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National Court of Papua New Guinea |
PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]
MP (COMM) NO. 55 of 2019 (No. 2)
IN THE MATTER OF THE COMPANIES ACT 1997
AND
IN THE MATTER OF CANOPUS NO. 101 LIMITED
Waigani: Anis J
2020: 16th July and 19th August
NOTICE OF MOTION – application seeking to order parties to mutually agree to and appoint an independent accounting firm to, amongst others, audit the company records of Canopus No. 101 Ltd – Order 12 Rule 1 of the National Court Rules and s. 155(4) of the Constitution - considerations – whether the Court can ‘order’ parties ‘to agree’ to do something if one of the parties rejects or is disinclined to the request or suggestion made by another party
PRACTICE & PROCEDURES – correct source – whether Order 12 Rule 1 and s. 155(4) or s. 220 of the Companies Act 1997 applicable – express provision for relief provided for under s. 220 of the Companies Act – whether notice of motion incompetent
PRACTICE & PROCEDURES – interlocutory relief – whether they are substantive and whether they may be regarded as separate cause of action – whether relief sought therein are related to and or are for the benefit of the petition – correct process – whether notice of motion meritorious and not misconceived or an abuse of process
Cases cited:
In the Matter of the Companies Act 1997; In the Matter of Canopus No. 101 Ltd (2020) N8162
Peter Makeng v. Timbers (PNG) Ltd (2008) N3317
Banning Trading Ltd v. Max Kombamung (2017) N7056
Counsel:
Mr C Joseph, for the Petitioner
Mr D Mel, for various Respondents
Mr R Kasito, for various Respondents
RULING
19th August 2020
1. ANIS J: This was a hearing of a notice of motion filed by respondents Komkali Holdings Ltd and Steven Pup (the applicants). Other respondents, namely, Melpa Properties Ltd, Paul Timbi and Nathan Wantepe supported the application. The application was contested. I heard it on 16 July 2020 and reserved to a date to be advised.
2. Parties have been notified so I will rule on it now.
BACKGROUND
3. I have set out the background of the matter in my earlier decision, In the Matter of the Companies Act 1997; In the Matter of Canopus No. 101 Ltd (2020) N8162. I will restate that in part as follows:
3. The petitioner is Pate Wamp (the petitioner). He filed his petition on 4 September 2019. He is a shareholder and director of Canopus No. 101 Limited (respondent Canopus). His main claim in the petition is against the respondent Canopus.
4. The petitioner owns 20% or 20 ordinary shares in the respondent Canopus. Prior to 2013, the petitioner and a company called Melpa Properties Limited were the only 2 shareholders of Canopus. At that time, Melpa Properties Limited owed 80% or 80 ordinary shares whilst the petitioner owned 20% or 20 ordinary shares, in Canopus. The petitioner’s shares and his status as a director and shareholder of the respondent Canopus remains to this day. But the petitioner’s argument is this. He said on 6 September 2013, Melpa Properties Limited, without his knowledge as a director and shareholder, sold its shares in Canopus over to a company called Komkaeli Limited, for a sum of K100,000. He said at the material time of the sale and onward, he had been kept in the dark. He said he only learnt of the transaction in 2016 after he had conducted a company search on the respondent Canopus at the Investment Promotion Authority office at Konedobu in Port Moresby.
5. The petitioner files this petition under section 152 of the Companies Act 1997 (the Companies Act). He seeks various relief including compensation and restoration of the shares of Melpa Properties Limited based on various alleged breaches of the provisions of the Companies Act. The petitioner also claims that he has an agreement with Melpa Properties Limited where the said company has agreed that it would later sell its 80 ordinary shares in the respondent Canopus, to the petitioner. The petitioner also intends to prove that the action of Melpa Properties Limited in having sold its shares to Komkaeli Limited has breached the said agreement.
6. At page 14 of the petition, apart from the respondent Canopus, others that are affected and whose names appear as intended recipients of the petition are, (i), Melpa Properties Limited, (ii), Komkaeli Holdings Limited, (iii), Steven Pup, and (iv), Paul Timbi. Evidence filed by the petitioner shows that these persons were all served with the present application documents.
MOTION
4. The applicants’ notice of motion (NoM) was filed on 8 July 2020. The main relief sought therein are as follows:
(a) parties represented in this proceeding (the parties) are to agree on and appoint an accounting firm with adequate forensic accounting and audit capabilities (the expert) within fourteen (14) days;
(b) The experts agreed fees are to be negotiated and the parties to pay in full by equal share within 21 days;
(c) Once properly engage, the expert is to carry out, amongst others, the following tasks in respect of Canopus No 101 Limited (the Company) for the years 2007 – 2020:
......
5. The main relief is pleaded under term 1. It begins in part, and I quote, ...... parties represented in this proceeding (the parties) are to agree and appoint an accounting firm...... So, the applicants, from the said wording under relief 1, are asking the Court to order the parties herein to agree to appoint an accounting firm and to do things that are pleaded therein which essentially relate to auditing the company records of Canopus No. 101 Ltd. With respect, I find that odd, and I do not believe that such a relief may be requested from a party where there are disagreements. I may not have an issue if there is consensus. But if there is no agreement, like in the present case, it is firstly, in my view, wrong for a party to come to Court and ask the Court to order the parties to agree on something. And a Court that is faced with such a request, in my view, should decline the relief. Ordering a party against his or her will to agree to do something, is entirely different and not the same as where the Court may request or allow time for parties to discuss or consider settlement or for the Court to request parties to consider an offer or to consider whether to agree on something or not. If a Court proceeds to and grants such a request, it may be considered, in my view, as an improper use of or an abuse of the Court’s power.
6. I propose to decline the applicants’ NoM based on this preliminary consideration. But let me also consider and address the other issues that are raised.
ISSUES
7. The main issues, in my view, are:
(i) Whether the applicants have invoked the correct source in their NoM.
(ii) Whether ordering an audit on the accounts or records of Canopus No. 101 Ltd as requested by the applicants may be regarded as a necessary measure that will assist the Court or the parties to effectively or fully determined the material issues in the petition;
(iii) If so, what appropriate considerations or directions should be issued upon the parties?
SOURCE
8. The petitioner, as a preliminary matter, challenges the source of the NoM. In this instance, the applicants rely on Order 12 Rule 1 of the NCR and s. 155(4) of the Constitution. The petitioner submits that the correct source should be s.220 of the Companies Act 1997 (the Companies Act).
9. Order 12 Rule 1 of the NCR, s. 155(4) of the Constitution and s. 220 of the Companies Act read, and I quote:
1. General relief. (40/1)
The Court may, at any stage of any proceedings, on the application of any party, direct the entry of such judgement or make such order as the nature of the case requires, notwithstanding that the applicant does not make a claim for relief extending to that judgement or order in any originating process.
......
155. The National Judicial System.
(4) Both the Supreme Court and the National Court have an inherent power to make, in such circumstances as seem to them proper, orders in the nature of prerogative writs and such other orders as are necessary to do justice in the circumstances of a particular case.
......
220. Investigation of records.
(1) The Court may, on the application of a shareholder or creditor of a company, make an order authorising a person named in the order at a time specified in the order, to inspect and to make copies of, or take extracts from, the records or other documents of the company, or such of the records or documents of the company as are specified in the order, and may make such ancillary orders as it thinks fit, including an order that the accounts of the company be audited by that person.
(2) The Court may make an order under Subsection (1) only where it is satisfied that—
(a) in making the application, the shareholder or creditor is acting in good faith and that the inspection is proposed to be made for a proper purpose; and
(b) the person to be appointed is qualified in accordance with Section 193.
(3) A person appointed by the Court under Subsection (1) shall diligently carry out the inspection and, having done so, shall make a full report to the Court.
(4) On receiving the report of a person appointed by the Court under Subsection (1), the Court may make such order in relation to the disclosure and use that may be made of records and information obtained as it thinks fit.
(5) An order made under Subsection (4) may be varied from time to time.
(6) The reasonable costs of the inspection shall be met by the company unless the Court orders otherwise.
(7) A person may only disclose or make use of information or records obtained under this section in accordance with an order made under Subsection (4) or (5).
(8) A person who discloses or makes use of information or records obtained under this section other than in accordance with an order made under Subsection (4) or (5) commits an offence, and is liable on conviction to the penalty set out in Section 413(2).
10. I note the submissions of the parties. I uphold the petitioner’s submission in this regard. Clearly, there is an express provision within the Companies Act for the type of relief the applicants are seeking as are pleaded in their NoM. If the relevant source is available, then it should be invoked and not Order 12 Rule 1 or s. 155(4) of the Constitution. See cases: Peter Makeng v. Timbers (PNG) Ltd (2008) N3317 and Banning Trading Ltd v. Max Kombamung (2017) N7056. Essentially and in this NoM, the applicants are requesting for an independent audit to be conducted on the accounts or company records of Canopus No. 101 Ltd. Section 220, in my view, is the correct provision which should have been invoked in the NoM. That said, I note that this appears to be the least of the problems at hand or concerning the NoM. Let me explain. The petitioner is suing exercising his rights or interests as an aggrieved shareholder of Canopus No. 101 Ltd. He is alleging, amongst others, that his rights and interests have been affected; that the actions or inactions of Canopus No. 101 Ltd as pleaded were oppressive, unfairly discriminatory, or unfairly prejudicial to him in that capacity (see s. 152 of the Companies Act). He does not act for nor is he Canopus No. 101 Ltd. And this. The NoM appears to plead a separate action or relief which is not the subject of the petition that is filed by the petitioner. The correct process, it would seem, may be for the applicants to commence appropriate proceedings against Canopus No. 101 Ltd directly and seek the intended relief as are sought in the NoM herein. In that way, perhaps the applicants may, as its first recourse, request Canopus No. 101 Ltd to agree to an independent audit to be conducted over its affairs. If that fails, then the applicants may file proceedings in the National Court against Canopus No. 101 Ltd under section 220 of the Companies Act. It is futile, in my view, for the applicants to ask this Court to order the parties in this petition to agree to something that is not the subject of this proceeding. Also, of concern is the fact that Canopus No. 101 Ltd, despite being named herein, is not represented in this petition nor at the hearing of this NoM. The party that is directly affected is Canopus No. 101 Limited. It is the primary respondent to this petition. All these suggests to me that the applicants are perhaps embarking on a wrong path altogether; that perhaps they have not carefully considered their options before they filed their NoM.
11. For these reasons, together with my earlier preliminary findings, I find this NoM incompetent and misconceived.
CAUSE OF ACTION
12. Even if I may be wrong, I will say this. The petitioner pleads s. 152 of the Companies Act as the basis of his action in the petition. Let me begin by setting out the section:
152. Prejudiced shareholders.
(1) A shareholder or former shareholder of a company, or any other entitled person, who considers that the affairs of a company have been, or are being, or are likely to be, conducted in a manner that is, or any act or acts of the company have been, or are, or are likely to be, oppressive, unfairly discriminatory, or unfairly prejudicial to him in that capacity or in any other capacity, may apply to the Court for an order under this section.
(2) Where, on an application under this section, the Court considers that it is just and equitable to do so, it may make such order as it thinks fit including, without limiting the generality of this subsection, an order—
(a) requiring the company or any other person to acquire the shareholder's shares; or
(b) requiring the company or any other person to pay compensation to a person; or
(c) regulating the future conduct of the company's affairs; or
(d) altering or adding to the company's constitution; or
(e) appointing a receiver of the company; or
(f) directing the rectification of the records of the company; or
(g) putting the company into liquidation; or
(h) setting aside action taken by the company or the board in breach of this Act or the constitution of the company.
(3) No order may be made against the company or any other person under Subsection (2) unless the company or that person is a party to the proceedings in which the application is made.
(4) Failure to comply with any of the following sections is conduct which is unfairly prejudicial for the purposes of this section:—
(a) Section 45;
(b) Section 47;
(c) Section 51;
(d) Section 57;
(e) Section 63;
(f) Section 98;
(g) Section 110.
(5) The signing by the directors of a company of a certificate required by this Act without reasonable grounds existing for an opinion set out in it is conduct that is unfairly prejudicial for the purposes of this section.
13. I also refer to the pleadings in the petition. My view is as follows. The pleadings in the petition and references made therein to various provisions under the Companies Act, demonstrate serious challenges on whether various provisions of the Companies Act have or had been breached. These provisions include sections 65(4)(a) (Transfer of shares), 70 (Director’s duty to supervise share register), 105 (Proceedings at meetings), 109 (Management of company), 131 (Appointment of first and subsequent directors), 133 (Appointment of Directors to be voted on individually), 134 (Removal of directors), 135(1) (Director ceasing to hold office), 138 (Proceedings of board) and schedules 2 (Proceedings at meetings of shareholders) and 4.2 (Proceedings of the Board of a company) of the Companies Act.
14. The central issues in the petition relate to breaches of provisions of the Companies Act, that is, whether Canopus No. 101 Ltd or its responsible management complied with due process or processes in their actions or inactions including their actions concerning dealings or transfer of shares in the company. I therefore do not see the utility or purpose for the relief that are being sought by the applicants in this NoM. There is, in my view, no real basis for them at this stage of the proceeding.
15. I would also dismiss the NoM for these reasons, namely, want of merit and frivolity.
SUMMARY
16. In summary, the applicants’ NoM filed on 8 July 2020 will be dismissed.
COST
17. Awarding of cost in this instance is discretionary. I will order cost to follow the event on a party/party basis to be taxed if not agreed.
THE ORDERS OF THE COURT
18. I will make the following orders:
The Court orders accordingly.
_______________________________________________________________
Ashurst PNG: Lawyers for the Petitioner
Mel & Henry: Lawyers for the named Respondents
Charles Kos: Lawyers for the named Respondents
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