N8636

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

OS NO. 217 OF 2020

BETWEEN:
RAMU DEVELOPMENT FOUNDATION LIMITED
Plaintiff

AND:
PETER CHARLES YAMA in his capacity as Chairman of the Madang Provincial Executive Council
First Defendant

AND:
MADANG PROVINCIAL EXECUTIVE COUNCIL
Second Defendant

AND:
MADANG PROVINCIAL GOVERNMENT
Third Defendant

AND:
MABUSO DEVELOPMENT LIMITED
Fourth Defendant

Madang: Narokobi J
2020: 13th & 20th November
NOTICE OF MOTION –– application to dismiss the proceeding – Order 12 Rule 40(1) – National Court Rules – abuse of process – lack of standing – exercise of discretion
NOTICE OF MOTION –– application for interim relief – Order 4 Rules 37 and Order 14 rule 10, National Court Rules – section 155(4) – Constitution – whether arguable case demonstrated – whether balance of convenience favours granting of the interim injunctions – undertaking as to damages – whether discretion should be exercised

The plaintiff has filed an application seeking interim relief (injunctions) and the defendant has responded by filing an application to dismiss the proceedings on the basis that the proceedings are an abuse of process as the plaintiff lacks standing to issue proceedings as its sole shareholder the third defendant and have not given approval to the directors to issue proceedings.
Held: 
(1)	The company exists as a separate legal entity from its shareholders and is managed by the directors of the company (Niugini Building Supplies Ltd v National Housing Estate Ltd (2020) SC1985, followed).
 
(2)	Although there are serious issues to be tried, the plaintiff has not satisfied the requirement that the balance of convenience favours the granting of the injunction.
Cases Cited:
Kindi v Guan (2020) N8408
Maoko v Ling (2008) N3293
Niugini Building Supplies Ltd v National Housing Estate Ltd (2020) SC1985

Statute Cited:

Companies Act 1997
Counsel:
Mr Brendan Lai, for the Plaintiff
Mr Ben Lomai, as briefed out counsel for Thomas More Ilaisa Lawyers and Mr Joseph Lai, for the Defendants

RULING
20th November, 2020
1.	NAROKOBI, J: Before me are two Notices of Motion, one filed by the Plaintiff on 20 July 2020 to obtain injunctions against the Defendants, and the other filed by the Defendants on 30 September 2020 seeking to dismiss the proceedings for abuse of process on the basis that there was no authorization given to the Plaintiff (Ramu Development Foundation Limited (RDFL)) by its sole shareholder, the Madang Provincial  Government to initiate proceedings.

2.	I deal with the application to dismiss first. The outcome of that application will determine whether I should then continue on to decide on the motion to grant the interim orders sought by the plaintiff.

3.	The main reason advanced by the defendants is that the plaintiff lacked standing. A company extract dated 20 August 2020 shows the sole shareholder of RDFL to be the Madang Provincial Government. A more recent company extract dated 3 November 2020 also shows Madang Provincial Government to be the sole shareholder.  The Defendant submits that the sole shareholder has not given instructions to issue proceedings in this matter.

4.	I note from the company extract dated 3 November 2020 that the current directors of the company are:

1)	Daniel Aloi;
2)	Boga Figa;
3)	Paul Ito;
4)	Anna Manat;
5)	Carter Oiee; and
6)	Martin Paining.

5.	The directors have issued instructions to their lawyer to initiate proceedings in the name of the company in their resolution of 10 July 2020. The question arises as to whether the directors of a company can resolve to initiate proceedings in the name of the company under the provisions of the Companies Act 1997.  In my view it can, as it falls within the management powers of the directors under s 109 the Companies Act.  Imagine a publicly listed company.  It would be impossible to always obtain approval from all shareholders before it can initiate legal proceedings. Once a company is incorporated, it exists as a separate legal entity from its shareholder and it is managed by its directors. The argument that leave must be sought first as it is a derivative action therefore does not arise in the circumstances of this case, as the decision is by a majority of the existing directors. 

6.	The more relevant question is whether, a company can sue its shareholders at the behest of its directors? If it can, are there circumstances where it can, and where it cannot? These are serious questions that needs to resolved at trial.  It is not appropriate to deal with it now. 

7.	The other important consideration, is whether, even if indeed the plaintiff has standing to sue the defendants, does it also have standing to sue on the basis of the Revised Memorandum of Agreement relating to the Ramu Nickel/Cobalt Project (“the Agreement”), when it is clearly not a part to the agreement although it is referred to as an entity that is to be created as a vehicle for development in the province. This question arises because the plaintiff in its originating summons seeks to rely on the Agreement to assert its claim. This is a question that is related to the doctrine of privity of contract. The plaintiff may well be right that divestment of its assets and liabilities and eventual winding up may be contrary to the Agreement, but does it have standing to make that claim when it is not a party to the Agreement? In sum, only a party to a contract can sue and be sued in relation to the contract (see Maoko v Ling (2008) N3293).

8.	As the issue is not before me, I do not consider it, but I raise it for the purpose of receiving full arguments on this question in due course at the relevant time. 

9.	For the reasons referred to above, my considered view is that this application to dismiss is susceptible to serious questions of law, and it is a matter for trial to determine those issues one of which is the power of directors  over a company verses the rights and interests of the shareholders of the company.  What happens in a case where their rights and interests are not compatible? Who do the directors owe their duty to? Is it to the company, a separate legal entity (Companies Act, s 16) or to the shareholder? Although I am minded to say that the shareholder as the owner of the shares (not the company – see Niugini Building Supplies Ltd v National Housing Estate Ltd (2020) SC1985) has the overriding control of the company as the Companies Act confers on the shareholder the power to appoint and remove directors (Companies Act, s 86), I prefer to have this question fully argued at trial. I do so for the often-cited reason in applications made pursuant to Order 12 Rule 40(1) of the National Court Rules that a plaintiff should not be readily driven from the judgement seat.

10.	The application to dismiss for abuse of process for these reasons is therefore refused.

11.	Even if I am wrong on the more substantive point, on a purely technical matter, the defendants notice of motion should be dismissed as it has not pleaded the specific jurisdiction it seeks to rely on to dismiss the proceedings.  It has lumped together all the various limbs of Order 12, rule 40(1) of the National Courts Rules I refer to the case of Kindi v Guan (2020) N8408 to support this finding. Lumping the three (3) limbs together places the plaintiff at a disadvantage as to which limb it should respond to when resisting such an application.

12.	Turning now to the application for interim relief by the plaintiff. Should I then issue the interim relief being sought by the Plaintiff?

13.	As both parties agree, there are serious issue to be tried. One which I have raised is whether the plaintiffs can claim rights from an agreement where it is not a party to that agreement on the basis of the doctrine of privity of contract.

14.	In relation to the other requirements, to my mind, the requirement of balance of convenience has not been met by the plaintiff.  I ask the question, “who stands to suffer the most if the interim orders are not granted?” It is not absolutely clear, how the plaintiff stands to suffer in this case when it is going against the shareholder of the company.  Whilst the plaintiff can argue that its interest as a viable going concern, should continue to meet the objectives of the Agreement, I cannot  go past the shareholders rights (and powers) to decide on major transactions on the acquisition and disposition of company assets, satisfaction of liabilities as well to voluntarily wind up the company (Companies Act, s 88).   Although the company own the assets and also bear its liabilities (and not the shareholders), the Companies Act confer certain controlling powers to the shareholders as I have alluded to above, I am not entirely persuaded that the balance of convenience favours the plaintiff, when a measure of controlling powers over the affairs of the company resides in the shareholder.   For this reason, I refuse the application for injunctions.

15.	As I have refused both applications, I will make no orders as to costs, but order that the matter be given an expedited hearing with counsels to assist the court on the issue of directors rights as opposed to shareholders rights and whether the plaintiff is able to make a claim on an agreement where it is not a party.

16.	The orders I make are therefore as follows:
 
1)	The defendants’ Notice of Motion filed 30 September 2020 is dismissed in its entirety. 
2)	The Plaintiff’s Notice of Motion filed on 20 July 2020 is dismissed in its entirety.
3)	The Plaintiff is at liberty to apply for interim relief on three clear days-notice to the defendants in the event that the second and third defendants attempt to implement their decisions of 19 July 2019 and 24 December 2019 before the determination of the proceedings. 
4)	Plaintiff to file any further affidavits it intends to rely on for trial by 25 November 2020.
5)	Defendants to file any affidavits in response by 2 December 2020.
6)	Relevant Notices under the Evidence Act to be filed and exchanged by the parties by 4 December 2020.
7)	The matter shall return for Pre-Trial Status Conference on Monday 7 December 2020 at 9.30 for allocation of trial date as a special fixture.
8)	No orders as to costs.
9)	Time is abridged.

Orders accordingly 
B.S. Lai Lawyers: Lawyers for the Plaintiff
Thomas More Ilaisa Lawyers: Lawyers for the Defendants