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Bank of Papua New Guinea v Resources and Investment Finance Ltd [2002] PGNC 58; N2284 (1 October 2002)

N2284

PAPUA NEW GUINEA

[IN THE NATIONAL COURT OF JUSTICE AT WAIGANI]

OS No. 553 of 2002

BETWEEN:

BANK OF PAPUA NEW GUINEA

First Plaintiff

AND:

ROBERT SOUTHWELL

Second Plaintiff

AND:

RESOURCES AND INVESTMENT FINANCE LIMITED

First Defendant

AND:

REX PAKI

Second Defendant

Waigani: Kapi DCJ.
23rd September, 1st October 2002

Interlocutory Injunction – Appellant to satisfy that there is serious question to be tried – no need to determine the merit – Undertaking on damages – no need for such undertaking under the scheme of the Banks and Financial Institutions Act 2000 – Whether there is a conflict between a statutory manager under the Act and the functions of a liquidator under the Companies Act 1997.

Counsel:
D. R. Hartshorn for the Plaintiffs/Applicants
D. Lightfoot for the Second Defendant

1st October 2002

The Plaintiffs filed originating summons for the following orders:

"1. A declaration that the appointment of Rex Paki as Liquidator of Resources and Investment Finance Limited ("RIFL") on or about 3 September 2002 is void and of no effect.

2. A declaration that all or any costs that are incurred by Rex Paki while purportedly acting as Liquidator of RIFL are the liability of the shareholders of RIFL.
   
3. An injunction restraining RIFL, its directors and shareholders from appointing an external administrator (as defined in section 2 Banks and Financial Institutions Act 2000) the "Act") of RIFL while a statutory manager is in control of the business of RIFL.
   
4. An injunction restraining Rex Paki from acting or purporting to act as Liquidator of RIFL while a statutory manager is in control of the business of RIFL.
   
   5. An injunction restraining RIFL by its officers, members, employees and agents from preventing Robert Southwell from performing his duties and functions as statutory manager of RIFL pursuant to s.36 of the Act.
      
6. Costs"
   

By notice of motion filed on 5th September 2002 Plaintiffs/Applicants sought the following interim orders:

"1. Resources and investment Finance Limited ("RIFL") and its directors and shareholders be restrained from appointing any person to be an "external administrator" as that expression is defined in the Banks and Financial Institution Act 2000 (the "Act") of RIFL.

2. Rex Paki be restrained from acting or purporting to act as Liquidator or an "external administrator" of RIFL as that expression is defined in the Act.
   
3. RIFL by its officers, members, employees and agents be restrained from preventing Robert Southwell performing his duties and functions as statutory manager of RIFL pursuant to the Act.
   
4. RIFL and its present or former officers give to Robert Southwell any information relating to the business of RIFL that he requires."
   

The motion came before the Chief Justice on 9th September 2002 and he adjourned it to 13th September 2002 for hearing. The following interim orders were made by consent pending the determination of the motion.

"THE COURT ORDERS that until 13th September 2002 but if there is not any hearing of this matter on 13 September 2002 then until further Order of this Court and in that event with leave for any party to make further application to the Court with not less than 24 hours notice to the other parties:

1. Resources and Investment Finance Limited ("RIFL") RIFL and its directors and shareholders are restrained from appointing any person to be an "external administrator" as that expression is defined in the Banks and Financial Institutions Act 2000 (the "Act") of RIFL.
   
2. The Second Defendant undertakes not to act or purport to act as Liquidator or an "external administrator" of RIFL as that expression is defined in the Act and not to operate any accounts of RIFL.
   

AND WITH THE CONSENT of the Second Defendant that:

3. RIFL by its officers, members, employees, and agents are restrained from preventing Robert Southwell performing his duties and functions as statutory manager of RIFL pursuant to the Act.
   
4. RIFL and its present or former officers give to Robert Southwell any information relating to the business of RIFL that he requires.
   
5. The requirements of Order 4 Rule 42 of the National Court Rules are dispensed with in relation to this Notice of Motion.
   
6. Costs."
   

The motion was not heard on 13th September but has come before me for determination.

So far as the interim consent orders pending the determination of the motion is concerned, the Second Defendant is no longer willing to undertake not to act as liquidator or as "external administrator" of RIFL. This has become the subject of dispute between the parties. It is this matter which I have to determine.

Counsel for the Plaintiffs seeks to restrain the Second Defendant from acting as the liquidator pending the determination of the originating summons.

In addition, counsel for the Plaintiffs is seeking the following orders:

"1. That the Second Defendant hand over to the Second Plaintiff all books, records, documents and computers relating to RIFL that are in his possession or control.

2. That the Second Defendant and his agents, officers and staff be restrained from attending or entering upon any premises of RIFL.
   
3. That the Second Defendant supply to the Second Plaintiff within 48 hours:
   
   • (a) a list of copies of all of the correspondence that he has sent as the purported Liquidator of RIFL
     

(b) a list and copies of all correspondence that he has received as the purported Liquidator of RIFL."

The relevant facts may be summarized as follows. Resources and Investment Finance Limited (RIFL) is a financial institution authorised to carry on banking business under the provisions of the Banks and Financial Institutions Act 2000 (the Act).

The Central Bank of Papua New Guinea (the Bank) (First Plaintiff) has the principal function of promoting the general stability and effective working of the financial system in Papua New Guinea (s 4 of the Act). Under s 36 of the Act, where an authorised institution is likely to become unable to meet its obligations, the Bank may take control of the business.

On 3rd September 2002, pursuant to s 36 of the Act, believing that RIFL is or is likely to be unable to meet its financial obligations appointed Robert Southwell (Second Plaintiff) as statutory manager of RIFL

On 4th September 2002, the shareholders of the First Defendant at an extraordinary general meeting purported to appoint Rex Paki (the Second Defendant) as liquidator of the First Defendant under the Companies Act 1997.

The Plaintiffs in the originating summons apart from other orders seek a permanent injunction restraining the Second Defendant from acting as liquidator. In the motion before me the Plaintiffs seek interlocutory orders against the Second Defendant to restrain him from acting as liquidator pending the trial of the originating summons.

The principles upon which a court may grant an interlocutory injunction are well established and both counsel have not made any issue of the principles. An applicant is required to show:

(a) That there is a serious question to be tried

(b) That the balance of convenience favours the granting of the injunction.

Serious Question

Counsel for the Plaintiffs submits that there is a serious question raised by the originating summons to be determined. He submits that the position in this case is governed by the provisions of Banks and Financial Institutions Act 2000. In brief he submits that when the statutory manager was appointed under the Act, it was contrary to the provisions of the Act for shareholders to have proceeded to appoint a liquidator (s 43 (2)).

He further submits that in any event, if the liquidator was appointed earlier in time, his appointment was terminated when the statutory manager was appointed (s 43 (1)).

Furthermore, he submits that the duties of liquidator under the Companies Act 1997 would be in conflict with the duties of statutory manager in which case the duties of the statutory manager prevails (s 4 of the Act).

Counsel for the Second Defendant on the other hand submits that the function of a statutory manager under the Act is not in conflict with the duties of a liquidator under the Companies Act in that the duty of the statutory manager is confined to the actual running of the banking business whereas the duty of the liquidator is realizing all the assets of the company to sell them for the benefit of the creditors.

In order to appreciate the issues, it is necessary to set out s 4 and s 43 of the Act:

"4. Application of Companies Act

The requirements of this Act in relation to a body corporate are in addition to and not in derogation of or substitution for the requirements of the Companies Act 1997, but in the case of a conflict between a provision of this Act and a provision of the Companies Act 1997 the former provision prevails."

"43. Effect on external administrator of statutory manager taking control of the business of an Authorized Institution.

(1) The appointment of an external administrator of an authorized Institution is terminated when a statutory manager takes control of the business of the Authorized Institution.
(2) An external Administrator of an Authorized Institution shall not be appointed while a statutory manager is in control of the business of the Authorized Institution unless the Central Bank approves the appointment.
(3) Where a person who ceased to be the external administrator of an Authorized Institution under Subsection (1), or purported external administrator of the Authorized Institution appointed in contravention of Subsection (2), purports to act in relation to the business of the Authorized Institution while a statutory manager has control of the business of the Authorized Institution, those acts are invalid and of no effect.
(4) The Central Bank shall inform the external administrator of an Authorized Institution that a statutory manager will take control of the business of the Authorized Institution as soon as possible after the decision that a statutory manager will take control of the business of the Authorized Institution is made, but failure to inform the external administrator does not affect the operation of this section."

It is not necessary to determine the full merits of the arguments put before me for the purposes of this application. I need only to be satisfied that there is a serious question to be determined. Having regard to the provisions of the Act, I have no difficulty in coming to the conclusion that there is a serious question to be determined at the trial. If I may be permitted to say so, the arguments by counsel for the Plaintiffs are substantive. As I have stated previously it is not necessary for me to reach any final conclusion on the issues put before me for the purposes of the motion before me.

Having regard also to the scheme of the Act, the balance of convenience favours granting of the interlocutory injunctions against the Second Defendant to enable the Second Plaintiff to take control of the business.

Under the Act, where an authorized institution is likely to become unable to meet its obligations, the Bank takes control of the business and manages its affairs. In the circumstances, it is not appropriate to require an undertaking as to damages.

The formal orders are as follows:

1. That the Second Defendant is restrained from acting or purporting to act as liquidator or an "external administrator" of Resources and Investment Finance Limited and not to operate any accounts of RIFL.
   
2. That the Second Defendant hand over to the Second Plaintiff all books, records, documents and computers relating to RIFL that are in his possession or control.
   
3. That the Second Defendant and his agents, officers and staff be restrained from attending or entering upon any premises of RIFL.
   
4. That the Second Defendant supply to the Second Plaintiff within 48 hours:

(a) a list and copies of all of the correspondence that he has sent as the purported liquidator of RIFL

(b) a list and copies of all correspondence that he has received as the purported liquidator of RIFL.

5. That the Second Defendant pays the Plaintiffs’ costs of the motion.
   

Lawyers for the Plaintiffs/Applicants : Blake Dawson Waldron

Lawyers for the Second Defendant : Pacific Legal Group