N3221

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

OS 573 of 2006

BETWEEN

MAGASAKI LTD
Plaintiff

AND

LINUS BAI, JACK KESKALA,
 ALOIS MAKILE, LEO LELLE 
& PETER BEVE
Respondent

Kokopo: Lay J.
2007: 23 April
7 May

CIVIL - Companies Act s.102, s.103, s.105, s.106, s.134, s.137 and schedule 2 Para 2 and 5 - notice of shareholders meeting - statutory requirements for notice of meeting - validity of shareholders meeting. 

Facts

The defendants gave notice of a meeting of shareholders of the plaintiff and at that meeting purported to remove and replace the Board of Directors. The defendants are landowners and timber resource owners in the area where the plaintiff has a logging concession but not shareholders or directors of the plaintiff. No shareholders voted at the meeting. The affidavits filed in response by the defendants sought to prove that the current Board of Directors was not duly elected, but no cross application for relief was filed.

Held

1.	the Companies Act requires that a meeting of the shareholders:

a)	is governed by schedule 2 to the act when Company has no Constitution;

b)	only shareholders are entitled to receive notice of meeting;

c)	a notice of meeting intending to remove a director must state that purpose;

d)	a notice of meeting must be in writing

e)	a notice of meeting must be served on every director and shareholder and the secretary;

f)	only the Board of Directors calls general meetings unless the Constitution provides for another person to do that or 5 percent of the shareholders makes a demand;

g)	it is only the shareholders who may vote at a meeting of shareholders;

h)	it is the responsibility of the directors to have no other person to file a form with the Registrar of companies to notify change of directors.

2.	The meeting held was not a meeting of shareholders and the resolutions passed were of no effect and did not remove and replace the Board of Directors.

3.	The defendants could not have relief not pleaded.

Cases Cited

PNG Cases 

Ume More & Ors v University of Papua New Guinea [1985] PNGLR 401 

Overseas Cases 

London Passenger Transport Board v Moscrop [1942] 1 All ER 97
Blay v Pollard and Morris [1930] 1 KB 628

References

Companies Act 1997

Counsel
K. Latu, for the Plaintiff
E. T. Paisat, for the Respondents

7 May, 2007

1.	LAY J.: This case is a dispute over the control of the Board of Directors of Magasaki which is the owner of a timber resource permit known as the Inland Pomio TRP TP 15-49. The Respondents Linus Bai and Jack Keskala called a meeting on 8 May 2005, for the purpose of removing the Board of Directors of Magasaki which is led by Peter Kaiapuna, and replacing them.

2.	It is not disputed that:

1.	the notice of meeting was given orally;

2.	notice was not given to the directors or secretary of the company;

3.	neither Linus Bai nor Jack Keskala were at the time of giving notice directors or secretary of the company or have ever been shareholders of the company;

4.	none of the persons who attended the meeting which was in fact held on 8 May, 2005 were directors or shareholders of the company.

3.	More than 500 people attended the meeting and eight (8) of them signed a document purporting to represent 4 villages in the resource area. The respondents say that the persons who attended the meeting were resource owners and landowners. Resolutions were passed to remove and replace the Board of Directors. 

4.	The forms required by the Companies Act to notify change of officers of Magasaki as a result of the resolutions passed on 8 May 2005 were filed with the Registrar of Companies on 3 January 2006.

5.	Magasaki does not have a Constitution. 

6.	A principal issue for determination is (1)(a) whether or not the meeting of the 8 May 2005 was lawfully held and lawfully replaced the Board of Directors of the Company, subsidiary to which is the question of (b) whether oral notice of meeting is sufficient compliance with the Companies Act. Ancillary issues which the Respondents raised are (2) whether it was lawful for Peter Kaiapuna and his board of directors to bring proceedings in the name of the company, (3) whether Peter Kaiapuna and his Board were lawfully elected as directors, and (4) whether the court should order a court supervised general meeting.

7.	The Companies Act provides for a number of relevant matters which I set out in point form:

1.	if a company does not have a Constitution schedule 2 to the Act provides the procedure for meetings of shareholders: See Section 105;

2.	the persons who are entitled to receive notice of a meeting of shareholders of the company are those whose names are on the share register, on the date fixed by the company or if no date is fixed, on the day before the notice of the meeting is given: See Section 106;

3.	a director can be removed by an ordinary resolution at a shareholders meeting, but the notice of meeting must include that a purpose of the meeting is the removal of the named director: See Section 134;

4.	the notice of a meeting of shareholders must be in writing and must be sent to every shareholder entitled to receive the notice at least 14 days before the meeting, and the notice must also be sent to every director, the secretary, and if appointed the auditor: See Schedule 2 paragraph 2 to the Act;

5.	it is the Board of Directors which calls annual general meetings: See Act Section 102 and special meetings unless the Constitution authorises another person to call special meetings, or a meeting is demanded by 5 percent of the shareholders: See Section 103 of the Act;

6.	It is the shareholders who may vote at a meeting of shareholders: See scheduled 2 paragraph 5;

7.	It is the responsibility of the directors to file a form with the Registrar of the Companies notifying a change of directors: See Section 137 of the Act. 

8.	The respondents argue that given that they are illiterate oral notice of the proposed meeting of Magasaki was sufficient compliance with the Companies Act.

9.	The notice of meeting was not in writing. Parliament has provided that it shall be in writing unless the Constitution of the company provides otherwise. There are sound reasons for a notice being in writing, not the least of which is that it gives certainty as to what was contained in it. There would be great inconvenience and uncertainty if oral notice was given. If litigation ensued over the notice oral evidence would have to be heard and the issue of fact decided, a time-consuming and expensive exercise completely avoided by written notice. In my view the Act requires written notice and there is no basis on which I can find that oral notice fulfils the requirement of the Act or that it is sufficient compliance with the Act.

10.	The notice of meeting was neither given to the directors, nor to the shareholders on the share register and thus entitled to receive notice of meeting. Nor was the notice given by the Board or a person authorised by the Constitution or on a requisition by 5 percent of the shareholders. It was given by people who in law are strangers to the company.

11.	I must conclude that the notice, not in writing when the law requires it to be in writing, not given by the Board Members when the law requires the Board to give the notice, not given to the Board Members when the law requires the notice be given to them, was no notice at all in relation to any lawful meeting of the shareholders of Magasaki.

12.	Only shareholders are entitled to vote at a meeting of shareholders, the shareholders did not vote at the meeting. Both because the shareholders were not present and because the notice of meeting was completely invalid the resolutions passed at the meeting of the 8 May 2005 were not resolutions of the shareholders of Magasaki. Consequently the respondents were not duly elected as directors of Magasaki and they had no authority to file notice with the Registrar of Companies of change of directors.

13.	Magasaki was clearly entitled to bring proceedings in its own name in circumstances where a group of strangers to the company purported to have a meeting to change the officers of the company.

14.	Other issues which the respondents sought to litigate, and in their submissions sought relief upon were:

a.	That Peter Kaiapuna and his directors were not lawfully elected;

b.	That as there were no annual general meetings in the years 2001 to 2005 the court ought to order that an annual general meeting be held.

15.	It has always been the case in litigation that a party does not get relief for which he does not ask in his pleading. see London Passenger Transport Board v Moscrop [1942] 1 All ER 97 per Lord Russel of Killowen at p105; and cases must be decided on the issues on the record and the record must be amended if it is desired to raise other issues-see Blay v Pollard and Morris [1930] 1 KB 628 at 634 per Scrutton LJ. Both cases were cited by Pratt J in the Supreme Court in Ume More & Ors v University of Papua New Guinea [1985] PNGLR 401 at 405.

16.	The respondents filed no request for relief in these proceedings. Faced with an originating summons seeking specific relief, it is not good enough for the defendant simply to mention issues in affidavits and expect that those facts can become the basis of relief in the proceedings.

17.	As to whether Peter Kaiapuna and his directors were duly elected, my view is that this is an issue which was not raised in a proper manner by the respondents and as the respondents are strangers to the company it is not a matter which they can raise, because it is a matter which only concerns the shareholders of Magasaki, and the respondents are not in that number. I say it was not raised in a proper manner because the defendant's filed no cross summons, nor did they apply for the matter to proceed by way of pleadings so that they could file a defence and cross-claim. The only issue the trial was whether the general meeting called by the respondents was lawfully called. For the same reasons, I would not order a Court supervise general meeting of the company as sought by the respondents.

18.	It is not for this court to be advising a party what steps it should take to advance its interests. It is clear to me that the actions taken by the respondents as resource owners are completely misconceived. Ignoring the legal structure of a company whose course, you are trying to influence, as was done in this case, does not usually, and has not in this case resulted in productive outcomes.

19.	I declare that the respondents where improperly appointed and therefore are not directors of Magasaki Ltd.

20.	I declare that Linus Bai is not the managing director of Magasaki Ltd.

21.	I declare that the meeting held on 8 May 2005 was not a meeting of the shareholders of Magasaki. 

22.	I order that the notice of change of directors filed with the Registrar of Companies on 3 January 2006 naming the defendant as directors of Magasaki Ltd be removed from the Register.

23.	I grant a permanent injunction restraining the respondents from interfering with the management of the inland Pomio timber project in any manner or form.

24.	The respondents shall pay the plaintiff's costs of the action.

_____________________________________________________

Latu lawyers: Lawyer for the Plaintiff
E. T. Paisat: Lawyer for the Respondents