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Levi v Seth [2018] PGNC 599; N8468 (3 May 2018)

N8468

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

OS 756 of 2016

BETWEEN:
SEMA LEVI
as former Chairlady of UMBOI TIMBER
INVESTMENT LIMITED
First Plaintiff

AND:
DAVID ALINGOU
and 10 others as former Directors of
UMBOI TIMBER INVESTMENT
LIMITED (Refer to Schedule 1)
Second Plaintiff

AND:
PETER SETH
First Defendant

AND:
ALEX TONGAYU, Registrar,
INVESTMENT PROMOTION AUTHORITY
Second Defendant

AND:
INVESTMENT PROMOTION AUTHORITY
Third Defendant

Waigani: Hartshorn J.
2018: 3^rd May

COMPANY LAW – trial - director and shareholders – company special general meeting - application seeking orders and declarations recognising plaintiffs as directors and shareholders of company - meeting of shareholders convened without compliance with the Companies Act and the constitution of the company if it has one, renders such a meeting invalid and resolutions passed therein are also invalid - no evidence of compliance with s. 102 and s. 104 Companies Act to make changes to composition of companies board – Special General Meeting not properly convened - Any purported resolutions and appointments made at the SGM were not made at a properly constituted meeting of shareholders - plaintiffs’ have made out their case as to the purported SGM being improperly called - they are entitled to relief

Cases Cited:
Pora Wan Pty Ltd v. Kop (1996) N1485
Magasaki v. Bai (2007) N3221

Counsel:

Mr. T. Tape, for the First Plaintiff

Mr. M. Philip, for the Second Plaintiffs

Mr. N. Gimaia, for the First Defendant

3^rd May, 2018

1. HARTSHORN J: This is a decision on the hearing of the plaintiffs’ amended originating summons. The plaintiffs seek amongst others, declaratory relief that they are the lawful directors of Umboi Timber Investment Ltd (UTIL). It is contested by the first defendant Peter Seth who is the purported current Chairman of UTIL.

Background

2. The plaintiffs were purportedly removed as directors of UTIL on or about 6^th August 2016. The first defendant claims that a special shareholders meeting (SGM) of UTIL was held at Boksim Hamlet, Siassi Island on 6^th August 2016 at which new directors were endorsed and a new Board and he as Chairman, were appointed. This SGM was purportedly convened by shareholders. Notice of the proposed meeting on 6^thAugust 2016 is claimed to have been given to the first plaintiff Sema Levi, the former Chairlady, at her office. The shareholders called the SGM as Sema Levi and the former Board, the second plaintiffs, had refused a request by the shareholders for a special shareholders meeting.

Consideration

Preliminary

3. The first defendant submits that this proceeding is an abuse of process as it has been commenced incorrectly. This submission is concerned with the substantive relief that is sought that seeks that changes to the Companies Office records are void, and that in essence, an order of mandamus is sought to restore the names of the former directors.

4. As this relief is consequential upon the first declaration being sought which is the primary relief and that declaration sought is not in essence seeking a review of a decision of a public person or body, the primary relief should not be sought by way of judicial review. The submission of the first defendant is therefore rejected.

Substantive

5. UTIL does not have its own Constitution and so the Companies Act applies concerning the calling of meetings of shareholders.

6. Section 102 and 104 Companies Act are as follows:

“102. Special meetings of shareholders.

(1) A special meeting of shareholders entitled to vote on an issue—

(a) may be called at any time by—

(i) the board; or

(ii) a person who is authorised by the constitution to call the meeting; and

(b) shall be called by the board on the written request of shareholders holding shares carrying together not less than 5% of the voting rights entitled to be exercised on the issue.

(2) If the Board fails to convene a special meeting of the shareholders within 21 days of the receipt of the written request of shareholders holding shares carrying together not less than 5 percent of the voting rights, the shareholders may request the Court to order a meeting of the shareholders under Section 104.

(3) Every Director who fails to comply with the request under Subsection (2) shall be liable for all costs associated with making application to the Court under Section 104.

(4) Every Director who fails to comply with this section commits an offence and is liable on conviction to the penalty set out in Section 413(4).

.........

104. Court may call meeting of shareholders.

(1) Where the Court is satisfied that—

(a) it is impracticable to call or conduct a meeting of shareholders in the manner specified in this Act or the constitution; or

(b) it is in the interests of a company that a meeting of shareholders be held,

the Court may order a meeting of shareholders to be held or conducted in such manner as the Court directs.

(2) Application to the Court may be made by a director, or a shareholder, or a creditor of the company.

(3) The Court may make the order on such terms as to the costs of conducting the meeting and as to security for those costs as the Court thinks fit.”

7. It is not disputed that the Board did not call the SGM. There is no admitted evidence that the then Board and then Chairlady, Sema Levi or other then directors received a written request of shareholders for a special meeting of shareholders to be called and the plaintiffs deny receiving any such written request.

8. Notwithstanding the claim that a written request of shareholders was given for a special meeting of shareholders, and of the Board failing to convene such a meeting, there is no evidence of a request being made as provided for under s.102(2) or s. 104 Companies Act to the court for it to order a meeting of shareholders under s. 104 Companies Act.

9. In the absence of evidence of compliance with s. 102 and s. 104 Companies Act, the SGM was not properly convened. Any purported resolutions and appointments made at the SGM were not made at a properly constituted meeting of shareholders.

10. In such circumstances, a meeting of shareholders convened without compliance with the Companies Act and the constitution of the company if it has one, renders such a meeting invalid and resolutions passed therein are also invalid. In this regard I refer to the case of Pora Wan Pty Ltd v. Kop (1996) N1485.

11. In the later case of Magasaki v. Bai (2007) N3221, Lay J also found amongst others, that because the notice of meeting was completely invalid, it not being in writing, and given by Board members, the resolutions passed at the purported meeting were not resolutions of the shareholders. Consequently, the respondents in that case were not duly elected as directors and they had no authority to file notice with the Registrar of Companies of change of directors.

12. In the circumstances, I am satisfied that the plaintiffs’ have made out their case as to the purported SGM being improperly called. They are entitled to relief. As to costs, I am satisfied that given the circumstances of this case, each party should bear their own costs.

Orders

13. It is ordered as follows:

a) It is declared that the first plaintiff and the second plaintiffs are the directors of Umboi Timber Investment Ltd;

b) It is declared that the purported changes to the Companies Office records on 7^th October 2016 are invalid, unlawful and void;

c) The first defendant is ordered to restore the names of the directors and the names of shareholder trustees as they appear prior to the changes made to the Companies Office Records on 7^th October 2016;

d) Each party shall bear their own costs of and incidental to this proceeding;

e) Time is abridged.

__________________________________________________________________
Kandawalyn Lawyers: Lawyers for the First Plaintiff
Korerua & Associates Lawyers: Lawyers for the Second Plaintiffs
Liria Lawyers: Lawyers for the First Defendant