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National Court of Papua New Guinea |
PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]
WS NO. 704 OF 2014
BETWEEN:
TRAISA TRANSPORT LIMITED
Plaintiff/Cross-Defendant
V
MOUNTAIN PROPERTY HOLDINGS LIMITED
First Defendant/First Cross-Claimant
AND
MOUNTAIN TRANSPORT LIMITED
Second Defendant/Second Cross-Claimant
AND
JOLSON KUTATO
Third Defendant/Third Cross-Claimant
AND
KOPI LARAPA
Fourth Defendant/Fourth Cross-Claimant
AND
SCOTT O’REILLY
Fifth Defendant/Fifth Cross-Claimant
AND
PALA TEYA
Sixth Defendant/Sixth Cross-Claimant
AND
LEO LEMO
Seventh Defendant/Seventh Cross-Claimant
Waigani: Anis J
2022: 10th October
2024: 27th March
TRIAL – Claim as aggrieved minority shareholder – claim for various relief premised on the Companies Act 1997 – preliminary issue raised in closing submissions – whether claim amounts to abuse of process – whether the correct mode of proceeding is mandatory under the provisions of the Companies Act 1997 and Rules – ss.152 and 440 of the Companies Act 1997 – Rule 14 of the Company Rules – Whether petition should have been filed as opposed to writ of summons and originating summons – consideration – ruling
CROSS-CLAIM – whether matters sought are in dispute – consensus by the parties on the material facts – consensus that relationship between the parties has turned sour – consensus that the plaintiff intends to and had tried to in the past, sell its shares in the company – consensus that there had been and continues to be disagreements on the fair market or reasonable value of the shares of the first defendant – relief sought in the cross-claim aims to facilitate the process for sale of the shares – ss. 92 and 93 – Companies Act 1997 – consideration - ruling
Cases Cited:
Re Mayfuels Ltd (2020) N8174
Tavul v Konga (2018) N7599
In the Matter of the Companies Act 1997; In the matter of B-Mobile Limited (2011) N4712
Rodney Pokapin v. Paladin Solutions Ltd and Ors (2023) N10495
In the matter of the Companies Act 1997 – Gigira Development Corporation Ltd and Ors v. Stanis Talu and Ors (2021) N9027
Michael Wilson v. Clement Kuburam (2016) SC1489
Breckwoldt & Co. (N.G.) Pty v. Gnoyke [1974] PNGLR 106
PNG Forest Products and Inchcape Berhad v. The State & Jack Genia, Minister for Forests [1972] PNGLR 85
NAE Limited (1-21320) v. Curtain Bros & Ors (2015) N6124
Counsel:
M Goodwin, for the Plaintiff
D Wood, for the Defendants
JUDGMENT
27th March 2024
1. ANIS J: The matter was trialed on both liability and quantum. Closing arguments were presented on 10 October 2022. I reserved my ruling thereafter to a date to be advised.
2. This is my ruling.
BACKGROUND
3. The plaintiff is a transport company. In 1997, it began its relationship with the IPI Group of Companies (IPI Group) in a joint venture company called Mountain Fuel Freighters Limited (MFF). The second defendant is a subsidiary company of the IPI Group. Its name as stated in this proceeding has since been changed, and it is presently called IPI Transport Ltd. There is no issue regarding the name change and so for this purpose I will refer to IPI Transport Ltd as the second defendant.
4. At that material time, the Porgera Joint Venture Gold Mine had commenced operation and the IPI Group was a landowner company (which still is) with limited assets and financial base to provide logistics and fuel transport business to the mine. As a result, MFF was incorporated as a joint venture business between the IPI Group and two trucking companies which were the plaintiff and a third party called Car Trans Ltd. The business relationship between the plaintiff and the second defendant developed over the years. It was during that time that the plaintiff and the second defendant had agreed to venture into property business. They incorporated the first defendant (first defendant/ MPHL/company). The first defendant later purchased 2 properties which are described as Portion 408 and Portion 410, at 10 Mile in Lae, Morobe Province (10 Mile Property).
5. The plaintiff contributed K150,000 whilst the Second Defendant contributed K450,000, as seed capital for MPHL. It had been determined by the plaintiff and the second defendant (2 Shareholders) that the first defendant had to be capitalised at the fully paid up amount of the par value of the share which led to the said contributions by the 2 Shareholders.
6. The first defendant was incorporated on 25 March 2002 with shares issued to the 2 Shareholders. The plaintiff was issued with a total of 750,025 shares which represented 25% of shares in the company, whilst the second defendant was issued with a total of 2,250,075 shares which represented 75% of shares in the company. The 2 Shareholders currently hold these same shares in the company. At the date of inception and premised on the company’s constitution, a total of 4 directors were appointed. According to the company’s constitution, one director is to come from the plaintiff, and as such, Koi Trappe was appointed to that position. The other 3 directors, under the provision of the company constitution, are to come from the second defendant, and so the second defendant appointed its 3 directors who are the third defendant (Jolsom Kutato), the fourth defendant (Kopi Larapa) and the fifth defendant (Scott O’Reilly).
7. Since the inception of company, the second defendant has been managing its affairs and operations.
THE DISPUTE
8. The plaintiff’s complaint is pleaded under various sub-headings in its Amended Statement of Claim filed 15 July 2019 (ASoC).
9. I summarise them (i.e., the complaints) as 9 in total as follows:
(i) First complaint (Part D in the ASoC). The plaintiff claims that a portion of the 10 Mile Property of the company has been undervalued and leased at an undervalue rate/lease to the second defendant since 2006.
(ii) Second complaint (Part E in the ASoC). The plaintiff claims that it had on 2 occasions requested the company to provide its audited Financial Statements (i) for the years ending 31 December 2004 to 2009 and (ii) for the years ending 2008 to 2010. However, it claims that the company has not provided the information to date.
(iii) Third complaint (Part F in the ASoC). The plaintiff claims that despite its request made on 28 January 2011 for a directors’ meeting, no such meeting was held by the company in accordance with the provisions of its constitution or the Companies Act 1997 (CA). The plaintiff also complains under the same sub-heading that similar requests were made on 14 February 2011, 17 February 2011 and 5 April 2012 which also did not receive any favourable response or actions from the company to date.
(iv) Fourth complaint (Part G in the ASoC). The plaintiff claims that the company has failed to provide minutes of board meetings which it had requested over the years.
(v) Fifth complaint (Part GA in the ASoC). The plaintiff makes references to the alleged lack of treatment or recognition by the company to it as a director and shareholder. The plaintiff claims that its appointed director Mr Trappe had been excluded from participating in the management or board meetings and the affairs of the company in general.
(vi) Sixth complaint (Part GB in the ASoC). The plaintiff claims that at one point during the stated period, the second, third, fourth and sixth defendants had attempted to issue or add 845,458 shares onto the shares of the second defendant in the company. It complains that without its knowledge, the defendants held a purported directors’ board meeting on 26 August 2016 whereupon these additional shares were purportedly resolved and issued to the second defendant. The plaintiff claims that the action of the defendants, (i), constitutes their attempts to dilute the plaintiff’s shares or equity holdings in the company, and (ii), purports to oppress the plaintiff because Mr Trappe was purportedly excluded from participating in the said meeting of 26 August 2016.
(vii) Seventh complaint (Part H in the ASoC). The plaintiff complains that since the inception of the company and to date, the company has not declared and distributed dividends to its shareholders.
(viii) Eight complaint (Part I in the ASoC). The plaintiff complains (i), of a purported issued notice of a shareholders’ meeting of May 2014 where the plaintiff claims that the defendants had attempted in the said meeting to reduce the value of its shares, and (ii), that on 26 August 2016, a purported directors meeting was held where a total of 845,458 shares were approved and purportedly issued to the second defendant. The plaintiff asserts that the actions of the defendants were deliberate and deceitful.
(ix) Ninth complaint (Part J, K and L in the ASoC). The plaintiff asserts (i), duty of fidelity, (ii), duty owed to members, and (iii) statutory duties under s.115(1) of the CA, as a director or board member of the company. Premised on these, it complains and accuses the other members of the company of oppressive conduct towards it. And in summary, it claims that the actions or inactions of the defendants as pleaded in its ASoC amounted to and continues to amount to oppressive conduct within the meaning of s.152(1) of the CA.
10. With these 9 complaints, it seeks the following relief in the ASoC:
AND THE PLAINTIFF CLAIMS:
(A) A declaration that the issued shares in MPHL are as set out in paragraph 2 above.
(B) A declaration that since 2006 the management of MPHL has not been conducted by the managing shareholders and a board of their nominees in accordance with its Constitution.
(C) Relief pursuant to section 152 of the Companies Act 1997, including orders:
(i) Settings aside actions taken by MPHL and the purported board since 2006 in breach of the provisions of the Constitution for management of the company, including the Undervalue Lease and Invalid Notice.
(ii) Appointing a receiver to MPHL
(iii) That MPHL be placed into liquidation.
(iv) Alternatively, requiring MPHL or the 2nd Defendant to acquire Traisa’s shares in MPHL.
(v) Alternatively, an order requiring the 2nd Defendant to sell its shares in MPHL to Traisa;
(vi) For the payment of compensation to TRaisa by:
(a) MPHL; or
(b) Further or alternately, the 2nd Defendant’s; and
(vii) Regulating the future conduct of the affairs of MPHL.
(D) An order that an account be taken of all amounts properly due to MPHL by the 2nd Defendant:
(i) Under the Undervalue Lease
(ii) Further or alternately, by reason of the true value of the benefits received by the 2nd Defendant Undervalue of the Lease for which its has not paid.
(E) An order that the amounts so found be paid to MPHL by the 2nd Defendant.
(F) Damages or equitable compensation.
(G) Interest on such damages or equitable compensation
(H) As against the 3 to 7 Defendants
(i) Equitable damages or compensation for the breach by each of them of his fiduciary
(ii) Damages for the breach by each of them, as a director for MPHL, of his statutory duties under the Companies Act 1997; and
(iii) Interest on the amount of such equitable compensation or damages.
(I) Costs
(J) Such further or other relief this Honourable Court deems meet.
11. The defendants/cross-claimants deny the claim. They filed a cross-claim in their Amended Defence and Cross-Claim on 15 September 2019 (Cross-Claim). In their cross-claim, they refute the plaintiff’s complaints. In summary, they say that given that the good relationship between the parties has ceased, the best way forward is for the plaintiff to sell its shares in the first defendant. And they seek the following relief in their cross-claim:
(A) An order pursuant to Order 12 Rule 1 of the National Court Rules and/or section 155(4) of the Constitution and/or section 92 of the Companies Act that the plaintiff/cross-defendant give notice to the first defendant/first cross-claimant requiring the first defendant/first cross-claimant to purchase its shares.
(B) An order pursuant to section 93 of the Companies Act that the board of the first defendant/first cross-claimant nominate a fair and reasonable price for the shares of the plaintiff/cross-defendant in the first defendant/first cross-claimant to be acquired by the first defendant/first cross-claimant and give notice of that price to the plaintiff/cross-defendant.
(C) In the event that the plaintiff/cross-defendant considers that the price nominated by the board of the first defendant/first cross-claimant is not fair or reasonable, an order that the plaintiff/cross-defendant give notice of objection to the first defendant/first cross-claimant pursuant to section 93(2) of the Companies Act.
(D) In the event that the plaintiff/cross-defendant serves the first defendant/first cross-claimant with a notice of objection in accordance with section 93(2) of the Companies Act, an order that the parties to the proceeding comply with sections 93(4) to 93(9) of the Companies Act.
(E) In the event that the plaintiff/cross-defendant serves the first defendant/first cross-claimant with a notice of objection in accordance with section 93(2) of the Companies Act, the Court appoint an arbitrator pursuant to section 93(5)(a) of the Companies Act.
(F) An order that the plaintiff/cross-defendant pay the defendants’/ cross-claimants’ costs of the proceeding.
(G) Such other or further orders as the court deems fit.
PRELIMINARY ISSUE
12. The defendants, in closing, raised this preliminary issue. They submit that the entire proceeding commenced by the plaintiff is fundamentally flawed. They submit that the plaintiff has invoked an incorrect mode of proceeding to pursue its claim. They submit that the correct mode should have been by way of a petition filed under Rule 14 of the Company Rules (Company Rules), to seek the various relief under s.152 and related provisions of the CA as an aggrieved minority director and shareholder.
13. In summary, the defendants submit that the proceeding therefore amounts to abuse of the court process and should be dismissed.
14. The plaintiff contests the preliminary issue. It submits that the issue is belatedly raised and thus the defendants are restrained by the doctrine of estoppel. It makes this submission premised on the fact that the defendants have filed a notice of intention to defend, defence and cross-claim. The plaintiff also acknowledged the law on mode of proceeding under the CA and the case of Re Mayfuels Ltd (2020) N8174 that was relied upon by the defendants. Counsel submits that he was involved in the said case and is aware of the decision of the Court. Counsel however submits that in the present proceeding, the plaintiff is not seeking as its primary relief liquidation but rather as an option that the Court may grant which was within the Court’s discretion. Counsel also submits that the claim was also premised on breach of fiduciary duties of directors under the common law; that it was therefore not appropriate to file 2 separate related proceedings thus the present proceeding was adopted and used.
15. I note the submissions of the parties.
16. The relevant provisions under this preliminary challenge are s.440 of the CA and Rule 4 of the Company Rules. They state and I quote:
440. REPEALS.
(1) The following Acts are hereby repealed:–
(a) Companies Act (Chapter 146);
(b) Companies (Amendment) Act 1985;
(c) Companies (Amendment) Act 1986;
(d) Companies (Amendment) Act 1988;
(e) Companies (Budget Provisions) Act 1989;
(f) Companies (Amendment) Act 1990;
(g) Companies (Amendment) Act 1994.
(2) The Companies Regulation is hereby repealed.
(3) For the removal of doubt, it is hereby declared that the Companies Rules remain in force and are not repealed by this section.
......
PART II. – PETITIONS.
14. APPLICATIONS REQUIRED TO BE BY PETITION.
Applications under the following provisions of the Act shall be made by petition, and shall be heard and determined in open court:–
(a) Section 66 (application to confirm a reduction of capital); and
(b) Section 186 (application by the Attorney-General for the winding-up of a company or a foreign company after a report has been presented by an inspector appointed under Division VII.4); and
(c) Section 197 (application for relief against oppression); and
(d) Section 239 (application for the winding-up of a company by the Court); and
(e) Section 326 (application for the winding-up of an unregistered company).
[Underlining mine]
17. I now refer to the case law. In Tavul v Konga (2018) N7599, this Court stated at para. 14, and I quote:
14. I think a simple test to begin would be to ask this. Are there case precedents similar like the one the plaintiffs have commenced herein? The answer to that is “yes there are”. I refer to the cases namely, Gawan Kuyan v. Andrew Sallel; Andrew Sallel v. Gawan Kuyan (2008) N3376, Batteng Putto v. Andrew Sallel (2015) N5845 and Blassius Reu v. William Meta (2014) N6534. These cases involve proceedings that were commenced by way of originating summonses concerning termination of company directors and transfer of shares under the Companies Act . In my view, the National Court does have jurisdiction, similarly like proceedings that may be commenced under the provisions of the Companies Act, that deals with matters concerning appointment and termination of directors. In this case, the plaintiffs filed this proceeding using their preferred originating process, namely, an originating summons, to assert their rights as directors of ENBDC. They are alleging that their rights, duties and obligations as directors of ENBDC have been affected or violated by the purported invalid actions of the first and second defendants.
18. I note that in Tavul v Konga (Supra), the plaintiffs were merely seeking declaratory relief against the actions or inactions of the defendants. The plaintiffs therein had claimed to be the duly appointed directors or executives of East New Britain Provincial Development Corporation Ltd (ENBDC) and had sought declaratory orders to dismiss assertions made by the defendants that the defendants were the duly appointed members of ENBDC. The plaintiffs’ action in Tavul v Konga (supra) was not premised on s.152 nor as aggrieved minority shareholders, directors, former minority shareholders, or former directors, of ENBDC. The type of relief they sought were outside those qualified relief that may be sought by way of a petition under Rule 14 of the Company Rules.
19. The next case I refer to is In the Matter of the Companies Act 1997; In the matter of B-Mobile Limited (2011) N4712. This Court stated at paras. 12, 13 and 14, and I quote:
12. The Companies Act 1997 through section 440 (3) repealed the Companies Act , Chapter 146 and a number of other Acts and the Companies Regulations. The Companies Rules were not repealed. Section 440 (3) states:
"(3) For the removal of doubt, it is hereby declared that the Companies Rules remain in force and are not repealed by this section."
13. The Companies Rules provide for the practice and procedure including the forms to be used when pursuing a variety of applications before the Registrar or the National Court under the Companies Act . That was confirmed by the Supreme Court in Department of Works v In re International Construction (PNG) Ltd (In Liquidation) (2009) SC1051.
14. Applications required to be pursued by petitions are set out under section 14 of the Companies Rules and they must be heard and determined in open court.
20. In Rodney Pokapin v. Paladin Solutions Ltd and Ors (2023) N10495, this Court stated at para. 22 and I quote:
22. The next thing I consider is the mode of proceeding by the plaintiff against the second defendant. It is not disputed that the plaintiff is a director and shareholder of the second defendant. Premised on the cause of action and the type of relief that is being sought, I note that there are processes under the Companies Act 1997 (CA) that provide for actions of this nature. See cases: Sabatica Pty Ltd v. Battle Mountain Canada Ltd (2003) SC709, In the Matter of Canopus No. 101 Ltd (2022) N9651 and Gigira Development Corporation Ltd and Ors v. Stanis Talu and Ors (2021) N8852. I set some of the relevant provisions of the CA as follows:
148. ACTIONS BY SHAREHOLDERS TO REQUIRE DIRECTORS TO ACT.
Notwithstanding Section 147, the Court may, on the application of a shareholder of a company, where it is satisfied it is just and equitable to do so, make an order requiring a director of the company to take any action that is required to be taken by the directors under the constitution of the company or this Act and, on making the order, the Court may grant such other consequential relief as it thinks fit.
149. PERSONAL ACTIONS BY SHAREHOLDERS AGAINST COMPANY.
A shareholder of a company may bring an action against the company for breach of a duty owed by the company to him as a shareholder.
150. ACTIONS BY SHAREHOLDERS TO REQUIRE COMPANY TO ACT.
Notwithstanding Section 149, the Court may, on the application of a shareholder of a company, where it is satisfied that it is just and equitable to do so, make an order requiring the board of the company to take any action that is required to be taken by the constitution of the company or this Act and, on making the order, the Court may grant such other consequential relief as it thinks fit.
151. REPRESENTATIVE ACTIONS.
Where a shareholder of a company brings proceedings against the company or a director, and other shareholders have the same or substantially the same interest in relation to the subject-matter of the proceedings, the Court may appoint that shareholder to represent all or some of the shareholders having the same or substantially the same interest, and may, for that purpose, make such order as it thinks fit including, without limiting the generality of this section, an order–
(a) as to the control and conduct of the proceedings; and
(b) as to the costs of the proceedings; and
(c) directing the distribution of any amount ordered to be paid by a defendant in the proceedings among the shareholders represented.
152. PREJUDICED SHAREHOLDERS.
(1) A shareholder or former shareholder of a company, or any other entitled person, who considers that the affairs of a company have been, or are being, or are likely to be, conducted in a manner that is, or any act or acts of the company have been, or are, or are likely to be, oppressive, unfairly discriminatory, or unfairly prejudicial to him in that capacity or in any other capacity, may apply to the Court for an order under this section.
(2) Where, on an application under this section, the Court considers that it is just and equitable to do so, it may make such order as it thinks fit including, without limiting the generality of this subsection, an order–
(a) requiring the company or any other person to acquire the shareholder’s shares; or
(b) requiring the company or any other person to pay compensation to a person; or
(c) regulating the future conduct of the company’s affairs; or
(d) altering or adding to the company’s constitution; or
(e) appointing a receiver of the company; or
(f) directing the rectification of the records of the company; or
(g) putting the company into liquidation; or
(h) setting aside action taken by the company or the board in breach of this Act or the constitution of the company.
(3) No order may be made against the company or any other person under Subsection (2) unless the company or that person is a party to the proceedings in which the application is made.
(4) Failure to comply with any of the following sections is conduct which is unfairly prejudicial for the purposes of this section:–
(a) Section 45;
(b) Section 47;
(c) Section 51;
(d) Section 57;
(e) Section 63;
(f) Section 98;
(g) Section 110.
(5) The signing by the directors of a company of a certificate required by this Act without reasonable grounds existing for an opinion set out in it is conduct that is unfairly prejudicial for the purposes of this section.
23. I find that the plaintiff has adopted an inappropriate or incorrect mode of proceeding to sue the second defendant. Pursuing the claim against the second defending in this manner appears to amount to an abuse of the Court process. This consideration would act against the plaintiff in the NoM. I am also minded to strike out the SoC for this very reason.
21. And in In the matter of the Companies Act 1997 – Gigira Development Corporation Ltd and Ors v. Stanis Talu and Ors (2021) N9027, this Court stated at paras. 13, 14 and 15:
13. I have considered the submissions of the parties in regard to this matter. So, I ask myself this. Is the petition pleading a cause of action for breach of contract as alleged? The answer to that is clear, which is that it is not a claim for contract, tort or fraud, as alleged by the respondents. The pleaded source of the petition is provided for under s. 152 of the Companies Act. The cause of action by this petition is created and granted by statute, not by common law or equity. It is available under the Companies Act for shareholders or entitled persons to use. One may describe or regarded it as equitable in nature, but regardless, or as stated, it is not.
14. The petitioners herein are shareholders of Petroleum Exploration Joint Venture Limited (PEJVL or the company). Claims such as breach of contract, tort, or fraud, as alleged by the respondents, cannot be commenced as of right or directly by shareholders of companies against third parties. If the petitioners were do so in the present matter, they would firstly require leave of the Court. Such an action would be regarded as a derivative action or proceedings, that is, where a shareholder or an authorized person of a company may bring an action to prosecute, defend, or discontinue a proceeding, for or on behalf of the company, against a third party or parties. A derivative action involves prosecuting or defending against the primary rights of a company. A notable factor why a shareholder in a derivative action would require the Court’s leave is because the shareholder, unlike the company, would not have primary rights in the matter in question in the first place. So, for example and in the present case, what the respondents are asserting against the petitioners relate to challenges that involve or refer to primary rights of PEJVL, something which the petitioners have no standing or direct interest over, and which is not what is being pursued here. The petitioners herein have standing to pursue their personal actions under s. 152, which they have done. They allege that the company’s conduct, carried out by its executives or former executives, was oppressive, unfairly discriminatory, or unfairly prejudicial to them, and they seek relief under s. 152(2) and other additional relief as pleaded in the petition. This is not to say that the petitioning Court cannot consider factors such as allege breach of contract, alleged breach of fiduciary duties or alleged fraudulent conducts, as part of its findings or considerations towards determining the underlying issues. These particulars or claims if raised in the petition would be secondary towards establishing the underlying cause of action under s. 152. If, however, it is proven otherwise that the petitioners have other hidden motives for filing the petition, then the petition may fail but it should left for the trial Court to decide.
15. It is therefore my view that a petition filed under s. 152 of the Companies Act is not subject to s.16(1)(a) of the F&LA. And if I may add, s. 152 falls under Division 4. – Personal Actions by Shareholders. It is a personal action by the shareholders against the company and the respondents. It is not an action commenced by the shareholders on behalf of the company to pursue its (i.e., PEJVL’s) direct or primary interest. And this. To seek recovery of money to be ordered back to the company or PEJVL, which is sought as part of the relief in the petition, is permitted given the Court’s wider powers under s. 152(2). The Court can make such an order, again, only if the claim is successful and if the Court finds it just and equitable to do so.
CONSIDERATION - PRELIMINARY MATTER
22. When I consider the claim by the plaintiff, my observations are as follows. The plaintiff is an aggrieved shareholder of the first defendant. All of its claims are premised as an aggrieved director and shareholder of the first defendant under the CA. All of the relief, including the claim for alleged breach of fiduciary duties, are premised on the plaintiff’s grievances as a director and shareholder of the first defendant, and the claims are premised primarily on s.152 of the CA. The plaintiff pleads s.152 as the basis for its primary relief which is sought under relief (C) in the ASoC. I note that there is no controversy in regard to relief (A). Relief (B) is sought premised on the Court’s findings on matters that are alleged by the plaintiff as an aggrieved director and shareholder. Relief (B) is a type of declaration that may be sought by an aggrieved minority shareholder or director of a company by filing a petition that is premised on s.152 of the CA.
23. I note that the question of whether a correct mode of proceeding was used to file this proceeding was not raised earlier by the parties.
24. Premised on Rule 14 of the Company Rules and the case law, I have reasons to find that this proceeding may be an abuse of process. However, there are other considerations that I should ask myself before reaching a definitive view on this. The first question is this. Was this issue belatedly raised? The answer to that is in the affirmative. The next question is this. Even if the answer to the first issue is in the affirmative, can this Court still consider the issue and make a determination? The answer to that is also in the affirmative. Matters concerning abuse of process may be raised at any stage of a proceeding including at a trial of a matter. If a law has been broken or a process has been abused, Courts must not turn a blind eye or ignore the law when the matter is brought to its attention or upon its discovery. Courts also have a fundamental role to protect its process from being abused. See cases: Michael Wilson v. Clement Kuburam (2016) SC1489, Breckwoldt & Co. (N.G.) Pty v. Gnoyke [1974] PNGLR 106, PNG Forest Products and Inchcape Berhad v. The State & Jack Genia, Minister for Forests [1972] PNGLR 85 and NAE Limited (1-21320) v. Curtain Bros & Ors (2015) N6124.
25. The plaintiff also raised the equitable defence of estoppel. It claims that the defendants are estopped from raising the issue because they have acted in the matter, that is, in filing their notice of intention to defend and defence and cross-claim. It is also not disputed that the parties had engaged in settlement attempts which failed after commencement of this proceeding. The parties had also prepared for and have completed the trial for this matter.
26. However, the dilemma I have is this. The equitable doctrine appears to clash with Rule 14 of the Company Rules and ss.152 and 440(3) of the CA. Rule 14 is written in mandatory terms. Aggrieved minority shareholders who intend to bring proceedings under the CA for relief under s.152 must adhere to the said Act, its rules and requirements. This means that they are required to and must file a petition, which is the only permitted mode of proceeding. Other modes of proceeding such as writ of summons and statement of claim or originating summons, are not permitted.
27. To summarise, I note that equitable doctrines including estoppel are subject to statutes and Acts of Parliament. See: s.9 – Constitution. In this case, the mandatory requirements as stipulated under the CA and its rule shall take precedence. In closing, I will say that a defendant that files a notice of intention to defend, defence or cross-claim is not precluded from raising issues concerning mode of proceedings or jurisdictional issues at a hearing.
28. With these, I therefore find that the plaintiff’s defence against the preliminary issue cannot be sustained.
SUMMARY
29. In summary, I am minded to uphold the preliminary submission by the defendants that the proceeding is an abuse of process. I find that the plaintiff has adopted an improper mode of proceeding. The proper mode should have been by way of a petition that is filed under Rule 14(c) of the Company Rules. The said requirement is mandatory and thus must be complied by aggrieved directors, former directors, shareholders or former shareholders who wish to seek relief under s. 152 (formerly s.197 under the repealed Companies Act).
CROSS-CLAIM
30. I now turn to the defendants’ Cross-Claim.
31. The Cross-Claim is sought pursuant to Order 12 Rule 1 of the National Court Rules, s.155(4) of the Constitution and ss.92(1) and 93 of the CA. There is no issue with the sources of the Cross-Claim.
32. I also find the Cross-Claim to be properly before the Court, that is, premised on the mode of proceeding that is adopted. The defendants are seeking orders or relief that do not require filing a petition under the provisions of the CA. Their pleaded relief may be sought under a proceeding that is commenced by way of writ of summons and statement of claim or originating summons.
33. Sections 92 and 93 of the CA reads:
92. NOTICE REQUIRING PURCHASE.
(1) A shareholder of a company who is entitled to require the company to purchase shares by virtue of Section 91 or Section 99 may–
(a) within one month of the passing of the resolution at a meeting of shareholders; or
(b) where the resolution was passed under Section 103, before the expiration of one month after the date on which notice of the passing of the resolution is given to the shareholder,
give a written notice to the company requiring the company to purchase those shares.
(2) Within one month of receiving a notice under Subsection (1), the board shall–
(a) agree to the purchase of the shares by the company; or
(b) arrange for some other person to agree to purchase the shares; or
(c) apply to the Court for an order under Section 95 or Section 96; or
(d) arrange, before taking the action concerned, for the resolution to be rescinded in accordance with Section 88 or decide in the appropriate manner not to take the action concerned, as the case may be,
and give written notice to the shareholder of the board’s decision under this subsection.
93. PURCHASE BY COMPANY.
(1) Where the board agrees under Section 92(2)(a) to the purchase of the shares by the company, it shall, on giving notice under that subsection or within seven days of doing so–
(a) nominate a fair and reasonable price for the shares to be acquired; and
(b) give notice of the price to the holder of those shares.
(2) A shareholder who considers that the price nominated by the board is not fair or reasonable shall forthwith give notice of objection to the company.
(3) The shares are deemed to have been purchased by the company upon receipt by the shareholder of a notice under Subsection (1).
(4) Where, within one month of giving notice to a shareholder under Subsection (1), no objection to the price has been received by the company–
(a) the company shall forthwith pay the nominated price to the shareholder; and
(b) the shareholder shall forthwith deliver any share certificate in respect of the shares to the company.
(5) Where, within one month of giving notice to a shareholder under Subsection (1), an objection to the price has been received by the company, the company shall within seven days–
(a) apply to the Court to appoint a person as arbitrator to determine what is a fair and reasonable price; and
(b) pay a provisional price in respect of the shares equal to the price nominated by the board.
(6) Upon payment of the provisional price by the company, the shareholder shall forthwith deliver any share certificate in respect of the shares to the company.
(7) The person appointed by the Court as arbitrator shall expeditiously determine a fair and reasonable price for the shares to be purchased.
(8) Where the price determined under Subsection (7)–
(a) exceeds the provisional price, the company shall forthwith pay the balance owing to the shareholder; or
(b) is less than the provisional price paid, the shareholder shall forthwith repay the excess to the company.
(9) The arbitrator may award interest on any balance payable or excess to be repaid under Subsection (8) at such rate as he thinks fit, having regard to whether the provisional price paid or the reference to arbitration, as the case may be, was reasonable.
34. There is no issue between the parties herein that the relationship between them has turned sour and they no longer wish to remain as partners or shareholders in the first defendant. And it is not in issue that they had attempted to settle this, that is, by attempting to value the shares of the first defendant so that the plaintiff could sell its shares to the first defendant at a reasonable price. Parties had engaged their valuers to make assessments in the past. At trial, some of the expert witnesses presented their evidence and reports to the Court.
35. And I note that the relief sought by the defendants are merely facilitative orders under the relevant provisions of the CA, to allow the parties to settle on the intended purchase/sale of the shares of the plaintiff in the first defendant. Apart from the plaintiff’s claim which has now been dismissed, the terms of the orders sough in the cross-claim appear to favour both parties or the 2 Shareholders.
36. As such, I am minded to grant the relief sought by the defendants in the Cross-Claim. I find no real controversies between the parties on the material facts that are relied upon by the defendants in the cross-claim. I find the same in regard to the relief that are sought.
COST
37. An order for cost is discretionary.
38. I am minded to order cost to follow the event in favour of the defendants, that is, on a party/party basis to be taxed if not agreed.
ORDERS OF THE COURT
39. I make the following orders:
(A) An order pursuant to Order 12 Rule 1 of the National Court Rules and/or section 155(4) of the Constitution and/or section 92 of the Companies Act that the plaintiff/cross-defendant shall give notice to the first defendant/first cross-claimant requiring the first defendant/first cross-claimant to purchase its shares.
(B) An order pursuant to section 93 of the Companies Act that the board of the first defendant/first cross-claimant shall nominate a fair and reasonable price for the shares of the plaintiff/cross-defendant in the first defendant/first cross-claimant that are to be acquired by the first defendant/first cross-claimant and give notice of that price to the plaintiff/cross-defendant.
(C) In the event that the plaintiff/cross-defendant considers that the price nominated by the board of the first defendant/first cross-claimant is not fair or reasonable, the plaintiff/cross-defendant shall give notice of objection to the first defendant/first cross-claimant pursuant to section 93(2) of the Companies Act.
(D) In the event that the plaintiff/cross-defendant serves the first defendant/first cross-claimant with a notice of objection in accordance with section 93(2) of the Companies Act, the parties to the proceeding shall comply with sections 93(4) to 93(9) of the Companies Act.
(E) In the event that the plaintiff/cross-defendant serves the first defendant/first cross-claimant with a notice of objection in accordance with section 93(2) of the Companies Act, the Court may, upon application to the Court, appoint an arbitrator pursuant to section 93(5)(a) of the Companies Act.
The Court orders accordingly
________________________________________________________________
Goodwin Bidar Nutley: Lawyers for the Plaintiff
Ashurst PNG: Lawyers for the Defendants
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URL: http://www.paclii.org/pg/cases/PGNC/2024/44.html