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National Court of Papua New Guinea |
PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]
OS. NO. 81 OF 2001
BETWEEN:
ANDREW DAIVA
First Plaintiff
AND:
OME OME FORESTS LTD
Second Plaintiff
AND:
LAWRANCE PUKALI
First Defendant
AND:
BENEDICT WAEDE
CONTEMPT CHARGE
OME OME FORESTS LTD
Complainant
AND
RAY CHEONG
AND
JACKSON WHONG
AND
BILL GAREY
WAIGANI: KANDAKASI, J.
2002: 14th April
17th July
08th October
CONTEMPT OF COURT - PRACTICE & PROCEDURE – Contempt Proceedings – Motion for demurrer filed on day of hearing – Treated as alleged contemnors’ response to charge and evidence against them – No need to give it a separate hearing on grounds of late filing and in any case the motion is the alleged contemnors’ response to the charge.
CONTEMPT OF COURT – PRACTICE & PROCEDURE – Orders subject of contempt proceedings must be clear and unambiguous to alleged contemnor – Issue taken on service of orders by two out of three defendants – Service or notice of existence of orders communicated by single mode – Numerous requests and follow ups made for compliance of orders – No issue taken – Service deemed to have been effected on all.
CONTEMPT OF COURT – PRACTICE & PROCEDURE – Court Orders made and directed against companies – Contempt proceedings arising due to company officials conduct – Companies being only separate persons legally but have no independent mind – Exceptions to rule in Foss v. Harbottle extended to include action against company officials responsible for breaching and being in contempt of Court pursuant to schedule 2.3 of the Constitution – Company officials proper defendants in contempt of Court cases as a company has no separate mind from that of its officers – Corporate veil lifted to allow for prosecution against company officials in the interest of justice in all of the circumstances to do so.
CONTEMPT OF COURT – Orders made for payment of monies due under a contract by two companies – The companies through their relevant officers failed to comply with the Court Orders and made payments contrary to Court Orders – No argument as to meaning and effect of orders – Not being served and being under pressure to pay only argument raised – Orders found to have been served on all of the defendants – Even after service of contempt proceedings no step taken to comply with Court orders – Being under pressure is not reasonable excuse for failing to take appropriate steps to comply or to avoid being in contempt of Court – Failure to comply and acting contrary to orders found to be deliberate and continuing – Verdict of guilty returned.
COMPANY LAW – Court orders directing companies to retain and make payments of monies due to the another company – Court orders once made and served or brought to notice of responsible company official, the orders must be complied with – If a company wishes not to comply with the Court order, it must apply for a variation, set aside, stay or a quashing of the orders as the case may be within the period for compliance of the orders under the Rules or within such period as the Court may fix – failure by a company official to comply with a Court order that has not be varied, stayed or quashed despite repeated requests for compliance and acts contrary to orders amounts to contempt of Court – Responsible officers of company in contempt appropriate defendants as company does not have mind of its own except only through that of its proper officials – The proper plaintiff rule in Foss v. Harbottle does not apply – Exceptions to that rule extended to include contempt of Court cases against company officials because contempt of Court is serious and criminal in nature – Corporate veil no protect for company official in contempt of Court in the interest of justice in all of the circumstances.
Papua New Guinean Cases Cited:
Bishop Engineering Pty Ltd & Ors [1988-89] PNGLR 533.
Concord Pacific Limited & Anor v. Thomas Nen & Ors (unreported judgement) N1981.
Soso Tomu & Ors v. The State & Ors (unreported judgement) N2190 at p. 19.
Odata Ltd v Ambusa Copra Oil Mill Ltd (unreported judgement) N2106.
SCR No.4 of 1990; Re Meeting of Parliament [1994] PNGLR 141.
SCR No 4 of 1980; Re Petition of Somare (No 1) [1981] PNGLR 265.
AGC (Pacific) Ltd v. Woo International Pty Ltd [1992] PNGLR 100.
Peter Aigilo v. The Independent State of Papua New Guinea & Ors (unreported judgement) N2102.
Neville v. Privatization Commission (unreported judgement) N2184.
Overseas Cases Cited:
Miller v. Knox [1838] EngR 648; (1838) 4 Bing NC 574; 6 Scott 1; 132 ER 910.
Sheppard and Sheppard [1976] DLR (3d) 592.
Stancomb v. Trowbridge UDC [1910] 2 Ch. 100 at p.194.
Fairclough v. Manchester Ship Canal Co. [1897] N.N. 7.
Hadkinson v. Hadkinson (1952) 2 ALL ER 567 at 569.
Salomon v. Salomon & Co. Limited [1897] AC 22.
Floyd (1909) 53 Sol.Jo 790.
Foss v. Harbottle [1843] EngR 478; [1843] 2 Hare 461; Ch. 12 LJ 319.
Russell v. Wakefield Waterworks Co. [1875] UKLawRpEq 95; [1875] L.R. 20 Eq. 474.
Burland v. Earle [1901] UKLawRpAC 43; [1902] A.C. 83.
Johnson v. Lyttle’s Iron Agency (1877) 5 Ch.D. 687.
Atwool v. Merryweather [1867] L.R. 5 Eq464n.
Cotter v. National Union of Seamen [1929] 2Ch.58 at p. 69.
Prudential Assurance Co. Ltd v. Newman Industries Ltd (No.2) [1982] 1 All E.R. 354.
Nyali Ltd v. The A.G. of Kenya [1956] 1 Q.B. 1 at pp. 20–21.
Packer v. Packer [1954].
Counsel:
Mr. G. Epor for the Plaintiffs/Complainants.
Mr. C. Makail for First Defendant.
Mr. A. Jerewai for Second and Third Defendants.
8th OCTOBER 2002
KANDAKASI, J: The Second Plaintiff ("Ome Ome") is a land owner company. It entered into a forestry development contract with another company, Hugo Sawmilling Limited ("HSL"), the contractor for the extraction and marketing of Ome Ome’s timber products. HSL was obliged under the contract with Ome Ome to pay royalties and premiums for every timber or log extracted and exported. HSL subcontracted its contractual obligations to another company called, Kerawara Limited ("KL"). For all intends and purposes, the parties understood HSL to be the contractor and KL as the subcontractor.
Following problems in the management of Ome Ome, the matter came to Court. On 22nd of May 2001, certain interim orders by consent were made. One of those orders ordered KL to continue with its practice of withholding the payment of premiums and royalties to Ome Ome pending a resolution of the latter’s management problem, or until the Court otherwise orders. Subsequently, the Court ordered by consent on the 13th of July 2001, that all premium moneys and operation costs withheld since December 2000 to the date of the order, be released by the contractor and the subcontractor to Ome Ome. There were futher orders made for HSL and KL to pay legal costs incurred for and on behalf of Ome Ome’s actions.
Ome Ome claims, those orders have not been complied with despite both HSL and KL being served and numerous requests and reminders for them to comply with the orders were made. It is further alleged that, the companies have in fact made payments to various individuals claiming to be the shareholders of Ome Ome. Contempt charges have therefore being laid against the relevant officers of both HSL and KL, namely Bill Garey, operations manager for HSL Jackson Hwong and Ray Cheong, managing director and an officer of KL respectively (collectively "the defendants").
The defendants have denied the charges against them and claim in their defence that they are not the correct parties because they are not named as defendants in the proceedings and the orders are not directed at them personally. This they accept can be corrected by amending the charges by substituting their names to that of KL and HSL. In addition to that, Messrs. Jackson Hwong and Ray Cheong claim the orders were not served on them and as such they are therefore not aware of the existence of the orders. Additionally, on Mr. Bill Garry’s part he claims he was under pressure to make payments to the shareholders of Ome Ome and not Ome Ome itself and as such he is not in contempt. No issue is taken as to the clarity or otherwise of the orders.
Furthermore, Messrs. Jackson Hwong and Ray Cheong filed a notice of motion on the day set for a hearing of the charges seeking to what they call "move the Court on a demurrer." Rather than giving that motion a separate hearing, I decided to deal with it, with their consent as their response to the charges against them.
No issue is taken by any of the defendants in relation to the clarity of the orders and the charges. Similarly, there is no issue in relation to the relevant procedure for successfully bringing a contempt proceeding against a contemnor. So the issues and principles discussed in Bishop Engineering Pty Ltd & Ors [1988-89] PNGLR 533 do not arise here. Hence, there will be no consideration of any of these issues, though they may be referred to occasionally in the course of the judgement.
The issues for this Court’s determination are these:
Facts
Before getting to deal with each of these issues, it is necessary to state the relevant facts. Where there are no issues on the relevant facts I will simply state them. But where the opposite is the case, I will make the necessary findings of facts on the evidence before me. For that purpose, I note the following affidavits by:
There is an affidavit by Mr. Alois W. Jerewai sworn and filed on the 17/07/02. That affidavit merely outlines or restates the chronology of activities on this matter up to the contempt proceedings against his clients. It thus provides no additional facts for the purpose of the charge and plea there to as well as the arguments for and against the charge.
The consent orders of the 22nd of May 2001, in relevant parts ordered:
"4. The practice of withholding payments by the Sub-contractor Company, Kerawara Limited is to continue. No Premium monies is (sic) to be paid to the Ome Ome Forest Limited until the issue of Chairman and Managing Director is determined by this Court. 5. The Monies advanced by Kerawara Limited subsequently subtracted from or by it is to continue until the Court otherwise orders."
The subsequent orders of the 13th of July 2001 were made also with the consent of the parties. Those orders, in relevant parts ordered:
"2. The Contractor and or Sub-contractor release or pay all premium monies and operation costs withheld since December 2000 today to the Second Plaintiff. 3. The Costs of the Plaintiffs and the Defendants be paid out of the premium monies due to the Second Plaintiff."
There is no dispute between all of the parties that the reference to "the Contractor" meant Hugo Sawmilling, while "the Sub-contractor" meant Kerawara Limited and the "Second Plaintiff" was Ome Ome. So there was no misunderstanding as to whom the orders were directed and who was to do what in so far as it was necessary to comply with the orders.
After the orders were respectively entered on the 23rd of May 2001 and 16th July 2001, they were both served on both HSL and KL. This was under cover of a letter dated 31st May 2001, especially for the orders of the 22nd of May 2001. There is however, no clear indication has to when the orders of the 13th of July 2001 were served. But Manu Lawyers on behalf of the plaintiff drew the existence of those orders and the need to comply with them to the attention of the defendants on a number of occasions. That included a letter dated 29th November 2001, addressed to KL by the Managing Director of Ome Ome, a copy of which is annexure "E" to Mr. Manu’s affidavit of the 1st of March 2002.
Mr. Bill Garey does not take any issue on the orders being served. His only argument is that, the individual shareholders of the Ome Ome who are the landowners gave him no choice but to make the premium and other payments due under the agreement between HSL and Ome Ome to them. He therefore made the payments despite being fully aware of the orders and the need to comply with the orders.
In these circumstances, I find that the orders were in fact served on the defendants and or alternatively, the defendants were made aware of the existence of the orders a number of times. The reason for my find is straightforward. The orders were sent to all of them, in the same mode. The plaintiff said in submissions that, all of the defendants were housed at the same premises at Gordons on property owned and operated by HSL. The defendants take no issue on that, I therefore accept what the plaintiff says.
One out of the three addressees of the same letter enclosing the orders received the letter whilst the other two deny receiving the letter. Apart from a bare denial of any service, they give no explanation that would operate against such a finding. For example, they do not say they could not be located at the same address as Mr. Bill Garey or that they do not operate out of the same premises. They take no issue with the plaintiff’s lawyer’s submissions in those terms.
The payments in question are substantial. They totalled to about over K547,000.00. Mr. Bill Garey admits this in paragraph 8 of his own affidavit of the 20th of March 2002. The practice of making payments contrary to the Consent Court orders have not stopped even after the filing and serving of the orders and the hearing of the contempt charge. I consider this fact should be taken into account and I do so as it goes to show the intention of the defendants. This fact in my view demonstrates a deliberate contempt or disrespect for the Court’s orders and I so find to be the case.
The law on contempt of Court is quite clear. Contempt of Court has been long defined as:
"A contempt is in disobedience to the Court, or an opposing or despising the authority, justice or dignity thereof. It consists in a party’s doing otherwise than he is enjoined to do, or not doing what he is commanded to do or required by the process, order or decree of the Court ..."
This definition was given by Patterson J. in his judgement in the House of Lords in Miller v. Knox [1838] EngR 648; (1838) 4 Bing NC 574; 6 Scott 1; 132 ER, 910, who cited the definition given in the Practice Register (Chp. 8.), pp. 133 and 134.
This definition is repeated by many authorities, which includes Halsbury’s Law of England (4th Ed) Vol. 9 at paragraph 52. They speak of such disobedience being either a refusal or neglect to do an act required by a judgement or order of the Court within the time specified in the judgements or order.
Such authorities go on to provide, that the penalties for contempt of Court in the case may subject to certain exceptions, be enforced by an order of committal or by a writ of sequestration against the individual’s (or company/corporation’s) property.
There is also clear authority such as that of Re Sheppard and Sheppard [1976] DLR (3d) 592 supporting the proposition that:
"In order to establish a contempt, it is necessary to prove that the defendant intended to disobey or flout the Order of the Court. The offence consists of the intentional doing of an act or not doing of an act which is in fact prohibited by or ordered to be done by the Court."
It follows therefore that, in order for there to be contempt of Court and therefore punishable by committal or sequestration, the conduct amounting to contempt involves a degree of fault or misconduct. Thus, accidental and unintentional disobedience is not sufficient: See Halsbury’s Laws of England Vol. 9 para 53 at p.34.
Warrinton J. considered the meaning of "wilful disobedience" Stancomb v. Trowbridge UDC [1910] 2 Ch. 100 at p.194, in the context of the then existing rules of the Court and said:
"I think the expression ‘wilfully’ in Order XL11 r31 is intended to exclude only such casual or accidental and unintentional acts as are referred to in Fairclough v. Manchester Ship Canal Co. [1897] N.N.7."
In Concord Pacific Limited & Anor v. Thomas Nen & Ors (unreported judgement) N1981, Justice Sheehan found there was contempt of Court but not intentional and decided not to impose any penalty other than to order costs against the contemnor. That was in a case where, the contemnors legal advise advised him not to comply with certain orders of the Court. This is the only judgement I am able to find in Papua New Guinea in the absence of any assistance from all counsel before me, on the issue of intentional or unintentional contempt.
From all of these authorities it is clear to me that, where a person obliged to comply with an order, direction or judgement of the Court, fails to comply and such failure is intentional or deliberate, that amounts to contempt of Court. If however, the failure to comply is by a mere oversight or wrong legal advice or accidental, there can be no contempt. I would add to that list, a lack of knowledge of the existence of the Court’s direction, order or judgement, due to say lack of service of the orders or not being made aware of the existence of the direction, order of judgement in question.
Where a person is directed, ordered or adjudged by a Court to do sometime or abstain from doing something, he or she is obliged to comply. The need to do so arises from the moment he or she is served or is made aware of the existence, of the Court’s direction, order or judgement. He or she is required to comply unless there is a set aside or variation of it rendering compliance unnecessary. After all, the law is that, unless a direction, or an order or a judgement of a Court is set aside, it is valid and must be honoured. See Hadkinson v. Hadkinson (1952) 2 ALL ER 567 at 569 and Soso Tomu & Ors v. The State & Ors (unreported judgement) N2190 at p. 19. This means in my view that, the person who is required to comply has no choice but to comply. It follows therefore, that, if such a person wishes not to comply or is in doubt as to what is required of him or her, he or she is at no liberty to ignore it. By the same token, he or she is not at any liberty to engage in conduct that runs contrary to the direction, order or judgement of the Court.
All reasonable steps must be taken to comply with all directions, orders or judgements of a Court. Where there is a doubt or there is difficulty in complying with such processes of the Court, it is reasonable to expect appropriate steps being taken to do something about them. Such steps may include engaging a lawyer for appropriate advice and action. If it is too difficult to engage the services of a lawyer, it would be reasonable to expect such a person going to the Court that issued the directions or made the orders or issued the judgement for clarification, variation or a stay. This could reasonably be expected to happen within the period he or she is required to comply or the moment he or she becomes aware of the direction, order or judgement. Unless such action results in a stay or a set aside or variation making compliance unnecessary, the direction, order or the judgement in question must be complied with. The least that can reasonably be expected of such a person is an action contrary to the directions or orders of the Court. Where a person faced with a direction, or order or judgement of a Court fails to take such steps and proceeds to engage in conduct contrary to what is required, he would be in contempt of Court. But whether or not he or she would be guilty of contempt is dependent on the conduct of the alleged contemnor, which could point to either an existence or lack of an intention not to comply with the directions, orders or judgement in question.
The intention or the state of mind of the person who is required to comply with a direction, order or judgement of the Court can only be inferred from the conduct of such a person. For no one except God can tell the state of mind of a person. If evidence adduced at the hearing of a contempt charge reveals for example repeated unsuccessful requests for compliance of the orders, directions or the judgements in question that would be indicative of an intention not to comply. Similarly, unsuccessful repeated calls upon an alleged contemnor to desist from conduct that is contrary to a Court direction, order or a judgement would point to an intention not to comply. This is why I said it is appropriate to take into account any continuous breach or a failure to comply after the issue of contempt proceedings as that would demonstrate the alleged contemnor’s state of mind.
A failure to seek appropriate legal advice, if the person who is required to comply has no understanding of the terms of the order could also be a factor against him or her. This brings into play the education, training, experience and knowledge of the person who is required to comply. If such a person is educated to some higher level sufficient to read and understate the terms of a direction, order or judgement, the greater the argument for him or her having no difficulty in understanding and complying with the terms of the direction, order or judgement. For an uneducated person, a failure to take steps to understand and comply with a Court direction or order, either by engaging a lawyer or someone who is able to understand and explain it to him or her without any reasonable explanation could amount to an intention not to comply.
In this case, there is no claim of a lack of understanding the terms of the orders and the need to comply. Messrs. Cheong and Whong claim they were not served with the orders. This they say was the case because, neither them nor their company, KL was a party to the substantive proceedings. I have however, found on the evidence before me that they were served with the orders in question and or had reason to be aware of the existence of the orders and the need to comply after they were made by consent of the parties. Even if they were not served prior to the issue of the contempt proceedings, they were served soon after the taking out of the contempt proceedings and the supporting affidavits. Mr. Cheong confirms this in his affidavit at paragraph 5. Hence, the need for them to comply arose if not earlier by the time they were served with the contempt proceedings. Instead of ensuring compliance with the orders, they have allowed Mr. Garey to continue to make payments contrary to the orders including the raising of cheques in the name of the Ome Ome and withholding them. In these circumstances, I find that both Mr. Cheong and Mr. Whong have deliberately failed to comply with the orders of this Court especially, those made by consent on the 13th of July, which ordered the payments to be made and released to Ome Ome. I find that, their claim of not being served is simply an attempt at trying to avoid being found guilty of contempt.
As for Mr. Garey, I have no difficulty in finding him guilty of being in contempt of the orders of this Court made on the 22nd of May and 13th of July 2001, which directed his company and KL to retain, and later release payments due to the Ome Ome. According to his own evidence, he has been educated up to 4th year law studies before getting into company management qualifications and being employed as one. Hence, he not only has a good level of education but also has substantive law education. He was therefore in a much higher level of knowing and appreciating the need to comply with the orders of the Court.
Mr. Garey’s only excuse for not complying with the orders, is that he made payments to the share holders of Ome Ome because he was under pressure from them to do so. He further argues that, in so doing he complied with the orders. The later argument is in answer to his own question, "who was or were the persons entitled to receive the premium moneys on behalf of Ome Ome Forests Ltd?" He also makes reference to confusions and disputes as to the management and board of Ome Ome. That made it necessary for him to make the payments to the shareholders and not Ome Ome.
Those argument in my view flies in the face of his legal education and knowledge and understanding of the attributes of an incorporated company. One of the things a student in company law first learns and can not easily forget is the separate legal personality of a company distinct from its shareholders going by the well known authority in Salomon v. Salomon & Co. Limited [1897] AC 22. That principle applies in our country by virtue of ss. 16 and 17 of the Companies Act 1997, as the case authorities will demonstrate. I discussed nearly all of the cases on point in Odata Ltd v Ambusa Copra Oil Mill Ltd (unreported judgement) N2106.
There are however exceptions to that principle. This is so, especially in case where a Court can on proper consideration go behind what is called the corporate veil. I discussed the circumstances in which that could be done in the Odata Ltd v Ambusa Copra Oil Mill Ltd (supra). There is no argument that this is an appropriate case in which Mr. Garey was entitled to go behind the corporate veil. Not only that, there were specific orders of this Court for the funds due to Ome Ome to be retained and paid to Ome Ome. There was no stay or a set aside of those orders or a subsequent order of the Court rendering the need to comply with those orders unnecessary.
Given, Mr. Garey’s educational background and experience as a company manager, I find that he was in a position to fully understand the terms of the orders in question. Also, I find that he was in a position to better appreciate the effects of the orders and what he or his employer, the company, HSL was required to do. His claim of being under pressure from the shareholders is, in my view, a very weak excuse for his failure to comply with the orders. Not only that, his claim of being under pressure is not supported by any other evidence before me. The evidence is that, he chose to pay the shareholders instead of the Ome Ome. That is clear from the affidavit of Victor Aiso, Joe Doboi and Andrew Diva.
In his oral evidence under cross-examination he said he was not in good working terms with part of the management or board of directors as well as the shareholders of Ome Ome. He was therefore paying individually the shareholders that were with him or supporting his company. This in my view confirms the real reason for him making payments directly to the shareholders of Ome Ome in clear breach of the clearly accepted legal position that, a company once incorporated is a separate legal personality from its shareholders. It was also in breach of the orders of this Court, which he had no problems understanding, in the absence of any evidence to the contrary. The orders were clearly for the retaining and then paying to Ome Ome the premium and other payments due to it. There was nothing equivocating this. The orders were made by consent fully appreciating and noting the confusion and disputes concerning the management and membership of Ome Ome’s board of directors.
If indeed, he was under pressure to pay contrary to the Court orders or that it was unclear as to whom the payments should be made, there was nothing preventing him from first coming to the Court for appropriate orders, varying the terms of the orders in question. If not he had the option of placing the funds in an interest bearing deposit account for the benefit of Ome Ome to be paid out once the confusion in the management and membership of the complainant’s board was resolved. He did not take any of these steps, despite being in a better position to appreciate the terms of the orders and, their effect he failed to comply with the orders and make payments contrary to the orders.
In this circumstances, I have no difficulty also in finding beyond any reasonable doubt that, Mr. Garey deliberately failed to company with the orders of the 22nd and 13th of July 2001. I find further that his motivation was to please part of the management and the shareholders that were with him and his company and thereby sideline those who were against him and his company. That was a deliberate act on his part for the benefit of himself and his company in direct breach of the principles of the separate corporate personality for Ome Ome and the direct and clear orders of this Court.
The orders for a payment of legal fees due to lawyers, out of what was due to the Complainant were eventually paid. There is therefore no issue in relation to that part of the orders. Hence the defendants are found guilty only in relation to the payment of premiums and dues due and owing to Ome Ome.
NON-PARTY
The final issue upon which this case turns is the issue of the defendant’s non-party. There are two parts to this argue. The first is that since the defendants were not named as parties to the proceedings and the orders in question, they are the wrong defendants. The second is that, the orders were directed at HSL and KL and not personally against the defendants. This argument proceeds on the well-accepted principle of separate corporate personality for the named companies who are entitled to sue and be sued in their own corporate name and style.
In relation to the first argument, it is usual for orders to be made against persons who are not named as parties in the proceedings. A clear statement of the law on that is in Halsbury Laws of England (4th Ed) Vol. 9, paragraph 57 in these terms:
"A person not a party to a cause or matter, who obtains an Order or in whose favour an order is made is entitled to enforce obedience to it by the same process as if he were a party; and a person not a party against whom any judgement or order maybe enforced is liable to the same process for enforcing obedience to it as if he were a party."
In Re: Floyd (1909) 53 Sol.Jo 790, the Court found a state agency guilty of contempt of Court for disobeying an order for production of documents. There are many other authorities saying the same thing but need not be all cited because the position is so clear that there is no need for them to be cited.
The effect of this is simple. A person need not be specifically named as a party to proceedings before any orders could be made against him or her. The position is clearer and applies in cases where interim orders are made for the preservation of property or other interests before they get lost or destroyed. Orders may also be made against persons who are not themselves parties to proceedings, where it is necessary to do so to facilitate a proper dispensation of justice. For example, a third party may have documents that a relevant to proceedings before a Court. Inevitably, such a person would be ordered to produce them in Court. Similarly, a third party may have the custody or control over funds belonging to either or both of the parties to a proceeding. Such a person may be ordered to preserve them in a certain way or pay to a particular person. In any or all of these cases, can there be a challenge to such orders unless the third party concerned does not have in its custody, the funds or the documents or property or interest as the case may be. It is most unheard of for a third party to act contrary to a specific Court order and then plead not being a party when faced with a contempt charge as in this case. That is why there is no case for the defendants to cite in support of their position, and I know of none.
The rational for this principle of the law is simple. Justice would fail, if it were possible for third parties to plead non-party to avoid compliance. Court orders once made and served or brought to the notice of the person or persons, to whom they are directed, they should be complied with. One does not really have to be a party to a proceeding to comply with a Court order unless, ones personal interest or right is adversely affected, in which case an application should immediately be made to stay, set aside or vary the orders. Unless such an application is made and is granted the orders should be complied with. A failure to take such steps would land the persons concerned in breach of the Court orders and possibly contempt of Court.
In relation to the second argument based on the separate corporate personality of a company, there is no dispute that a company being a person only at law can only act through human agents. Such agents are the board of directors as its head and managers and employees as hands and legs to carry out the orders or directions of the board for and on behalf of a company. It is settled law that, a proper plaintiff to seek any redress for any damage or loss suffered by a company is the company itself suing in its own corporate name and style. Similarly, if a company commits a legally actionable error, omission or wrong against another company or a person the proper defendant is the company and not its officers. This is what is called the proper "plaintiff rule" in Foss v. Harbottle [1843] EngR 478; [1843] 2 Hare 461; Ch. 12 LJ 319.
The Court in the above case had an action by minority members of the company for the company’s directors to make good loss suffered by the company due to their fraudulent act. The Court declined to grant that relief because it was of the view that, those acts were capable of confirmation by the majority. In other words the Court declined to interfere because the acts were capable of being condoned by the majority. This was in line with the well accepted principle that the company by a majority of its members have the power to ratify the acts of the directors even if they were irregular and or illegal.
There are however about four exceptions to this rule. This goes as early as the 1875 when the Courts were accepting that the rule in Foss v. Harbottle is only a general rule. Where justice of the case required it was necessary that there be exceptions to the rule: Russell v. Wakefield Waterworks Co. [1875] UKLawRpEq 95; [1875] L.R. 20 Eq. 474, per Jessel M.R.
The first exception was in cases of ultra vires transactions: (See CCH Australia Limited, Law of Companies in Australia, 1985, 721, p. 306 – 307, where this is coming from and the following discussions.) There is not much significance of this exception today. I believe this is due mainly to the insignificant incidents of such transactions and also due to the ability of the majority to ratify any such transactions. The second exception was allowed and based on against whom the relief was sought. If it was against people who held and controlled a majority of the shares, the Courts allowed such actions to be taken out in the name of complaining shareholders own names: Burland v. Earle [1901] UKLawRpAC 43; [1902] A.C. 83, per Lord Davey.
The third exception to the rule has to do with a case in which more than a simple majority vote is required. This could operate in cases where the act complained of could only be supported by a more than a simple majority vote. This is represented by the case of Johnson v. Lyttle’s Iron Agency (1877) 5 Ch.D. 687 and many others. This has been allowed in cases where the rights of a shareholder are being infringed by the wrongful conduct of a company and such conduct can not be ratified by an ordinary resolution of the company.
The fourth exception has been allowed where a fraud on the minority is being committed. There are numerous authorities for this also. They go back to 1860s starting with cases like that of Atwool v. Merryweather [1867] L.R. 5 Eq464n.
The learned authors of Gower’s Principles of Modern Company Law (1979), suggest that there is a further exception. That exception is stated in terms of the general rule in Foss v. Harbottle can be disregarded in the interest of justice. Generally, there is some agreement by case authorities like that of Cotter v. National Union of Seamen [1929] 2Ch.58 at p. 69, per Romer J. However, the UK Court of Appeal in Prudential Assurance Co. Ltd v. Newman Industries Ltd (No.2) [1982] 1 All E.R. 354 appeared to have rejected it. That was on the basis that this exception is too general and that one needs to meet two requirements first before there can be action in a name other than that of the company. These two requirements are that, such a person must establish a prima facie case and that he or she is entitled to the relief claimed. The second is that, the action falls into the proper boundaries of any of the exceptions to the rule in Foss v. Harbottle.
The point that has to be made has already been made that, the concept of justice is not the test for an exception to the rule in Foss v. Harbottle. If the test were "justice" or "injustice" it could mean a whole lot of different things to different people. That is why the Courts have formulated the exceptions in the way they have as noted: Law of Companies in Australia (supra) at p. 307.
Present Case
The present case could not fall easily into any of the above exceptions to the rule in Foss v. Harbottle. It could however, be argued that the suggestion by Gower’s Principle of Modern Company Law (supra), with the support of Cotter v. National Union of Seamen (supra) is wide enough to cover the present case. But as was also noted, there is no unanimity in the authorities in recognizing this as an exception to the rule Foss v. Harbottle. On my part, I agree with the UK Court of Appeal in Prudential Assurance Co. Ltd v. Newman Industries Ltd (supra), that this is a very wide and too general an exception.
Does this then mean this is the end of the matter and that law is incapable of supplying a remedy in a case where a person is not able to bring his case within the confines of the exceptions to the rule in Foss v. Harbottle? No, I do not think so. As Lord Denning said in Nyali Ltd v. The A.G. of Kenya [1956] 1 Q.B. 1 at pp. 20–21, the fact that no legal precedent or authority exists on a particular matter should be no bar to judicial determination. I find persuasion in the suggestion by B.B. Sakora (as he then was now Sakora J.) where he says, what Lord Denning said is "most pertinent to the judges of post-independence PNG": See "Judicial Law-Making Under the Papua New Guinea Constitution," in Pacific Constitutions edited by Peter Sack, Law Department, Research School of Social Sciences, Canberra, ANU, 1982, at p. 263. For as Lord Denning again said this time in Packer v. Packer [1954]? 15 at p. 22 (cited by Sakora):
"What is the argument for the other side? Only this, that no case has been found in which it has been done before. That argument does not appeal to me in the least. If we never do anything, which has not been done before, we shall never get anywhere. The law will stand still while the rest of the world goes on: and that will be bad for both."
I again agree with Sakora, (supra) at p. 264 that, under the PNG Constitution, "our judges are required to do more than just decide cases: they have to decide with society and the future very much in their minds." They are conferred specifically "with law-making and developing powers." This means where there is an apparent lack of a relevant authority or power, the judges of the National and Supreme Court can supply it. Indeed schedule 2.3 of the Constitution expressly authorizes both the Supreme and National Court to develop the underlying law where there is no relevant and applying principle of law. This was judicially acknowledged and applied by the Supreme Court in SCR No.4 of 1990; Re Meeting of Parliament [1994] PNGLR 141. It followed its earlier precedent in the case of SCR No 4 of 1980; Re Petition of Somare (No 1) [1981] PNGLR 265.
In the case before me there can be no argument that, the rule in Foss v. Harbottle, is without exception. There can also be no argument that the list of exceptions is exhaustive. Most of the exceptions have been developed and accepted in the interest of doing justice as and when the need to do so arose. This was in keeping with the principle that, the law can never be stagnant. It has to develop and constantly change to meet the changing circumstances in which it operates. Otherwise, the law will become irrelevant and be out of touch with reality and hence fail to serve any useful purpose.
Having said all of these, I consider it necessary for the rule of law that that there should be an additional exception to the rule in Foss v. Harbottle, to include cases in which the corporate shield is raised to avoid criminal prosecutions. This should include contempt of Court proceedings given that it is criminal in nature and is punishable by a penalty or imprisonment or both. This in turn follows on from the fact that companies being only legal persons, they can only act through natural persons or human beings: AGC (Pacific) Ltd v. Woo International Pty Ltd [1992] PNGLR 100. It would therefore be untenable in my view, for only a company to be prosecuted and punished and allow the actual perpetrators escape through the corporate veil.
Indeed, the Companies Act 1997 and the law generally, require companies to appoint appropriately qualified persons to run its affairs. To strengthen that requirement offences have been prescribed with stiffer penalties. For example, section 425 of the Companies Act 1997 disqualifies a convicted criminal from being a director of a company while section 421 makes it an offence if a company director, employee or a shareholder applies the property of a company for the benefit of persons other than the company. The offence is punishable by a fine not exceeding K200,000.00 or imprisonment for a term not exceeding five years, or both. These and other provisions make it clear that, the criminal conduct of company officials is a serious matter.
What does this mean specifically for a case of contempt of Court? As already noted, once Court orders are made and served or the existence of the same is brought to the notice of the person required to comply they must be complied with. If there is any difficulty with that for whatever reason, application must immediately be made to the Court for a stay, set aside or variation of the order and unless such an order is made, they must be complied with. A failure to do so would amount to contempt unless it can be shown that the non-compliance was not deliberate but an oversight, or a mistake.
What does this mean for a company? It means since a company can only act through its proper officers it follows that when an order is directed at a company, it is the duty of the appropriate company officials to ensure that the order is complied with. If there is difficulty with that, than appropriate steps must be taken by them to apply for a stay, a set aside or variation it as the case may be to enable compliance or compliance unnecessary. Unless such an order is obtained, the initial order must be complied with. A failure on the part of the officers to take any of these steps could amount to contempt unless it can be shown that the failure was not deliberate but an oversight or a mistake. It could mean personal liability for the relevant officer who fails to take the appropriate steps. This is because the company could only be in breach only for the failures of its officers and not of its own, which does not have a separate mind from that of its officers.
This brings me to another facet to the notion of separate legal personality. The officers of a company are its employees. The company can only be liable for the acts of its employees if they act in the course of their employment pursuing their employers (the company’s) interest. If they are out on a frolic and detour of their own they could become personally liable. There is clear law on this but for a recent example of an authority on this see Peter Aigilo v. The Independent State of Papua New Guinea & Ors (unreported judgement) N2102. This is very important because, a company for all practical and normal purposes will not be exercising an independent mind and therefore undertake steps separately from its employed officers who are tasked with the responsibility to act for it.
I now return to the case at hand. The orders of this Court dated the 22nd May 2001 and 13th July 2001, were made against HSL and KL as contractor and subcontractor respectively. There is no argument that the terms of these orders were clear as to what they required of them. There is also no argument that the relevant officers to take the appropriate steps on behalf of the companies to comply with the orders were the defendants. Two of them claim that they were never served with the orders. One of them takes no issue on service of the orders. The orders were served and brought to the attention of the defendants in the same way. In respect of the first orders it was addressed to all three of them in one single process. No issue is taken that both companies and therefore the defendants operated out of the same location. There is also no argument that the companies being legal persons, they could only act through the defendants who were there relevant and appropriate officers. Further, not only did the defendants fail to comply with the orders but they also have failed to retain and made payments to Ome Ome’s shareholders and not Ome Ome despite the clear terms of the orders.
There is no evidence of the defendants drawing to the board of directors of the two companies as to the existence of the orders and the need to comply with them or do something about them to avoid being in contempt. If however, this was done, there should be a board decision regarding the compliance or otherwise of the orders but there is no evidence. This is critical because the payments to the shareholders were not payments to the plaintiff going by the separate legal personality principle. Consequently, both HSL and KL could still be liable to Ome Ome for the amounts due to it but was wrongly paid to the shareholders. It could also amount to a fraud against these two companies to the extent of the payment, which could land the defendants within the ambit of section 421 of the Companies Act 1997.
Since the conduct of the defendants were criminal in nature both from the perspective of section 421 of the Companies Act 1997 and the contemptuous conduct, I do not consider it appropriate that they should hide behind and take advantage of the corporate veil. As I said in Odata Ltd v. Ambusa Copra Oil Mill Ltd (supra) the corporate veil can be lifted in appropriate cases to do justice. At pages 17 to 20 of that judgement I discussed and set out the circumstances in which the corporate veil could be lifted. One of those circumstances is where, a lifting of the veil is justified in all of the circumstances of the case. I followed that principle in Neville v. Privatization Commission (unreported judgement) N2184 and lifted the corporate veil.
I consider it appropriate to add to the list of circumstances in which the corporate veil could be lift, cases where a crime including contempt of Court is committed. It does not really matter who the crime is committed against. This follows on from the earlier observation that, a company not having a mind of its own can only be responsible only to the extent its members, officers or employees are. In other words it makes sense to make the individuals who are personally responsible to be liable for their criminal conduct as logically a company having no mind of its own could be expected to have the necessary intend to commit an offence independent of that of its members, officers or employees. Besides, it is inconceivable to expect a company to condone the criminal conducts of its directors, shareholders or employees, unless it has by special resolution adopted their conducts, or failed to take steps to disassociate itself from the offenders despite having a reasonable opportunity to do so.
Applying this to the present case, I find that, the defendants where the persons who deliberately, decided not to comply with the orders. Not only that, they also chose to act in direct breach of the orders by failing to retain and pay to Ome Ome premiums and other payments due to it. Instead, they chose to and did pay to persons not entitled to receive the payments. This deprived Ome Ome of the amount of money due to it. This in turn has the potential of landing both HSL and KL in Court, possibly by an action for a recovery of the amounts due and owing to it by Ome Ome. That in turn has the potential of placing those companies in a difficult financial position of being ordered to pay again what was already paid out but this time to Ome Ome. This could not be certainly in the best interest of those companies by reason of which no condoning or accepting of these conducts by them would reasonably be expected. Perhaps this is why there is no evidence of HSL and KL accepting the acts of the defendants. In these circumstances, and all of the above, I find that the defendants have been correctly named has the defendants to the contempt charges which have been established beyond any reasonable doubt. I therefore return a verdict of guilty against them.
In view of my above finding, it is not necessary to consider amending the contempt charges to substitute the defendants with HSL and
KL.
_________________________________________________________________________
Lawyers for the Plaintiff: Manu & Associates Lawyers
Lawyers for the First and Second Defendants: Jerewai Lawyers
Lawyers for the Third Defendant: Murray & Associates Lawyers
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