and Section 142 of the Companies Act 1997 that the First defendants and all their servants and agents are restrained from conducting any business for and on behalf of the second defendant until further orders of the court.

(iv) Pursuant to Order 14 Rule 10 (1), (2), & (3) of the National Court Rules restraining the first defendant and all their servants and agents from dealing with, selling and or removing the second defendant’s investment and assets be it fixed, floating and or landed until further orders of the Court.

(v) Costs of the entire proceedings be awarded to the second defendant to pursuant to section 144 of the Companies Act 1997.

(vi) Any other orders as deemed fit by the court.

Background

2. Preliminary points raised by the orders sought with respect to service are accorded dispensation by the various affidavits of service that have been filed which adequately dispose. There is no issue in respect to derail. Service has not prompted appearance there is no prejudice in the non appearance. The materials in support adequately cover the converse.
   
3. Essentially the plaintiffs seek to restrain the defendants and reliance is sought upon Order 14 rule 9 (a) and section 142 of the Companies Act for interim injunction. The restraint is directed at the defendant who must be shown by the plaintiff as engaging in conduct that would breach or is contrary to the Constitution of the Company. There is no Constitution of the Company laid out as part of the evidence. There has been no leave granted in accordance with section 143 & 145 of the Companies Act 1997 for the plaintiffs to take the matter by this action.
   

Plaintiff’s case

4. And in principle the plaintiff’s cause falls or stands on this primary basis. Unless and until leave is properly obtained by section 143 of the Companies Act 1997, “the Act”, can he proceed further with his cause. Is there material on the balance of probabilities to satisfy that leave should be granted to the plaintiff to proceed in the cause he seeks?
   
5. Subsection (2) of 143 sets out a non exhaustive criterion, one of which is that, is the proceedings likely to succeed? Here the proceeding seeks to temporarily restrain the First defendants and all their servants and agents from conducting any business for and on behalf of the second defendant until further orders of the court. The second defendant is an incorporated company extract is set out as annexure “E” of the affidavit of Alois Lavu dated the 3^rd of September 2018. In it also Victor Tuka, Urban Roa, Herman Pinda and James Raka hold no position in the company either as directors or shareholders. Alternatively whether or not James Raka is the same person James Dau Raka is also not clear by the material in the determination of this matter. They are named as defendants by the plaintiff. It is not disclosed as to why they have been named as such. Obviously it matters as to how they are able to be connected to the second defendant because the allegation is to stop their association in business with the second defendant company. It would effect the utility of the proceedings. It would make sense if they were shareholders or directors of the company who were acting contrary to the inspiration of the Company. Further the operations of the second defendant as a company would be seriously effected no fault of it. What is called in question as to the composition of directors management of the records of the second defendant is an administrative matter governed by the Companies Act. It is a matter internal to the Company second defendant and would best be left to the dictate of the Companies Act to settle. Because there is no Constitution the Companies Act lays the procedure that must be followed: Magasaki Ltd v Bai [2007] PGNC 75; N3221 (7 May 2007). In practice Schedule 2 of the Companies Act governs the situation here without a Constitution. All shareholders must receive notice of the meeting. When it is intended to remove a director of the Company the notice must state that purpose and should be in writing of that fact. It must be served on all directors, shareholders and the secretary. And it is only the Board of Directors that calls general meetings unless the Constitution provides or 5 percent of the shareholders make a demand. And the voting is by the shareholders not anybody else. And the responsibility is of the directors to file the change of directors with the registrar of the Companies. When these requirements are not satisfied the resolutions passed have no effect and do not remove or replace the directors: Saile v Posai [2008] PGNC 117 (1 August 2008). That is not the strength of the material here filed which would entail legal standing within the meaning of the Companies Act set out above.
   
6. That is also the evidence in this proceeding by Harriet Kokiva Acting Registrar of Companies written attention to Messrs Victor Tuka, Urban Roa and Herman Pinda dated the 13^th September 2018 annexure “F” of the affidavit of Alois Lavu sworn 18^th October 2018. Pertinent particulars are:
   

“1. A thorough review of our records has been conducted of the recent director changes. The review reveals that the meeting minutes and resolutions of Special Shareholders Meeting held on 8^th July 2018 are null and void as it is illegal for shareholders to empower a secretary to call or run a shareholders’ meeting. Pursuant to section 169 (4) of the Act, a secretary of a company shall have only such rights, powers, and duties in relation to the Company as are given to him by this Act or by the Constitution or board of the Company. The Company does not have a Constitution; and

2. The office doubts the existence of a share Registry after you alleged that the Company does not have registered office and share registry.”

Secondly, if the board of directors has failed to have a registered office and also failed to keep and maintain a readily available share registry of the Company, which is mandated requirements pursuant to sections 67, 161 and 164 of the Act, they can be held liable for offences under the Act. Essentially, this requirement is very important in the sense that any legality as to the ownership and test of due processes boils down to the content of this very important document. That is, without keeping and maintaining this very important document any claims as to one’s compliance with due processes will typically be a guess work. Therefore, as you were informed in the meeting, this office as a regulator has a vested interest to know whether a share Register has been kept so to subsequently make necessary validations to all related disputes.”

7. Clearly by this evidence there are clear marked illegalities, breaches and non compliance of the Companies Act that is on the hands of the plaintiffs which by law they must make right to maintain this course of action current. And it is also the basis upon which the registrar has refused to accept changes to the company records. There are also breaches in the submission of annual returns a punishable offence under section 215 (9) & (10) of the Act penalties read with section 414. And it is clear by the evidence annexure “G” to the affidavit of Alois Lavu that there is alot at stake admitted to by the plaintiffs which must be corrected to meet requirements of law under the Companies Act. It seriously undermines the motion with this issues glaring that must be settled. The effect on the application by motion is that there is no arguable case demonstrated. And there are no serious questions posed to be tried given these breaches and illegalities. The balance of convenience does not favour a grant of the motion sought. And damages would be an adequate proposition given: National Housing Corporation v Yama Security Services Pty Ltd [2000] PNGLR 69 (25 August 2000); Golobadana No 35 Ltd v Bank of South Pacific Ltd [2002] PGNC 36; N2309 (11 November 2002). By this authority the plaintiffs have not made out a case for interim injunction and the application is refused with costs.
   
8. It seeks to give authority to the plaintiffs to temporarily freeze the First defendants and all their servants and agents from conducting any business for and on behalf of the second defendant until further orders of the court. The implication of this is that the former have authority in law and not the latter and therefore must be temporarily restrained until their authority settled. It would also mean that the Kavugara Development Corporation Limited, “Kavugara” a person in law will be restricted in what it does as a company. The second defendant in this proceeding who has not appeared despite service. In the affidavit of Alois Lavu set out above annexure “E” is the company extract of Kavugara Development Corporation Limited dated the 3^rd September 2018. In it Dominic Kaumu is a director who has been appointed as such as of the 8^th July 2018. Including Alois Lavu as of the 1^st March 2013. It is clear that this action is not by Kavugara as a company a person in law distinct from the directors and shareholders. There is no consent from Kavugara for Alois Lavu and Dominic Kaumu to bring forth this action nor have they shown by the material that they have the authority satisfactorily and in compliance of the Act. By that fact alone it defeats the motion that they seek.
   

Issue

9. Have the plaintiffs made out a case on the balance of probabilities for an interim injunction to be granted as motioned?
   

Ruling

10. In the light of the matters raised set out above the plaintiff/applicants have not made out a case for interim injunction to be granted. Their motion is refused with costs to follow the event.
    
11. In passing obvious to all is the Company Kavugara Development Corporation Proprietary Limited must be allowed to function and to continue to serve its shareholders persons with interests to it. The regulator Investment Promotion Authority Business Registration and Certification Division through the office of the acting registrar of Companies Harriet Kokiva has made very useful suggestions and advice to bring the company up to consistency with the law so that maximum benefits are derived by all by its letter dated the 13^th September 2018. It would benefit the company to move in that direction rather than to come to court with proceedings like the present to restraint or injunction. Persons holding offices within the company must be allowed to function and to serve the company so that benefit due to all is accorded where it must go. Court processes must have substance in law and facts supported by evidence to proceed. The Companies Act has procedures which the company can follow to see out disputes. It is not of the court to confine into the administrative workings of the Company. That is a matter within the prerogative of the company by its directors and shareholders to remedy in accordance with advice from the regulator.
    
12. Consequently the motion is refused with Costs.
    

Orders Accordingly

__________________________________________________________________

Kumbari & Associate Lawyers : Lawyer for the Plaintiff Applicant

Nil representation for the Defendant