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Philip Lee Investments (PNG) Ltd v Nett Holdings Ltd [2024] PGNC 314; N10979 (28 August 2024)

N10979

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

OS NO. 541 OF 2018 (CC1)

BETWEEN:
PHILIP LEE INVESTMENTS (PNG) LIMITED
Plaintiff/Respondent

AND:
NETT HOLDINGS LIMITED
First Defendant/Applicant

AND:
MAURICE NAKUMA HANNETT
Second Defendant

AND:
JEFFREY DEAN KENNEDY
Third Defendant

AND:
PILA NININGI
Fourth Defendant

AND:
HARRIET KOKIVA acting REGISTRAR OF COMPANIES, INVESTMENT PROMOTION AUTHORITY
Fifth Defendant

Waigani: Bre, AJ
2024: 23^rd April & 28^th August

COMPANY LAW - company deregistered – assets of company vested in Company Register - shares in first defendant redeemed – whether cause of action based on s373(8) and 408 Companies Act – evidence required.

CIVIL PRACTICE AND PROCEDURE – Order 8 rule 27NCR – pleadings not disclosing a reasonable cause of action – legal form and facts averred – whether form of action without legal basis – onus on applicant to prove – pleadings disclose reasonable cause of action under shares redemption provisions of the Companies Act, not ss 373 and 408 Companies Act – pleadings not defective - application refused.

Facts
The plaintiff allegedly held 25% shares in the first defendant from 2000 which were allegedly redeemed when the plaintiff was deregistered in 2008.
The applicant submits that the plaintiff's claim is untenable and without merit and should be struck out as the proper cause of action is against the Company Registrar and the time to dispute the redemption of its shares lapsed under sections 373(8) and 408 of the Companies Act.
The plaintiff counters that its cause of action is not based on sections 373(8) and 408 of the Companies Act but on the alleged redemption of its shares by the defendants and it challenges the application as a prejudiced shareholder.

Held

1) The pleadings comprise of the legal basis of the claim and the facts averred.

See Kiee Toap v Independent State of Papua New Guinea [2004] N2766 and Mount Hagen Urban Local Level Government v Sek No 15 Ltd [2009] SC1007.

2) No evidence was adduced to prove that sections 373 and 408 of the Companies Act applied.

3) The pleadings are not defective in legal form, nor the facts averred, as the plaintiff has a reasonable cause of action concerning the conduct of the affairs of the first defendant company as it relates to the alleged redemption of the plaintiff's shareholding interests in the first defendant.

Cases Cited
Kiee Toap v Independent State of Papua New Guinea [2004] N2766
Komba v Kimbu [2021] N9352
Mount Hagen Urban Local Level Government v Sek No 15 Ltd [2009] SC1007
Sabatica Pty Ltd v Battle Mountain Canada Ltd [2003] SC709

Legislation
Companies Act 1997 ss56(2), 152, 373 and 408
National Court Rules, O8r27(1)

Counsel
Mr E Wembri, for the Applicant/First Defendant.
Mr P Yange, for the Respondent/Plaintiff.

RULING

28^th August 2024

1. BRE, AJ: Nett Holding Limited applies to summarily dismiss Philip Lee Investment (PNG) Limited's proceeding which seeks orders to confirm its shareholdings in Nett Holding Limited and obtain compensation for the disposal of its shares.

2. The first defendant moves its application filed on 16 April 2024 which is supported by the affidavit of its Managing Director, Jeffrey Kennedy filed on 16 April 2024 (Doc 43). The applicant submits that there is no reasonable cause of action against the first to the fourth defendants and the claim is an abuse of process filed in breach of section 408 of the Companies Act.

3. The plaintiff filed its Statement of Claim on 30 June 2021 (Doc 22). The applicant allegedly redeemed the plaintiff's shares on 18 July 2008 and did not pay the plaintiff's officials.

The plaintiff was incorporated in 1993 but deregistered or removed from the company registry from 2000 to 2010 and 2011 to February 2017.
The plaintiff allegedly held 15,000 shares or 25% interest in the first defendant from 2000 until the shares were allegedly redeemed by the first defendant in 2008 while the plaintiff was de-registered.

4. The respondent relies on the following evidence to counter the application: -

1) Affidavit of Getrude Hani filed on 20 March 2023 ( Doc 38)
2) Affidavit of Alexander Lee filed on 23 April 2024(Doc 7)
3) Affidavit of Paul P Yange filed on 23 April 2024(Doc 36)

CONSIDERATIONS AND ANALYSIS

5. The applicant submits for this proceeding to be summarily dismissed because the relief claimed by the plaintiff is untenable.
Mr Wembri for the applicant submits that the proper cause of action the plaintiff should have taken should be against the Company Registrar and not the first, second, third and fourth defendants because the plaintiff was deregistered and its shares vested in the Company Registrar when its shares in the first defendant company were redeemed on 18 July 2008.

That the plaintiff filed this proceeding on the tenth year and any rights it has to challenge the redemption under section 373(8) and 408 of the Companies Act 1997 has long lapsed, the action is therefore untenable and should be summarily dismissed.

6. The plaintiff submits that its claim is not based on sections 373(8) nor 408 of the Companies Act but rather on the process of redeeming its shares pursuant to section 56(2) of the Companies Act and, is contesting this application as a prejudiced shareholder under section 152 of the Companies Act 1997.

7. The issue for my determination concerns whether the pleadings should be struck out for lack of legal form and consequently this proceeding be summarily dismissed in its entirety for not disclosing a reasonable cause of action under sections 373 and 408 of the Companies Act 1997 (CA).

8. Order 8 rule 27(1) of the National Court Rules (NCR) require the pleadings to be struck out where it does not disclose a reasonable cause of action, tends to cause embarrassment, prejudice or is an abuse of process.

9. Section 373(8) CA requires a person who claims to be entitled to the proceeds of the property of a deregistered company that is vested in the Company Registrar and which has been sold, disposed or dealt with, to obtain orders for payment within six years, from the date of the removal of the company from the register. Section 373 (8) CA reads:

“(8) Where property is vested in the Registrar under this section, a person who would have been entitled to receive all or part of the property, or payment from the proceeds of its realisation, if it had been in the hands of the Companies immediately before the removal of the Companies from the register, or any other person claiming through that person, may, within six years of the removal of the Companies from the register, or such longer period as allowed by the Court, apply to the Court for an order-

(a) vesting all or part of the property in that person; or

(b) for payment to that person by the Registrar of an amount, not to include interest or damages, for the person’s interest or estate in the property, but the amount shall not be greater than a proportional amount, in accordance with the person’s interest or estate in the property, received by the Registrar under Subsection (4) or (5) less any commission payable under Subsection (6) and any other expenses.”
(Emphasis added)

10. Section 408 CA provides a right to a person aggrieved by a decision of the Registrar to appeal to the Court, within one month from the date of notification of the Registrar's decision.
Section 408 (1) CA reads:-

"(1) A person who is aggrieved by an act or decision of the Registrar under this Act may appeal to the Court within one month after the date of notification of the act or decision, or within such further time as the Court may allow."
(Emphasis added)

11. There is no dispute that the plaintiff was deregistered when its shares in the first defendant were allegedly redeemed by the first defendant. Section 373(1) CA vests the property of a deregistered or company removed from the register's property, which includes shares, in the Company Registrar.
Section 373 (5)CA authorises the Registrar to sell or deal with the property of a deregistered Company by three methods:-

1) public auction, or

2) public tender, or

3) private contract

The Registrar receives a commission for the sale. See s373(6) CA.

12. Section 408CA requires the Registrar to notify a person of his/her decision before the person seeks judicial review against that decision within a month from that notification.

Counsel has not provided any evidence to prove the method applied by the Registrar to sell the plaintiff’s share that were vested in the Registrar, nor any evidence of the Registrar notifying the plaintiff’s officials or Getrude Hani about the decision to sell or allow the first defendant to redeem the plaintiff’s shares.

13. The basic evidentiary rule is that the person who asserts must prove. The applicant has not adduced sufficient evidence.

The evidence of Jeffrey Kennedy does not depose to any transactions concerning the Registrar and the first defendant regarding the plaintiff's shares except to raise the issue of time bar and depose about his lawyer's advice to him about the merit of the plaintiff's claim. I find the evidence insufficient to discharge the burden of proof on a balance of probabilities about the application of sections 373 and 408CA to the plaintiff's cause of action.

14. Further, the provisions of section 152CA are broad enough to grant standing to a former shareholder or any other entitled person including a current shareholder, to commence an action against a company whose affairs they consider was conducted in an oppressive, unfair, prejudicial or discriminatory manner which adversely affected or prejudiced their interests in that company. Section 152CA seems to apply to the plaintiff as regards the alleged prejudicial or unfair conduct by the defendants of the alleged redemption of its shares. See Sabatica Pty Ltd v Battle Mountain Canada Ltd [2003] SC709.

15. A glaring evidential gap is the absence of evidence concerning the redemption itself, the Registrar's actions and both the first defendant and the plaintiff companies extracts at the time of the alleged redemption to confirm who the company officials were and what the shareholding interest was like before and after the alleged redemption.

If the shares were redeemed from the Registrar pursuant to section 373(5) CA, by private contract, then there is no evidence of that contract, or if by public auction or tender there is still no evidence of the method of sale to convince me that the Registrar exercised his/her decision to sell or deal with the plaintiff's shares in the first defendant and therefore the plaintiff's cause of action should be pursuant to sections 373 and 408 CA against the Registrar, and not section 56(2)CA as pleaded by the plaintiff.

16. I also note from the plaintiff’s evidence (Docs 38 and 36), that the first defendant has not provided any information about the redemption following requests and a notice to produce. This does not help the applicant.

17. The application requires the Court to exercise its discretion to summarily dismiss the proceeding under Order 8 rule 27(1)NCR to strike down the pleadings for being defective.

Pleadings concern the form or legal basis of the claim, and the factual matters averred in the claim. See Kiee Toap v Independent State of Papua New Guinea [2004] N2766 and Mount Hagen Urban Local Level Government v Sek No 15 Ltd [2009] SC1007.

18. The applicant challenges the legal basis of the claim by submitting that the proper cause of action for the plaintiff to pursue is under sections 373(8) and 408 CA, which actions are both time barred due to the effluxion of time and therefore the entire pleadings should be struck down and the entire proceeding summarily dismissed for not disclosing a reasonable cause of action and being an abuse of process.

19. Section 373(8)CA computes the six-year time period from the date of removal from the register or deregistration, which would allegedly be from 18 July 2008. That would make any action under section 373CA, time barred.
However, how would the plaintiff's officials know that the Registrar has exercised the power to sell or deal with their shares, unless section 373 is applied with section 408 CA, and the Registrar notifies the deregistered company's officials of his/her decision to accept payment for the shares or the first defendant company's decision to redeem the shares.

Section 408 CA applies to any decision of the Registrar taken consistent with a provision of the Companies Act, which as submitted by the applicant would be section 373CA in dealing with the plaintiff's shares. Section 408CA requires notice of the decision to be issued from which the aggrieved person will have one month to appeal. Sections 373CA and 408 CA must be read together, and evidence of the notification produced to support the application.

20. While Mr Wembri refers to the evidence of Getrude Hani about her consenting to the redemption, Getrude Hani disputes she had authority as the property of the plaintiff was vested in the Registrar and deposes to her verbal understanding with the former shareholders for compensation of the shares to be redeemed which she deposes to not receiving.

21. The difficulty I have with the applicant's submissions are the lack of evidence to prove that the plaintiff's officials or Getrude Hani was notified about the Registrar's decision and had foregone her right under section 408CA as well as the lack of evidence of the purchase of the shares by the first defendant or its officials and the actions or decisions of the Registrar under section 373 CA to deal with or sell the plaintiff's shares.

22. While I appreciate Mr Wembri's submission that any challenge to the shares lapsed as the plaintiff's officials should have challenged the Registrar who made decisions for the plaintiff when it was incapacitated by deregistration; the submission is not supported by evidence about the method of disposal applied by the Registrar and the consideration paid for the redemption of the shares. Even if it did apply, the applicant has not demonstrated why this proceeding cannot succeed under section 56(2) CA and the redemption provisions of the Companies Act or as a prejudiced shareholder under Section 152 CA.

23. The Companies Act provides the regime concerning the governance of companies which includes the manner of shareholding and disposal of its shares.
A cursory view of Part V1 Divisions 1 to 9 shows that the Companies Act outlines a detailed process where a company redeems its own shares including the type of shares it has and manner of redeeming its own shares. The plaintiff alleges in its substantive claim that this is the process that has not been complied with by the defendants and its shares in the first defendant were allegedly unlawfully removed by the defendants.

24. I find that the pleadings plead a different legal cause of action to sections 373 and 408 CA. The pleadings clearly plead non-compliance of section 52(6) CA and related laws of the Companies Act that regulates the redemption of shares. The plaintiff submits it is bringing the action as a prejudiced shareholder under section 152CA. I find there are no prescribed time limits for actions based in sections 52(6) nor 152CA or, if there are, this aspect was not argued in this application.

25. The applicant has also not raised any defect in the pleading as to the second aspect of the facts averred. The facts alleged should inform the defendants of the allegation against them and should not contain ambiguous or irrelevant matters. See Komba v Kimbu [2021] N9352 at [40].

I find that the facts alleged clearly disclose a reasonable cause of action in alleging non-compliance of the share redemption processes of the Companies Act.

If there is any issue with the pleading, in my view, it is to clarify the plaintiff's claim that it is a prejudiced shareholder with specific pleading on section 152CA. This is not a material defect in the pleading that would warrant a striking down of the pleadings as the facts averred in the pleading show the plaintiff is prejudiced by the disposal of its shares in the first defendant. I am inclined to allow this aspect to be reflected in the pleading by amendment.

RESULT

26. Overall, it is my ruling that the applicant has not adduced sufficient evidence to succeed in its application that sections 373 and 408 of the Companies Act apply to render the legal form of the pleadings untenable and an abuse of process.

27. I find that the pleadings are not defective in legal form and of the factual matters averred which discloses a reasonable cause of action in alleging non-compliance with the Companies Act provisions relating to share redemption. This is a separate legal cause of action to that contended by the applicant.
Except for the added clarity that may be required to the pleading on section 152CA, the pleadings are not defective.

28. I therefore exercise my discretion to refuse the first defendant's application to strike down the entire pleadings.

ORDER

29. The Court issues the following Orders:

1) The first defendant's application filed 16 April 2024 for the pleadings to be struck out or the proceedings to be summarily dismissed, is refused.

2) The plaintiff is at liberty to apply within one month from the date of this decision, to amend its pleadings to reflect section 152 of the Companies Act 1997.

3) Costs of and incidental to this application are awarded to the plaintiff to be paid by the first defendant on a party/party basis to be taxed, if not agreed.

4) The Registrar is to place this matter at the next available directions list.

5) Time for entry of the orders is abridged to the date of settlement by the Registrar of the National Court which shall take place, forthwith.

Orders accordingly,.
________________________________________________________________
Islands Legal Services: Lawyers for the Plaintiff
Jema Lawyers: Lawyer for the First Defendant