Downes v Cullinan [2005] PGDC 8; DC106 (1 August 2005)

DC106

PAPUA NEW GUINEA
[IN THE DISTRICT COURT OF JUSTICE]

CASE NO 11 & 12 OF 2005

BETWEEN

CHARLES KYM DOWNES
First Plaintiff

AND

VANIMO RESORT HOTEL LIMITED

Second Plaintiff

AND

MARCUS AMITO CULLINAN
First Defendant

AND

FLEET LIMITED, trading as

AGITA CONSTRUCTION

Second Defendant

AND

MARCUS AMITO CULLINAN
First Cross-Claimant

AND

FLEET LIMITED trading as

AGITA CONSTRUCTION

Second Cross-Claimant

AND

CHARLES KYM DOWNES
First Cross-Defendant

AND

VANIMO RESORT HOTEL LIMITED
Second Cross-Defendant

23, 30 March 2005
31 May 2005
1 August 2005

REASONS FOR DECISION

KORONAI, P.M: This is an action by the Plaintiffs against the Defendants for an alleged breach of gentlemen's agreement, by the defendants, in which they are seeking K8, 830.76 toea being their share of commissions from takings from poker machines, for months of August and September, 2004.

The defendants are counter claiming against the plaintiffs for reimbursement of all monies paid as commissions to them from 3rd June, 2002 to 30th October, 2004, the period in which the second plaintiff was deregistered as a Company.

HISTORY

The first plaintiff is the Managing Director of the second plaintiff, which is a company that operates a hotel known as Vanimo Resort Hotel Limited and both are based in the town of Vanimo. Second plaintiff is the owner of a Gaming Permit Number WSP-001. The first defendant is the Managing Director of the second defendant, which is a construction company and which is the site owner of Section 7, Allotments 7 & 8 at Dali Beach, Vanimo and it kept 17 poker machines at the said premises and uses the second plaintiff's permit to operate them.

Since 1998, the plaintiffs as owners of this Gaming Permit and the defendants as site owners, entered into a gentlemen's agreement or understanding that commissions received from the poker machines, would at all material times be apportioned equally between them. Then on 1st August, 2000, their gentlemen's understanding was strengthened when they signed a Management Agreement and Memorandum of Understanding (MAMOU). Their arrangements of sharing equally these commissions continued until October, 2004 when the defendants stopped paying the plaintiffs their share. The defendants did this because the plaintiffs failed to disclose to them the fact that the second plaintiff was deregistered as a Company on 3rd of June, 2002 up until 30th October, 2004. The defendants refused to pay the plaintiffs their share of these commissions for months of August and September, 2004, totalling K8, 830.81 toea, and plaintiffs were receiving their share of these commissions during the period in which the second plaintiff was deregistered, except for months of August and September, 2004, being amounts of K6, 313.69 toea and K2, 517.12 toea totalling K8, 830.81 toea, which they are now claiming against the defendants.

The defendants then counter claimed against the plaintiffs for all the monies, in forms of commissions, paid to them since 3rd of June, 2000 to 30th of October, 2004, the period in which the second plaintiff was deregistered. The defendants claimed that they were not legally entitled to these commissions as the Registrar of Companies is and alleged that the plaintiffs were collecting these commissions, during the period of second plaintiffs' deregistration, in order to avoid paying taxes to the Internal Revenue Commission. In their counter claim the defendants did not state the monetary value of the amount of commissions they're claiming from the plaintiffs, which they paid to them during the period in which the second plaintiff was deregistered as a company.

ISSUES

(1) Whether the gentlemen's understanding or agreement and the MAMOU between the parties are enforceable in a Court of law or by the law.

(2) Whether the plaintiffs are entitled to receive their share of these commission from takings of poker machines during the period in which the second plaintiff was deregistered.

(3) Whether this Court can hear and determine the defendants' counter claim against the plaintiffs, in its current form.

THE LAW

Laws of contract and the provisions of Companies Act of 1997 apply in respect of issues number (1) and (2) and District Courts Act Chapter 40, Section 21, in respect of issue number (3).

The history of this case is supported by evidence in the affidavit of Charles Kym Downes concerning this gentlemen's understanding or agreement that exists between the parties over their arrangement regarding payment of commissions from proceeds from Poker Machines. That is there is a gentlemen's understanding or agreement that as permit holders, the plaintiffs are entitled to 50% and as site owners the defendants are entitled to 50% of the total commissions paid to the defendants, after deductions. This arrangement was to continue for as long as poker machines were in operation at Section 7, Allotments 7 & 8 at Dali Beach, Vanimo. This gentlemen's understanding or agreement was further reduced to writing and signed by the parties on the 1st of August, 2000, as evidenced by the affidavit of first defendant, Marcus Amito Cullinan and known as MAMOU.

This MAMOU or copy of it has not been presented to this Court to show how it is to be terminated by either of the parties in the event of a breach of its terms by either of them. When they entered into this MAMOU, the second plaintiff was still registered and operating as a company and has legal capacity to sue and be sued in its business name, hold and dispose of properties and enter into agreements, independently of its owners, share holders and directors and it is entitled to receive its share of the commissions up to end of May, 2002 under his MAMOU or gentlemen's understanding. But when it became deregistered on 3rd of June 2002, it no longer can claim for these commissions for the periods 3rd June, 2002 up till 30th October, 2004. Only the Registrar of Companies can and such commission should've been paid to him and not to the plaintiffs. The Registrar of Companies is by law, that is, Section 372 of Companies Act of 1997, a representative of the second plaintiff, for it is still in operation and has this MAMOU to fulfil, even thought its name has been removed from the companies register. The first plaintiff's position would automatically cease for the second plaintiff is no longer a legal entity or company for whom he would represent.

The plaintiffs would not have legal standing, except the Registrar to demand payments of their share of commissions from the defendants, because all properties including any monies paid to the second plaintiff during the period of it's deregistration vests with the Registrar, under Section 373 of Companies Act of 1997. That is the Registrar takes over the Management of the second plaintiff until it is restored under Section 380 of the Companies Act of 1997 and not the first plaintiff as its Managing Director.

As there are no clauses for termination of this gentlemen's understanding or agreement, any breaches, such as the one by the defendants, in refusing to pay to them their expected commission, for months of August and September, 2004, due to their non disclosure of second plaintiffs deregistration, is cause for its termination, and the defendants rightly refused to pay them. Although any act of restoring the second plaintiff by the Registrar, would have the effect of legalizing any of its dealings during its deregistration, under Section 380 of Companies Act, the fact remains that there is a private gentlemen's understanding between the plaintiffs and the defendants, which they wish not to have any legal consequences and the defendants have the right to treat it as coming to an end, following the non disclosure of second plaintiffs deregistration, by the plaintiffs, a right which they exercised resulting in these actions now before this Court.

Gentlemen's understanding or agreements are usually unenforceable or prima facie seen as illegal contracts, which the parties intended not to have legal effect and which are unenforceable in Courts of law, if one of the parties to it breaches their honourable understanding. Parties intended that they be bound upon their honour to observe their agreements. These are usually agreements entered into by parties who do not want the law to interfere in their arrangements or which are entered into to avoid jurisdiction of the Courts of law or other laws such as the Income Tax Act, by avoiding payment of appropriate taxes to the State, through the Internal Revenue Commission. (See ROSE AND FRANK CO. v CROMPTON BROS. [1924] UKHL 2; [1925] A.C. 445), In the House of Lords. A party breaching a gentlemen's understanding or agreement suffers damages to his honour and standing or reputation whilst the other party who is affected by the breach recovers nothing and cannot turn to the Courts to seek relief, such as in this plaintiffs case.

It is also settled law that an agreement to do any art that is illegal, immoral or contrary to public policy, is illegal and therefore void (Alexander v Rayson [1936] 1 KB 169 at page 182). The plaintiffs therefore cannot come before this Court and enforce this gentlemen's agreement between them and the defendants, to recover commissions for months of August and September, 2004 and their claims should be dismissed with costs.

The defendants filed a cross-claim against the plaintiffs for the recovery of all monies paid as commissions from operations of these poker machines, to the Plaintiffs since 3rd June, 2002 to 30th October, 2004. They did not state the precise amount or value of their claim or give any monetary value they are claiming and this Court would lack jurisdiction to hear and determine it, under Sections 21 (i) (a) or (b) of District Courts Act Chapter 40 and which is as follows:-

21. CIVIL JURISDICTION
    

(1) Subject to this Act, in addition to any jurisdiction conferred by any other law, a Court has jurisdiction in all personal actions at law or equity where the amount of the claim or the amount or value of the subject matter of the claim does not exceed ---

(a) where the Court consists of one or more Principal Magistrates --- K10,000.00; and

(b) where the Court consists of one or more Magistrates ---K8,000.00.

Clearly this Court has jurisdiction in all personal actions in law and equity, such as in the defendants' cross-claim, if the amount of their claim or the amount or value of the subject matter of their claim is K10,000.00, for under Section 21 (i) (a) of the Act, it could be heard by myself, a Principal Magistrate or K8,000.00 and under Section 21 (1) (b) of the said Act it could be heard by either Mr. August, a Magistrate or myself.

This Court would lack jurisdiction to hear and determine claims, such as in the defendants' cross-claim, where no monetary value of the subject matter of the claim is stated in their pleadings for only the National Court has, as after a finding of liability and if the damages assessed is over K10, 000.00, then this Court would lack jurisdiction to award it and for this reason their cross claim should be struck.

CONCLUSION

From the above reasoning it has been shown that the plaintiffs cannot claim the sum of K8, 830.81 toea, being commissions for months of August and September, 2004, under their gentleman's agreement, as it has no legal effect for which is enforceable in this Court and therefore their claim should be dismissed with costs.

Similarly the defendants' cross claim against them should be struck out with costs, as this Court lacks jurisdiction to hear and determine it, under Sections 21 (i) (a) or (b) of District Courts Act Chapter 40.

FORMAL ORDERS

IT IS HEREBY ORDERED THAT:-

1. COMPLAINTS NUMBER DC: 11 & 12 OF 2005 ARE DISMISSED, WITH COSTS, SUCH IS TO BE AGREED UPON, IF NOT, TAXED.

2. DEFENDANTS' CROSS CLAIMS ARE STRUCK OUT, FOR LACK OF JURISDICTION, WITH COSTS, SUCH IS TO BE AGREED UPON, IF NOT TAXED.

3. PARTIES HAVE 30 DAYS FROM 02/08/05 IN WHICH TO APPEAL AGAINST THIS DECISION TO THE NATIONAL COURT, IF THEY'RE AGGRIEVED BY IT.

Lawyers for Plaintiffs: Parkil Lawyers
Lawyers for Defendants: Poro Lawyers