N10407

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

O.S 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
2022: 18th August
2023: 19th July

CONTRACT LAW –whether the terms of the memorandum of agreement are legally binding.

CONTRACT LAW – Whether claim falls within exception to the doctrine of privity of contract.

COMPANY LAW – Whether the claim is a derivate action under s 143 of the Companies Act.

CONTRACT Law - whether terms of an agreement have been breached. 

Facts

The Plaintiff has commenced proceedings by orginating summons seeking orders to nullify decisions of the second and third defendant to dissolve its operations and transfer its assets to the fourth defendant on the basis that what the defendants are doing offends the Revised Memorandum of Agreement for the Ramu Nickel/Cobalt Project signed on 3rd December 2013.

Held:

1. The question of whether a memorandum of understanding is a legally binding contract is a question of fact and must be decided according to the intention of the parties having regard to all the circumstances of the case (Jixing Industries Ltd v Aitape Metropolitan Forest Investment Ltd (2013) SC1294 followed).

2. In the present case, the Memorandum of Agreement dated 3 December 2013 for the Ramu Nickel/Cobalt project, titled, “Revised Memorandum of Agreement Relating to Ramu Nickel/Cobalt Project was a legally binding contract and is enforceable at law.

3. In a principal and agent relationship, the agent can have rights under a contract, although not specifically named as a party (Scruttons Ltd v Midland Silicones Ltd [1961] UKHL 4)

4. Upon a careful reading of the MOA, it was intended that the Plaintiff would be an agent of the parties to the MOA, and therefore have rights to sue under the MOA.

5. A derivative action under s 143 of the Companies Act 1997 is commenced by a shareholder or director of a company.

6. This was an action commenced by the company itself and therefore not a derivation action.

7. A company exists as a separate legal entity from its shareholders and is managed by its directors (Niugini Building Supplies Ltd v National Housing Estate Ltd (2020) SC1985, followed)

8. Clause 17 of the MOA was breached by the Defendants when it unilaterally decided to dissolve the Plaintiff without consulting the other parties to the MOA.

Cases Cited:

Papua New Guinean Cases
Asivo v Maigari (2020) N8330
Jixing Industries Ltd v Aitape Metropolitan Forest Investment Ltd (2013) SC1294
Niugini Building Supplies Ltd v National Housing Estate Ltd (2020) SC1985

Overseas Cases
Scruttons Ltd v Midland Silicones Ltd [1961] UKHL 4

Statutes Cited:
Companies Act 1997

Counsel:
Mr B Lai, for the Plaintiff
Mr.  K Makeu, for the Defendants

DECISION

19th July, 2023

1.	NAROKOBI J: The Plaintiff filed an Orginating Summons on 20 July 2022 seeking declaratory orders and injunctions against the Defendants.

Background 

2.	The Plaintiff seeks the following orders in the Originating Summons:

1.	An order by way of Declaration that the decisions of the Second Defendant dated 19th July 2019 and 24th December 2019 have breached Clause 17 of the Revised Memorandum of Agreement for the Ramu Nickel/Cobalt Project signed on 3rd December 2013 and therefore are illegal, unlawful and null and void ab initio. 

2.	An order by way of Declaration that the decision of the Second Defendant as made on 19th July 2019 and 24th December 2019 affecting the status of the Plaintiff as a legal entity incorporated under the Revised Memorandum of Agreement for the Ramu Nickel/Cobalt Project for purposes of representing the interests of the Madang Provincial Government has been made without prior consultation with the other parties to the said Review MOA and therefore unlawful, illegal and null and void ab initio.

3.	An order by way of Declaration that the Plaintiff shall remain as the legal entity expressly provided for under the Revised Memorandum of Agreement dated 3rd December 2013 to implement the Socio Economic Development Plan under the Agreement  and shall continue to be the company as expressly provided for under the agreement  and shall continue to be  the company as expressly provided for under Clause 17  of the said Agreement until such time the said Agreement is reviewed under Clause 39.2  of the Agreement and any lawful changes are to be made in consultation with the other parties to the agreement to alter and change the provisions of the Agreement which may include the removal of the Plaintiff as the company as prescribed under Clause 17 of the said Agreement. 

4.	An Order by way of a permanent injunction restraining the First, Second and Third Defendants from making any further decisions in respect of affecting the status of the Plaintiff as a legal entity and one incorporated to be company responsible for the implementation of the Socio Economic Development Plan under the Revised MOA without prior consultation of the other parties to the Revised MOA for the Ramu Nickel/Cobalt Project.

5.	An Order by way of a permanent injunction restraining the Fourth Defendant from holding itself out as the company that has replaced the Plaintiff as the legal entity responsible for the implementation of the Socio-Economic Development Plan for the Madang Province under the Revised MOA for the Ramu Nickel/Cobalt Project dated 3rd December 2013.

6.	An Order by way of a permanent injunction restraining the Fourth Defendant forthwith from accessing any funds allocated for the benefit and use of the Plaintiff under the express provisions of the Revised MOA for the Ramu Nickel/Cobalt Project dated 3rd December 2013 which shall be inclusive of national government Grants, Madang Provincial Government Grants, any monies paid by the Joint Venturers partners and operators of the Ramu Nickel/Cobalt Project. 

7.	An Order by way of a permanent injunction restraining the Fourth Defendant, its employees, staff, servants, agents and whomsoever acting on the instructions and directions of the First, Second, Third and Fourth Defendants from taking any active step to interfere with the daily operations of the Plaintiff  which would include taking possession of the assets of the Plaintiff which would be inclusive of motor vehicles, houses, land titles (state leases), office keys and all company records. 

8.	An Order by way of a mandatory injunction ordering that in the event that the First, Second, Third and Fourth Defendants, their employees, staff, servants, agents and whomsoever acting on the instructions and directions of the Defendants have taken from the possession of the Plaintiff any of its assets which would be inclusive of motor vehicles, houses, land titles (state leases), office keys and all company records then they are ordered to return them to the Plaintiff forthwith.

9.	Any further orders that the Court deems just and appropriate in the circumstances.

10.	Costs. 

The MOA

3.	The case concerns a Memorandum of Agreement dated 3 December 2013 for the Ramu Nickel/Cobalt project. The agreement is titled, “Revised Memorandum of Agreement Relating to Ramu Nickel/Cobalt Project” (hereafter MOA). Essentially the agreement sets out the undertakings of each of the parties to the agreement, that is the National Government, Madang Provincial Government, Ramu Nickel Joint Venturer’s Undertakings, Landowners Undertakings, and Local Level Government Undertakings. They are required to comply with their undertakings in the MOA.

4.	The entities that have signed the agreement as parties to the agreement are:

•	The Independent State of Papua New Guinea;
•	Madang Provincial Government;
•	Ramu Nico Management (MCC) Limited;
•	Kurumbukari Land Owners Association;
•	Maigari Inland Pipeline Association;
•	Coastal Pipeline Association;
•	Basamuk Landowners Association;
•	Bundi Local Level Government;
•	Usino Local Level Government;
•	Astrolabe Bay Local Level Government;
•	Rai Coast Local Level Government 

5.	Clause 17 of the Agreement is relevant, and it states:

PART C – MADANG PROVINCIAL GOVERNMENT UNDERTAKINGS

17. ESTABLISHMENT OF RAMU DEVELOPMENT FOUNDATION 

17.1 A Foundation known as the Ramu Development Foundation shall be established by the Madang Provincial Government before the commencement of the operation phase (Phase 3) of the project to implement infrastructure projects identified under the Socio-Economic Development Plan.

17.2 There shall be a Board of the Foundation whose members shall be as follows:

a)	Chairman shall be appointed by the Provincial Executive Council;
b)	Deputy Chairman shall be the Administrator of Madang Province;
c)	Director for Provincial Finance and Planning;
d)	District Administrators for Usino Bundi and Raicoast;
e)	Two (2) representatives from the Landowner Association;
f)	A representative of the Joint Venturers;
g)	A representative of the Department of National Planning and Monitoring; and
h)	An Ex-Officio representative of the Mineral Resource Authority.
17.3 This structure and the guidelines for the operation of the board and the Foundation will be reflected in the constitution of the Foundation.
17.4 A project management office will be established by the Madang Provincial Government to be responsible for the day-to-day management of Foundation affairs. This intent will be included in the constitution of the Foundation.
17.5 The Madang Provincial Government will provide a one-off grant of K600,000 for the establishment of the Ramu Development Foundation.
17.6 The Ramu Development Foundation will establish a trust fund exclusively for holding funds committed under this Agreement. 
  Clause 17 establishes the existence of the Plaintiff.

Issues

6.	The decision of the Second Defendant that the Plaintiff is aggrieved over was on 19 July 2019 and 24 December 2019. The effect of the decision will dissolve the Plaintiff and have its assets distributed to the Fourth Defendant.

7.	The issues that I have to determine are as follows:

•	Whether the MOA is legally enforceable?
•	Does the Plaintiff have standing to enforce the MOA?
•	If the Plaintiff has standing, is it nevertheless precluded from making a claim, because the claim is by nature, a derivative action and leave should have been sought?
•	If it is legally enforceable and the plaintiff has standing, whether the Second Defendant’s decision of 19 July 2019 and 24 December 2019 were contrary to Clause 17 of the MOA?

8.	The Plaintiff asserts that the decision to dissolve the Plaintiff is contrary to the MOA, especially Clause 17.

Considerations

9.	On the first question, I have had regard to the Supreme Court case of Jixing Industries Ltd v Aitape Metropolitan Forest Investment Ltd (2013) SC1294. In that case, the Supreme Court held that the question of whether a memorandum of understanding is a legally binding contract is a question of fact and must be decided according to the intention of the parties having regard to all the circumstances of the case. I have read the MOA and given particular consideration to the fact that the MOA is intended to be implemented and provides for dispute resolution at clauses 40 to 45 of the agreement. For example, clause 41 provides for arbitration in the event of dispute under the Arbitration Act, Ch 46. Clause 2, “Interpretation and Effect of this Agreement,” implies that the MOA is legally binding. In my view this means that the MOA is intended to be enforceable by the parties.

10.	The next question is whether the Plaintiff have standing to enforce the MOA. 

11.	The Plaintiff accepts that it is not a party to the MOA but submits that its claim falls with the exception to the doctrine of privity of contract, in that the present arrangement creates two exceptions as relates to it, and therefore the doctrine of privity of contract does not preclude it from pressing its claim. These exceptions are where the third party is an agent and where there is an assignment of a contractual right. The Plaintiff says that parties to the MOA assigned to it rights when agreeing to establish the Plaintiff and created a principal and agent relationship whereby the parties to the agreement is the Principal and the Plaintiff their agent, carrying out what they agreed to in the MOA. The Plaintiff also submits that there is an “assignment” of a contractual rights by the parties to the Plaintiff when it was established under Clause 17 of the MOA.

12.	The Defendants submits that the Plaintiff does not have standing to sue as it is not a party to the MOA. Only the Madang Provincial Government is a party to it. The Defendants further states that none of the exceptions apply. If they did, it should have been pleaded in the Originating Process. The Defendants rely on the case of Asivo v Maigari (2020) N8330 to make this point.

13.	I have referred to the parties to the MOA above. Amongst these parties are the State, Ramu Nico (MCC) Management Ltd, and Madang Provincial Government. It is confirmed that the Plaintiff is not a party the MOA. The issue then is whether the Plaintiff’s circumstances fall within one of the exceptions to the doctrine of privity of contract. What is also necessary is that the pleadings must show that the Plaintiff’s claim falls within one of the exceptions to the doctrine of privity of contract. I have read the orginating summons which refers to the necessity of the Defendants consulting the other parties to the MOA for any decision made under the MOA (Clause 21). Ordinarily, this would be where the claim ends.

14.	I have read the MOA and I have come away with the impression that what the Plaintiff submits as to a principal and agent relationship does have merit. The English case of Scruttons Ltd v Midland Silicones Ltd [1961] UKHL 4 accepted that in a principal and agent relationship, the agent can have rights under a contract, although not specifically named as a party.

15.	In this particular case, the Plaintiff was created by virtue of an agreement reached under the MOA with all the parties. What the Plaintiff does is subject to the oversight of all the parties to MOA as it exists as a vehicle to implement the development agenda of the stakeholders. In fact one of the parties to the MOA, Ramu Nico Management (MCC) Limited wrote to Mr Marcus Kachau of the Madang Provincial Administration on 13 October 2020, and said:

RDF was established purposely to implement infrastructure projects identified under the Social and Economic Development Plan (SEDP) of 2013 Revised MOA…Therefore as a key stakeholder in the establishment and operation of RDF, we are concerned whether Madang Provincial Government has the authority to single-handedly dissolve RDF without the expressed consent of other signatories (stakeholders) of Ramu Nickel Project’s MOA. 

16.	 The letter of 13 October 2023 goes on to state:

Note that Madang Provincial Government has made an undertaking under Clause 21 of Projects MOA of 2013 to work in full consultation and cooperation with the Projects stakeholders to ensure a smooth and efficient operation of the Project. Establishment of RDF was a key negotiated outcome of the parties to the Project’s MOA, hence we would appreciate if MPG can consult us and other stakeholders of Ramu Nickel Project before deciding to abolish RDF.

17.	The originating summons pleads that the decision of the Second and Third Defendant was done in isolation and without consultation of the parties to the MOA. In my view, this is a reference to the principal/agent relationship created under the MOA between the Plaintiff and the Stakeholders. 

18.	To the extent that the MOA has not been complied with when dealing with the rights and interests of the Plaintiff, the Plaintiff is entitled to sue to secure that right. It has become an agent of the parties to the agreement (MOA).

19.	The third issue is whether this is a derivative action under s 143 of the Companies Act 1997, and the Plaintiff should have sought leave of the National Court before it commenced proceedings.

20.	Section 143 is in the following terms:

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.

21.	It is clear from s 143 that in a derivative action, the cause of action is commenced by a shareholder and or director in furtherance of the interest of the company, usually because they are in the minority and cannot otherwise obtain a resolution they seek in the normal course of company business. A derivative would therefore be necessary to protect such interest. Because they are in the minority leave would have to be obtained first. This is a case where the company itself has commenced proceedings authorized by its directors. In the case of Niugini Building Supplies Ltd v National Housing Estate Ltd (2020) SC1985 the Supreme Court held that a company exists as a separate legal entity from its shareholders and is managed by its directors. This claim cannot come within the ambit of a derivative action because it is not a claim commenced by a shareholder or a director in the name of the company. I therefore reject the Defendants’ contention that this is a derivative action.

22.	On the final question, the Plaintiff submits that it was created for a specific purpose, with the agreement of all the parties to the MOA. To dissolve it, the Second Defendant would have to obtain the approval from all the parties to the MOA as well as the approval from the Plaintiff. No such approval exists and therefore the decision to dissolve the Plaintiff was illegal and should be quashed. The Defendants submits that it has not breached clause 17 of the Agreement. The Decisions of 19 July 2019 and 24 December 2019 was within their powers to make. They say that Clause 17 of the Agreement requires the establishment of a Foundation. The Plaintiff is a company, and its existence is contrary to Clause 17 of the MOA. The Defendants further submits that the Plaintiff offers no evidence that it has complied with the MOA.

23.	After carefully assessing the evidence of both the Plaintiff and the Defendant, I note from Clause 17 of the MOA that what was required to be established was a Foundation as opposed to a company. It is true that the Plaintiff is a company. It is also true that the Defendants in their decisions of 19 July 2019 and 24 December 2019 did not attempt to rectify this. They attempted to replace the Plaintiff with another company, the Fourth Defendant. But the responsibility for rectifying this anomaly lies with the Defendants. Under the MOA, the Third Defendant bears the responsibility of setting up the Foundation. The decision to create the Fourth Defendant on its own is not problematic. This is a decision for them. But to have the assets of the Plaintiff transferred to the Fourth Defendant, would be against the MOA. It would have been consistent with the MOA, if a Foundation was established pursuant to Clause 17, and have the assets of the Plaintiff transferred to the Foundation, of course after consulting all the parties to the MOA. For this reason, I find that the Defendants have breached Clause 17 of the MOA.

24.	Again Clause 17 of MOA clearly says that the Third Defendant must set up a Foundation. The Fourth Defendant, like the Plaintiff is a company. Both of them are not a Foundation as such which ordinarily should be an association created under the Associations Incorporation Act. They are different entities to what the MOA envisages. This is not consistent with Clause 17 of the MOA.

25.	Clause 17.2 of the MOA also states that the Foundation shall have the following board members:

17.2 There shall be a Board of the Foundation whose members shall be as follows:

a)	Chairman shall be appointed by the Provincial Executive Council;
b)	Deputy Chairman shall be the Administrator of Madang Province;
c)	Director for Provincial Finance and Planning;
d)	District Administrators for Usino Bundi and Raicoast;
e)	Two (2) representatives from the Landowner Association;
f)	A representative of the Joint Venturers;
g)	A representative of the Department of National Planning and Monitoring; and
h)	An Ex-Officio representative of the Mineral Resource Authority.

26.	I am not sure if the Plaintiff as it exists now, and the Fourth Defendant have the following eight people as their board members. If the intentions of the parties in the MOA are to be given effect to, then a Foundation must be created, and secondly, the specific persons referred to above should be the board members of the Foundation.

27.	The Fourth Defendant can continue to operate. That is a decision of Madang Provincial Government, as its sole shareholder to make. But any question as to the existence of Mabuso Limited to satisfy the requirements of the MOA would be contrary to the MOA. This is because firstly, there has to be consultation with the parties to the MOA, secondly it has to be a foundation, and thirdly, it must have the representatives referred to at Clause 17.2 of the MOA in its board. I have considered the Plaintiff as an aggrieved person to the MOA, and I find that it has standing to make a claim under the MOA, but only with regards to clause 17 of the MOA.   

Conclusion

28.	What must happen now is that I have to issue an order to invalidate the Second Defendant’s decision dated 19 July 2019 and 24 December 2019, and order that the parties to the MOA should meet and consider how it will implement Clause 17 of the MOA. What it needs to do is to create a Foundation with the persons identified under Clause 17.2 as its board members, and transfer the assets of the Plaintiff to that Foundation. The other reliefs claimed will be refused.

Costs

29.	Costs is discretionary, and having considered that the normal course is for costs to follow the event, I would order that the Defendants pays the costs of the Plaintiff, to be taxed if not agreed.

Orders

30.	The orders I make are therefore as follows:

1)It is declared that the decision of the Second Defendant dated 19 July 2019 and 24 December 2019 is contrary to Clause 17 of the MOA and is null and void.
2)As a consequence of this order the Fourth Defendant is restrained from interfering with the management and assets of the Plaintiff.
3)The Third Defendant and the parties to the MOA review the present arrangement with the Plaintiff under the MOA as to whether it complies with the undertaking under Clause 17 of the MOA.
4)After the review by the parties to the MOA and any agreement reached, the Third Defendant is at liberty to take any further action consistent with its undertaking under the MOA and specifically Clause 17 of the MOA.
5) All other claims of the Plaintiff are refused, except for costs.
6)The Defendants shall pay the Plaintiff’s costs, to be taxed if not agreed.
7) File is closed.
8) Time is abridged.    

Judgment and orders accordingly.

BS Lai Lawyers: Lawyers for the Plaintiff
Japson & Associate Lawyers: Lawyers for the Defendants