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Independent Public Business Corporation v Motor Vehicles Insurance Ltd [2012] PGNC 129; N4843 (18 June 2012)

N4843

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS 1252 OF 2010

BETWEEN:

INDEPENDENT PUBLIC BUSINESS CORPORATION
Plaintiff/First Cross Defendant

AND:

MOTOR VEHICLES INSURANCE LIMITED
First Defendant/First Cross Claimant/Second Cross Defendant

AND:

NOMINEES NIUGINI LIMITED
Second Defendant/Second Cross Claimant

AND:

NATIONAL SUPERANNUATION FUND LIMITED
Third Defendant

Waigani: Hartshorn, J.
2012: 10th April,
: 18th June

Dismissal Application pursuant to Order 12 Rule 40 National Court Rules

Facts:

This proceeding concerns a loan referred to as an Equity Monetisation Contract (EMC), made by the second defendant Nominees Niugini Ltd (NNL) to the first defendant Motor Vehicles Insurance Ltd (MVIL) in July 2009. The EMC was secured by a mortgage over shares owned by MVIL in Bank of South Pacific Ltd (BSP). The plaintiff Independent Public Business Corporation (IPBC), the majority shareholder of MVIL, claims amongst others, that the EMC and mortgage are void for want of compliance by MVIL, a Majority State Owned Enterprise, with s. 46B Independent Public Business Corporation of Papua New Guinea Act 2002 (IPBC Act) and s. 110 Companies Act 1997, that NNL has been unjustly enriched and that the BSP shares are the subject of a constructive trust for the benefit of MVIL.

Held:

1. There is an arguable case to be determined at trial that IPBC has the necessary standing to seek the relief that it does. The proceeding is not an abuse of process, as alleged by NNL.

2. A reasonable cause of action is disclosed in the pleading concerning whether non compliance with a statutory requirement renders a contract void.

Cases Cited:
Papua New Guinea Cases

Fly River Provincial Government v. Pioneer Health Services Ltd (2003) SC705
Kerry Lerro v. Stagg & Ors (2006) N3050
Takori v.Yagari & Ors (2008) SC905
Mt Hagen Urban Local Level Government v. Sek No. 15 (2009) SC1007
Siu v. Wasime Land Group Incorporated (2011) SC1107
Associated Plumbing Installation Ltd v. Air Niugini Ltd (2011) SC1127

Overseas Cases:

Foss v. Harbottle (1843) 2 Hare 46
Credit Suisse v. Allerdale BC [1996] All ER 129

Counsel:

Mr. E.G. Andersen, for the Plaintiff/First Cross Defendant
Mr. J. A. Griffin QC, for the First Defendant/First Cross Claimant/Second Cross Defendant
Mr. R. J. Webb SC and Mr. G. Geroro, for the Second Defendant /Second Cross Claimant

18th June, 2012

1. HARTSHORN, J: This proceeding concerns a loan referred to as an Equity Monetisation Contract (EMC), made by the second defendant Nominees Niugini Ltd (NNL) to the first defendant Motor Vehicles Insurance Ltd (MVIL) in July 2009. The EMC was secured by a mortgage over shares owned by MVIL in Bank of South Pacific Ltd (BSP). The plaintiff Independent Public Business Corporation (IPBC), the majority shareholder of MVIL, claims amongst others, that the EMC and mortgage are void for want of compliance by MVIL, a Majority State Owned Enterprise, with s. 46B Independent Public Business Corporation of Papua New Guinea Act 2002 (IPBC Act) and s. 110 Companies Act 1997, that NNL has been unjustly enriched and that the BSP shares are the subject of a constructive trust for the benefit of MVIL.

2. NNL now applies to dismiss the proceeding against it pursuant to Order 12 Rule 40 National Court Rules or alternatively that certain paragraphs and the relief claimed against it in the further amended statement of claim, be struck out pursuant to Order 8 Rule 27 National Court Rules as:

a) no reasonable cause of action is disclosed as the proceeding does not disclose any basis upon which IPBC could be entitled to the relief claimed,

b) the proceeding is an abuse of process as the plaintiff does not have the necessary standing to bring the proceeding and seek the relief that it does,

c) IPBC has had an extended opportunity to attempt to cure its pleading by amendment since NNL's notice of motion was filed and served, but has failed to do so.

3. IPBC opposes NNL's application and submits amongst others that for NNL to succeed, IPBC's pleadings must be obviously and incontestably bad and they are not. At best, submits IPBC, there may be legal argument as to the consequences of breaches of s. 46B IPBC Act, s.61 Public Finance Management Act, s. 110 Companies Act and the standing of IPBC.

Law

4. Counsel for NNL and IPBC relied upon the same authorities in respect of the principles which apply to applications under Order 12 Rule 40 and Order 8 Rule 27 National Court Rules: Kerry Lerro v. Stagg & Ors (2006) N3050, Takori v.Yagari & Ors (2008) SC905 and Mt Hagen Urban Local Level Government v. Sek No. 15 (2009) SC1007. Counsel for NNL also relied upon the Supreme Court case of Siu v. Wasime Land Group Incorporated (2011) SC1107 in which the Court at [36] – [37] confirmed that proceedings which do not disclose a reasonable cause of action are necessarily also frivolous, vexatious and an abuse of the process of the Court. The Court in Mount Hagen v. Sek (supra) in paragraphs 27 to 30 conveniently set out the requirements of Order 12 Rule 40 (1) (a), (b) and (c) as follows:

"27. The terms "vexatious", "frivolous", "abuse of the process of the Court" and "reasonable cause of action" under O.12 r.40 of the National Court Rules have been judicially considered, defined and expounded in a number of decisions in both the National and Supreme Courts. These cases include Ronny Wabia v. BP Exploration Co. Limited & 2 Others [1998] PNGLR 8 (N1697); PNG Forest Products Pty Ltd and Another v. The State and Genia [1992] PNGLR 85; Gabriel Apio Irafawe v. Yauwe Riyong (1996) N1915; Eliakim Laki and 167 Others v. Maurice Alulaku and Others (2002) N2001; Kiee Toap v. The Independent State of Papua New Guinea & Another (2004) N2766; Kerry Lerro trading as Hulu Hara Investments Limited v. Philip Stagg, Valentine Kambori & The State (2006) N3050; Philip Takori & Others v. Simon Yagari & 2 Others (2008) SC 905. These cases say the same thing.

28. The law with regard to an application for dismissal of proceedings based on O.12 r.40 is settled in our jurisdiction. We note that the principles are succinctly set out in Kerry Lerro's case (supra) and which has more recently been approved and applied by the Supreme Court in Philip Takori's case (supra).

29. The phrase 'disclosing a reasonable cause of action' consists of two parts; cause of action and form of action. A cause of action is defined as a legal right or form of action known to law whereby a plaintiff in a statement of claim must plead all necessary facts and legal elements or ingredients to establish or prove his claim. The principles stated by these cases can be summarized as follows:

(i) A plaintiff or claimant should not be driven from the judgment seat in a summary manner and that the Court should be cautious and slow in exercising its discretionary power.

(ii) The Court has an inherent jurisdiction to protect and safeguard its processes from abuse.

(iii) The purpose of O.12 r.40, is to give the Court power to terminate actions or claims which are plainly frivolous or vexatious or untenable.

(iv) A frivolous claim is one that is characterized as a claim that is plainly and obviously untenable, that cannot possibly succeed and (is) bound to fail if it proceeds to trial.

(v) A vexatious claim is one that is said to be a sham and cannot succeed where it seeks to merely harass the opposing party and put that party to unnecessary trouble and expense in defending or proving the claim.

30. In an application under O.12 r.40 of the NCR, the Court may dismiss a proceeding or action where it is satisfied that the pleading in the statement of claim is seriously wanting where a necessary fact or legal element has not been pleaded."

Standing of IPBC

5. NNL submits that as IPBC is not a party to the EMC or the mortgage it has no standing to seek the relief that it does. The relief sought, if available at all can only be sought by MVIL. Further, by seeking the relief as a shareholder of MVIL, IPBC is in breach of the rule in the celebrated case of Foss v. Harbottle (1843) 2 Hare 46, which is that in order to redress a wrong done to a Company or to recover moneys or damages alleged to be due to the Company, the action should prima facie be brought by the Company. The various exceptions to the Rule do not apply here, submits NNL.

6. IPBC submits that in this instance, it is not suing on the transaction contracts, the EMC and mortgage, but pursuant to the rights given to it by statute pursuant to s. 46B IPBC Act and in turn s. 61 Public Finance Management Act. Although s. 46B does not refer to IPBC it is clear that it is for the benefit of IPBC, it submits.

7. From a perusal of s. 46B and other sections of the IPBC Act, it is not apparent as to which entity is to enforce the requirements of s. 46B. Given the objects, functions and powers of the IPBC under the IPBC Act, I am satisfied that there is an argument that IPBC is such an entity.

8. Similarly, IPBC further submits that as it is the majority shareholder of MVIL, it is entitled to the benefit of s. 110 Companies Act. Again, similar to s. 46B IPBC Act, s. 110 Companies Act does not specify the entity that is to enforce its requirements. As s.110 requires a special resolution in certain circumstances, it is an argument that a major shareholder is such an entity.

9. I am satisfied that there is an arguable case to be determined at trial that IPBC has the necessary standing to seek the relief that it does. The proceeding is not in my view, an abuse of process, as alleged by NNL.

Section 46B IPBC Act

10. NNL submits that if MVIL was required to obtain approval under s. 46B IPBC Act and did not, the wording of s. 46B does not render the EMC and mortgage void and so IPBC cannot succeed with this claim. This is because, submits NNL, the word "shall" should be construed as being directory only and not as being mandatory.

11. IPBC submits that the Supreme Court in Associated Plumbing Installation Ltd v. Air Niugini Ltd (2011) SC1127 held amongst others that if in respect of a contract requiring approval under s. 46B IPBC Act, approval was not obtained, it would be null and void and hence unenforceable. NNL submits that this decision concerned a contract for the sale of land, the Court did not consider the effect of s. 46B on its own, and the Court's observations were obiter dicta. From a perusal of this decision, it is apparent that the trial judge had made a finding that there was not a contract on the correspondence and so the submission of NNL as to the observations of the Court being obiter dicta appears correct.

12. IPBC further submits that various Supreme Court decisions culminating with the decision of Fly River Provincial Government v. Pioneer Health Services Ltd (2003) SC705, have considered similar provisions of law relating to a failure to seek and obtain mandatory statutory approvals from prescribed authorities. The English Court of Appeal case of Credit Suisse v. Allerdale BC [1996] All ER 129 was also cited in addition to those from this jurisdiction. These cases support the proposition that if a public or statutory authority enters into a contract in breach of or outside the provisions of its enabling or any other relevant and applying legislation, the contract is null and void and unenforceable.

13. Given the above, I am not satisfied that it can be said that this claim of IPBC as to s. 46B IPBC Act is obviously and almost incontestably bad, or does not disclose a reasonable cause of action.

14. As I find that a reasonable cause of action is disclosed in the proceeding, it is not necessary to consider the other submissions of counsel as to the order sought pursuant to Order 12 Rule 40 National Court Rules.

Order 8 Rule 27

15. As to the alternative order sought, counsel for NNL did not make specific submissions. The parts of the further amended statement of claim sought to be struck out are concerned with the alleged invalidity of the EMC and mortgage under s. 46B IPBC Act. I have already determined that this claim is not obviously and incontestably bad. Consequently I am not persuaded that the alternative order sought should be granted.

Orders

16. The orders of the Court are:

a) The orders sought in the Notice of Motion of the Second Defendant filed 22nd August 2011 are refused.

b) I will hear further argument as to the costs of the parties.

_____________________________________________________________

Gadens Lawyers: Lawyers for the Plaintiff/First Cross Defendant
Pacific Legal Group: Lawyers for the First Defendant/First Cross Claimant/Second Cross Defendant
Leahy Lewin Nutley Sullivan: Lawyers for the Second Defendant/Second Cross Claimant