In re Waghi Klos Ltd [2011] PGNC 41; N4283 (16 May 2011)

N4283

PAPUA NEW GUINEA
IN THE NATIONAL COURT OF JUSTICE

MP 228 OF 2008

IN THE MATTER OF THE COMPANIES ACT 1997

AND:

IN THE MATTER OF WAGHI KLOS LIMITED

Waigani: Hartshorn J.
2011: 19th April,
: 16th May

Application to reverse decision of liquidator - s. 332 (1) (b) Companies Act

Facts:

A liquidator was appointed to Waghi Klos Ltd on 18th August 2008. In December 2009, Mrs. Tere Clarkson, a shareholder and director of Waghi Klos Ltd filed a notice of motion seeking leave to make application under s. 332 (1) (b) Companies Act that the liquidator's decision to sell certain property to Vixen No 107 Ltd be reversed. On 10th December 2009, this court ordered by consent that Mrs. Clarkson has leave to make her application and that the liquidator was restrained from completing or settling the sale of the property to Vixen. The liquidator now seeks to have the restraining order quashed and Mrs. Clarkson seeks to have the liquidator's decision reversed.

Held:

1. The liquidator's decision has not been shown to be fraudulent, not made in good faith or unreasonable in the circumstances.
   

2. To enable the liquidator to perform his duties and in the interests of justice the consent order should be quashed.

3. The relief sought in the notice of motion of Mrs. Tere Clarkson filed 4th December 2009 is refused. The relief sought in the notice of motion of the applicant/liquidator filed 2nd March 2011 is granted.

Cases cited:
Papua New Guinea cases

In re PNG Block Company Pty Ltd [1982] PNGLR 28
Salvatori Algeri v. Patrick Leslie (2001) N2119
Simon Mali v The State (2002) SC690
Mainland Holdings Ltd v. Stobbs (2003) N2522
Simon Mali v The State (2008) N3442
Department of Works v In re International Construction (PNG) Ltd (2009) SC1051
Re Companies Act 1997 and Lihir Gold Ltd (2010) N4126
Network Construction Ltd v The State (2010) N4045

Overseas Cases

Waitemata City Council v. MacKenzie [1988] NZCA 142; [1988] 2 NZLR 242
Re Jay-O-Bees Pty Ltd (in liquidation) [2004] NSWSC 818
Consolidated Technologies Development (NZ) Ltd v. Anthony John McCullagh [2006] NZHC 505
Trinity Foundation (Services No 1) v. Downey and Anor as joint liquidators of CWF Holdings (in Liquidation) as Trustee of the CWF Unit Trust [2006] NZCA 310
Spalla v. St. George Motor Finance Ltd (No 7) [2006] FCA 1177

Counsel:

Mr. I. R. Shepherd, for the Applicant
Mr. R. Bradshaw, for Mrs. T. Clarkson, a shareholder and director of Waghi Klos Ltd

16th May 2011

1. HARTSHORN J: A liquidator was appointed to Waghi Klos Ltd on 18th August 2008. In December 2009, Mrs. Tere Clarkson, a shareholder and director of Waghi Klos Ltd filed a notice of motion seeking amongst others, leave to make application under s. 332 (1) (b) Companies Act that the liquidator's decision to sell certain property (property) to Vixen No 107 Ltd (Vixen) (liquidator's decision) be reversed.

2. On 10th December 2009, this court ordered by consent that amongst others, Mrs. Clarkson has leave to make her application and that the liquidator was restrained from completing or settling the sale of the property to Vixen (restraining order). The liquidator now seeks to have the restraining order quashed and Mrs. Clarkson seeks amongst others, to have the liquidator's decision reversed. I will consider Mrs. Clarkson's application first.

Whether the liquidator's decision should be reversed

3. Mrs. Clarkson seeks to have the liquidator's decision reversed on the grounds that:

a) the liquidator did not notify her of his appointment and Mrs. Clarkson did not become aware of his appointment until 12th November 2009,

b) the liquidator has not filed any affidavit in response to Mrs. Clarkson's application seeking to reverse the liquidator's decision and her affidavit in support,

c) the contract for sale of the property was entered into between the liquidator and Vixen on 29th September 2009 and not 29th June 2010 as stated by the liquidator,

d) the advertisements placed by the liquidator advertising the property for sale did not correctly state the developments upon the property,

e) Mrs. Clarkson is not aware whether the liquidator took steps to sell other assets of Waghi Klos Ltd such as motor vehicles,

f) the value of just one building of the property is in excess of K 300,000 and so it was not necessary to sell all of the property

g) offers of over K3 million have been received for the property,

h) if the total claims are K 261,291.78 it is not necessary to sell all of the property,

i) Mrs. Clarkson could have paid the creditor claims,

j) the contract between the liquidator and Vixen can be terminated.

4. As to the duties of a liquidator generally, counsel for Mrs. Clarkson cited extracts from Halsbury's Laws of England 4th ed, 1996 reissue v.7(3) paras 2324 – 2328 to the effect that a liquidator stands in a fiduciary position towards the company to which he is appointed and, as an officer of the court he:

"... must maintain an even and impartial hand between all the individuals whose interests are involved in the winding up. It is his duty to the whole body of creditors, the whole body of shareholders and to the court to make himself thoroughly acquainted with the company's affairs, and to suppress or conceal nothing coming to his knowledge in the course of his investigation which is material to ascertain the exact truth in every case before the court; and it is for the judge to see that he does his duty in this respect" (para. 2329)

5. The case of Salvatori Algeri v. Patrick Leslie (2001) N2119 was cited as the court in that case had stated that a liquidator:

"... as an "officer of the court"... must act bone fide, impartially and skilfully, and must file reports and accounts with the Court."

6. Counsel also referred to cases concerning obligations upon a mortgagee when selling a property and the obligation to give reasons in judicial proceedings. Specifically as to the court reversing or modifying a decision of a liquidator, counsel for Mrs. Clarkson cited the case of In re PNG Block Company Pty Ltd [1982] PNGLR 28. In that case the court said:

".... it would normally be necessary to show either that the liquidator's decision was based upon some error of principle or that it had brought about some manifest injustice."

I note that this case concerned a decision by the liquidator to rescind a contract for the sale of land and not a decision to sell property as in the present case.

7. Section 332 (1) (b) Companies Act upon which Mrs. Clarkson relies for the liquidator's decision to be reversed, is identical to s. 284 (1) (b) Companies Act 1993 of New Zealand. Indeed, s. 332 is identical to s. 284. This was noted by the Supreme Court in Department of Works v. In re International Construction (PNG) Ltd (2009) SC1051. (In Dept of Works v. International Construction (supra) the Court gave consideration to s. 332 Companies Act but in the context of considering whether an appeal from a refusal to grant leave under s. 332 was from an interlocutory order and itself required leave to appeal.)

8. A consideration of the decisions of the courts of New Zealand concerning s. 284 are therefore likely to be of assistance when applications are made to this court under s. 332 Companies Act. In the High Court of New Zealand case of Consolidated Technologies Development (NZ) Ltd v. Anthony John McCullagh [2006] NZHC 505, Rodney Hansen J said in respect of s. 284:

"The power to review a liquidator's actions will be exercised in cases of fraud, where the liquidator's discretion has not been exercised in good faith or were the liquidator has acted unreasonably – Leon v. York-O-Matic Ltd [1966] 1 WLR 1450, [1966] 3 All ER 277; Callis v. Pardington; Callis v. DFC New Zealand Limited (1996) 7 NZCLC 261, 211 (CA), CIR v. Hulst; CIR v. Oriana Finance Ltd (2000) 8 NZCLC 262, 266. The actions of a liquidator can be unreasonable without being in breach of an express statutory provision. The question is whether in all the circumstances, including the absence of consultation, his actions were unreasonable – Callis (supra) at 217"

9. I note in this regard that Rodney Hansen J referred to an English decision, and a decision concerning the former New Zealand Companies Act: Callis (supra). Further, in the New Zealand Court of Appeal decision of Trinity Foundation (Services No 1) v. Downey and anor as joint liquidators of CWF Holdings (in Liquidation) as Trustee of the CWF Unit Trust [2006] NZCA 310, the Court addressed the case before it concerning s. 284 on the basis that:

"...substantive relief should only be granted if the decisions of the liquidators in issue can be shown to have been wrong or unreasonable."

10. In Australia, s. 1321 Corporations Act 2001 is a similar provision to our s. 332 and s. 284 Companies Act 1993 of New Zealand as it amongst others, gives the court jurisdiction to reverse or modify an act or decision of a liquidator. In the New South Wales Supreme Court Case of Re Jay-O-Bees Pty Ltd (in liquidation) [2004] NSWSC 818, Campbell J said (at [46]):

"The role which the court takes.... is affected significantly by the nature of the.... decision.... Where the appeal is against a discretionary decision by a liquidator, or against a decision involving matters of business judgment, the court will reverse the liquidator's decision only when it is satisfied that he was acting unreasonably or in bad faith."

11. Then in the Federal Court of Australia decision of Spalla v. St. George Motor Finance Ltd (No 7) [2006] FCA 1177, Kenny J said in regard to s. 1321 that:

"It is well settled that..." the court will reverse the liquidator's decision only when it is satisfied that he was acting unreasonably or in bad faith": see Jay-O-Bees at 575 and the authorities referred to.... The "general approach.... in a case like this is that [the Court] should not interfere with the decision made by the liquidator unless there is fraud, or it can be said that the discretion has not been exercised bone fide, or it can be said that the liquidator has acted in a way which no reasonable liquidator could have acted": Bridgeport at 161-162 quoting Yeomans v. Walker (1986) 5 NSWLR 378 at 383 per Hodgson J.

12. Following a consideration of these New Zealand and Australian decisions on identical or similar provisions as our s. 332 (1) (b), the absence of any recent authority by which this Court is bound, apart from Dept of Works v. International Construction (supra), the similarity in the legislation in the mentioned jurisdictions and the desirability of there being a common approach by the courts in those jurisdictions and Papua New Guinea, to company law matters, (see my comments in this regard in Re Companies Act 1997 and Lihir Gold Ltd (2010) N4126), this court should have regard to the practice in these other jurisdictions and their relevant case authorities. Such authorities are of persuasive value in this jurisdiction: Schedule 2.12 Constitution. I am satisfied following a consideration of the authorities to which I have referred, that the power to reverse a decision of the liquidator under s. 332 (1) (b) Companies Act should only be exercised in circumstances where the court is satisfied that the decision was made either fraudulently, or was not made in good faith, or was unreasonable. Further, in my view, a consideration of whether a decision of a liquidator is unreasonable should occur with due regard being given to the statutory obligations imposed upon the liquidator. I refer in particular to the principal duty of a liquidator pursuant to s. 303 Companies Act which includes taking possession of and realising the assets of a company in a reasonable and efficient manner.

13. I now consider the grounds relied upon by Mrs. Clarkson to reverse the liquidator's decision.

14. Mrs. Clarkson alleges that she was not notified of the liquidator's appointment and did not become aware of the appointment until 12th November 2009. Section 305 Companies Act provides for "Other duties of liquidator", which include giving notification of his appointment and sending his report to creditors and shareholders in certain circumstances. If it is considered that the liquidator has failed to comply with his duties, then application can be made to enforce his duties under s. 334 Companies Act. There is no application before this court under that section.

15. The alleged non notification is not a matter that is indicative of the liquidator's decision being fraudulent, made without good faith or unreasonable as to my mind, and in the absence of evidence to the contrary, it does not have a specific connection with the exercise of discretion by the liquidator in deciding whether to sell the property to Vixen. I therefore reject this ground. I also reject ground (c) concerning differing dates of the contract of sale, ground (d) concerning incorrect advertising, ground (e) concerning Mrs. Clarkson not being aware of steps taken to sell other assets, and ground (j) concerning the contract between the liquidator and Vixen being able to be terminated, for the same reasons.

16. As to ground (b) that the liquidator has not filed any affidavit in response to Mrs. Clarkson's application and her affidavit in support, the liquidator has filed an affidavit in this proceeding supporting his application concerning the consent orders and Mrs. Clarkson has annexed to her affidavits a report from the liquidator and correspondence from him. It perhaps would have been preferable for the liquidator to have filed further evidence, but it is not mandatory. As to the submission that the liquidator has to give reasons for the liquidator's decision, the liquidator has given reasons in his affidavit and in his liquidation status report dated 31st December 2010 relating to amongst others, the liquidator's decision.

17. As referred to previously, if it is alleged that the liquidator has breached duties that he owes, then the appropriate application to enforce duties could have been made. I am not satisfied that there is merit in ground (b).

18. As to the ground that the value of just one building is over K 300,000 and therefore it was not necessary to sell all of the property, I note that the evidence as to the valuation of K 300,000 is an unparticularised statement contained in an affidavit sworn by a security manager in a different proceeding. There is no other evidence concerning this valuation or as to the qualification of the security manager to make this valuation. Consequently the reliance that should be placed upon the valuation is minimal. Further, even if the valuation can be relied upon, in the absence of evidence to the contrary it is not indicative of the liquidator's decision being fraudulent, made without good faith or unreasonable as it does not have a specific connection with the exercise of discretion to make the liquidator's decision. This ground concerns the issue of whether an asset should be sold and not whether, in the context of the liquidator's principal duty which includes realising assets, the liquidator's decision was unreasonable. This ground is rejected.

19. As to the ground that offers of over K3 million have been received for the property, there was no evidence of this before the court and so this ground is rejected. Similarly, as to the ground that Mrs. Clarkson could have paid creditors' claims, there is no evidence of any offer made by her or that Mrs. Clarkson was able to pay the creditors. Further, this ground is not indicative of the liquidator's decision being fraudulent, made without good faith or unreasonable.

20. As to the ground that as the total claims are K 261,291.78 it was not necessary to sell all of the property, the liquidator has explained in his affidavit and further in his liquidation status report the circumstances surrounding the liquidator's decision including efforts that were made by him to sell the property. The liquidator has explained the necessity to complete the purchase of the property from Harrison & Crosfield, the list and quantum of creditors' claims in the liquidation which had to be paid by him, the fact that the property was the only asset identified, the initial advertisement of sub-portion 1010 which generated little public interest, the further advertisement of all four parts of the property, the acceptance of an offer that did not materialise and the negotiations with Vixen and upon receipt of the deposit from Vixen the payment of the original stamp duty and balance of purchase price that was required to be paid in respect of the purchase from Harrison & Crosfield. Further, as referred to previously, this ground concerns the issue of whether an asset should be sold and not whether, in the context of the liquidator's principal duty which includes realising assets, the liquidator's decision was unreasonable.

21. After considering the grounds of Mrs. Clarkson, the evidence and submissions, I am not satisfied that the liquidator's decision has been shown to be fraudulent, not made in good faith or was unreasonable in the circumstances. I am also mindful that it has taken Mrs. Clarkson 16 months from the filing of her motion and the grant of the interim relief to apply for the relief that she seeks. The relief sought in paragraph 3 of her motion should be refused.

22. As to the relief sought in paragraph 4 of Mrs. Clarkson's notice of motion, that the liquidator provide records and information on the sale of the property and the conduct of the liquidation, reliance is placed upon s. 332 (1) (b) Companies Act and the inherent jurisdiction of this court. Section 332 (1) (b) does not provide this court with jurisdiction to grant the order sought. As to the inherent jurisdiction of this court, in circumstances such as the present, it should not be relied upon when the relief sought is able to be obtained by reliance upon an existing statutory provision. As referred to previously, if it is considered that the liquidator has failed to comply with his duties in failing to provide the records and information sought, an appropriate application can be made pursuant to s. 334 Companies Act.

23. I will consider the relief sought in paragraph 2 of Mrs. Clarkson's notice of motion when I consider the liquidator's application. Given the above findings it is not necessary to consider the other submissions of counsel concerning Mrs. Clarkson's application.

Liquidator's application

24. The liquidator applies to have the consent order made on 10th December 2009 which amongst others, restrained the liquidator from completing or settling the sale/purchase of the property the subject of contract of sale between Waghi Klos Ltd (In Liquidation) and Vixen, quashed.

25. Mrs. Clarkson submits that the principles for setting aside consent orders in Simon Mali v. The State (2002) SC690 and Network Construction Ltd v The State (2010) N4045 apply and further that the principles for setting aside interim injunctions in respect of term 2 of the consent order, the restraining order, are as contained in Mainland Holdings Ltd v. Stobbs (2003) N2522 and 2 other cited cases.

26. It is clear by the beginning of term 2 of the consent order, "Until further order...", that the parties contemplated that the restraining order was only interim until the determination of Mrs. Clarkson's motion in which a reversal of the liquidator's decision was sought. That question has now been determined. The interim restraining order is no longer required as there has been a change in circumstances, that is, the determination of Mrs. Clarkson's application to reverse the liquidator's decision. Consequently, I am satisfied that to enable the liquidator to perform his duties and in the interests of justice, the consent order should be quashed.

27. In this regard I make mention of the decision of the New Zealand Court of Appeal in Waitemata City Council v. MacKenzie [1988] NZCA 142; [1988] 2 NZLR 242 at 249 to which I referred in Network (supra) and Simon Mali v. The State (2008) N3442.

28. The relief sought by the liquidator should be granted.

Orders

29. The orders of the Court are:

a) The relief sought in the notice of motion of Mrs. Tere Clarkson filed 4th December 2009 is refused,

b) The relief sought in the notice of motion of the applicant/liquidator filed 2nd March 2011 is granted,

c) Mrs. Clarkson shall pay the applicant/liquidator's costs of and incidental to both notices of motion,

d) The time of entry of these orders is abridged to the time of settlement by the Registrar which shall take place forthwith.

____________________________________________________
Blake Dawson: Lawyers for the Applicant
Bradshaw Lawyers: Lawyers for Mrs. T. Clarkson