N8344

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

OS 42 OF 2018 (COMM)

IN THE MATTER OF AN APPLICATION UNDER THE COMPANIES ACT 1997 AND
IN THE MATTER OF GREEN INVESTMENT LIMITED (1- 69209)

BETWEEN:
LEONG NGU KING
Applicant

AND:
WONG NGU KING
First Respondent

AND:
ASL SEAFOOD LIMITED
Second Respondent

Waigani: Hartshorn J,
2020: 9th January
              
COMPANY LAW - PRACTICE AND PROCEDURE - Application for leave pursuant to s. 143 Companies Act – applicant is a shareholder of GIL and has standing to bring this application –Application for leave granted 

COMPANY LAW – derivative action – for leave to be granted to an applicant for derivative action, four conditions need to be satisfied - the likelihood of the proceedings succeeding,  the costs of the proceedings in relation to the relief likely to be obtained, any action already taken by the company or related company to obtain relief, the interests of the company or related company in the proceedings being commenced – leave granted

Cases Cited:
Papua New Guinea Cases

Kanturk Ltd v. Joe Kawage (2016) N6330 
Re Kimbe Nivani Properties Ltd (2017) N7696

Overseas Cases

He v. Chen [2014] NZCA 153

Counsel:

Mr. J. Poya, for the Applicant
Ms. J. Nandape, for the Respondents

9th January, 2020

1. HARTSHORN J: This is a decision on a contested application for leave to be granted to the applicant to bring various proceedings in the name of the company, Green Investment Limited (GIL). The applicant is Mr. Leong Ngu King and he makes application pursuant to s. 143(1)(a) Companies Act and Order 12 Rule 1 National Court Rules.

2. The application is opposed by the two respondents in this proceeding. The first respondent is Mr. King Wong Ngu who claims that he has been incorrectly named as Wong Ngu King. He is a director and shareholder of GIL. The second respondent is ASL Seafood Ltd (ASL). ASL is owned by the first respondent.

3. The applicant submits that leave as sought should be granted as the applicant is a director and major shareholder of GIL, a damages claim has already been commenced against the first respondent and others by GIL and other plaintiffs concerning the alleged destruction of property, GIL is owed rental arrears of K2,178,000.00 and is owed K450,000.00 by the first respondent for his shares in GIL. Further, GIL is seeking judicial review of a committal court order of the District Court.

4. The respondents submit that the application for leave should be dismissed as the applicant is not a shareholder or director of GIL and therefore does not have standing, the respondents should not have been named in the proceeding, GIL has not been served, there is no evidence that GIL does not intend to bring the subject proceedings itself or that it is in the interests of GIL that leave should be granted and that the claims sought to be brought in the name of GIL have little prospect of success.

Section 143 Companies Act

5. Section 143 Companies Act is as follows:
“143.	Derivative actions.
(1)	Subject to Subsection (3), the Court may, on the application of a shareholder or director of a company, grant leave to that shareholder or director to—
(a) bring proceedings in the name and on behalf of the company or any related company; or
(b) intervene in proceedings to which the company or any related company is a party for the purpose of continuing, defending, or discontinuing the proceedings on behalf of the company or related company, as the case may be.
(2)	Without limiting Subsection (1), in determining whether to grant leave under that subsection, the Court shall have regard to—
            (a) the likelihood of the proceedings succeeding; and
(b) the costs of the proceedings in relation to the relief    likely to be obtained; and
(c) any action already taken by the company or related company to obtain relief; and
(d) the interests of the company or related company in the proceedings being commenced, continued, defended, or discontinued, as the case may be.
(3)   Leave to bring proceedings or intervene in proceedings may be granted under Subsection (1), only where the Court is satisfied that either—
(a) the company or related company does not intend to bring, diligently continue or defend, or discontinue the proceedings, as the case may be; or
(b) it is in the interests of the company or related company that the conduct of the proceedings should not be left to the directors or to the determination of the shareholders as a whole.
(4) Notice of the application shall be served on the company or related company.
     (5)	The company or related company—
	(a) may appear and be heard; and
(b) shall inform the Court, whether or not it intends to bring, continue, defend, or discontinue the proceedings, as the case may be.
     (6)	Except as provided in this section, a shareholder is not entitled to bring or intervene in any proceedings in the name of, or on behalf of, a company or a related company.”

Preliminary

6. The respondents raise some preliminary issues which I now consider.

7. The respondents submit that the applicant is not a shareholder and director of GIL and therefore does not have standing to bring this application as the company extract for GIL in the evidence, reveals amongst others, that King Leong Ngu is a shareholder, as distinct from the applicant Leong Ngu King.

8 As the name of the subject shareholder in the company extracts in evidence consist of the same three words as the three words in the name of the applicant, I reject this submission of the respondents.

9. Similarly, I reject this submission of the first respondent that he is incorrectly named, on the same basis.

10. In regard to this proceeding having the respondents named as distinct from only the applicant making the application with no respondents named as submitted by the respondents, I am not satisfied that the naming of the respondents invalidates the application. Further, the respondents cannot argue that they are prejudiced given that they have been given an opportunity by the applicant to be heard on the application.

11. As to there not being evidence that GIL was served with the application, pursuant to s. 431(a) Companies Act, a document in any legal proceedings may be served on a company by delivery to a person named as a director of that company. Pursuant to the company extract for GIL annexed to the first respondent's affidavit, the first respondent is a director of GIL. The first respondent is also a party to this proceeding. A notice of intention to defend has been filed on behalf of the respondents. I refer to the case of Kanturk Ltd v. Joe Kawage (2016) N6330 in regard to the respondents being deemed to be served in such circumstance. I am satisfied therefore that GIL has been served. Further, with the applicant and first respondent being parties to this proceeding, I am satisfied that as 85% of the shareholding of GIL is represented in this proceeding, GIL can be considered to be aware of this proceeding.

12. In regard to what the respondents submit are competency issues, I will give consideration to these in my determination of whether leave should be granted.

Consideration

13. As referred to, I am satisfied that the applicant is a shareholder and director of GIL and has standing to bring this application: s. 143(1) Companies Act.

14. As to s. 143(2) Companies Act, it is mandatory. In Re Kimbe Nivani Properties Ltd (2017) N7696, I referred to the New Zealand Court of Appeal case of He v. Chen [2014] NZCA 153, in which at [29] and [30] as to s.165(2), the equivalent of s.143(2) Companies Act, Papua New Guinea, the Court said:
“[29] We turn to consider the main issue, namely whether leave should have been granted for the proposed derivative action as the appellant argues. Section 165 (2) provides that in exercising its discretion the court is required to have regard to:
(a) the likelihood of the proceedings succeeding:
(b) the costs of the proceedings in relation to the relief likely to be obtained:
(c) any action already taken by the company or related company to obtain relief:
(d) the interests of the company or related company in the proceedings being commenced, ….
[30] This section requires the court to assess each consideration separately. The relative weight each carries will depend on the facts of the case. In assessing each statutory criterion the court should adopt the standard “which would be exercised by a prudent business person in the conduct of his or her own affairs when deciding whether to bring a claim.” It is very well established by High Court authority, which we endorse, that the prudent business person standard applies to an assessment of s. 165 (2) (a). It has also consistently informed the Court’s assessment of the remaining three criteria. While we emphasise it is the express words of each statutory consideration which the Court must have regard to, we consider it helpful to assess whether each criterion applies to the prudent business person standard.”

15. As to s. 143(2)(c) Companies Act, in this instance there is evidence that GIL has taken action in two other proceedings, which concern actions proposed to be taken by the applicant in this proceeding.
16. As to s.143(2)(a), the likelihood of the proceedings succeeding, I am not satisfied on the evidence before the court that there is such a likelihood apart from in regard to the claim from rental and occupation of the subject property. Either in the absence of a lease agreement, or if there is a lease agreement but there are rental arrears, a landlord is entitled to occupation of his property or to an agreed rental or recovery. I am also satisfied that it is in the interests of GIL to pursue such a proceeding in regard to its property as clearly it is an unacceptable commercial scenario for a landlord to have his property occupied without any rental being paid.
17. As to the costs of the proposed proceeding in respect of the property claim there is little evidence for the court to consider. To my mind however, given the proposed claim of over K2 million, it is unlikely that legal costs would exceed 25% of that amount. This is an extremely rough and general calculation but there is nothing else provided upon which the court can attempt a cost/benefit consideration. Based on this very rough calculation, I am satisfied that the prudent business person would pursue a claim on such a cost/benefit consideration.
18. As to s. 143(2)(d), “the interests of the company or related company in the proceedings being commenced, continued, defended or discontinued, as the case may be.”; given my comments in regard to s. 143(2) (a), (b) and (c), I am satisfied that it is in the interests of GIL for the proposed proceeding concerning the recovery of rental and occupancy of its property to be commenced as there is a likelihood that it may benefit considerably in financial terms. I am also satisfied that GIL does not intend to bring this proposed proceeding as it has only brought proceedings in respect of two other actions to which reference has been made. I am satisfied that it is in the interests of GIL that the conduct of this proposed proceeding should not be left to the directors or to the determination of the shareholders as a whole.
19. Consequently, I am satisfied that the applicant is entitled to leave as referred to. The other relief sought is refused, there being insufficient evidence for the court to properly consider such relief in this proceeding.
Orders
20.   The Court orders that:
a)	As to the Further Amended Originating Summons filed 17th May 2018, leave is granted to the applicant to pursue on behalf of Green Investment Ltd 	all debts owing in respect of the property situate at Section 139 Allotment 4, 	Portion 1536, Jackson, National Capital District, including all outstanding 	rental, and in addition or alternatively, the recovery of part or all of the said property;
b)	The other relief sought in the said Further Amended Originating Summons is refused;
c)	The respondents shall pay 50% of the applicant's costs of and incidental to this proceeding to be taxed if not otherwise agreed;
d) 	Time is abridged.
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Poya Legal Services: Lawyers for the Applicant                                                       
Nandape & Associates: Lawyers for the Respondents