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Derwent Ltd (formerly known as Telemu No.9 Ltd) v Pakena [2023] PGNC 184; N10414 (6 July 2023)

N10414

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS NO.1144 OF 2013

BETWEEN:
DERWENT LIMITED (formerly known as Telemu No.9 Limited)
Plaintiff

AND:
ANTON PAKENA
First Defendant

AND:
NIYA LIMITED
Second Defendant

Waigani: David, J
2023: 13^th January & 6^th July

COMPANY LAW – application to dismiss proceedings – judgment on liability entered in favour of plaintiff after trial – matter pending assessment of damages - plaintiff has been de-registered – application made to Registrar of Companies to restore plaintiff to Register of Registered Companies – restoration not complete – plaintiff non-existent – no formal application for Registrar to be substituted for purposes of continuing the proceedings – proceedings dismissed – no costs awarded as plaintiff non-existent – National Court Rules, Order 12 Rule 40(1)(c) – Companies Act, ss. 16, 215, 307, 365, 366, 372, 373, 374, 378, 379, 380 and 395.

Cases Cited:
Papua New Guinean Cases

The State v Peter Painke [1976] PNGLR 210
National Executive Council v Public Employees Association of PNG [1993] PNGLR 264
Odata Ltd v Ambusa Copra Oil Mill Ltd & National Provident Fund Board of Trustees (2001) N2106
Anderson Agiru v Electoral Commissioner v The State (2002) SC687
Ace Guard Dog Security Services Ltd v Lindsay Lailai (2004) SC757
Philip Takori v Simon Yagari (2008) SC905
Grand Chief Sir Michael Somare v Chronox Manek and Others (2011) SC1118
Daniel Tulapi v Steamships Trading Company Ltd (2012) SC1210
TW Transport Ltd v Richard Maru (2012) N4934
Michael Wilson v Clement Kuburam (2016) SC1489
Jacob Popuna v Ken Owa (2017) SC1564
Telikom (PNG) Ltd v Kila Rava (2018) SC1694
Bay Cabs Ltd v Kokiva [2019] N7957
GR Logging Ltd v Pulie Anu Timber Company Ltd (2020) N8345

Overseas Cases

Salomon v Salomon & Co. Limited (1897) AC 22
Lee v Lee’s Air Farming Ltd (1961) NZLR 325
Fielding v Rigby [1993] 4 All ER 294

Counsel:

Trevor Sausia, for the Plaintiff
Gibson Bon, for the First Defendant
Herman Leahy with Alois Sinen, for the Second Defendant

JUDGMENT

6^th July, 2023

1. DAVID, J: INTRODUCTION: This is a ruling on an application by the second defendant, Niya Limited (Niya) which is moved pursuant to a notice of motion filed on 15 November 2022. Niya moves for an order to dismiss the proceedings. The ground relied on for the application is that the proceedings are an abuse of the process of the Court. Reliance is placed upon Order 12 Rule 40(1)(c) of the National Court Rules.
   

BACKGROUND

2. The dispute in these proceedings concerns the sale of what was initially an Urban Development Lease issued over the land described as Allotment 3 Section 375 (Ensisi Valley) Hohola, National Capital District by Niya, whose Managing Director was the first defendant, Anton Pakena (Pakena), as vendor to Derwent Limited (formerly known as Telemu No.9 Limited) (Derwent) as purchaser pursuant to a contract for sale of land dated 28 August 2007 for a consideration of K1,950,000.00 (the Contract). Derwent pursued its claim against Pakena and Niya by writ of summons endorsed with a statement of claimed filed on 11 October 2013 seeking, among others, a declaration that the Contract was not rescinded and specific performance of the Contract and alternatively, restitution of funds expended by Derwent in the sum of K602,972.27 and general damages. Pakena and Niya defended Derwent’s claim and they each filed separate cross-claims essentially claiming a declaratory order that the Contract was illegal, null and void and therefore unenforceable and alternatively an order that the Contract was validly rescinded. Niya also sought a declaratory order that the Contract was terminated or expressly or impliedly abandoned by the parties. On 21 April 2020, the Court, among others, entered judgment on lability in favour of Derwent, declared that the Contract was valid and was not rescinded, and that the matter proceed to trial for assessment of damages including restitution on a date to be fixed. The cross-claims were dismissed as a consequence. Derwent appealed to the Supreme Court challenging the judgment on liability which was unsuccessful.
   

3. Derwent was incorporated under the Companies Act 1997 on 28 June 2007. It was deregistered and removed from the Register of Registered Companies (Register) incorporated in Papua New Guinea kept by the Registrar of Companies (Registrar) pursuant to s.395(1) of the Companies Act 1997 on 17 January 2020. Since its removal, it has not been restored to the Register.

EVIDENCE

4. Niya relies on and reads the following documents:

1. Affidavit of Stephen Hii sworn on 14 November 2022 and filed on 15 November 2022;
2. Affidavit of Herman Leahy sworn and filed on 15 November 2022 (First Affidavit of Herman Leahy); and
3. Affidavit of Herman Leahy sworn and filed on 11 January 2023 (Second Affidavit of Herman Leahy).
   

5. Niya also relies on a detailed Chronology.

6. Derwent relies on the Affidavit of Grace Verave sworn and filed on 11 January 2023.

ISSUE

7. The issue that is central to the determination of this application is whether Derwent’s removal from the Register warrants dismissal of the proceedings for abuse of the process of the Court.

SUBMISSIONS

Second Defendant:

8. Niya submits that the entire proceedings should be dismissed on the grounds that they are an abuse of the process of the Court for the following reasons.

9. Derwent was registered under the Companies Act 1997 on 28 June 2007 and was deregistered and removed from the Register on 17 January 2020. It no longer exists as a legal entity and remained so at the time of filing of the application.

10. Once a company is deregistered and removed from the Register, it has no legal existence. Niya relies on the National Court decision of Bay Cabs Ltd v Kokiva [2019] N7957 in support of that proposition. When a company is removed from the Register, a company ceases to exist as a legal entity and cannot conduct any business in its own right. Any property owned by the company immediately before its removal from the Register vests in the Registrar with effect from the removal of the company from the Register by virtue of s.373(1) of the Companies Act 1997. Former officeholders of the company no longer have the right to deal with any property registered in the company’s name. Moreover, the company can neither commence or continue legal proceedings nor can it be sued in its own name as was held in Bay Cabs Ltd v Kokiva [2019] N7957.

11. Upon removal from the Register, the property of the company including any rights that the company has to commence or continue legal proceedings are taken over by the Registrar pursuant to ss.372(1), 373 and 374 of the Companies Act 1997. Derwent has lost its standing to continue the prosecution of these proceedings. The shareholders and directors of the removed company lose power to control the company and deal with its “property” as was held in Daniel Tulapi v Steamships Trading Company Ltd (2012) SC1210 at [36].

12. Derwent admits the fact of its deregistration and removal from the Register.

13. Yet despite Derwent’s removal from the Register, it has continued to be active in; pursuing these proceedings that resulted in judgment on liability being entered in its favour with damages to be assessed; and defending legal proceedings before the Supreme Court and ultimately receiving judgment in its favour from the Supreme Court.

14. On 17 October 2022, Derwent’s lawyers were informed by letter from Niya’s lawyers to rectify the fact of its deregistration and removal from the Register and Derwent’s lawyers responded stating, among other things, that they were taking steps to rectify Derwent’s deregistration and removal from the Register.

15. Niya registered its objection to the restoration of Derwent to the Register with the Registrar pursuant to s.378(4) of the Companies Act 1997 by letter from its lawyers dated 23 November 2022 (annexure “S”, Second Affidavit of Herman Leahy). The Registrar’s power to restore a company removed from the Register is limited once an objection is received. A letter was written by Niya’s lawyers to the Registrar affirming its objection raised in the letter of 23 November 2022 after the publication of the Notice of Intention to Reinstate a Company Removed from the Register of Registered Companies and within the period allowed by the notice.

16. Derwent has not been restored to the Register. There is nothing before the Court to demonstrate that Derwent has been restored to the Register.

17. At this point in time, restoration can only be made by the Court on application under the Companies Act 1997. No such application has been made to the Court.

First Defendant:

18. Pakena supports Niya’s application. He says Derwent’s lawyers have misled the Court as to the true legal status of its existence as a legal entity both in the National Court and the Supreme Court.

Plaintiff

19. Derwent submits that the relief sought in the notice of motion should be refused as:

1. An application for the restoration of the company to the Register under s.378 of the Companies Act 1997 is currently being processed and the process be allowed to be completed;
2. A public notice of intention to restore the company to the Register dated 26 October 2022 approved by the Registrar on 18 November 2022 was published at p.50 of the Post Courier on 5 December 2022.
3. The Public Notice required any objection with reasons provided to the reinstatement of the company to the Register to be lodged with the Registrar within one month after the publication of the notice pursuant to s.378(3)(d) of the Companies Act.
4. The last date for the lodgement of objections to the restoration of the company with the Registrar was on or about 7 January 2023.
5. The objection received by the Registrar from Niya’s lawyers by letter dated 23 November 2022 was premature as it was lodged before the publication of the notice of intention to reinstate the company to the Register and contrary to s.378(4) of the Companies Act 1997.
6. The Registrar has no issues with restoring the company to the Register.
7. The proceedings should continue with the involvement and participation of the Registrar.
   

LAW

Abuse of process

20. The exercise of power by the Court under Order 12 Rule 40(1)(c) of the National Court Rules is discretionary and also by its inherent jurisdiction, the Court has power to protect and safeguard its own processes and protect its dignity and integrity from any possible abuse by its users or litigants: The State v Peter Painke [1976] PNGLR 210, National Executive Council v Public Employees Association of PNG [1993] PNGLR 264, Philip Takori v Simon Yagari (2008) SC905, Grand Chief Sir Michael Somare v Chronox Manek and Others (2011) SC1118, Anderson Agiru v Electoral Commissioner v The State ( 2002) SC 687, Jacob Popuna v Ken Owa (2017) SC1564, Telikom (PNG) Ltd v Kila Rava (2018) SC1694. The types of abuses of process may vary from case to case: National Executive Council v Public Employees Association of PNG [1993] PNGLR 264, Michael Wilson v Clement Kuburam (2016) SC1489.

Removal and Restoration of a company to the Register Registered Companies

21. From the date of incorporation, a company acquires a legal personality wholly separate and independent from those who incorporate it namely, shareholders, with rights and liabilities of its own. This principle has its origins in the oft-cited case of Salomon v Salomon & Co. Limited (1897) AC 22 which requires no elaboration. That case established the “veil of incorporation” and it was reaffirmed by the Privy Council on appeal from a decision of the Court of Appeal of New Zealand in Lee v Lee’s Air Farming Ltd (1961) NZLR 325. So according to that case, a company is distinct and separate from its shareholders, unless the corporate veil can be lifted. In the case of Odata Ltd v Ambusa Copra Oil Mill Ltd & National Provident Fund Board of Trustees (2001) N2106, Kandakasi, J (as he then was) suggested a number of considerations (adopted from the relevant New Zealand company law and practice as our Companies Act is closely modelled on the New Zealand legislation) that can be taken into account when considering whether or not the corporate veil should be lifted. The principle has been codified by s.16 of the Companies Act which states:

“”16. Separate legal personality.

A company is a legal entity in its own right separate from its shareholders and continues in existence until it is removed from the register.”

22. The second limb of s.16 makes it clear that once a company is incorporated, regardless of any change in its shareholding whether caused by the death of a shareholder or otherwise, the company will continue to exist, i.e., it has perpetual succession, until it is removed from the Register.

23. Upon deregistration and removal from the Register, a company ceases to exist as a legal entity and can no longer do anything in its own right and all its property is vested in the Registrar: Ace Guard Dog Security Services Ltd and Yama Security Services Ltd v Telikom PNG Ltd (2004) SC757, Daniel Tulapi v Steamships Trading Company Ltd (2012) SC1210, TW Transport Ltd v Richard Maru (2012) N4934, GR Logging Ltd v Pulie Anu Timber Company Ltd (2020) N8345. From that time onwards; the shareholders and directors or former officeholders of the company lose power to deal with the property of the company; and the Registrar is responsible for the conduct of matters specified in s.372(1) as representative of the company including any legal proceedings commenced by or against it: Daniel Tulapi v Steamships Trading Company Ltd (2012) SC1210 at [36]. Section 372(1) states:

“Registrar as representative of defunct company

(1) Where, after a company has been removed from the register, it is proved to the satisfaction of the Registrar–

(a) that the company, if it still existed, would be legally or equitably bound to carry out, complete, or give effect to some dealing, transaction or matter; and

(b) that, in order to carry out, complete or give effect to the dealing, transaction, or matter, some purely administrative act, not being of a discretionary kind, should have been done by or on behalf of the company, or if the company still existed should be done by or on behalf of the company,

the Registrar may, as representing the company or its liquidator under the provisions of this section, do or cause to be done any such act.”
24. Where a deregistered company is involved in any legal proceedings whether commenced by or against it, in order for its cause of action to survive where it is the plaintiff or an action against it is to survive where it is the defendant, there must be an application to substitute the Registrar for the plaintiff or the defendant as the case may be in the conduct of the action as the cause of action must survive or continue in some person who is before the court: Fielding v Rigby [1993] 4 All ER 294 at 297-298, TW Transport Ltd v. Richard Maru (2012) N4934.

25. Section 365 of the Companies Act 1997 provides that a company is removed from the Register when a notice to that effect is signed by the Registrar and registered. It states:

“Removal from register

A company is removed from the register when a notice signed by the Registrar stating that the company is removed from the register is registered.”

26. The grounds for removal from the Register are set out under s.366 of the Companies Act and these are:

1. The company is an amalgamating company;
2. The company has ceased to carry on business and there is no other reason for it to continue in existence;
3. The liquidation of the company has lapsed;
4. The shareholders, board of directors of the company or any other authorised person have requested its removal on either of the grounds specified in s.366(2);
5. The completion of liquidation by the delivery to the Registrar of the liquidator’s final reporting documents specified under s.307(1)(a) pursuant to s.366(1)(e);
6. The company’s annual return is at least six months late; and
7. The company has failed to submit to the Registrar any document required to be submitted under the Companies Act 1997 within eighteen months of the time required for submission.
   

27. A company that has been removed from the Register and ceases to exist can be revived by restoration to the Register pursuant to s.378. This may be done by the Registrar either on its own motion or on the application of a person referred to in s.378(2) namely:

1. A shareholder or director of the company; or
2. A creditor of the company; or
3. A liquidator or a receiver of the property of the company; or
4. Any aggrieved person.
   

28. Section 378(1) states the grounds that may be relied on to restore to the Register a company that has been removed from it during the previous six years where the Registrar is satisfied that, at the time the company was removed from the Register:

1. the company was still carrying on business or some other reason existed for the company’s continued existence; or
2. the company was a party to legal proceedings; or
3. the company was in receivership, or liquidation, or both; or
4. the company should not have been removed from the Register.
   

29. Before the Registrar restores a company to the Register, the applicant or where there is no applicant, the Registrar, is required to give a public notice, in a format approved by the Registrar pursuant to s.378(3) setting out—

1. the name of the company; and
2. the name and address of the applicant; and

3. the section under, and the grounds on which, the application is made or the Registrar proposes to act, as the case may be; and
4. the date by which an objection to restoring the company to the register shall be submitted to the Registrar, not being less than one month after the date of the notice; and

5. any other matter or statement required by the Registrar.

30. According to s.378(4), the Registrar shall not restore a company to the register where he or she receives an objection to the restoration within the period stated in the notice published pursuant to s.378(3).

31. Alternatively, an application may be made to the Court to restore a company that has been removed from the Register pursuant to s.379 of the Companies Act. Under s.379(1), the Court may, on the application of a person specified in s.379(2), restore a company that has been removed from the Register where it is satisfied that:

1. at the time, the company was still carrying on business or some other reason existed for the company’s continued existence; or

2. at the time, the company was a party to legal proceedings; or

3. at the time, the company was in receivership, or liquidation, or both; or
4. at the time, the applicant was a creditor, or a shareholder, or a person who had an undischarged claim against the company; or
5. at the time, the applicant believed that a right of action existed, or intended to pursue a right of action, on behalf of the company under Part IX (Enforcement) of the Companies Act; or
6. for any other reason it is just and equitable that the company be restored to the Register.
   

32. The persons who may make the application under s.379(1) are:

1. A shareholder or director of the company; or
2. A creditor of the company; or
3. A party to any legal proceedings against the company; or
4. A person with an undischarged claim against the company; or
5. The liquidator or a receiver of the property of the company; or
6. The Registrar; or
7. With the leave of the Court, any other person.
   

33. A company is restored to the Register when a notice signed by the Registrar stating that the company is restored to the Register is registered: s.380(1).

34. A company that has been restored to the Register is deemed to have continued in existence as if it had never been removed from the Register: s.380(2).

REASONS FOR RULING

35. On the evidence available before the Court, I make the following findings of fact:

1. Derwent was registered under the Companies Act 1997 on 28 June 2007 (Company Extract, annexure B, Second Affidavit of Herman Leahy).
2. Derwent was deregistered and removed from the Register pursuant to s.365 of the Companies Act on 17 January 2020 (Company Extract, annexure B, Second Affidavit of Herman Leahy).
3. Derwent was listed on the Registrar’s Defaulting Companies List in 2017 when defaulting companies were given an ultimatum to comply with the requirements under the Companies Act 1997 to file their annual returns by the end of 2017 failing which they would be removed from the Register automatically (annexure “J”, affidavit of Stephen Hii).
4. Derwent’s deregistration and removal from the Register was for defaulting in its obligation to file annual returns once in each calendar year for years specified pursuant to s.215 of the Companies Act 1997.
5. On 17 October 2022, Niya’s lawyers wrote to Derwent’s lawyers and warned them to rectify Derwent’s deregistration and removal from the Register within 21 days of the date of the letter (annexure “K” affidavit of Stephen Hii).
6. On 24 October 2022, Niya’s lawyers received a letter of the same date from Derwent’s lawyers advising that steps were being taken to rectify Derwent’s deregistration and removal from the Register (annexure “L”, affidavit of Stephen Hii).
7. Niya, as a party to these proceedings, was at liberty to register its objection to the restoration of Derwent to the Register.
8. By a letter dated 23 November 2022 from Pacific Legal Group Lawyers under the hand of Herman Leahy addressed to the Acting Registrar of Companies, objection was given to the restoration of Derwent to the Register (annexure S, Second Affidavit of Herman Leahy).
9. Alfred Luke Manase, a director of Derwent has applied to the Registrar of Companies (Registrar) to restore the company to the Register of registered companies kept by the Registrar pursuant to s.378 of the Companies Act (Public Notice, Notice of Intention to Reinstate a Company Removed from the Register of Registered Companies (Public Notice), annexure R, Second Affidavit of Herman Leahy).
10. The Public Notice was published in the Post Courier on Monday, 5 December 2022 (annexure R, Second affidavit of Herman Leahy).
11. The grounds upon which the application was being pursued as per the Public Notice are; the application was being made by person who, at the time the company was removed from the Register was a director; the company is a party to legal proceedings, WS No.1144 of 2013 and SCA No.32 of 2020; and the company should not have been removed from the Register (Public Notice, Notice of Intention to Reinstate a Company Removed from the Register of Registered Companies, annexure R, Second Affidavit of Herman Leahy).
12. An Application to the Registrar of Companies to Restore a Company Removed from the Register of Registered Companies was lodged with the Registrar on 11 January 2023 (annexure “GV11” of the affidavit of Grace Verave).
13. The objection given by or on behalf of Niya by a letter dated 23 November 2022 from Pacific Legal Group Lawyers under the hand of Herman Leahy addressed to the Acting Registrar to the restoration of Derwent to the Register was premature and contrary to s.378(4) of the Companies Act 1997.
    14. Derwent has not produced evidence to show that it has submitted to the Registrar all its outstanding annual returns and paid the necessary fees and penalties, if any.
    15. There is nothing before the Court to demonstrate that Derwent ‘s application for restoration to the Register has been approved by the Registrar.
    16. There is no evidence of any notice signed by the Registrar stating that Derwent has been restored to the Register and has been registered pursuant to s.380 of the Companies Act.
        

36. Clearly, when these proceedings were commenced, Derwent existed as a duly registered company under the Companies Act 1997. As Derwent has been deregistered and removed from the Register, it no longer exists. When Derwent was removed from the Register, by operation of law, all of its property vests in the Registrar pursuant to s.373(1) of the Companies Act 1997.

37. At the time of filing and hearing of the application, the application for restoration to the Register has not been completed. Events have overtaken and the matter concerning its deregistration and removal from the Register and restoration is before the Court.
38. No formal application was made following the deregistration and removal of Derwent to substitute the Registrar for the company for the purpose of continuing the proceedings: Daniel Tulapi v Steamships Trading Company Ltd (2012) SC1210, TW Transport Ltd v Richard Maru (2012) N4934. No order to that effect has been made by the Court. Consequently, there is no person who is before the Court in whom Derwent’s cause of action is able to survive or continue: Fielding v Rigby [1993] 4 All ER 294, Daniel Tulapi v Steamships Trading Company Ltd (2012) SC1210, TW Transport Ltd v Richard Maru (2012) N4934. The Registrar’s legal representative was allowed to appear with leave because of ss.372(1) and 373(1).

39. Given this, it is not necessary to consider other submissions of the parties.

40. Consequently, I generally accept Niya’s submissions. The proceedings ought to be dismissed as they amount to an abuse of the process of the Court. I will dismiss the proceedings.

COSTS
Second Defendant

41. Niya submits that that the costs of and incidental to these proceedings as well as those incurred in the Supreme Court proceedings between the same parties in SCA No.32 of 2020 be paid by Derwent on a full indemnity basis. The reasons it relies on, among others, are.

1. Despite Derwent having been removed from the Register on 17 January 2020, it continued to prosecute its defence of the Supreme Court appeal filed by Niya;
2. On 16 February 2021, Derwent’s lawyers opposed the application for leave to appeal filed by Niya in the Supreme Court;
3. Derwent continued to prosecute it’s defence of the Supreme Court proceedings despite the fact that it’s directors and shareholders had lost the power to deal with the property of Derwent;
4. No evidence was tendered before the Court by Derwent and its’ lawyers to show that the consent and approval of the Registrar had been sought and obtained for Derwent to continue to defend the Supreme Court appeal;
5. The conduct of Derwent and its’ lawyers breached the provisions of the Companies Act 1997; and
6. Derwent’s failure to inform Niya of its deregistered status has put Niya to unnecessary trouble and expense in defending these proceedings and the Supreme Court proceedings and the making of this application.
   

First Defendant

42. Pakena supports the submission.

Plaintiff

43. No submission on costs was made.

Reasons for ruling

44. I have considered the reasons advanced by Niya which are supported by Pakena. However, in considering the question of costs, I adopt the approach taken by Hartshorn J in TW Transport Ltd v Richard Maru (2012) N4934 at [10] where His Honour observed:

“As to costs, I would have thought that it was appropriate to award costs against the lawyers who had continued to prosecute the proceeding on behalf of a non-existent party but no such order was sought. Given that a non-existent party cannot pay costs, I make no order as to costs.”
45. An order for costs was specifically sought against Derwent in the notice of motion and no other person including its lawyers. Derwent is non-existent now and therefore cannot pay costs. In the circumstances of this case and in the exercise of my discretion, I make no order as to costs.

ORDER

46. The formal orders of the Court are:

1. The proceedings are dismissed.
2. Time is abridged.
   

Judgment and orders accordingly.

____________________________________________________________

In-House Lawyer-Office of Registrar of Companies: Lawyers for Plaintiff
Gibson Bon: Lawyers for First Defendant
Pacific Legal Group: Lawyers for Second Defendant