Tan v Pelton Investments Pty Ltd, Pelis and Fong; Tonove v Pelton Investments Pty Ltd, Tin Siew Tan and Fong [1996] PNGLR 34 (15 March 1996)

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[1996] PNGLR 34 - In The Matter of Companies Act (Ch146); Tin Siew Tan v Pelton Investments Pty Ltd, Thomas John Pelis and Peter Fong;Noah Tonove v Pelton Investments Pty Ltd, Tin Siew Tan and Peter Fong

COMPANY - Rectification of Register - Proper basis - Delay - Companies Act Ch 146 s 163(1).

These are two separate but related applications made under s 163(1) Companies Act, Ch 146 to rectify the register of shares in a company called Pelton Investments Pty Ltd whose initial shareholders at incorporation were Pelis and Tonove. Pelton then became a shelf company. Subsequently Pelis entered into business transactions with Tan and Fong and Pelton was acquired for purposes of the transactions where it was agreed amongst Pelis, Fong and Tan that Pelis and Fong will hold 25% each of Pelton and Tan will hold 50%. The register of the company, Pelton was then altered but all had one share each. Tonove was removed as a shareholder. This was done so without a properly constituted meeting of the directors of Pelton.

1. As per the application by Tonove to be registered as a shareholder of Pelton, since there has never been a proper meeting of directors to either remove or transfer his shares to anyone else, Tonove is entitled to be registered as a shareholder. Consequently Tan and Fong be removed from the register.

2. Application by Tan to have the register rectified to the effect that he holds 50% of the shares in Pelton refused.

3. That the business transaction that was made between Tan, Fong and Pelis had nothing to do with Pelton Investments Pty Ltd, and the company cannot be liable to pay any compensation to Tan or Fong.

KAPI DCJ: The plaintiffs have made applications under s 163 (1) of the Companies Act to rectify the register of shares in a company called Pelton Investments Pty Limited. The two applications have been consolidated in the one trial by consent. The applications are supported by affidavits. At the hearing, several deponents were cross-examined upon request. At the conclusion of examination of the various deponents, the matter was adjourned and counsel were directed to make submissions in writing on the merits of the applications.

Counsel for Mr Tan in his written submissions raised a preliminary point. The question raised is, whether, the Court should accept jurisdiction to hear the applications, or should instead decline jurisdiction and order suits commenced by statement of claim. He submitted that I should dismiss the applications and that they should be commenced by way of writ and all the issues pleaded and the matter subsequently set down for trial. He submitted the following reasons:

(a) The facts alleged in support of the applications are denied and therefore the summary relief under s 163 (1) is not available. It is submitted that this relief is available where the entitlement is clear. see In re the Property Insurance Company (1929) 46 WN (NSW) 209 at 210, In re Heaton Steel and Iron Company (Simpson's Case) [1869] UKLawRpEq 208; (1869) LR 9 Eq. 91.

(b) The issues to be decided in these applications are complex and therefore, the relief under s 163 (1) of the Companies Act is not appropriate. He relied on In re McCracken's City Brewery Co Limited (No. 2); Ex parte Quinliven [1899] ArgusLawRp 50; [1899] 24 VLR 803.

Counsel for Mr Tonove has submitted that the facts in the matters before me are not complex and therefore, I should not refuse jurisdiction but deal with applications on their merits.

In considering this issue I need to deal with the two applications separately to determine whether they present complex issues which would require proceedings by way of a suit by statement of claim.

The plaintiff's application seeks two alternative orders. First, that the name of the plaintiff should be entered on the register in that the company failed to register him as a member of the company. Alternatively, he seeks an order to have his name re-entered on the register of the company in the event that his name was illegally removed from the register. The facts in relation to the plaintiff's entitlement have not been denied. They are straight forward and cannot be described as complex. I will proceed to deal with the merits of this application.

In relation to this application, the plaintiff's entitlement as a member of the company is based on an agreement made with Mr Pelis, a member of the company that when the shelved company is legally acquired, the plaintiff should hold 50% of the shares in the company. That the company failed to register the 50% interest. Mr Pelis has not denied that there was such an agreement. The question is, whether, or not, this entitles the plaintiff to be registered as a member of the company with 50% of shares. I do not consider that this presents any complex issues to be determined.

All parties had the opportunity to present evidence in affidavit and each counsel exercised the right to cross-examine deponents. I would dismiss the submissions made by counsel for Mr Tan on jurisdiction. I will now proceed to deal with the merits of the applications.

Pelton Investments Pty Ltd is a company incorporated under the Companies Act ch 146. It was incorporated on 17 May 1984. According to the memorandum of association of the company, the authorised capital was K100,000 divided into 100,000 shares of one kina per share, of which 2 shares were subscribed, one held by Thomas John Pelis and one by Noah Tonove. They were the first directors of the company. They intended to conduct real estate business. However, the company did not become involved in any business activity and it was subsequently shelved. In about 1986 Mr Noah Tonove went to work in Tabubil.

In early November 1985, a Mr Peter Fong introduced Mr Tin Siew Tan to Mr Thomas John Pelis and they held initial discussions with Mr Thomas John Pelis to build 8 town houses on property owned by Mr Pelis which is located at Boroko, Section 9 Allotment 4. This is a property which Mr Pelis acquired through the Government home ownership scheme. As I understand the business arrangement, Mr Pelis was going to make his land available and Mr Tan was going to provide the finance for the construction of town houses. Pelton Investments Pty Ltd had no interest whatsoever in this property and had no interest in the business deal.

However, in order to move forward with this business arrangement, they had to do business through a company. Mr Pelis suggested that they should acquire Pelton Investments Pty Ltd which was then inactive for this purpose.

At a meeting held on or about 17 November 1985 at the office of Robert Wong, it was agreed between Mr Tan, Mr Fong and Mr Pelis that they should be the share holders in the said company. It was understood by the parties that Mr Tonove would be removed as share holder as well as a director of the company. Mr Tonove was not a party to the business deal.

According to Mr Tan it was agreed that when the company is acquired, he should hold 50% of the shares and Mr Fong and Mr Pelis 25% each. Counsel for Mr Pelis suggested during cross examination of Mr Tan that there was no such agreement and the agreement was that they each hold one share. However, Mr Pelis on cross examination agreed that the arrangement was for Mr Tan to hold 50% and that he and Mr Fong to hold 25% each. Mr Fong has not been called to give evidence on this issue. I find as a matter of fact that the agreement was for Mr Tan to hold 50% of the shares and Mr Fong and Mr Pelis to hold 25% each.

In accordance with the business arrangement Mr Tan provided finance for the construction of town houses as well as the money required to pay off the property owned by Mr Pelis. The property was subsequently transferred to Pelton Investments Pty Ltd on the basis that they would carry out their business deal under the name of the company.

The town houses have been constructed. It is not necessary to set out the details of the funding and the construction of the town houses. This has been the subject of separate litigation and there is an appeal pending in the Supreme Court.

The current Return of Allotment of Shares of the company shows three shares one each allotted to Thomas Pelis, Peter Fong and Tin Siew Tan. Mr Tan is not recorded as holding 50% of the shares as agreed and Mr Tonove does not appear on the register as a shareholder.

Mr Tan has made an application (O.S. 206 of 1995) under s 163 (1) of the Companies Act to rectify the register so that it reflects the true position, namely, that he owns 50% of the allotted shares in the company.

Mr Noah Tonove has also made an application (O.S. 244 of 1995) under s 163 (1) of the Companies Act to rectify the register to restore his name on the register of shares and to remove the names of all the other shareholders with the exception of Thomas John Pelis.

(a) the name of a person is without sufficient cause entered in or omitted from the register; or

(b) default is made or unnecessary delay takes place in entering in the register the fact of any person having ceased to be a member, the person aggrieved, a member or the company may apply to the Court for rectification of the register, and the Court may refuse the application or may order rectification of the register and payment by the company of any damages sustained by a party to the application.

(a) any question relating to the title of a person who is party to the application to have his name entered in or omitted from the register, whether the question arises between members or alleged members or between members or alleged members on the one hand and the company on the other hand; and

(b) generally any question necessary or expedient to be decided for the rectification of the register.”

This provision does not create or confer any new rights. It is merely a procedural avenue for applicants to assert or seek declaration of and to enforce their existing rights, see Re New Pinnacle Group Silver Mining Co. (No Liability) [1897] NSWLawRp 80; (1897) 18 L.R. (NSW) Eq. 168. At page 169 Manning CJ was considering s 35 (the equivalent of s 163 of our Companies Act) in which he said:

“Section 35 was introduced with the object of providing a new and simple procedure for rectification of a register, to take place of a suit; but in my opinion it gives no rights to any person which did not exist before.”

The plaintiff’s application is based on two alternatives. First it is put on the basis that his name has not been entered on the roll of shareholders and that he is entitled to be registered as a member of the company. It is submitted that register of the company should be rectified to enter his name in the register. It is not clear from evidence whether or not the plaintiff’s name was ever entered on the roll of the company.

In the alternative, it has been submitted that the name of the plaintiff was illegally removed from the roll. This submission is put on the basis that the plaintiff’s name was entered on the roll and later removed from the roll.

In either case, the issue is whether the plaintiff has any entitlement to be registered as a member? Counsel for the plaintiff has submitted that he is entitled on the basis that he is one of the subscribers to the memorandum of articles of the company. That under s 19 of the Companies Act he is deemed to have agreed to become a member of the company. According to the plaintiff he has paid up the value of his share to Mr Tom Pelis.

Counsel for Mr Tin Siew Tan has submitted that the plaintiff should not be registered as a shareholder on two basis. First, he submitted that the plaintiff had constructive notice to cease as a member of the company but deliberately refrained from enquiring about his rights. In the circumstances he is deemed to have notice and ceased to be a member. He relied on Jones v Smith [1841] EngR 1169; (1841) 1 Hare 43 which is cited in 6 Hals. (3d), p 436.

Secondly, he raised the issue of laches as a bar to success in rectification. He relied on Re Lucks Limited; Serpell's case [1928] ArgusLawRp 73; [1928] VLR 466.

Counsel for Mr Pelis and Mr Fong submitted that the plaintiff was justifiably removed in that he did not reply to a request by Mr Pelis to transfer his share.

I find that the plaintiff is entitled to be registered as a member of the company on the same basis as Mr Pelis as the original subscribers to the incorporation of the company. If the plaintiff has been removed from the company, the question is has he been validly removed as a shareholder and director of the company? This can be determined in accordance with the provisions of the Companies Act. The plaintiff could have surrendered his shares or transferred them. Mr Tom Pelis purported to get the plaintiff to do this but he deliberately refrained from doing this. The plaintiff was entitled to refuse to transfer his shares.

At the time of incorporation, the company adopted Table A regulations under the Companies Act. In so far as it is relevant, the quorum for a meeting of directors is two directors. There has never been a proper meeting of directors to remove the plaintiff. In this case it is not disputed that the meeting on 17 November between Mr Tan, Fong and Mr Pelis was not a meeting of the directors of the company. There has never been a proper meeting of directors to either remove the plaintiff or to transfer his share to anyone else. Therefore I conclude that the plaintiff is entitled to be registered as a shareholder.

The next issue to be considered is whether the plaintiff is barred from obtaining his remedy because of delay. Counsel for Mr Tan submitted that the plaintiff's application is barred because of the delay in making the application. He submitted that there is a delay of 8 years from the time of issue of shares to Mr Tan to the time of the application. On the other hand, counsel for the plaintiff has submitted that he became aware of the removal of his name when the litigation in this matter was publicised in the media. Counsel for the plaintiff has submitted that upon becoming aware of this he took immediate steps to inquire about his rights eventually resulting in this application.

I find as a matter of fact that the plaintiff found out about the possible loss of his interest in his share when in April 1995 he learnt about the decision of Mr Justice Salika in the matter of WS 67 of 1993 which was handed down on 17 March 1995. He then made search of the Companies office and discovered that his name did not appear on the register and new names were entered as shareholders. He then wrote to the company for an explanation and for correction of the register in a letter dated 17 April 1995. When no satisfactory response came this action was commenced. There is no evidence to suggest that he was aware of the removal of his name and addition of new shareholders prior to this date. I find that the plaintiff has not slept on his rights. I reject the submission that the application by the plaintiff is barred.

In respect of this application, the plaintiff, Mr Tan applies to have the register rectified to the effect that he holds 50% of the shares in the company. As opposed to this Mr Tonove applies to have the names of Mr Tan and Mr Fong removed from the register.

Are Mr Tan and Mr Fong entitled to be registered on the roll of shares? The business arrangement between Mr Pelis, Mr Fong and Tan is a separate arrangement. Their business deal relate to building town houses on land belonging to Mr Pelis. That has nothing to do with Pelton Investments Pty Ltd. The company only came into the picture when they needed a company to run their business. They could have formed a new company or acquired any other company which was shelved.

The question is whether they have acquired the company in accordance with the law. The onus was on Mr Pelis as a director of the company to ensure that Mr Tonove was removed from the company as a director to effectively change the shareholdings as intended. I have already found that Mr Tonove was illegally removed in that there was no proper meeting of the directors to effect this. Similarly there has never been a proper meeting of the directors to change the shareholdings in the company. They are not entitled to be registered on the roll. I can find no basis for leaving their names on the register. The only names that should appear on the roll are the names of Mr Pelis and Mr Tonove.

I therefore direct that the company register should be rectified in the following manner; the names of Mr Siew Tin Tan and Mr Fong be removed from the register of shareholders and Mr Tonove's name should be enrolled on the register.

In view of the findings I have made, namely, that the business transaction that was made between Mr Tan, Mr Fong and Pelis, had nothing to do with the company, the company cannot be liable to pay any compensation to either Mt Tan or Mr Fong. Whether or not they may have a cause of action against Mr Pelis personally is not a matter for me to determine in these proceedings.

Lawyers for Mr Fong & Mr Pelis & Pelton Investments Pty Ltd: J F Aisa & Associates.

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Papua New Guinea Law Reports

Tan v Pelton Investments Pty Ltd, Pelis and Fong; Tonove v Pelton Investments Pty Ltd, Tin Siew Tan and Fong [1996] PNGLR 34 (15 March 1996)

PNG Law Reports 1996