PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

OS NO. 96 OF 2008

BETWEEN

BEVAN SAILE
First Plaintiff

SARE RESOURCES LTD
Second Plaintiff

AND

ANDREW POSAI
First Defendant

FATHER DONIUS NINEN, FRANCIS POKLE, 
SYLVESTER LELVOLONG, MICHAEL RAMGOLO, FRANCIS
ANGAS, JAMES LAVIO, PETER MIGI AND DAVID SILME
 
Kokopo: Lay J.
2008: 25th July and 1st August

CIVIL - Companies Act s110, 425, ch 2 - notice of shareholders meeting backdated -14 days notice not given to shareholders - notice given 4th March for meeting 5 March 2008-shareholders meeting illegal - resolutions of no effect.

Notice of shareholders meeting to remove directors - failure to disclose true nature of proposed meeting in notice -failure to name directors and intention to remove them - notice of no effect - meeting not meeting of shareholders - resolution to remove directors void.

Facts
Written Notice of a meeting of shareholders dated 22 February 2008 for a meeting to be held on the 5th of March 2008 was in fact given on 4 March 2008. The notice did not disclose that the business to be conducted at the meeting was the removal of directors and did not name the directors to be removed. Most of the Board were removed at the meeting and others elected in their place.

Held
 1.	The Notice of Meeting was of no effect because it did not give proper notice both as to time and subject matter of the meeting, particularly the proposal to remove directors;
 2.	The meeting was unlawfully held;
 3.	All of the resolutions passed at the meeting were void and of no effect.

Cases Cited
Leytrac Pty Ltd v The State [1982] PNGLR 148
N3221 (2007) Magasaki Ltd v Linus Bai &4 ors
Dent v Kavali [1981] PNGLR 488
SCR No. 2 of 1985; Re Massive v Okuk [1985] PNGLR 263
Kitogara Holdings v NCDC [1988-89] PNGLR 346
SC798 (2005) Yanta Development Association Inc v Piu Land Group Inc 

References
Companies Act 1997

Counsel
R. Asa, for the Plaintiff
E. Paisat and J. Gah, for the Respondents

1 August, 2008

1. LAY J.: These proceedings concern a dispute over the control of the Second Plaintiff. In separate proceedings, OS No. 649 of 2007 heard inter parties, I found that the First Defendant had been convicted of theft within the meaning of Section 425 of the Companies Act. In an earlier application in these proceedings made ex parte, I made interim orders on the 5th of March 2008 that the First Defendant shall not be involved in influencing or interfering with the directors and shareholders of the Second Plaintiff until 21 June 2009. Until that date he is disqualified by Companies Act s.425 from being a company director. I further ordered that a meeting of shareholders scheduled for 5 March 2008 was not to take place.

2. The Defendants submit that by the time the order of 5 March 2008 was served the meeting was over, all the resolutions were passed, the Board of Directors was changed and the filing at the Companies Registry dated 6 March 2008 and date stamped received at the Companies Registry 29th of May 2008 merely reflects what had taken place.

3. The First Plaintiff now seeks to restrain the Investment Promotion Authority from accepting, approving or processing the Notice of Change of Directors. Interim ex parte orders were made on the 21 July 2008 to that effect and have been continued until this ruling is delivered. In the same motion there was an application for the Investment Promotion Authority to be joined, which has not been argued.

4. To ensure that there was no last-minute filing of affidavits to which opposing parties did not have the opportunity of replying, on the 18th July I ordered that affidavits not filed and served by the 23rd July would not be used at the hearing. The matter was set down for substantive hearing on the 25 July 2008. The Defendants filed no affidavits.

5. The Defendants raised several preliminary issues. The first was that these proceedings raise substantially the same issues and seek the same relief as proceedings WS 1307 of 2007 filed in Waigani. It was submitted these proceedings are an abuse of process. I ruled that issue was not merely a preliminary issue, but a substantive one which went to whether the proceedings should or should not remain on foot. The application should be brought by motion and not made orally from the bar table. Next counsel made an oral application on behalf the Defendants for an adjournment, not supported by any evidence, and I refuse that adjournment as the matter was set down for hearing in the presence of one of the counsel for the Defendants. Next counsel for the Defendants submitted that a notice requiring the deponents of the Plaintiffs for cross examination had been filed and served. It was served at 3 p.m. on the day before the hearing. Counsel for the Plaintiffs indicated all of their witnesses were in Kimbe. I ruled that the notice requiring deponents for cross examination was of no effect because it did not give the two days notice required by Section 36 of the Evidence Act.

6. The Plaintiff's amended originating summons sought the following orders and declarations:

a)	a declaration that the First Defendant has no powers in law in mobilising, influencing and interfering with the directors and shareholders, or make any other management related decisions affecting the management and administration of the Second Plaintiff Company;
b)	a declaration that the decision of the Board of Directors of the Second Plaintiff made on the 26 June 2007 is valid and effective;
c)	a declaration that the proposed meeting of the Third Defendant's scheduled for the 5th of March 2008 at 10 a.m. is illegal and is contrary to the provisions of the Companies Act 1997;
d)	a declaration that the Second Plaintiff's decision made on the 2 July 2007 to terminate any agreement entered into with the Third Defendant is valid and effective;
e)	an Order that the First Defendant be permanently restrained from mobilising, influencing or interfering with the directors and shareholders of the Second Plaintiff or making any other management related decisions affecting the management and administration of the Second Plaintiff;
f)	an Order that the Second Defendants be restrained from holding any shareholders meeting pending the hearing and determination of these proceedings;
g)	an Order restraining the Third Defendant (its servants, agents or otherwise, from entering or remaining in the timber permit area or from carrying out any works therein howsoever described.

7. Arising from the facts are the following issues:

h)	did the interim order made 5th of March 2008 effectively restrain the meeting held on that day?;
i)	if the meeting was not restrained, should any person now be restrained in terms of [6(c)]?
j)	Should any of the other orders sought in the amended originating summons be made?

8. The Plaintiffs rely on the affidavit of Peter Marme sworn 27 June 2008 which at paragraph 8 says "... Francis Amon went out and took the orders and came into the meeting and handed them to John Tikot who was acting as the chairman, but the resolutions had already been passed." There is also evidence from Francis Amon about his service of the orders but that evidence does not illuminate the point of whether the meeting was still in progress or all of the resolutions had already been passed. Therefore the evidence of Peter Marme stands unrebutted.

9. It is well established in law that an ordinary prohibitive injunction cannot be obtained when the event to be restrained has already occurred because it does not prevent, prohibit, interfere with or restrict a matter or thing which has already taken place or which has already occurred at the time the order is sought: Leytrac Pty Ltd v The State [1982] PNGLR 148. Similarly when an order is made it takes effect from when it is served. No one can be expected to comply with an order unless it is served on them. Service can take place by such manner as the court directs, it can be by facsimile or even by telephone. Until service is affected an order does not prevent the action against which it is directed because no one can be expected to comply with an order of which they are not aware, even if they are aware that such an order is being sought.

10. consequently it is an inevitable conclusion that the order of 5 March 2008 did not stop the meeting held that day, because all of the resolutions had already been passed by the time of service. Nor was any part of the order directed at preventing the Company Secretary or any other proper officer from preparing and filing a report of the changes effected by the meeting, as required by the Companies Act.

11. As to whether any person should now be restrained, in terms of the interim order, in respect of the notice of change of directors, Peter Marme's unrebutted evidence is also relevant. He swears that he was involved in drafting all of the notices and resolutions in respect of the meeting of the 5th of March 2008. That was pursuant to a meeting in Andrew Posai's backyard attended by Andrew Posai. The meeting was held on the 4th of March 2008. Peter Marme says that at that meeting of 4 March 2008 he drafted a notice of meeting and backdated it to February to fulfil the requirements of Section 102 of the Companies Act.

12. Mr Paissat submitted that the evidence in Mr Marme’s affidavit should be looked at with some suspicion because the deponent admits to being involved in an unlawful conspiracy to present the shareholders meeting as having been called in accordance with law when it was not. However it was not the only evidence on the topic and nothing in the affidavit suggested to me that I should give the evidence no weight. There was also an affidavit of Michael Misang sworn 12 March 2008. He is a shareholder of the Second Plaintiff and said he received notice of the shareholders meeting on the 4th of March 2008 and refused to attend the meeting by reason of the short notice and "no proper awareness for advice as to the nature of the meeting was given...". Paspas Pascal, another shareholder of the Second Plaintiff swore a similar affidavit saying he was served by the notice being left with his wife about 11 p.m. on the 4 March 2008. I am therefore quite comfortable in accepting the evidence that notice of the meeting of the 5th of March 2008 was in fact given on 4 March 2008, although the notice bore the date 22nd February 2008. The body of the notice was as follows:

"you are all hereby informed that there will be an extraordinary shareholders meeting to be held next month.
The purpose of the meeting is to address the rift within the Board of Directors and other issues that is now threatening and hindering the development and operation of the Company and the project as a whole.
Date: 6th 5th of March 2008
Time: 10 a.m.
Venue: Banaule-Mission (Fr Donius Ninen, President)
Jeffrey Patak Company Secretary (signed)"

13. Section 2 of Schedule 2 to the Companies Act requires not less than 14 days notice in writing to be given of a meeting of shareholders, unless the company has a constitution with different provisions, of which there is no evidence. Notice given the day prior to the meeting backdated 14 days or more before the meeting, is not 14 days notice of the meeting. A meeting held pursuant to such a notice is illegal and of no effect.

14. Further, the notice of change of directors document filed with the Registrar of Companies makes it clear that the business transacted at the meeting was the removal of the existing Board of Directors and replacement with the new board of directors. The notice of a shareholders meeting called for the purpose of removing directors must state that purpose and the name of each director it is proposed to remove: N3221 (2007) Magasaki Ltd v Linus Bai &4 ors. A notice which does not comply with that requirement is not an effective notice of a shareholders meeting and a meeting held pursuant to it is not a meeting of the Company.

15. Therefore the appropriate person ought to be restrained from, processing, registering or otherwise processing notice of changes to the management of the company purportedly made pursuant to such an illegal meeting. 

16. The point was not taken by the Defendants, but it seems to me to be an overly loose and nonlegal use of language to continue the injunction against the Investment Promotion Authority. It is the Registrar of Companies who administers the Companies Act. The Investment Promotion Authority may be his employer, but its enabling legislation gives it no authority in respect of companies. An order by way of permanent injunction will be made against the Registrar of Companies, otherwise in terms of the interim order and with the additional order that the notice of change of directors bearing date 6 March 2008 not be registered and any recording of changes reflected by the notice are to be reversed.

17. The declaration sought in [6 (a)] and the order sought in [6 (e)] are really seeking the same relief. It seems to me in view of the earlier ruling on the status of the First Defendant and the evidence that the First Defendant attended and spoke at the meeting of the 4 March 2008, that it is relief to which the Plaintiffs are entitled, in terms Section 425 of the Companies Act, but which I will not grant for the following reason. If I made an order in those terms I would be doing no more than repeating what an Act of Parliament already provides. It does not seem to me that there is any utility in a Court repeating in terms of an order what Parliament has already provided. Not only has Parliament provided for the prohibition, but Parliament also provided a penalty for breach of the provision. The First Defendant can therefore be prosecuted if he is in breach of Section 425. 

18. The Plaintiffs seek a declaration that the decisions of the Board of Directors of the Second Plaintiff made on 26 June 2007 is valid and effective. The date would appear to be an error as there is no evidence of a meeting being held on that date. There is evidence of a meeting being held on 27 June 2007.

19. No substantive submission was made on this issue although Mr Asa did say in passing that it was part of the relief being claimed and drew the court's attention to the First Plaintiff's affidavit of the 19th of April 2008. The only evidence relevant to this issue contained in that affidavit is the statement by Mr Saile that:

"I was voted in as a Director of the Second plaintiff on the 9th of May 2007 through a special shareholders meeting at the Liamo Reef Resort. The Board of Directors then had their first meeting on 27 June 2007 at Gasmata station, Kimbe, West New Britain Province purposely to vote the office bearers and I was unanimously voted as the Chairman of the Board of the Second Plaintiff.

20. There is no evidence which goes to the validity of the meeting of 27th June 2007 itself, whether it was called on proper notice, i.e. with sufficient time and with a fair description of the business to be conducted, whether the notice was served on or sent to all directors entitled to attend.

21. Several of the resolutions concern five Logging and Marketing Agreements which the Board resolved to rescind. There is no evidence going to the monetary value of these decisions made, and no evidence of the assets and liabilities of the company, such that the court would be in a position to determine whether the decisions made were within the power of the Board of Directors or were matters involving a major transaction on which the shareholders in special general meeting are required to vote by special resolution pursuant to Companies Act Section 110.

22. The grant of a declaration is a discretionary remedy: Dent v Kavali [1981] PNGLR 488 per Bredmeyer J.; the declaration is a statement by a superior court of the legal position obtaining between the parties, it is a non coercive remedy, breach is not visited with punishment for declarations are almost certain to be obeyed, at least by any public authority: SCR No. 2 of 1985; Re Massive v Okuk [1985] PNGLR 263 at 277 Kidu CJ Pratt Bredmeyer Amet and Woods J. J. per Pratt and Bredmeyer J. J. with whom Woods J. agreed. As a general rule all necessary and proper parties should be before the court: Kitogara Holdings v NCDC [1988-89] PNGLR 346 Kapi DCJ, Woods and Los J. J. per Woods J. and the failure to take evidence when orders were granted by consent has been criticised: Kitogara Holdings v NCDC (supra) per Los J. as has failure to ensure that all persons who may have an interest in the matter have had an opportunity to make submissions to the court: Yanta Development Association Inc v Piu Land Group Inc (2005) SC798. Following those authorities in my view the court should be satisfied that there is a sufficient body of reliable evidence for the court to find the relevant facts before making a declaration.

23. In this case, because of the absence of evidence in relation to the matters referred to [20-21] there is no safe foundation on which the court could find facts to make the declaration sought at [6 (b)]. Therefore in the exercise of my discretion I declined to make the declaration.

24. No evidence whatsoever was presented to the court, nor was any submission made, in respect of the declaration sought at [6 (d)] regarding the decision to terminate the Logging & Marketing Agreement with the Third Defendant. The court has no knowledge of how the Second Plaintiff took that decision, and again as to whether the decision was within the powers of the officers of the company who took it, or whether because of financial considerations it was a matter governed by Section 110 of the Companies Act. Therefore in the exercise of my discretion I declined to make that declaration. 

25. The order sought restraining shareholders meetings pending the hearing and determination of the proceedings is overtaken by this ruling and no longer necessary or of any utility. Therefore I will make no order in that regard.

26. Lastly in the order sought set out at [6 (g)] the Plaintiffs seek to permanently restrain the Third Defendant from entering into the Second Plaintiff's timber permit area. It follows, because I have not made the declaration sought in respect of the 2 July 2007 decision to terminate the Logging and Marketing Agreement with the Third Defendant because of lack of evidence, there is no basis on which I can make the orders sought to keep the Third Defendant out of the timber permit area. There is no evidence of the agreement with the Third Defendant, its terms, whether there is a power given to the Second Plaintiff to terminate, with or without cause; and if there is such a power whether it has been properly exercised.

27. A further relevant matter in respect of any orders to be made against the Third Defendant is that the Third Defendant filed a Notice of Intention to Defendant in the proceedings on the 19th of March 2008. Consequently the Third Defendant is taken to have been served personally on that date with the originating process: National Court Rules O6 r 2(3) but not with any other document. An affidavit of service sworn by Justin Issack swears to serving the notice of motion, for interim orders and the affidavit in support on Jackson Gah "a lawyer for the Defendants...". Mr Gah has never been on the record as lawyer for the Third Defendant. There is no evidence that any of the other supporting documents, the notice of motion, the amended originating summons, and all the affidavits of the Plaintiffs have ever been served on the Third Defendant. There is no evidence that the Third Defendant was given notice of the hearing before me on the 25th July 2008 at which it was not represented. For that further reason, that the Third Defendant was not given the opportunity to be heard when it has an interest in the subject matter of the proceedings, I decline to make any order against the Third Defendant.

28. I will hear the parties on costs.

29. Orders:

k)	I declare that the purported meeting of shareholders of Sare Resources Ltd held 5 March 2008 is illegal and of no effect;
l)	all documents lodged with the Registrar of Companies pursuant to the purported meeting of shareholders of Sare Resources Ltd held on the 5 March 2008 are unlawful and void and shall not be registered by the Registrar of Companies and if already registered shall be deregistered forthwith;
m)	All other declaratory relief and orders sought in the Plaintiffs amended originating summons dated 17 July 2008 are refused.

Warner Shand	: Lawyers for the Plaintiffs
Wesley Donald: Lawyers for the First and Second  Defendants
Bradshaw Lawyers: Lawyers for the Third Defendant