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National Court of Papua New Guinea |
PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]
OS NO 369 OF 2010
DAVID YAGA AS KIN OF YAGA POMIAK
FOR HIMSELF AND ON BEHALF OF FIVE OTHER PLAINTIFFS PER THE SCHEDULE OF PLAINTIFFS
Plaintiff
V
ANDREW SALLEL, BATENG PUTO, BAWAN BULUM,
JONAH DEMBI, USAM MAI, YANAM MUL & PHILIP WARINIKI
First Defendants
RAIKOS HOLDINGS LIMITED
Second Defendant
Madang: Cannings J
2011: 4, 18 November,
2012: 16 March
COMPANY LAW – change of directors – transfer of shares – whether changes made in accordance with Companies Act – whether the Court should order rectification of Companies Register
ORDERS AND DECLARATIONS – applications to set aside or avoid their effect to be made in a timely fashion – finality of litigation
The plaintiff, representing himself and others who claim to be the proper shareholders and directors of a company, commenced proceedings by originating summons seeking declarations and orders that would see the Register of Companies rectified to reflect their proper positions in the company. Their case was founded on three propositions: (1) that a group of eight persons (comprising themselves or their fathers and others associated with them) were the original shareholders and directors upon incorporation of the company in 1989; (2) that in 2004 the plaintiffs or their fathers and those associated with them were unlawfully removed as directors and defendants and others associated with them were unlawfully appointed directors and had shares of the original shareholders unlawfully transferred to them; (3) that in a meeting of the first lawful shareholders meeting was held, at which it was resolved that the plaintiffs and those associated with them were the proper shareholders and directors. A trial was conducted to determine whether the plaintiffs should be granted the relief sought.
Held:
(1) The Register of Companies, including historical extracts, is prima facie, not conclusive, evidence of a company's shareholdings and directorships. Here the Register was prima facie evidence, uncontradicted by other evidence, that the plaintiffs or their fathers and those associated with them formed the original group of eight shareholders and directors. A finding of fact to that effect was made.
(2) There was insufficient evidence that a shareholders meeting that evidently took place on 22 October 2004 was unlawfully conducted or that as a result of that meeting or at any other time the plaintiffs or their fathers or those associated with them had their shares transferred unlawfully or were unlawfully removed as directors or that the defendants and those associated with them unlawfully became shareholders and directors. Even if there were sufficient evidence to support a finding that the changes in shareholdings and directors that occurred as a result of the 22 October 2004 meeting were unlawful, a declaration, being an equitable remedy, would in the exercise of the Court's discretion be refused for two reasons: undue delay (laches), a period of 4 years, 8 months, in seeking relief, and a National Court decision of May 2008 that declared that the defendants and those associated with them were the proper shareholders and directors.
(3) The meeting of August 2009 was not a shareholders meeting and all resolutions passed at it were a nullity.
(4) All relief sought by the plaintiffs was refused.
Cases cited
The following cases are cited in the judgment:
Gawan Kuyan v Andrew Sallel (2008) N3376
Kitogara Holdings v NCDIC [1988-89] PNGLR 346
Magasaki Ltd v Linus Bai (2007) N3221
National Housing Corporation v Asakusa and Pumbu (2012) SC1165
Robinson v National Airlines Commission [1983] PNGLR 476
The State v Lohia Sisia [1987] PNGLR 102
Thiess Bros (Pacific) Pty Ltd v Chief Collector of Taxes [1978] PNGLR 474
Tin Siew Tan v Pelton Investments Pty Ltd [1996] PNGLR 34
Counsel
S Toggo, for the Plaintiffs
T Anis, for the Defendants
16th March, 2012
1. CANNINGS J: The issue in this case is: who are the shareholders and directors of Raikos Holdings Ltd? The plaintiffs, David Yaga and five others, say that they and individuals associated with them are, and have applied by originating summons for declarations and orders to that effect. The defendants, a group of seven people led by Andrew Sallel (strictly speaking they are 'the first defendant' but for the sake of convenience will be called 'the defendants') say that they and others associated with them, are the shareholders and directors.
2. The plaintiffs' base their case on three propositions:
(1) that a group of eight persons, comprising themselves or their fathers and others associated with them, were the original shareholders and directors upon incorporation of the company in 1989;
(2) that in 2004 the plaintiffs or their fathers and those associated with them were unlawfully removed as directors and the defendants and others associated with them were unlawfully appointed directors and had shares of the original shareholders unlawfully transferred to them;
(3) that in 2009 the first lawful shareholders held a meeting, at which it was resolved that the plaintiffs and those associated with them were the proper shareholders and directors.
3. Each of those propositions will now be tested. The plaintiffs need to prove all of them before the court will consider granting the orders and declarations that they are seeking.
PROPOSITION (1): THE PLAINTIFFS OR THEIR FATHERS OR ASSOCIATES WERE THE ORIGINAL SHAREHOLDERS AND DIRECTORS
4. The plaintiffs in these proceedings are:
5. They say that Raikos Holdings Ltd was incorporated on 4 August 1989 and that the original directors and shareholders, issued one share each, were:
6. In support of that proposition they have adduced in evidence the results of a company search, containing an historical extract issued by the Registrar of Companies, dated 28 September 2006. This indicates that the above group of eight persons were appointed as directors and that one share was issued to each of them on 4 August 1989.
7. The defendants argue that the historical extract cannot be relied on and that, in any event, it is an outdated search, being more than five years old at the date of trial, and that the plaintiffs' first proposition is unproven.
8. I do not share the defendants' scepticism about the historical extract. The results of the company search that have been adduced in evidence appear genuine; and the defendants did not argue that they were not genuine, just that they are out of date and unreliable. The Register of Companies, including historical extracts, is maintained by the Registrar of Companies under the Companies Act 1997, Section 395. It is prima facie evidence of a company's shareholdings and directorships (Thiess Bros (Pacific) Pty Ltd v Chief Collector of Taxes [1978] PNGLR 474, Gawan Kuyan v Andrew Sallel (2008) N3376).
9. In the same way that a company's share register (the register maintained by the company) is under Section 69 of the Companies Act prima facie, but not conclusive, evidence that legal title in shares vests in the persons shown in the register as shareholders, the Register of Companies is not conclusive evidence of shareholdings and directorships at a particular time. The Register is open to challenge and rectification, just as the share register is (see Companies Act, Section 71, and Tin Siew Tan v Pelton Investments Pty Ltd [1996] PNGLR 34). Here, the prima facie evidence of the original directors and shareholders of the company is uncontradicted by other evidence and I see no reason to reject it. I find as a fact that the original directors and shareholders were the eight persons described above. The plaintiffs have established the first proposition.
PROPOSITION (2): CHANGES IN SHAREHOLDINGS AND DIRECTORSHIPS IN 2004 UNLAWFUL
10. The Register of Companies shows that on 22 October 2004 the shares of six of the original shareholders were transferred to other persons and that that group of six also ceased to be directors. The group of six were:
11. Their shares were transferred to another group of six persons, who also became directors. This new group of six comprised:
12. Two of the original group of eight shareholders and directors remained. They were:
13. The plaintiffs and the defendants agree that the Register of Companies shows that as at 22 October 2004 the shareholders and directors were:
14. However, the plaintiffs and the defendants disagree about the circumstances in which the new group of six (who, together with lawyer Philip Wariniki, are the defendants in the present proceedings) became shareholders and directors on 22 October 2004.
Plaintiffs' assertions
15. The plaintiffs say that the new group of six (the defendants) had shares transferred to them unlawfully and that they unlawfully became directors. They argue that the changes in shareholdings and directorships were the result of a meeting at Marakum village on 22 October 2004, which was not, in law, a shareholders' meeting. It was merely a meeting of landowners or stakeholders. It was attended by 74 people. Minutes were kept (which have been adduced in evidence), which reveal that the meeting was dominated by Andrew Sallel and Batteng Puto, who were shareholders and directors in a another company, Gasigu Ltd, which wished to have the timber permit for the Rai Coast Timber Purchase Area, which was held under the Forestry Act 1991 by Raikos Holdings Ltd, transferred to it.
16. Mr Toggo, for the plaintiffs, relying on the decision of Lay J in Magasaki Ltd v Linus Bai (2007) N3221 submitted that, because it was not a lawful meeting of shareholders, all resolutions passed at the meeting, including those that resulted in shares being transferred to the new group of six and members of that group becoming directors, should be declared a nullity. Any doubt about whether the court should grant such a declaration should be resolved in the plaintiffs' favour given the ulterior motive of Mr Sallel and his associates, viz to take over management of Raikos Holdings Ltd so that the Rai Coast TRP could be transferred to their company, Gasigu Ltd.
Evidence
17. What evidence is there to support these assertions? Affidavits by five of the plaintiffs (Messrs Yaga, Jerome, Talane, Gau and Kasare) were admitted into evidence.
18. Mr Yaga, of Long Island, states that he is the son of one of the founding shareholder-directors, Yaga Pomiak, and that his father did not consent to his share being transferred. Mr Yaga states that he obtained the minutes of the meeting of 22 October 2004, prepared by Jonah Dembi, which show that it was not a proper meeting of shareholders.
19. Mr Jerome, of Siar village, deposes that he is the son of one of the founding shareholder-directors, Jerome Shagoi, and claims that his father did not consent to his share being transferred.
20. Mr Talane, of Long Island, who is one of the founding shareholder-directors, gave an interesting account of the history of Raikos Holdings Ltd, and says it was the brainchild of the former member for Rai Coast, Hon Samuel Pariwa MP. Mr Talane deposes that his share was transferred without his consent.
21. Mr Gau, of Songum village, deposes that he is the son of one of the founding shareholder-directors, Gau Jabilei, who died on 7 November 2007, and that he has inquired into the circumstances of the meeting at Marakum on 22 October 2004, which represents in his view a "hijacking" of Raikos Holdings Ltd by Andrew Sallel and his associates and Gasigu Ltd.
22. Mr Kasare, of Malalamai village, who is one of the founding shareholder-directors, deposes that his share was transferred without his consent.
Conclusion re alleged illegalities
23. I find in those affidavits insufficient evidence that establish on the balance of probabilities that the meeting of 22 October 2004 was unlawfully conducted, that shares were unlawfully transferred or that any of the original directors were unlawfully removed. The bulk of three of the affidavits (by Messrs Yaga, Jerome and Gau) is inevitably hearsay as the deponents are sons of deceased persons. The two other affidavits (by Messrs Talane and Kasare) are vague and unconvincing. There is no evidence to support a finding of unlawful or improper conduct by Mr Sallel or his associates regarding the alleged attempt to hijack Rai Coast Holdings Ltd for the purposes of Gasigu Ltd.
24. Even if there were sufficient evidence to support a finding that the changes in shareholdings and directors that occurred as a result of the 22 October 2004 meeting were unlawful, I would be reluctant to make a declaration to that effect, for two reasons.
Delay
25. First, undue delay. A declaration is an equitable remedy, so a plaintiff who establishes a cause of action is not entitled as of right to it. Equitable principles must be applied when the court as a matter of discretion decides whether to grant such a remedy, one of the most important being whether the plaintiff is guilty of undue delay (laches) in seeking relief (Robinson v National Airlines Commission [1983] PNGLR 476, The State v Lohia Sisia [1987] PNGLR 102). The question of whether there has been undue delay is determined by the circumstances of each case. There is no strict limitation period. The six-year limitation period that applies to many types of proceedings under Section 16 (limitations of actions in contract, tort etc) of the Frauds and Limitations Act 1988 does not apply to a claim for equitable relief; and this is made clear by Section 18 (claims for specific performance etc) of that Act.
26. In the present case there was a lapse of 4 years, 8 months between the date of the alleged illegalities (22 October 2004) and the date on which the originating summons was filed (12 July 2010). The trial did not take place (in November 2011) until seven years after the alleged illegalities. This is an inordinate delay and the plaintiffs have provided no satisfactory explanation for it. I do not accept that the remote locations at which some of the plaintiffs live meant that they were unaware of the affairs of the company. I find that the plaintiffs have been guilty of undue delay in commencing and prosecuting these proceedings.
Prior proceedings: OS 19 & 33 of 2007
27. The second and even more compelling reason to decline the declarations sought by the plaintiffs is that there was between the time of the alleged illegalities and the filing of the present proceedings, a separate set of proceedings, OS 19 & 33 of 2007, in which the general issue was the same as in the present proceedings: who are the shareholders and directors of Raikos Holdings Ltd?
28. The parties were not all the same; though it is noteworthy that one of the plaintiffs in the present proceedings, Gawan Kuyan, was a plaintiff in OS 19 & 33 of 2007, and the defendants in the present proceedings were also defendants in OS 19 & 33 of 2007 and were opposed to Mr Kuyan. The questions of law were not exactly the same; in that the proceedings had nothing to do with alleged unlawful changes in shareholdings and directors that occurred on 22 October 2004, but rather on alleged unlawful changes in shareholdings and directors that occurred in August 2006. Because the parties are different and the precise legal issues are different it cannot be said that the doctrine of issue estoppel applies (National Housing Corporation v Asakusa and Pumbu (2012) SC1165). However, it is very significant that OS 19 & 33 of 2007 went to trial. I was the trial judge and in a written judgment delivered in Madang on 26 May 2008 the matter was determined in favour of Mr Sallel and the group who had become shareholders and directors in October 2004 (Gawan Kuyan v Andrew Sallel (2008) N3376). Orders were made in the following terms:
(1) It is declared that the changes to the directors of Raikos Holdings Ltd in 2006, involving removal of four directors and appointment of eight new directors, are void and of no effect.
(2) The Registrar of Companies shall forthwith, after service of the court's order upon him, rectify the register of companies to the extent necessary to show that the directors of Raikos Holdings Ltd are:
- (a) Andrew Sallel;
- (b) Asangul Balifun;
- (c) Batteng Puto;
- (d) Gawan Kuyan;
- (e) Usum Mai; and
- (f) Yanam Mul.
(3) It is declared that the changes to the shareholdings of Raikos Holdings Ltd in 2006, involving transfer of five shares and issue of three shares, are void and of no effect.
(4) The Registrar of Companies shall forthwith, after service of the court's order upon him, rectify the register of companies to the extent necessary to show that the shareholders of Raikos Holdings Ltd are:
- (a) Andrew Sallel
- (b) Asangul Balifun
- (c) Batteng Puto
- (d) Bawan Bulum
- (e) Gawan Kuyan
- (f) Jonah Dembi
- (g) Usum Mai
- (h) Yanam Mul.
(5) It is declared that the appointment of Bumbum Bais as managing director of Raikos Holdings is void and of no effect and that Andrew Sallel is the managing director of Raikos Holdings Ltd and holds that position until the board of directors of Raikos Holdings Ltd decides otherwise.
29. I presume and take judicial notice of the fact that the affairs of Raikos Holdings Ltd has been a burning local issue in the Rai Coast District for many years. It is reasonable to expect that if Mr Yaga and other plaintiffs in the present proceedings had a genuine interest in Rai Coast Holdings Ltd they would have applied to be joined as parties in OS 19 & 33 of 2007 or applied to the court to have their interests recognised in some formal way. That did not happen.
30. Once the orders of 26 May 2008 confirmed that Mr Sallel and five other defendants in the present proceedings (Messrs Puto, Bulum, Dembi, Mai and Mul) were shareholders and directors of the company, it is reasonable to expect that Mr Yaga and other plaintiffs in the present proceedings would have quickly moved to take steps to assert their interest in the company and overcome the effect of the orders. Though not all of them were parties in OS 19 & 33 of 2007 they could have, as pointed out by Mr Anis, relying on the authority of Kitogara Holdings v NCDIC [1988-89] PNGLR 346, as persons whose interests were affected by or who were aggrieved by a judgment of the National Court and who might have been joined as a party to the National Court proceedings, appealed to the Supreme Court under Section 17 of the Supreme Court Act.
31. They did not appeal and did not take immediate steps to institute fresh proceedings. They waited two years and one month (26 May 2008 to 12 July 2010) before commencing the present proceedings. This is an unreasonable delay that by itself warrants refusal of the declarations sought by the plaintiffs.
Determination of proposition (2)
32. The plaintiffs have failed to prove that the changes in shareholdings and directorships in October 2004 were unlawful. If they had proven illegality they would nonetheless be denied relief due to the undue and unreasonable delay in prosecuting their claims.
PROPOSITION (3): PLAINTIFFS LAWFULLY APPOINTED IN 2009
33. The plaintiffs have adduced sufficient evidence to show that there was a meeting conducted at Mot Guesthouse Madang on 25 July 2009. It was attended by the plaintiffs and resolutions were passed that the transfer of shares to Mr Sallel and other defendants was unlawful and that the plaintiffs be appointed or confirmed as directors.
34. It is clear that this was not a proper meeting of shareholders in accordance with the Companies Act. The minutes of the meeting reveal that no mention was made of the orders of 26 May 2008 in OS 19 & 33 of 2007. All of the business transacted at the meeting was therefore conducted on the false premise that the shareholders and directors were the original shareholders and directors from 1989. I therefore conclude that all resolutions of the meeting of 25 July 2009 are void and of no effect.
CONCLUSION
35. The plaintiffs have failed to establish the second and third propositions, each of which was necessary to prove in order for them to have any prospect of the Court making orders or declarations in their favour. All relief sought by the plaintiffs will therefore be refused.
ORDER
(1) All relief sought in the originating summons is refused.
(2) The question of costs is reserved.
(3) Time for entry of this order is abridged to the date of settlement by the Registrar which shall take place forthwith.
Ruling accordingly.
___________________________________________________________
Daniels & Associates: Lawyers for the Plaintiff
Bradshaw Lawyers: Lawyers for the Defendants
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