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Velegamus v Aisoli [1989] PGNC 59; [1988-89] PNGLR 63; N717 (28 February 1989)

N717

PAPUA NEW GUINEA
[NATIONAL COURT OF JUSTICE]

VELEGAMUS AND OTHERS

V

AISOLI

APPLICATION OF MUNTADI

Waigani
Andrew AJ

28 February 1989

COMPANIES - Receivers and managers - Appointment of - Grounds for - Dispute as to ownership/control - Property of company in jeopardy - Landowner development company - Clan ownership - Timber resource activities - Bona fide dispute on control - Injunction restraining logging - Timber and rights jeopardised - Receiver-manager appointed.

PRACTICE AND PROCEDURE - National Court - Affidavits - Striking out material as scandalous - Lawyer making unfounded allegations - Emotional involvement in case - National Court Rules, O 11, r 28.

Pezrak Development Pty Ltd was a landowner development company involved in exploitation of timber resources on land owned by some 40 clans.

In proceedings instituted to determine who were the persons or representatives authorised to manage the company, an injunction was granted freezing all logging operations, but appointment of a receiver-manager was refused because of failure to agree thereto.

A shareholder, who was also a trustee/agent for one of the landowning clans, sought the appointment of a receiver-manager of the company with a view to its continuance as a going concern until further orders.

Held

(1) The court may appoint a receiver and manager of the undertaking and assets of a company where the property of the company is in jeopardy or where the ownership and/or control of the company is in dispute such that there is no effective management.
Leney & Sons Ltd v Callingham [1907] UKLawRpKQB 167; [1908] 1 KB 79 (CA) and Stanfield v Gibbon [1925] WN 11, followed.

(2) In the circumstances and on the material before the Court in previous proceedings, there was a bona fide dispute as to ownership and control; management had been rendered ineffective by the injunction preventing all logging operations and, in consequence, the property of the company, being cut timber and timber permits, was in jeopardy.

(3) It was in the best interests of the company and of the landowners that a receiver and manager be appointed with a view to continuance of the company as a going concern until further orders.

Held Further

(4) Material contained in affidavits made by a lawyer for one of the parties, containing unfounded allegations apparently induced by emotional involvement in the proceedings, should be struck out as scandalous pursuant to O 11, r 28, of the National Court Rules.

Cases Cited

Leney & Sons Ltd v Callingham [1907] UKLawRpKQB 167; [1908] 1 KB 79 (CA).
Stanfield v Gibbon [1925] WN 11.

Motion

This was an application made on notice seeking, inter alia, to have a receiver and manager appointed to manage the assets and undertakings of a company pending the hearing of proceedings in which control of the company was in dispute.

Editor’s Note

An appeal to the Supreme Court has been lodged.

Counsel

T J Glenn, for the applicant.
D Toll, for the respondent.

28 February 1989

ANDREW AJ: The applicant, Bruno Muntadi, seeks the following orders by way of notice of motion:

1. That the applicant be joined as the second plaintiff to the action.

2. That David Wardley, a chartered accountant and official liquidator of Touche Ross & Co, Travelodge Mall, Rabaul, East New Britain be appointed as receiver of the assets and undertaking of the Pezrak Development Pty Ltd, and to manage the said company with a view to its continuance as a going concern until further orders.

3. That the receiver and manager be remunerated at a fair and reasonable rate, such charges to take priority over all other debts and demands on the assets and revenue of Pezrak Development Pty Ltd.

4. That before new logging operations commence the receiver apply for directions.

5. That the originating summons be adjourned generally.

6. That the costs of this application be reserved.

7. That the time for entry of this order be abridged to the date of settlement which shall take place forthwith.

This matter has become extremely acrimonious and I shall refer again to this at the end of this judgment. This is evidenced by the number of applications made since December 1988 and from the various rulings given by different judges. The background to the matter can be seen in the judgment of Amet J in OS 10 of 1989 given on 25 January 1989, where he was considering a similar application to this:

"Central to the several issues in these three proceedings, apart from the Timber Rights Purchase Area, is the local landowner development company, Pezrak Development Pty Ltd which was incorporated in 1985 specifically with the view to the exploitation of the timber resource in the Konos-Pue Timber Rights Purchase Area, the subject land of this dispute.

The following are some of the issues in dispute between the various parties:

1. Which clans are the rightful owners of the land the subject of the Timber Rights Purchase Area?

2. Who are the rightful representatives of the said clans, who have authority to decide who should comprise the Board of Directors?

3. Who lawfully constitutes the Board of Directors of the company?

4. Whether there is a legally binding lease/management agreement between Pezrak and Hui Ling Engineering.

5. The plaintiffs contend they are the rightfully constituted Board of Directors, whilst the defendant maintains he and another group of people are the lawfully elected Board."

And later at p 2:

"Also at the centre of these disputes are two foreign owned companies both vying for interest in the development and exploiting of these resources — Hui Ling Engineering and Malaysian Overseas Investment. The New Ireland Provincial Government would appear from the materials to prefer MOI, which Paul Aisoli’s group has agreed to, whereas the plaintiffs prefer Hui Ling."

On 16 January 1989, in a related matter (MP 160 of 1988) involving Pezrak Development Pty Ltd, Hinchliffe J said:

"It is clear that there is a dispute over the true identity of the directors of the applicant (the company) and in fact who is its spokesman. Indeed there is even a dispute as to who is the actual firm of lawyers who represents the applicant."

The matter or a related matter was before Woods J on 19 December 1988 who said:

"In this case there is even a dispute as to who is the spokesman or representative for the land or the company which owns the land. In the circumstances then the land should be preserved. In this case there is no outside party with any agreement or right to log so there is no harm in freezing any logging operations.

In order to preserve the land and resources pending the determination of who is the representative or person authorised to manage the company I make the following orders:

All logging operations are to cease on Konos-Pue Timber Rights Purchase Area under Timber Permit 16/32 until further order. No timber is to be cut or removed from the area of the Timber Permit 16/32 until further Order."

This is just some of the background to this matter. From my reading of all the material in these related matters, it is clear to me that the parties are so much at odds that I can see no hope of any satisfactory resolution. It seems that when Woods J made the order freezing all logging operations, this included marketing and all other activities associated with the company. This is made clear in the rulings of Hinchliffe J of 13 and 16 January 1989. It seems that he may not have had evidence then that cut timber was decreasing in value. There was some evidence before Amet J for he ruled that:

"There were also already cut logs whose value is diminishing the longer the company is prevented from exporting them."

The applicant here would have to establish, inter alia, that property of the company is in jeopardy (Leney & Sons Ltd v Callingham [1907] UKLawRpKQB 167; [1908] 1 KB 79 (CA)) or that ownership/control of the company is in dispute such that there is no effective management (Stanfield v Gibbon [1925] WN 11). In the circumstances here, I think he would have to establish both. The affidavit of Mr Toll of 20 January 1989 acknowledges that the applicant is a trustee/agent for the Kembu clan and a shareholder although Mr Toll now says this was a mistake.

THE QUESTION OF DISPUTED OWNERSHIP/CONTROL OF THE COMPANY (PEZRAK)

An overview is that two sides are looking for control of the company. On the one side is the defendant, Paul Aisoli and his group, who say they control the company and that they have terminated the agreement between Pezrak and Hui Ling. On the other side are the plaintiffs and their group, who claim control of the company and say that the contract with Hui Ling was never terminated. There is a local landowners’ dispute. There are some 40 clans involved and it is a long and difficult dispute.

That ownership and control are in dispute and that the dispute is bona fide was accepted by Woods J when the original injunction was granted and by Amet J and there is a ample evidence before me. That management is ineffective must also be accepted because the effect of the injunction, to prevent all logging operations, effectively stops all activity of the company.

Decision of 25 January 1989

The Court accepted that Pezrak’s assets were in jeopardy and that there was a dispute as to the ownership/control. However, it held that, as the parties did not agree to the appointment, then a receiver should not be appointed. This application was made by the present plaintiffs in this matter and not by the current applicant.

Decision of 26 January 1989

After the decision of 25 January 1989, the defendant agreed to the appointment of a receiver and consent orders were signed. When the court reconvened, the defendant changed his mind and Mr Toll now makes accusations of pressure and undue influence against Mr Glenn, the applicant’s lawyer. I shall refer to this again at the end of this judgment.

The court determined that it should not vary its decision, again because of the failure of the parties to agree.

I make the following findings:

I am satisfied that the applicant comes before the Court with the appropriate standing as a trustee and landowner and shareholder of the company and from his affidavit he represents other landowners whose statutory declarations are attached to his affidavit. I note that Mr Toll did not choose to cross-examine him but chose to say that he had no standing because he was being put up to make this application by Mr Glenn and that, as he was only a villager, his presence was a sham and that he, Mr Toll, could not cross-examine him because Mr Toll could not speak Pidgin. This is, of course, absurd and I shall refer again to this at the end of the judgment.

From the facts which I have outlined and from the previous findings of Amet J and Woods J, it is beyond all doubt that ownership/control of the company is in dispute. This dispute, on the evidence so far, is bound to be long and difficult and acrimonious. There is no effective management of the company.

THAT PROPERTY OF THE COMPANY IS IN JEOPARDY

There is evidence that cut timber is rotting away and decreasing in value. This was accepted by Amet J in his decision. There were cut logs whose value is diminishing the longer the company is prevented from exporting them. There is further evidence of this before me. There is evidence that the timber permit has a minimum cut requirement and is liable to forfeiture or non-renewal. If the logs are not sold, then all parties will suffer.

I am satisfied that property of the company is in jeopardy and that it increases each day that this dispute drags on.

I am thus satisfied that the legal requirements necessary for the appointment of a receiver are made out. But I must consider whether or not the decision of Amet J of 25 January 1989 or the decision of Woods J of 19 December 1988, should be interfered with in any way.

The applicant says that he agrees with the decision of Woods J who sought to preserve the situation in the interests of the landowners which he regarded as paramount. He seeks a variation of that preservation order to better preserve the interests of the landowners by protecting the timber already cut and the interests of the landowners in the permit. He is not asking that logging resume without any receiver obtaining court approval.

I think it is fair to say that there is additional material before me that was not before the Court on the two previous hearings as to the loss which the company and thereby the landowners are suffering due to the cut timber diminishing in value. The effect of all of this is that all parties suffer and will continue to do so.

I am satisfied that the applicant has standing as a landowner on whose land logs have been cut and that he represents other shareholders and landowners who want a receiver appointed. The defendant, Mr Aisoli, who opposes the application, has only a 5 per cent shareholding.

It is for all these reasons that, in my judgment, it is in the best interests of the company and of the landowners whose interests are paramount that a receiver should be appointed and I propose to make the orders sought.

CONDUCT OF COUNSEL

There has been material placed before me in affidavit form and various accusations made in open court that regretfully force me to have to reply and place matters on the record.

Mr Toll’s first accusation in court has been that Mr Glenn unduly influenced his client (Mr Toll’s) at the time that consent orders were being sought and that Mr Glenn behaved in a threatening manner. This is contained in his affidavit of 8 February 1989. It is apparent from what I am about to say that Mr Toll seems to have become so emotionally involved in this case that this has led him to act most unwisely and unprofessionally. The fact speaks for itself. Mr Toll was with his client during these discussions and must have been able to advise him. I cannot see how he can say that his client was unduly influenced in his presence and I accept Mr Glenn’s view that this is not correct.

Secondly, in Mr Toll’s affidavit of 17 February 1989, he makes allegations that Mr Glenn is not acting on instructions of the applicant but that he is really being backed by Hui Ling Engineering Pty Ltd. He claims that this company is financing this application and has paid for the applicant to come to Port Moresby. He says in court that the application is a sham and that the applicant, being a villager, would not know anything or understand these proceedings. All of these matters are not based on any evidence.

Thirdly, he has repeatedly stated that Mr Glenn is lying in open court and attempting to mislead the court.

Fourthly, he asks that the matter should be adjourned before another judge "who knows more about this matter".

There were other matters, such as accusing Mr Glenn of wanting to win the case, otherwise Hui Ling would not pay him.

It is unfortunate that professional conduct can degenerate to this level.

I consider that it is scandalous as having no basis and I propose to strike out the affidavit material under O 11, r 28, of the National Court Rules.

I will say one further thing. Mr Glenn is a senior and experienced practitioner of this Court who enjoys the highest reputation for competence and integrity and I reject all of these allegations. I believed that Mr Toll has been so personally and emotionally involved in this case that this has led him to behave as he has. If it were not for this factor, then the matter might have been taken further. He should regard this as a warning that this kind of conduct is unacceptable.

ORDER

1. That the applicant, Bruno Muntadi, be joined as the second plaintiff to the action herein.

2. That David Wardley, a chartered accountant and official liquidator of Touche Ross & Co, Travelodge Mall, Rabaul, East New Britain be appointed as receiver of the assets and undertaking of the Pezrak Development Pty Ltd and to manage the said company with a view to its continuance as a going concern until further orders.

3. That the receiver and manager be remunerated at a fair and reasonable rate, such charges to take priority over all other debts and demands on the assets and revenue of Pezrak Development Pty Ltd.

4. The orders in MP 160 of 1988 dated 19 December 1988 be varied by deleting paragraphs 1 and 2 and inserting in lieu thereof:

"All logging operations excepting those carried out by or with the authority of the receiver on the Konos-Pue Timber Rights Purchase Area under Timber Permit No 16/32 in NIP cease forthwith."

5. That the originating summons be adjourned generally.

6. That the costs of this application be reserved.

7. That the time for entry of this order be abridged to the date of settlement which shall take place forthwith.

Orders accordingly.

_______________

Lawyers for the applicant: Blake Dawson Waldron.
Lawyers for the respondent: Henao Cunningham & Co.