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In re Bemobile Ltd [2011] PGNC 234; N4712 (7 December 2011)

N4712

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

MP No.410 OF 2011

IN THE MATTER OF THE COMPANIES ACT 1997

AND:

IN THE MATTER OF BEMOBILE LIMITED

Waigani: David, J
2011: 1, 2 & 7 December

COMPANY LAW PRACTICE & PROCEDURE – application to set aside statutory demand – dispute over payment of bonuses – clause 4.2 of the employment contract basis of payment of bonuses - meaning of clause 4.2 of contract of employment disputed – substantial dispute whether or not debt is owed or due basis of application to set aside – onus on applicant to substantiate assertion of a substantial dispute by appropriate and material or cogent evidence – in order to demonstrate that there is a substantial dispute, applicant must show a fairly arguable basis to justify contention that it was not liable to pay the amount claimed in statutory demand – mere assertions of a dispute not sufficient – existence of substantial dispute substantiated – statutory demand set aside - sections 335, 337 and 338 Companies Act.

COMPANY LAW PRACTICE & PROCEDURE – Companies Rules apply – Companies Rules provide for practice and procedure including forms to be used for proceedings brought before the Registrar or the National Court - no form prescribed by Companies Act and Companies Rules for application to set aside statutory demand – Companies Rules permit the National Court Rules and general practice of the National Court including the course of procedure and practice in chambers to apply - where lack of form, proceedings may be instituted by originating summons provided under the National Court Rules – where there is lack of practice or procedure, ad hoc directions can issue to remedy such lack or inadequacy – application filed by form of summons under Companies Rules – proceedings not vitiated by want of form – application by summons legitimised by exercise of discretion and ad hoc directions - application competent – Companies Rules and National Court Rules and Constitution.

Cases cited:

Moran Development Corporation Ltd v Akida Investments Ltd (2003) N2458
The PNG Balsa Company Ltd v New Britain Balsa Company Ltd (2004) N2520
Bank of South Pacific Ltd v South Pacific Timber Exports Ltd (2004) N2712
In the Matter of the Companies Act and In the Matter of International Construction PNG Limited (2007) N3337
Department of Works v In re International Construction (PNG) Ltd (In Liquidation) (2009) SC1051

Counsel:

Derek Wood, for the applicant
Francis Griffin, for the respondent

RULING ON APPLICATION TO SET ASIDE STATUTORY DEMAND

7 December, 2011

1. DAVID, J: INTRODUCTION: By a summons filed on 17 November 2011, the applicant company, Bemobile Limited made application to set aside the Creditor's Statutory Demand for Payment of Debt dated 3 November 2011 served upon it by the respondent, Niall McCarthy (the statutory demand). The statutory demand which was served pursuant to section 337 of the Companies Act requires the applicant within one month of the date of service or such longer period as may be permitted by the Court to pay to the respondent US$74,250.00 or enter into a compromise under Part XV of the Companies Act or otherwise compound with the respondent or give a charge over its property to secure payment of the debt to the reasonable satisfaction of the respondent.

2. At the hearing, the applicant relied on the following documents:

1. Affidavit of Fergus Wilmer sworn and filed on 17 November 2011;
2. Affidavit of Andrew Rolt sworn on 10 November 2011 and filed on 17 November 2011; and
3. Affidavit of Chris Allen sworn and filed on 30 November 2011.
   

3. On 23 November 2011, the respondent filed his notices of intention to defend and appearance both dated 23 November 2011 through his lawyers, Young & Williams.

4. The respondent opposes the application. He relies on the following documents:

1. Affidavit of the respondent sworn and filed on 29 November 2011; and
2. Affidavit of Francis Griffin sworn on 30 November 2011 and filed on 1 December 2011.
   

5. I have considered the affidavit evidence before me and have given appropriate weight where it is due as is reflected in the judgment.

6. From the affidavit evidence before the Court, the undisputed facts giving rise to this application appear to be these. The respondent entered into an employment contract with the applicant dated 9 June 2010 to be the Head of Customer Operations/Revenue Generation at a gross annual salary of K600,000.00 for a term of 3 years starting work on 14 May 2010 (the employment contract). Clause 4.2 of the employment contract addresses the question of payment of annual or other discretionary bonuses. The Reference Schedule to the employment contract sets out the criteria for computing bonus payment. By a letter from Young & Williams Lawyers to the applicant dated 11 October 2011, the respondent through his lawyers demanded the payment of US$74,250.00 in satisfaction of the bonus payment. Having not received the payment demanded from the applicant, on 3 November 2011, the statutory demand was served on the applicant, the respondent claiming that the amount claimed is for outstanding and approved bonus payment for the financial year ending 31 March 2011. The disagreement over the bonus payment led to the respondent terminating his employment though his letter to the applicant dated 7 November 2011 alleging breach of contract on the part of the applicant for non-payment of his bonus. The application was made by way of a summons in accordance with Form 20 provided by the Companies Rules.

7. I will address the disputed facts later on in the judgment.

8. The respondent took issue with the competency of the application. Mr. Griffin for the respondent contended that the commencement of these proceedings by a form of summons constituted an abuse of process of the Court as it was neither authorized under the Companies Rules nor the National Court Rules. He submitted that the practice in this jurisdiction appears to be that the originating summons provided by the National Court Rules has been the mode of originating process used in making applications to set aside a statutory demand and he referred me to Moran Development Corporation Ltd v Akida Investments Ltd (2003) N2458, The PNG Balsa Company Ltd v New Britain Balsa Company Ltd (2004) N2520 and Bank of South Pacific Ltd v South Pacific Timber Exports Ltd (2004) N2712 as examples.

9. Mr. Wood for the applicant on the other hand submits that the correct mode of originating process that should be used in an application for a relief under section 338 (1) of the Companies Act is a form of summons prescribed under the Companies Rules more particularly that which is in accordance with Form 20. The applicant relies on section 440 (3) of the Companies Act and In the Matter of the Companies Act and In the Matter of International Construction PNG Limited (2007) N3337 to support the contention that the Companies Rules are in force and they provide the appropriate practice and procedure including the forms for the making of this application and a variety of others including those made under sections 50 (1)(p) and (v) and 51 (1) of the Companies Rules and entitled in the manner set out by section 3 of the Companies Rules.

10. There are generally two modes of commencing civil proceedings in the National Court under the National Court Rules. Order 4 Rule 1 states that proceedings can be commenced by writ of summons or originating summons, but this is subject to any provision of any Act (Constitutional Law or an Act of Parliament) or Regulations or Rules made thereunder including the filing of a cross-claim under Order 8 Rule 38 of the National Court Rules.

11. An application to set aside a statutory demand can be made to the National Court and served on the creditor within one month of the date of service of the statutory demand under section 338 (1) and (2) of the Companies Act. However, the mode of instituting the application is not specified. Section 338 states:

"338. Court may set aside statutory demand.

(1) The Court may, on the application of the company, set aside a statutory demand.

(2) The application shall be made, and served on the creditor, within one month of the date of service of the demand.

(3) No extension of time may be given for making or serving an application to have a statutory demand set aside, but, at the hearing of the application, the Court may extend the time for compliance with the statutory demand.

(4) The Court may grant an application to set aside a statutory demand where it is satisfied that—

(a) there is a substantial dispute whether or not the debt is owing or is due; or

(b) the company appears to have a counterclaim, set-off, or cross-demand and the amount specified in the demand less the amount of the counterclaim, set-off, or cross-demand is less than the prescribed amount; or

(c) the demand ought to be set aside on other grounds.

(5) A demand shall not be set aside by reason only of a defect or irregularity unless the Court considers that substantial injustice would be caused if it were not set aside.

(6) In Subsection (5), "defect" includes an immaterial misstatement of the amount due to the creditor and an immaterial misdescription of the debt referred to in the demand.

(7) An order under this section may be made subject to conditions."

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. It is instructive that I set out below section 14 and it states:

"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)."

15. Applications required to be pursued by motions are set out under section 48 of the Companies Rules and they must be heard and determined in open court. Section 48 states:

"48. Applications required to be by motion.

Applications under the following provisions of the Act shall be made by motion, and shall be heard and determined in open court:—

(a) Section 12(10) (appeal from decision of the Companies Auditors Board); and

(b) Section 29(5) (application to cancel alteration in objects of company); and

(c) Section 61 (application to confirm the issue of shares at a discount); and

(d) Section 64 (application to validate the issue or allotment of shares invalidly issued or created or to confirm the terms of issue or allotment of such shares); and

(e) Section 67 (application to set aside a proposed variation or abrogation of rights attached to shares); and

(f) Section 91(5) (application by trustee or representative to confirm, set aside or vary a direction of the interest holders); and

(g) Section 97(4) (application to confirm resolution to wind up scheme relating to interests other than shares or debentures); and

(h) Section 125 (application by an undischarged bankrupt for leave to act in the management of a corporation); and

(i) Section 142 (application by certain convicted persons for leave to engage in the management of a company); and

(j) Section 181(5) (application for Court to inquire into case of offending officer or agent); and

(k) Section 184(10) (application for Court to inquire into case of offending officer or agent); and

(l) Section 190(2) (application as to removal of restrictions on shares); and

(m) Section 249(1) (application to remove liquidator appointed by the Court); and

(n) Section 261 (application to stay proceedings in a winding-up); and

(o) Section 383(3) (application for the repayment of moneys to a company); and

(p) Section 284 (application for leave to wind up voluntarily when a petition for winding-up by the Court has been presented); and

(q) Section 286(2) (application to remove a liquidator and appoint another in his place); and

(r) Section 397(2) (application for relief in respect of any default or breach of trust); and

(s) Section 401 (application for assessment of damages against delinquent officers)."

16. Applications required to be pursued by summons and which must be heard and determined by a Judge in chambers are set out under section 50 (1) of the Companies Rules. That provision states:

"50. Applications required to be by summons.

(1) Applications under the following provisions of the Act shall be made by summons, and shall be heard and determined by a Judge in chambers:—

(a) Section 13(2) (application for order that Registrar assign bond); and

(b) Section 17 (application in relation to proprietary companies); and

(c) Section 71 (application for approval of payment of interest out of capital); and

(d) Section 75(5) (application for substitution of corporate trustee); and

(e) Section 80(1) (application for direction that security for certain debentures be enforceable); and

(f) Section 81(3) or (4) (application for order for directions as to protection of interests of debenture holders); and

(g) Section 82(1) (application by trustee for debenture holders for directions or to determine questions); and

(h) Section 104(4) (applications for order for delivery up of documents to company); and

(i) Section 115 (application to extend time for filing charges and to rectify register of charges); and

(j) Section 147(1) (application for order that a meeting be called other than in accordance with the articles or the Act); and

(k) Section 151(6) (application to dispense with circulation of statement); and

(l) Section 162 (application for order on default in relation to production of register of members); and

(m) Section 163 (application to rectify register of members); and

(n) Section 169(5) (application for order that company records be available for inspection); and

(o) Section 192 (application for order for meetings in relation to a compromise or arrangement); and

(p) Section 192(3), (4) and (10) (application to sanction compromise or arrangement with creditors or members or to restrain proceedings against the company); and

(q) Section 194 (application for order facilitating compromise or arrangement); and

(r) Section 196 (application for order as to acquisition of shares of dissenting share-holders); and

(s) Section 197(4) (application for leave to make alteration to memorandum or articles inconsistent with a court order); and

(t) Section 213(5) or 220 (application to determine appointment as official manager); and

(u) Section 218 (application to proceed or stay proceedings when company under official management); and

(v) Section 222(6) (application for appointment of liquidator nominated by company); and

(w) Section 224(4) (application for leave to dispose of company's assets); and

(x) Section 225 (application for directions in an official management); and

(y) Section 227 (application to determine all proceedings relating to official management); and

(z) Section 228(1) (application to Court for variation or cancellation of resolution appointing official manager); and

(za) Section 230(10) (application for release of official manager); and

(zb) Section 233 (application to invalidate meeting); and

(zc) Section 241 (application for order that proceedings be deemed not validly taken); and

(zd) Section 245(1) (application to validate disposition of property after commencement of Court winding-up); and

(ze) Section 250(2) (application to vest company property in liquidator); and

(zf) Sections 256 and 257 (applications with respect to release or resignation of liquidator); and

(zg) Section 263(1) (application for direction that property be delivered to liquidator); and

(zh) Section 263(2) (application to direct payment of money due from a contributory); and

(zi) Section 263(3) and (4) (application for order for calls and payment of calls); and

(zj) Section 265(3) (application for order as to priorities in payment of costs, charges and expenses in a winding-up); and

(zk) Section 267 (application for order summoning persons for examination); and

(zl) Section 268 (application for order summoning persons for public examination); and

(zm) Section 270 (application for order for arrest of absconding contributory); and

(zn) Section 271 (application for leave to rectify register or make call); and

(zo) Section 282 (application for direction that company property be delivered to liquidator); and

(zp) Section 290(4) (application to sanction resolution transferring company's business or property where company later wound up by Court); and

(zq) Section 290(5) (application for directions as to arbitration); and

(zr) Section 290(7) (application for approval of exercise of certain powers by liquidator in creditors' voluntary winding-up); and

(zs) Section 293(3) (application for settlement of dispute as to value in an arrangement with creditors); and

(zt) Section 293(4) (application to amend, vary or confirm an arrangement); and

(zu) Section 294 (application for determination of a question or for exercise by Court of powers in a voluntary winding-up); and

(zv) Section 297 (application relating to the control and conduct of a liquidator in a winding-up); and

(zw) Section 299 (application for order in respect of decision of the liquidator); and

(zx) Section 310(9) (application for order as to distribution of assets where there have been indemnifying creditors); and

(zy) Section 315(2) (application to set aside rights of liquidator in favour of an executing or attaching creditor); and

(zz) Section 316(4) (application to set aside rights of liquidator where Sheriff executing judgement on behalf of a creditor); and

(zza) Section 317(1) (application for reference to the Attorney-General of question of prosecution of delinquent officer or member); and

(zzb)Section 317(4) (application for order conferring power to investigate the affairs of the company); and

(zzc) Section 317(5) (application to approve liquidator proceeding against delinquent officer or member); and

(zzd)Section 317(6) (application to direct liquidator to report delinquent officer or member); and

(zze) Section 317(9) (application to direct that persons concerned in company's affairs assist prosecution); and

(zzf) Section 318(1) (application to declare dissolution void); and

(zzg)Section 319(6) (application for order that name of a company be restored to the register); and

(zzh)Section 364(6) (application for direction as to disposal of net assets in the country of a foreign company); and

(zzi) Section 398(4) (application with respect to enlargement or abridgement of time); and

(zzj) Section 400 (application to examine defaulting officers); and

(zzk) Section 402 (application for authority to inspect or to require production of books of a company); and

(zzl) Section 406 (application for order that document be made available for inspection)."

17. It was suggested by the applicant that the application could be made by a form of summons as that mode applied when making applications for reliefs of similar genre such as those specified under section 50 (1)(p) (application to sanction compromise or arrangement with creditors or members or to restrain proceedings against the company under section 192 (3), (4) and (10) of the Companies Act) and (v) (application for appointment of liquidator nominated by company under section 222 (6) of the Companies Act) of the Companies Rules. That suggestion is without foundation on the basis that the application contemplated by section 338 (1) of the Companies Act must be made to the National Court and not to a Judge in chambers under section 50 (1) of the Companies Rules.

18. I note however that according to section 51 (2) of the Companies Rules, with the consent of all parties, an application under section 50 may also be heard by the Registrar.

19. An application under section 338 (1) of the Companies Act is not specified under the Companies Rules as one that can be made either by a petition, motion or a summons.

20. However, is an application under section 338 (1) of the Companies Act covered by section 51 (1) of the Companies Rules? According to section 51 (1) of the Companies Rules, all other applications required or authorized by the Companies Act or the Companies Rules (other than those referred to in sections 14, 48 and 50) are to be pursued by summons and heard and determined by the Registrar who may exercise in respect of every such application any of the powers conferred on the Court or a Judge in relation to such application. Section 1 of the Companies Rules defines the term "Registrar" to mean the Registrar or a Deputy Registrar of the National Court.

21. According to section 338 (1) of the Companies Act, an application to set aside a statutory demand is made before the Court. Section 2 of the Companies Act defines the term "Court" to mean the National Court.

22. The applicant's argument under section 51 of the Companies Rules is therefore misconceived as that provision only applies to applications by summons to the Registrar.

23. Moreover, section 4 of the Companies Rules prohibits matters that are authorized to be heard and determined by the Registrar to be brought before the Court or a Judge except on a reference from the Registrar or on an appeal from an order or decision of the Registrar under section 6 of the Companies Rules or by special leave of the Court or Judge. This application does not fall within the exceptions stipulated.

24. Is this a situation where there is a lack or inadequacy of a matter of practice or procedure which warrants the exercise of the Court's power under section 185 of the Constitution to give ad hoc directions to remedy any such lack or inadequacy? That provision is in the following terms:

"185. Lack of procedural provision.

If in the circumstances of a particular case before a court no provision, or no adequate provision, is made in respect of a matter of practice or procedure, the court shall give ad hoc directions to remedy the lack or inadequacy."

25. Section 2 of the Companies Rules allows for the general rules and practice of the National Court to apply as far as is practicable. That provision reads:

"2. General Rules and practice of National Court to apply.

Subject to the Companies Act and these Rules, the Rules of Court of the National Court and the general practice of that Court, including the course of procedure and practice in chambers, apply in relation to proceedings to which these Rules relate as far as is practicable."

26. Section 3 of the Companies Rules regulates how petitions, notices of motion and summonses and all notices, affidavits and other documents in any proceedings under the Companies Act are to be entitled. It states:

"3. Title of proceedings.

Every petition, notice of motion and summons and all notices, affidavits and other documents in any proceedings under the Act shall be entituled "In the National Court of Papua New Guinea, in the matter of the Companies Act, and in the matter of ..." (the company to which the proceeding relates) with the addition of the words "in liquidation" where the company is in liquidation."

27. In the instant case, the Companies Act and the Companies Rules do not prescribe an appropriate form to be used in respect to an application for relief under section 338 (1) of the Companies Act. The applicant used a form of summons in accordance with Form 20 of the Companies Rules to bring this application.

28. The Supreme Court observed in In re International Construction (PNG) Ltd (In Liquidation) that until such time as more specific rules or forms are prescribed, an originating summons is the appropriate form to be used in an application for relief under section 332(1) of the Companies Act. That was because the Companies Act and the Companies Rules do not prescribe an appropriate form to be used with respect to an application for relief under that provision. The applicant in that case instituted proceedings by an originating summons and the Supreme Court observed that the form adopted was allowed by Rules 2 and 3 of the Companies Rules. The Supreme Court went on to say that Order 1 Rule 8 of the National Court Rules clearly provides that proceedings are not to be vitiated merely for want of form so as not to prevent a party from seeking his or her rights in accordance with law.

29. Order 1 Rule 8 states:

"8. Non-compliance with Rules not to render proceedings void.

Non-compliance with any of these Rules, or with any rule of practice for the time being in force, shall not render any proceedings void, unless the Court so directs, but the proceedings may be set aside, either wholly or in part, as irregular, or may be amended or otherwise dealt with, in such a manner, and on such terms, as the Court thinks fit."

30. Consistent with the Supreme Court's observation In re International Construction (PNG) Ltd (In Liquidation), the appropriate form to pursue an application for relief under section 338 (1) of the Companies Act where no form is prescribed by the Companies Act and the Companies Rules is ideally an originating summons.

31. The Court has a wide discretion to dispense with compliance with the requirements of the National Court Rules either before or after the occasion for compliance arises. That is permitted by Order 1 Rule 7 and it states:

"7. Relief from Rules. (1/12)

The Court may dispense with compliance with any of the requirements of these Rules, either before or after the occasion for compliance arises."

32. So as not to drive the applicant away from the judgment seat to determine his rights according to law consistent with Order 1 Rule 8 of the National Court Rules, in the exercise of my discretion under Order 1 Rule 7 of the National Court Rules and the power vested in the Court under section 185 of the Constitution, I direct that the application for relief under section 338 (1) of the Companies Act brought before the Court by the applicant by a summons in accordance with Form 20 of the Companies Rules is properly instituted and therefore competent.

33. In any event, the respondent's objection to the competency of the proceedings was bound to fail because it failed to comply with all the requirements under Order 1 Rules 9 and 10 of the National Court Rules. The respondent failed to file a notice of motion stating the objections relied on to found his claim for irregularity. I am of the view that those Rules give the Court power to set aside any proceeding for irregularity including an application for relief under section 338 (1) of the Companies Act. These Rules state:

"9. Application to set aside for irregularity.

An application to set aside any proceeding for irregularity shall not be allowed unless it is made within a reasonable time, or if made after the party applying has taken any fresh step with knowledge of the irregularity.

10. Objection of irregularity.

Where an application is made to set aside any proceeding for irregularity the several objections intended to be insisted on shall be stated in the notice of motion."

34. Having determined the issue of competency, I will now address the substantive application.

35. The applicant contends that affidavit evidence before the Court clearly show that there is a substantial dispute as to whether or not the applicant is required to pay the statutory demand. The applicant claims that; any bonus payment done under the employment contract is at the absolute discretion of the applicant's Board of Directors (the Board); that at its meeting of 21 September 2011, the Board resolved that any bonus to the respondent was subject to the finalization of the applicant's financial statements which had not occurred yet; at no time the Board had resolved to pay the respondent a bonus; and the Board had not made a final decision on the payment of any bonus. The applicant clams further that if the respondent intends to pursue his claim which is denied, the proper course of action to take would be to file a writ of summons whereby all matters can be pleaded giving the applicant the opportunity to respond by filing a defence and a cross-claim in relation to the applicant's termination of employment and certain evidentiary issues can be resolved through the discovery process.

36. The respondent opposes the application on the basis that Clause 4.2 of the employment contract contemplates the payment of bonuses and such payment would be paid in accordance with the criteria set out in the Reference Schedule to the employment contract. It is submitted by the respondent that despite the poor drafting of Clause 2 of the employment contract, it was always the intention of the parties that any bonus should be paid based on the criteria set out in the Reference Schedule to the employment contract. The payment of US$74,250.00 as a bonus to the respondent was actually authorized by the Board at its meeting convened on 7 June 2011 counsel submitted. The respondent claims that the applicant and the Board had on numerous occasions between June 2011 and September 2011 acknowledged that the respondent was to be paid a bonus and the Board even contemplated setting up an offshore entity to facilitate bonus payments through numerous emails, copies of which are annexed to the respondent's affidavit.

37. However, despite requests for the payment to be made, the applicant has failed to make the payment. The respondent contends that the amount claimed is payable as a debt having already been sanctioned by the Board at its meeting held on 7 June 2011. The failure to make the bonus payment in accordance with the decision of the Board of 7 June 2011 amounted to a breach of the employment contract and that entitled him to terminate the employment contract it was further contended.

38. Part XVIII of the Companies Act deals with liquidation of companies. Division 5 of that Part (sections 335 to 339) deals with the subject "Company Unable To Pay Its Debts". Section 335 sets out the circumstances when a debtor company is presumed to be unable to pay its debts as they become due in the ordinary course of business. Section 336 addresses the question of evidence required or other means to prove that a company is unable to pay its debts as they become due in the ordinary course of business and other matters such as how applications by contingent or prospective creditors can be made.

39. A statutory demand by a creditor of a company can be served on the company pursuant to section 337. That provision states:

"337. Statutory demand.

(1) A statutory demand is a demand by a creditor in respect of a debt owing by a company made in accordance with this section.

(2) A statutory demand shall—

(a) be in respect of a debt that is due and is not less than the prescribed amount; and

(b) be in the prescribed form; and

(c) be served on the company; and

(d) require the company to pay the debt, or enter into a compromise under Part XV, or otherwise compound with the creditor, or give a charge over its property to secure payment of the debt, to the reasonable satisfaction of the creditor, within one month of the date of service, or such longer period as the Court may order."

40. The purpose of serving a statutory demand is set out in section 337 (2)(d) and that is to 'require the company to pay the debt, or to enter into a compromise under Part XV, or otherwise compound with the creditor, or give a charge over its property to secure payment of the debt, to the reasonable satisfaction of the creditor, within one month of the date of service, or such longer period as the Court may order'.

41. Section 338 of the Companies Act regulates how an application can be made by a company served by a creditor with a statutory demand to set it aside. The Court is vested with a wide discretion by section 338 (1) and (4) to order the setting aside of a statutory demand. Section 338 (4) sets out the factors that may be proved to the satisfaction of the Court in order for the Court's discretion to be exercised in favour of setting aside a statutory demand.

42. I am satisfied from the evidence before me that the application was made and served on the respondent within the period prescribed under section 338 (2) of the Companies Act.

43. The applicant relies on the factor set out under section 338 (4)(a) of the Companies Act, that is, there is a substantial dispute as to whether or not the amount claimed in the statutory demand is owing or due.

44. In The PNG Balsa Company Ltd, the Court held that in order to demonstrate that there is a substantial dispute, an applicant must show a fairly arguable basis to justify the contention that it was not liable to pay the amount claimed in the statutory demand and mere assertions of there being a dispute will not do.

45. The onus is on the applicant to substantiate the assertion of a substantial dispute by appropriate and material or cogent evidence.

46. Has the applicant shown by appropriate and material or cogent evidence a fairly arguable basis to justify its contention that a substantial dispute exists between the parties as to whether or not the amount claimed in the statutory demand is owing or due to the respondent?

47. From the affidavit evidence before the Court and submissions of counsel, the disputed facts are these. The respondent claims that he is entitled to bonus payments in accordance with Clause 4.2 of the employment contract, that position he said was acknowledged by the applicant and the Board on a number of occasions between June 2011 and September 2011. The Board actually approved the bonus payment of US$74,250.00 on or about 7 June 2011 hence becoming a debt payable to him under Clause 4.2 of the employment contract. The Board of Directors even contemplated setting up an offshore entity to facilitate bonus payments. Evidence of that is contained in a number of e-mails, copies of which are annexed to the respondent's affidavit. They include:

1. the e-mail from Geoff Spender to Andrew Rolt dated 10 June 2011 (annexure "D");
   
2. the e-mail from Andrew Rolt to Glenn Blake and Fergus Wilmer dated 29 July 2011 (annexure "E");
   
3. the e-mail chain between Stuart Kelly and Andrew Rolt dated 3 August 2011 (annexure "F");
   
4. the e-mail from Geoff Spender to Andrew Rolt dated 19 August 2011 (annexure "G");
   
5. the e-mail chain between Geoff Spender, Stuart Kelly and Andrew Rolt dated 26 August 2011 (annexure "H");
   
6. the e-mail from Andrew Rolt to the respondent dated 1 November 2011 (annexure "K").
   

48. It appears from the evidence before me that Geoff Spender, Glenn Blake and Fergus Wilmer are members of the Board while Andrew Rolt was the then Chief Financial Officer of the applicant, but now Acting Chief Executive Officer of the applicant and Stuart Kelly was the then Chief Executive Officer of the applicant.

49. The applicant contends that there is no basis for the respondent to issue the statutory demand. The respondent is not entitled to receive any type of bonus payment under the employment contract, but if any bonus were to be paid, it was at the absolute discretion of the Board. The Board had a meeting on 7 June 2011, but did not pass a resolution in respect of bonus payments although a presentation in relation to bonus payments to employees might have been done by the applicant's management for consideration by the Board. The Board at its meeting convened on 21 September 2011 in Port Moresby resolved that the applicant could pay certain bonuses to a number of employees including the respondent, but that was subject to the finalization of the applicant's audited financial statements after which it would decide whether or not to pay any bonus. The Board has not authorized the payment of any bonus to the respondent at any of its meetings conducted to date as the applicant's financial statements are yet to be finalized. There is a substantial dispute regarding the respondent's claim therefore the statutory demand should be set aside.

50. Clause 4.2 of the employment contract states:

"The Employee shall also be entitled to receive annual or other discretionary bonuses. These bonuses shall be such amounts as the Board, in its absolute discretion, may from time to time determine. The Employee acknowledges that the Employee has no right to receive a bonus and will not acquire such a right merely by virtue of having received one or more bonus payments during the course of the Employee's employment."

51. The respondent has conceded that Clause 4.2 is poorly drafted. The first part of the clause states that the respondent is entitled to receive an annual or other discretionary bonuses which the Board in its absolute discretion may determine from time to time. On the other hand, the last part of the Clause seems to state that the respondent has no right to receive a bonus. The criteria of computing the bonus payment is also set out in the Reference Schedule to the employment contract. I am satisfied that there has arisen between the parties a genuine dispute as to the meaning of Clause 4.2.

52. As to whether the Board had resolved to pay any bonus to the respondent at any of its meetings whether convened on 7 June 2011 or at any other time including on 21 September 2011, I am satisfied that a genuine dispute exists. A copy of the minutes of the Board purportedly held on 7 June 2011 is not in evidence. The respondent had argued that the applicant should have produced the relevant minutes of that meeting or alternatively it should have given an account of the resolutions passed at that meeting as a resolution purportedly passed at that meeting was the primary basis for the respondent's claim that the bonus payment was a debt. The respondent had also argued that the applicant's failure to produce the relevant minutes demonstrated that it did not have an arguable reason why the debt was not payable. A copy of the minutes of a meeting of the Board of Directors held on 21 September 2011, parts of which have been masked because they are not relevant to the proceedings is in evidence. The relevant part reads:

"The Board authorized Mr. Wilmer to discuss the current bonus proposals individually with managers to ensure the following:

1. The bonuses related to the acceptance of new terms and were not a direct and singular benefit correlated to individual and company performance in 2010/11. In addition, management would be advised of the limited possibilities for bonus payments in the financial year 2011/12.
   
2. Bonuses for Messrs...McCarthy ... would be subject to finalization of the company's audited financial statements."
   

53. For all the above reasons, I am satisfied that there is a substantial dispute as to whether or not the amount claimed in the statutory demand is owing or due. I will therefore in the exercise of my discretion set aside the statutory demand.

54. If the respondent considers that the conduct of the applicant in not paying his bonus allegedly approved by the Board amounts to a breach of the employment contract or for any other reason connected with his employment, the appropriate course of action he should take is as suggested by the applicant; he should file a writ of summons pleading breach of the employment contract as a basis of his claim grounded on his claim for bonus payment or any other reason. Pleadings would then follow their normal course under the National Court Rules. Should the applicant consider that the conduct of the respondent also amounts to a breach of the employment contract, then it should respond by filing a cross-claim. This does not necessarily prevent the applicant from taking the lead in instituting any action in connection with the employment contract.

55. I hereby direct the entry of judgment in the following terms:

1. the application to set aside the statutory demand is granted;

2. the respondent, Niall McCarthy shall pay the applicant's costs to be taxed if not agreed.
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Blake Dawson: Lawyers for the Applicant

Young & Williams: Lawyer for the Respondent