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East New Britain Development Corporation Ltd (1-6222) v Lamur [2020] PGNC 352; N8570 (8 September 2020)

N8570

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

IN THE MATTER OF THE COMPANIES ACT 1997 AND IN THE MATTER OF AN APPLICATION TO SET ASIDE A CREDITOR'S STATUTORY DEMAND FOR PAYMENT OF DEBT UNDER SECTION 337 & 338 OF THE COMPANIES ACT

OS NO. 841 OF 2019

BETWEEN:

EAST NEW BRITAIN DEVELOPMENT CORPORATION LIMITED (1-6222)
Plaintiff

AND:
WILLIAM LAMUR
Defendant

Kokopo: Suelip AJ
2020: 20^th August & 8^th October

COMPANY LAW - PRACTICE & PROCEDURE - application to set aside creditor’s statutory demand - applicant argues substantial dispute to the alleged debt - grounds to set aside statutory demanded not exhaustive - statutory demand set aside-Section 338(4)(a)(c) Companies Act

Cases Cited

Henry Tavul & 2 ors v Hon. Nakikus Konga & 2 ors (2018) N7599
Bemobile Ltd v. Wettao (2014) N6776

References

Companies Act 1997

Counsel

Norbert Kubak, for the Plaintiff
Jacinta Kare, for the Defendant

RULING

8^th October, 2020

1. SUELIP AJ: In the Originating Summons filed on 18 November
2019, the plaintiff seeks to set aside a Creditor's Statutory Demand issued on 15 October 2019 pursuant to section 338 of the Companies Act 1997 (the Act). The application is contested.

2.. 1 heard submissions on 20 August 2020 and reserved my ruling to a date
to be advised. This is now my ruling.

Relevant facts

3. The defendant was employed as the plaintiff's Group Managing Director and Chief Executive Officer on 9 October 2015 for a term of 5 years. In a letter dated 15 May 2018, the defendant gave notice of his intention to terminate his Contract of Employment. On 28 June 2018, the plaintiff responded to the defendant's letter and offered him three (3) optional conditional offers. In another letter dated 4 August 2018, the plaintiff advised the defendant that the Board had approved his acceptance of Option 3 conditional offer which I reproduce in part as follows:

That a severance settlement of 33.33% of your claim, which is equivalent to 10 months, a total sum of K805,955.30 will be paid by the Company commencing with an initial payment of 50% in September 2018 and a monthly payment of the

remaining balance to December 2018.

Consultancy on a retainer arrangement of 20% of TRP on exit or Kl 6,119.10 per month, without hourly charges commencing in July 2018. As part of this arrangement, you may be invited by respective Board Chairman's to sit in respective board meetings as consultant/observer.

4. In his letter dated 9 August 2018, the defendant accepted the plaintiff's offer and on 10 August 2018, parties entered into a Deed of Settlement and Release (the "Deed"). The Deed provides, inter alia: -
   

RECITAL

WL and ENBDC have agreed to resolve all matters arising from WL 's employment as Group CEO and termination of the Contract on the terms set out in this Deed.

IT IS HEREBY AGREED that:

Settlement

ENBDC will pay to WL the sum of K805,955.30 being an amount equivalent to about 10 mouths of salary and entitlement under the Contract (the settlement sum).

ENBDC will make initial payment of 50% of the settlement sum to WL in September 2018.

ENBDC will settle the balance of the settlement sum by monthly payments until final monthly payment is made in December 2018.

WL will be engaged as a Consultant by ENBDC. WL and ENBDC will separately agree upon the terms and conditions for WL 's engagement as a Consultant.

5. Pursuant to the Deed, the plaintiff was to pay the defendant 50% of the settlement sum by September 2018 and the balance to be settled by December 2018. A bank cheque of K70,400.00 was made to the defendant but the payment was dishonored due to insufficient funds.
   

Issues

6. The issues are, (i), whether the creditor's statutory demand dated the 15 October 2019 may be set aside on the ground that there is a substantial dispute on the amount owed, and if not, (ii), whether the creditor's statutory demand dated the 15 October 2019 may be set aside on other grounds?

The law

7. Section 338 of the Companies Act is set out below:
   

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. "

8. The plaintiff relies on Bemobile Ltd v. Wettao (2014) N6776, at paragraph 13 where the principles of setting aside statutory demand are set out as:

(a) the applicant must establish that there is a "fairly arguable basis" or a "substantial dispute" as to the amount claimed in the statutory demand;

(b) the evidence in support of an application must demonstrate that there is arguably a genuine and substantial dispute and which goes towards supporting the claim that the debt is disputed;

(c) that a mere assertion that there exists a debt or debts is not sufficient to maintain the statutory demand;

(d) that where proof has been given there exists a substantial dispute, the matter must be resolved by other means, meaning a statutory demand must be set aside."

9. The onus is on the applicant to satisfy the Court that there is a substantial dispute to the debt that is owing or due.

The plaintiff's evidence

10. In the two affidavits of the plaintiffs executive officer which have been accepted into Court as evidence and marked as Exhibits Pl and P2, he says that the defendant severed (terminated) his own employment contract and Clause 16 of the defendant's employment contract clearly states that the defendant is only entitled to be paid four (4) weeks in lieu of notice. Hence, the plaintiff says that the defendant is only entitled to be paid K 72,229.10.

11. Further, the plaintiff says in evidence that the defendant's creditor's statutory demand claim of K805,955.30 is grossly exaggerated and way above what he is entitled pursuant to his employment contract.

12. The plaintiffs second argument is that the creditor's statutory demand may be set aside on "other grounds" (Section 338(4)(c)). The plaintiff says grounds to set aside statutory demand is not exhaustive. This argument is twofold.

13. Firstly, the plaintiff argues that the invoices presented by the defendant is not from his personal capacity but from a third party, a company. It says it never entered into any consultancy agreement with that company.

14. The other reason is this. It argues that the creditor's statutory demand was prepared during the period when the validity of the defendant's former position and that of the acting CEO then were before the Court in a separate proceeding titled OS No. 601 o/2018 - Henry Tavul & 2 ors v. Hon. Nakikus Konga & 2 ors (2018) N7599. Thus, the plaintiff says that matter was sub-judice at that time and so the creditor's statutory demand was premature and not reflective of the true figures.

The defendant's evidence

15. The defendant opposes the plaintiff’ s application to set aside the creditor's statutory demand. He tendered into evidence Exhibits Dl, D2 and D3 which are his 2 affidavits and his counsel's affidavit respectively.

16. The defendant argues that parties are bound by the terms of the Deed and the debt is owed pursuant to the Deed. He says the Deed was intended to resolve all and any claims that may arise out from the contract, that is, either a severance claim or a claim for damages, and as such, the Deed supersedes the employment contract.

17. The defendant further submits that the Deed was executed on 10 August 2018 and the plaintiff took no steps to challenge the Deed and so it remains unchallenged to this day. The defendant says that the Deed is not illegal as there is no evidence presented by the plaintiff to suggest or to make it arguable that the Deed was entered into fraudulently or by mistake, or by misrepresentation.

18. In summary, the defendant submits therefore that there is no substantial dispute on the amount owed by the plaintiff pursuant to the Deed and the plaintiff must be ordered to pay the amount claimed in the creditor's statutory demand within 7 days.

Consideration

19. The defendant did not raise the issue of whether the application was filed and heard within the required one-month period pursuant to section 338 (2) of the Act. As such, I will proceed on the basis that the application was filed
within the said required period.

20. The first issue is whether the creditor's statutory demand dated the 15 October 2019 should be set aside on the ground that there is a substantial
dispute on the amount owed.

21. There is a huge difference between the amount the defendant is claiming in the sum of K805,955.30 being an amount equivalent to about 10 months of salary and entitlements under the Deed as against K72,277.10 which is 4 weeks' pay as payment in lieu of notice pursuant to his employment contract.

22. As regards the plaintiff’s second argument that the creditor's statutory demand may be set aside on other grounds, it is not challenged by the defendant that the invoices he issued to the plaintiff is not from him in his personal capacity but from a third party, a company. There was no consultancy agreement between the plaintiff and that company.

23. The plaintiffs final argument is that the statutory demand was prepared during the period when the validity of the defendant's former position and the acting CEO then was before the Court in a separate proceeding, which makes that matter sub-judice at that time and the creditor's statutory demand, premature and not reflective of the true figures. This argument is also not
challenged by the defendant.

Conclusion

24. Regarding the first issue on whether the statutory demand should be set aside on the ground that there is a substantial dispute on the amount owed, I find there is a huge difference between the amount the defendant is claiming in the sum of K805,955.30 being an amount equivalent to about 10 months of salary and entitlements in the Deed, and K72,277.10, which is 4 weeks' payment in lieu of notice pursuant to his employment contract.

25. There are two separate agreements. There is the defendant's employment contract and then there is the Deed. The plaintiff argues that the Deed is derived from the employment contract and so the employment contract must supersede the Deed whilst the defendant argues that the Deed supersedes the employment contract and is the basis of the statutory demand. This issue, in my view, ought to be tried properly in a separate proceeding.

26. As it is in this matter before me, I am satisfied that the statutory demand should be set aside on the ground that there is a substantial dispute on the
amount owed.

27. As I have found in favor of the plaintiff’ s application on the first issue, it is not necessary to determine the second issue.

Orders

28. The Orders of the Court are: -

(i) The creditor's statutory demand issued by the defendant dated 15 October 2019 is set aside.

(ii) The defendant shall pay the plaintiffs costs of and incidental to this proceeding on a party /party basis to be taxed if not agreed.

(iii) Time is abridged until date of settlement by the Assistant Registrar which shall take place forthwith.

________________________________________________________________
Kubak & Kubak Solicitors & Barristers: Lawyers for the Plaintiff
Bradshaw Lawyers: Lawyers for the Defendant