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K. K. Kingston Ltd v International Finance Co [2019] PGNC 365; N8102 (23 August 2019)

N8102

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

OS 50 of 2018

In the matter of the Companies Act 1997; and
In the matter of an Application by K. K. Kingston Limited pursuant to section 338(1) Companies Act 1997 to set aside a Creditor's Statutory Demand for payment of debt

BETWEEN:
K. K. KINGSTON LIMITED
Plaintiff

AND:
INTERNATIONAL FINANCE COMPANY
Defendant

Waigani: Hartshorn J
2018: 26^th July &23^rd August

Application to set aside a statutory demand

Cases Cited:
Papua New Guinea Cases

Bemobile Ltd v. Wettao (2014) N6776
Breckwoldt v. Gnoyke (No 2) [1975] PNGLR 195
Northbuild Construction PNG Ltd v. All Power Services Ltd (2016) SCA 117 of 2016, unreported, delivered 15^th December 2016
PNG Balsa Company Ltd v. New Britain Balsa Company Ltd (2004) N2520

Overseas Cases

Bishop Industries (Wellington) Limited v. Construction Labour Hire Limited [2016] NZHC 2848
Dibbins v. Dibbins [1896] 2Ch 348
Di Luca v. Juraise (Springs) Ltd [1997] EWCA Civ 2419
Hare v. Nicoll [1966] 2 Q.B. 130

Counsel:

Mr. I. R. Molloy and Mr. K. Imako, for the Plaintiff
Mr. D. Hill, for the Defendant

23^rd August, 2018

1. HARTSHORN J: The plaintiff K. K. Kingston Limited (Kingston) applies to set aside a statutory demand issued against it by the defendant International Finance Company (IFC). Sections 338(1) and (4)(a) Companies Act 1997 are relied upon. The statutory demand is dated 21^st December 2015, was served on 8^th January 2018 and is for the sum of K7,264,333.33. This sum is described as the:

“.... redemption price of 196 A Ordinary Shares held by International Finance Corporation in the Company, K.K. Kingston pursuant to Section 4.01(b) of the Shareholders Agreement dated 2 March 2010 and executed between K.K.Kingston Limited, Keith Kingston, International Finance Corporation and Kula Fund II Limited.”

Background

2. IFC became the holder of 196 “A” ordinary shares in Kingston on or about 20^th April 2010. Under clause 4.01(a) of a Shareholders Agreement dated 2^nd March 2010 between the parties and others, IFC was granted an option to require Kingston to redeem IFC’s shares in Kingston. IFC has purported to exercise this option and the amount claimed in the statutory demand represents its calculation of the “Redemption Price”.

3. Kingston contends that the statutory demand should be set aside as amongst others:

1. There is a substantial dispute as to whether the amount claimed by IFC in the statutory demand is owing or is due. Kingston contends that there is a live issue between the parties as to the effective date of redemption and whether IFC had any right to redeem its shares in Kingston at all;
   
2. If there is an amount due and owing, then there is a substantial dispute as to that amount as the redemption price cannot be calculated until uncertainty as to the redemption date is resolved;
   

100. If IFC did correctly exercise its right to redeem its shares on the sixth anniversary of the closing date, the redemption price is less than the sum claimed.
     

4. IFC contends that the statutory demand should not be set aside as amongst others:

a) Kingston allocated shares to IFC and issued a share certificate on 20^th April 2010. The subscription date is 20^th April 2010 and any non-compliance by IFC has either been waived by Kingston’s conduct, or the requirements of s. 2.01(b) subscription agreement have been varied by the conduct of both parties. The sixth anniversary is 20^th April 2016;

b) IFC relies solely on the notice of redemption dated 12^th April 2016. By its conduct, Kingston has accepted the validity of the notice of redemption date 12^th April 2016 by cancelling IFC’s 196 “A” ordinary shares subsequent to the receipt of the 12^th April 2016 notice;

c) To the extent that Kingston disputes the quantum of the amount owing and due, IFC is prepared to accept a reduction in its debt to K7,118,666.66.

Whether there is a substantial dispute that the debt is owing or due

5. I consider this issue first.

6. Section 338(4)(a) Companies Act 1997 is as follows:

“(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;”

7. Kingston relies upon the Supreme Court decision of Northbuild Construction PNG Ltd v. All Power Services Ltd (2016) SCA 117 of 2016, unreported, delivered 15^th December 2016 in this regard. Kingston submits that it only needs to demonstrate a “fairly arguable basis” that a substantial dispute exists and that basis must be genuine. PNG Balsa Company Ltd v. New Britain Balsa Company Ltd (2004) N2520 is relied upon, as are some authorities from New Zealand.

8. I concur with that statement of the law and refer to my decision in Bemobile Ltd v. Wettao (2014) N6776. At [13] I stated:

“13. In the above cases the following principles are set out as to when a statutory demand ought to be set aside:

(a) The applicant must establish that there is a, “fairly arguable basis” or a, “substantial dispute” as to the amount claimed in the statutory demand;

(b) The evidence in support of an application must demonstrate that there is arguably a genuine and substantial dispute and which goes towards supporting the claim that the debt is disputed;

(c) That a mere assertion that there exists a debt or debts is not sufficient to maintain the statutory demand;

(d) 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.”

9. I also refer to the New Zealand High Court case of Bishop Industries (Wellington) Limited v. Construction Labour Hire Limited [2016] NZHC 2848 and the following statement at [16]:

“[16] The onus is on the applicant to show that there is a genuine and substantial dispute as to the existence of the debt. The dispute must be real and not fanciful or insubstantial; the applicant must show a fairly arguable basis upon which it is not liable for the amount claimed. The mere assertion that a dispute exists is not sufficient. An applicant must establish that any counter claim or cross-demand is reasonably arguable in all the circumstances. The obligation is not to prove the actual claim; such an obligation would amount to the dispute itself being tried on the application.”

10. Kingston contends that section 4.01(a) shareholders agreement allowed IFC to redeem its shares in Kingston on the fifth and sixth anniversaries of the “Closing Date”. The “Closing Date” cannot be later than 31^st May 2009 or any such other date as the parties must agree. There is no evidence of any such agreement and it is not disputed that the two purported redemption notices were given after 31^st May 2015. They are therefore are out of time and invalid.

11. Kingston contends that there is a substantial dispute as to whether IFC has validly exercised a contractual right of redemption and whether the debt alleged to be owing for the shares is owing or due.

12. IFC contends that any non-compliance has either been waived, or there has been a variation to the subscription agreement.

13. Kingston contends that it has requested that IFC identify the effective date of redemption so that the dispute can be resolved. IFC has responded that there is no dispute as to the effective date of redemption. Kingston contends that IFC identifying the effective date of redemption is a fundamental threshold issue and a matter which goes to the heart of whether IFC has any right to redeem its shares at all. Further, the parties conduct is not able to rectify IFC not validly exercising its contractual right to redemption pursuant to the shareholders agreement. The right to exercise an option is a condition that is construed strictly and a failure to exercise an option right in time will constitute a forfeiture of that right.

14. Kingston relies on the cases of Dibbins v. Dibbins [1896] 2Ch 348 and Breckwoldt v. Gnoyke (No 2) [1975] PNGLR 195 for this proposition. I have also had regard to the case of Hare v. Nicoll [1966] 2 Q.B. 130, cited with approval in Di Luca v. Juraise (Springs) Ltd [1997] EWCA Civ 2419, which concerned an option to repurchase shares in a private company. At 141 Wilmer LJ said:

“It is well established that an option for the purchase or repurchase of property must in all cases be exercised strictly within the time limited for the purpose. The reason for this, as I understand it, is that an option is a species of privilege for the benefit of the party on whom it is conferred. That being so, it is for that party to comply strictly with the conditions stipulated for the exercise of the option.”

15. Given the above statement and after a consideration of the evidence and submissions I am satisfied that Kingston has demonstrated on a fairly arguable basis that is genuine that there is a substantial dispute as to whether the debt claimed by IFC is owing or due. The two purported redemption notices were issued significantly after 31^st May 2015 and there is no evidence before the court that there has been an agreement between the parties for another “cut-off date” (Closing Date), other than that defined in the subscription agreement being 31^st May 2009. I am satisfied that there is a substantial dispute as to whether IFC has complied strictly with the conditions stipulated for the exercise of its option and consequently whether the debt claimed is owing or due.

16. In the exercise of this court’s discretion, I am satisfied that the statutory demand should be set aside. Given this it is not necessary to consider the other submissions of counsel.

Orders

The relief sought in paragraphs 1, 2 and 4 of the originating summons is granted.

_____________________________________________________________
Corrs Chambers Westgarth: Lawyers for the Plaintiff
Allens: Lawyers for the Defendant