Posai v Saile [2008] PGNC 5; N3260 (22 February 2008)

N3260

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

OS No. 649 of 2007

BETWEEN

ANDREW POSAI
Plaintiff

AND

BEVAN SAILE
First Defendant

FRANCIS AMON
Second Defendant

SARE RESOURCES LTD
Third Defendant

Kokopo: Lay J.
2008: 15 & 22 February

CIVIL - Companies Act s 425 ─ meaning of "theft" as used in s 425(5) ─ whether a conviction for misappropriation contrary to Criminal Code s 383A is theft.

PNG Cases Cited
SCA886 (2007) Mondiai and anor v Wawoi Guavi Timber Co Ltd & ors
SC674 (2001) Canisius Karingu v Papua and New Guinea Law Society
N1501 (1996) The State v Micky Kauri
N1930 The State v Tony Baik
N2857 (2005) The State v Alice Wilmot

Legislations Cited:

Papua New Guinea Legislation
Companies Act 1997
Criminal Code

Overseas Legislation
New Zealand Companies Act 1993
New Zealand Crimes Act
Queensland Criminal Code

Facts

The Plaintiff brought these proceedings amongst other purposes to have the court declare that he is the lawfully elected managing director of the Third Defendant and to prevent the First and Second Defendants from interfering with his management of the Third Defendant. The First and Second Defendants by motion sought orders that the proceedings be struck out on the basis that the Plaintiff is a person prohibited from being a director or involved in management of a company by reason of the provisions of Companies Act 1997 s.425 (conviction of an offence involving dishonesty).

Held

1. 1. "theft" in its ordinary and usual meaning as used in Companies Act 1997 s.425(5) includes misappropriation;
   
2. 2. a person convicted of misappropriation pursuant to the provisions of Criminal Code s.383A is a person convicted of theft within the meaning of "theft" as used in Companies Act 1997 s.425(5);
   
3. 3. The Plaintiff is by virtue of his conviction for misappropriation on the 21 June 2004 prohibited from being a director or being involved in the management of a company until 20 June 2009;
   
4. 4. The Plaintiff has no standing to bring the proceedings which are dismissed with costs.
   

Counsel
Paisat, for the Plaintiff
Asa for the Respondent

22 February, 2008

1. LAY J.: The Plaintiff commenced these proceedings, amongst other things, for a declaration that he is the duly elected managing director of the Third Defendant and for injunctions preventing the First and Second Defendants from interfering with his management of the Third Defendant, particularly in relation to the procurement of a contractor approved by the Forest Authority to exploit the Third Defendant’s timber rights purchase area.
   
2. Amongst other applications the First and Second Defendants have applied by notice of motion for an order that:
   

" The Plaintiff be and hereby is prohibited from holding the office of Director of any company including the Third Defendant for a period of five years from 21 June 2004 pursuant to Order 12 Rule 1 and Section 425 of the National Court Rules and Companies Act 1997, respectively".

3. The Defendants seek that the proceedings be struck out pursuant to National Court Rules O 12 r 40. The evidence on which the First and Second Defendants rely is a certificate of conviction, signed for the Registrar at the National Court Kimbe and dated the 21st day of June, 2004 certifying that the Plaintiff was on the 21st day of June 2004 convicted of an offence under Section 383A (1) of the Criminal Code and sentenced to one year nine months imprisonment, wholly suspended on terms. The Plaintiff does not dispute the fact of the conviction.
   

Companies Act Section 425 provides as follows:

425. Persons prohibited from managing companies.

(1) Where—

(a) a person has been convicted on indictment of any offence in connection with the promotion, formation, or management of a company; or

(b) a person has been convicted of an offence under any of Sections 420 to 423 or of any crime involving dishonesty, whether within the country or outside the country; or

(c) a person who is an undischarged bankrupt;

that person shall not—

(d) where the person was sentenced to imprisonment, during the period of imprisonment and during the period of five years after release from prison; or

(e) during the period of five years after the judgement or the conviction,

be a director or promoter of, or in any way, whether directly or indirectly, be concerned or take part in the management of, a company, unless that person first obtains the leave of the Court which may be given on such terms and conditions as the Court thinks fit.

(2) A person intending to apply for the leave of the Court under this section shall submit to the Registrar not less than one month's notice of that person's intention to apply.

(3) The Registrar, and such other persons as the Court thinks fit, may attend and be heard at the hearing of any application under this section.

(4) A person who acts in contravention of this section, or of any order made under this section, commits an offence and is liable on conviction to the penalty set out in Section 413(4).

(5) In this section—

"company" includes an overseas company;

"crime involving dishonesty" means a crime involving theft, conversion, robbery, burglary, fraud, receiving stolen property, or forgery.

5. The essence of Section 383A is contained in subsection 1:
   

383A. Misappropriation of property.

(1) A person who dishonestly applies to his own use or to the use of another person—

(a) property belonging to another; or

(b) property belonging to him which is in his possession or control (either solely or conjointly with another person) subject to a trust, direction or condition or on account of any other person,

is guilty of the crime of misappropriation of property.

6. The Defendants submit that as provided by the Companies Act s.425 (1) (b) the Plaintiff has been convicted of an offence involving dishonesty because dishonesty is an element of the offence defined by Criminal Code s.383A.
   
7. The Plaintiff submits that:
   
   1. the Defendants knew all along about the Plaintiffs conviction and took no proceedings to disqualify him, they concurred in his acting, there should be an estoppel:
   2. see s.426(3) of the Companies Act, an application may be made by the liquidator or a shareholder, this brings into question the locus standi of the Defendants to apply for disqualification. The Defendants are not creditors or shareholders;
   100. an application to disqualify a director is a substantive proceeding and if the Defendants had locus standi they could file a summons. It is not appropriate to seek relief on motion.
   4. Section 425(5) provides a complete definition of the meaning of "crime involving dishonesty". Each of the classes of crime in the definition is a complete crime within the Criminal Code. The court has no discretion to go outside the statutory definition. Misappropriation is not within the class of crimes defined as "involving dishonesty".
      
8. In relation to the Plaintiff's first submission an equitable estoppel cannot run against a statutory duty: SCA 886 (2007) Mondiai and anor v Wawoi Guavi Timber Co Ltd & ors at [81]. I consider that it must also follow that equity cannot set at naught a statutory prohibition. If Parliament has said that certain persons cannot act as directors then shareholders or directors or other officers of a company cannot by specific agreement or by their conduct set aside the prohibition.
   
9. The submission in respect of s.426(3) of the Companies Act is misconceived. The provisions of s.425 and s. 426 are not interlinked. They are separate provisions. Section 425 deals with persons who are ipso facto prohibited from acting as directors or managers of a company, unless on application made to the court they are permitted to do so. Section 426 deals with a class of persons who may be prohibited from acting as directors or managers of a company upon application being made to the court for an order to prohibit them. Nothing in s.426 illuminates the interpretation of s.425. The Defendants are not making an application under s.425. The only application which can be made under that section is an application, by a person whom the section prohibits from acting in the management of a company, for permission to act. The Defendants are setting up the facts which attract the automatic prohibition of s.425 as a complete defence to the Plaintiffs action. That also deals with the Plaintiff's third submission that the Defendants ought to file a summons and make application under s.426 if they can establish locus standi. Section 426 is irrelevant.
   
10. I consider that the first premise of the Plaintiff's last argument is correct. That is, s.425(5) provides the definition of "crime involving dishonesty" and I cannot go outside that definition and import other concepts of "dishonesty". The issue then turns on whether or not misappropriation of property involves "theft conversion robbery, burglary, fraud, receiving stolen property or forgery". There would be no question that the offence involved fraud if our Criminal Code was worded in similar terms to the Criminal Code of Queensland. The first subparagraph of section 408C of that code is virtually identical to the words from s.383A set out above, except that the crime is defined as the crime of "fraud" rather than "misappropriation".
    
11. It is well-known that the origins of the Companies Act 1997 is the similar New Zealand Act. The equivalent section in the New Zealand Act is s.382. Subsection (1) (b) has significantly different wording in that it refers to specific sections of the New Zealand Crimes Act and also refers to "or of any crime involving dishonesty" without providing a definition of that phrase. Therefore reference to the New Zealand Act does not assist.
    
12. There is a certain commonality of history in the various provisions and the origins of s.425 appears to be from provisions such as s.146 of the Companies Act Ch 146 (repealed), which provided that a person convicted of an offence involving "fraud or dishonesty punishable on conviction with imprisonment for three months or more" was prohibited from being a company director except by leave of the court. However, reference to that section does not assist as no definition was provided by Parliament in that Act and the court was left to apply the words "fraud or dishonesty" as it might find those elements in an offence with which the person had been convicted.
    
13. Returning then to the definition in Companies Act 1997 s.425(5) it is clear that robbery, burglary, receiving stolen property and forgery have no application to s.383A of the Criminal Code. The Plaintiff's submission that each of the categories in the definition is a crime within the meaning of the Criminal Code does not hold true. "Theft" is not a word used in the Criminal Code, although it is used in many other Acts of Parliament. I must assume that Parliament intends the word to be interpreted in its ordinary and usual meaning: See the authorities cited in SC 674 (2001) Canisius Karingu v Papua and New Guinea Law Society. The Cambridge Advanced Learners Dictionary online edition defines theft as "the act of dishonesty taking something which belongs to someone else and keeping it". In Merriam-Webster online dictionary defines theft as "the act of stealing; specifically : the felonious taknd removinmoving of personal property with intent to deprive the rightful owner of it b: an unlawful taking (as by embezzlement or burglary) of property.
    
14. Now I think it would be wrong and not reflecting the intention of Parliament to then take those definitions and measure them against the Criminal Code. For example it would be wrong to say "theft" is akin to "stealing" therefore can a conviction for misappropriation be brought within the definition of stealing in the Criminal Code.
    
15. I think the right approach is to look at the elements of s.383A and ask would someone using the words theft in its usual and accepted meaning as explained by those dictionaries, say that what the Plaintiff was convicted of was a theft. I come to the conclusion that the words theft would be used in that general way even though, in the legal concept of misappropriation the subject matter of the "theft" was immediately before the offence in the lawful possession of the offender. The nice difference between an unlawful taking and an unlawful application not being a matter with which the person generally using the word theft is concerned. However, I note even in legal reporting "theft" is sometimes used as a shorthand way of describing what is in fact misappropriation under the Criminal Code. See for example the headnote to N1501 (1996) The State v Micky Kauri where it is noted " theft perpetrated over a period of time " but a reading of the case shows that the offender was convicted of misappropriation. In the case of N1930 The State v Tony Baik the learned trial Judge refers compendiously to "fraud and theft and misappropriation of moneys" while addressing himself to the appropriate sentence for a conviction under s.383A of the Criminal Code. In the case of N2857 (2005) The State v Alice Wilmot while sentencing under the same section of the Criminal Code the trial judge said "... this is not a one-off theft... The theft was systematic and went on for 1 year 3 months..."
    
16. I therefore come to the conclusion that a person who has been found guilty of misappropriation contrary to the provisions of Criminal Code s.383A is a person who has been found guilty of theft within the meaning of Companies Act 1997 s.425(5) and thus guilty of a crime of dishonesty within the meaning of s.425(1) (b).
    
17. The Defendants must necessarily succeed on their motion. The Plaintiff is a person prohibited from acting as a director of the Third Defendant until the 20th June 2009 unless earlier permitted by court order to so act. He has no standing to bring proceedings for the relief sought.
    
18. This is an unfortunate result because on the documents before me it does not appear that the Plaintiff has done anything other than act in the interests of the Third Defendant. However the situation may have been avoided if the appropriate application had been made to the court. Particularly as although the conviction was recorded in 2004 the offence was committed in 1992. And I observe that these cases of infighting amongst directors of landowner resource companies might be avoided or at least reduced if it is recognised that the entry into a logging and marketing agreement over a long period of time in respect of, in this case, the Third Defendant’s only significant asset, is in all likelihood a major transaction within the meaning of Companies Act s.110 requiring to be approved by a special resolution of the shareholders. Although I hasten to add that the facts to find such a conclusion have not been proven before me. Nevertheless the wider consultation with shareholders required in order to achieve a 75 percent majority in favour of a resolution could be expected to contribute to stability in management of the company.
    
19. The orders of the court are:
    
    1. the Plaintiff is a person prohibited by Companies Act s.425 from being a director of the Third Defendant until 20 June 2009 or such earlier date on which the court orders that the Plaintiff may so act;
    2. the Plaintiff has no standing to bring the proceedings which are dismissed with costs to be paid by the Plaintiff to the Defendants.
    100. The Defendants shall serve a copy of the sealed court order and the reasons of the court on the Registrar of Companies.
         

Motuwe Lawyers: Lawyers for the Plaintiff
Warner Shand: Lawyers for the Defendants