Reu v Meta [2014] PGNC 354; N6534 (5 June 2014)

N6534

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

O.S No. 23 of 2014

BETWEEN

Blassius Reu, Chairman,

Kulumo ILG and Lolokoru Estates Ltd & Shareholder

First Plaintiff

AND

Joseph Ngava, Chairman, Tauchale ILG & Shareholder

Second Plaintiff

AND

Pinda Wakore, Chairman of Dava ILG & Shareholder

Third Plaintiff

AND

John Kembu, Secretary, Lolokoru Estates Ltd

Fourth Plaintiff

AND

Lolokoru Estates Limited

Fifth Plaintiff

AND

William Meta, Caspar Lacha Otto Dau,

as purported Shareholders

First Defendants

AND

Lawrence Valuka, as purported Director & Chairman

Second Defendant-

AND

Steven Yennie, as purported Secretary

Third Defendant

AND

Joseph Mara, as purported Director

Fourth Defendant

AND

Gordon Dende, Lawrence Giru, Nelson Giru,

Mismin Gorea, Henry Gorea, Ludwig Kau,

Ben Raka, Ian Robert, Gabriel Dende Seleu,

as purported Directors

Fifth Defendants

AND

Alex Togayu, Registrar of Companies

Sixth Defendant

Bialla/Kimbe: Batari, J

2014: 13^th May, 5 June

COMPANY ACT – Shareholders and Directors of company – Change of registration of – whether in compliance with company law –

PRACTICE AND PROCEDURE – Shareholders meeting – General meeting to Change Directors – Calling of - service of notice of meeting – attendance and voting at meeting – validity of – minutes of general
meeting – record of.

Cases cited

Counsel:

Ms. J. Waiwai, for the Plaintiffs
Mr. T. Kuma, for the Defendants
Mr. B. Lakakit, for the Intervener

5^th June, 2014

1. BATARI J: The defendants, with the exception of the Registrar of Companies as the Sixth Defendant, are the registered directors and shareholders of the Fifth Plaintiff, Lolokoru Estate Limited. The validity of their registration with the Investment Promotion Authority (IPA) is challenged by the plaintiffs in this proceeding. The defendants’ stand is that they are the legitimate directors and shareholders of the landowner company in question.

2. By originating process filed on 30 January, 2014 the plaintiffs are seeking declarations and orders which can be fairly re-stated as follows:
   
   1. The registration of William Meta, Caspar Laka and Otto Dau as Directors of the Fifth Defendant breached the Companies Act, 1997.
   2. The registration of Lawrence Waluka as Director and Chairman of Lolokoru Estates Ltd and Steven Yennie as Company Secretary, breached provisions of the Companies Act, 1997.
   3. The registration of Gordon Dende, Lawrence Giru, Nelson Giru, Mismin Gorea, Henry Gorea, Ludwig Kau, Ben Raka, Ian Robert and Gabriel Dende Seleu as Directors of Lolokoru Estates Ltd breached the Companies Act, 1997.
   4. Board Meeting convened by the First and Second Defendants on 21/12/13 to change the Directors of Lolokoru Estates Ltd contravened the Act.

Orders are sought that;

5. The changes including appointment of new directors, shareholders, secretary and entered with the IPA to effect the changes was illegal and ultra vires the Companies Act, 1997.
6. The entries at the IPA by the defendants be cancelled.
7. The Sixth Defendant removes the defendants from the IPA records.
   
3. There are three other related proceedings in O.S No. 12 of 2014, O.S No. 519 of 2013 and O.S No. 24 of 2014 pending before the court. It is generally agreed by the parties that the result of this proceeding will decide one way or another, the future of those other cases. This is not a consolidated hearing although one may think it is as asserted by Mr Kuma of counsel for the defendants in his submissions.

4. It is also noted that Mr Lakakit is counsel for the plaintiff in O.S No. 519 of 2013 in which his client seeks declarative orders that he is the incumbent director and shareholder of Lolokoru Estates Ltd (the ILG Company). Mr Lakakit is granted leave to intervene in support of the applicants in this proceeding.

5. The applicants are seeking rectification of Lolokoru Estates Ltd register with IPA as aggrieved persons under s.71 of the Companies Act. Section 71 provides:
   

“71. Power to rectify share register.

(1) Where the name of a person, or other particulars, are wrongly entered in, or omitted from, the share register of a company, the person aggrieved, or a shareholder, may apply to the Court—

(a) for rectification of the share register; or

(b) for compensation for loss sustained; or

(c) for both rectification and compensation.

(2) On an application under this section the Court may order—

(a) rectification of the register; or

(b) payment of compensation by the company or a director of the company for any loss sustained; or

(c) rectification and payment of compensation.

(3) On an application under this section, the Court may decide—

(a) a question relating to the entitlement of a person who is a party to the application to have his name or other particulars entered in, or omitted from, the register; and

(b) a question necessary or expedient to be decided for rectification of the register.

(4) Any clerical or minor error in a share register of a company may be corrected where either the Registrar or every shareholder of the company at the time of correction, has agreed in writing to the correction.”

6. The plaintiffs are seeking orders pursuant to s.17 (1) (a) for the Registrar of Companies to rectify its records on the basis, that the names and particulars of the defendants are wrongly entered in the share register of ILG Company. They also rely on the Court powers to order rectification and payment of compensation under s.71 (2) (c) of the Companies Act. This latter relief is however not pursued.
   

Background Facts

7. The ILG Company had its humble beginning in Vagori Logging Limited, a company formed by Bulumuri and Buludava landowners with share holdings distributed along clan landowning lines in 1983. The company’s subsequent name change to Lolokoru Estate Ltd occurred around 2000 and so was the ILG Company business structure and activity evolved recipient of timber harvest royalties to oil palm estates venture. Three principal incorporated land groups (ILGs) namely, Dava, Tauchale and Kulumo ILGs formed Lolokoru Estates Ltd. The shareholdings of these ILGs in the company were held by the Chairman of each ILG. As of December, 2013 Lolokoru Estate Ltd shareholders comprised Blassius Reu, Joe Ngava and John Lacha. Pinda Wakore had in the meantime replaced John Lacha as Chairman of Dava ILG but the IPA records had not been altered to reflect that change.
   
8. The company was then under the management of CEO John Pakua. The numerous affidavits filed by the defendants raised serious concerns and disapproval of John Pakua’s management of the business affairs. They raise issues of personal conduct with innuendos of gross mismanagement and unjust enrichment from the company operations. The many cases now before the court arose from that common perception of company management. In the case before this court, one faction of the three ILGs led by Dr. Steven Yennie and William Meta conducted meetings to replace the shareholders and company directors. The changes were then registered with IPA as per the Company Extract annexed to the affidavit of Dr. Steven Yennie.
   
9. The broad issue that will determine this proceeding is whether those changes to the company share holdings and directorship comply with the Companies Act, 1997 and the Land Groups Incorporation (Amendment) Act.
   

The Law

10. There are several provisions of the Companies Act that are relevant to the issue of shareholdings and meetings of shareholders and company directors under the Act. The most pertinent are sections 69, 102, and 103 set out below:
    

69. Share register as evidence of legal title.

(1) Subject to Section 71, the entry of the name of a person in the share register as holder of a share is prima facie evidence that legal title to the share vests in that person.

(2) A company may treat the registered holder of a share as the only person entitled to —

(a) exercise the right to vote attaching to the share; and

(b) receive notices; and

(c) receive a distribution in respect of the share; and

(d) exercise the other rights and powers attaching to the share.

102. Special meetings of shareholders.

A special meeting of shareholders entitled to vote on an issue—

(a) may be called at any time by—

(i) the board; or

(ii) a person who is authorised by the constitution to call the meeting; and

(b) shall be called by the board on the written request of shareholders holding shares carrying together not less than 5% of the voting rights entitled to be exercised on the issue.

103. Resolution in lieu of meeting.

(1) Subject to Subsections (2) and (3), a resolution in writing signed by not less than 75% of the shareholders who would be entitled to vote on that resolution at a meeting of shareholders who together hold not less than 75% of the votes entitled to be cast on that resolution is as valid as if it had been passed at a meeting of those shareholders.

(2) A resolution in writing that—

(a) relates to a matter that is required by this Act or by the constitution to be decided at a meeting of the shareholders of a company; and

(b) is signed by the shareholders specified in Subsection (3),

is made in accordance with this Act or the constitution of the company.

11. The Land Groups Incorporation (Amendment) Act also provides for procedures for calling of meetings and changes to the ILGs management committees. These may be fairly summarised as follows:
    

Section 14C – Request for Convening of ILG Members Meeting

If the members forming 50% of an Incorporated Land Group so request, the Chairperson (or in his absence the Deputy Chairperson) shall convene a meeting of the members within 14 days of request.

Section 14D (3) – Quorum at Meeting of ILG Members

No business shall be transacted at a meeting of the members unless at least 60 percent of the members of the group are present at the meeting, out which, at least 10% are of the other gender.

Section 14D (4) - Resolution at ILG Members Meeting

A resolution at a meeting of the members, supported by votes of not less than sixty percent of the members of the group present at the meeting shall be treated as the decision of the group.

Section 14D (5) - Removal of ILG Executive Member

For the removal of a member or members of the management committee, a vote of 70 percent of the members present at the meeting is required.

Section 14F (1) - Vacancy in ILG Executive

Where a member of the management committee dies, becomes incapacitated or wishes to retire he may be replaced by resolution of the members of an incorporated land group.

Section 14F (2) – Replacement of ILG Executive Member

A member of the management committee may be removed or replaced by a resolution of the members of an incorporated Land Group at a general meeting or a special general meeting.

Submissions

12. Mr. Kuma, both in his oral and written representations, submitted that the alterations to the share register of Lolokoru Estates Ltd were proper and legal. Relying on the affidavits of Dr. Steven Yennie and Lawrence Waluka, counsel submitted that IPA effected the changes on its register after being satisfied that all due processes have been complied with in respect of changes to directors and share holding in Lolokoru Estates.
    
13. According to Mr. Kuma, legitimate meetings were held by each ILG to elect their Executive Committees under the Land Group Incorporation (Amendment) Act and by standing arrangement, the ILG chairman automatically becomes the shareholder of Lolokoru Estates Ltd. Similarly, Lolokoru Estates company directors are appointments from the ILG management committee members. Hence, in this case, new directors were properly appointed to Lolokoru Estates board of directors. Counsel urged the Court to find and confirm that the changes made to the register of shares and the company directors were proper and legal.

14. Ms. Waiwai on the other hand, submitted that the IPA register of change of shareholders and directors is fundamentally flawed in failing to comply with the Companies Act. Counsel contended that no shareholders meeting was convened under the Act to pass resolutions for the changes and that the changes also contravened the Land Groups Incorporation (Amendment) Act in failing to convene meetings in line with the provisions of the LGI Act.
    
15. Counsel submitted that the declarations and orders sought by the plaintiffs are supported on the facts and the law and are meritorious. Mr. Lakakit made similar submissions in support of the plaintiffs’ case.
    

Ruling

16. From the volume of evidence before me, I am satisfied that both parties in this dispute have shares in Lolokoru Estates Ltd through their respective ILG chairman. Upon election, the incumbent automatically assumes share holding status in the company. Mr. Kuma submitted that, that was the nature of the company structure on the basis of which his clients’ names and particulars were entered on the IPA records following their elections either as chairman of one of the ILGs or as Lolokoru Estates company director.
    
17. There is however, nothing before the court showing the statutory basis for that arrangement. The constitutions of the company and the three ILGs may throw some light on this but those legal documents are not before the Court.
    
18. For all intents and purposes, the chairman once elected will hold shares for and on behalf of the ILG. He or she is the nominal shareholder, a trustee of the ILG share. However, the IPA register does not indicate that to be so. The legal nature of share under s.36 of the Companies Act is such that it is a personal property. This grey area may lead to difficulties and potential abuse.
    
19. Having said that I am mindful of the various regulatory provisions starting with the definitions of certain terms and phrases in sections 5 and 6 of the Companies Act. These provisions set out the meanings of, “holding company,” “subsidiary company” and “control” in respect of shareholdings, duties and responsibilities, exercise of power, control as shareholder. Part VII of the Companies Act provides for shareholders, their rights and obligations. Part VIII governs the powers, duties and obligates of shareholders and company directors.
    
20. I also note that the divisions in the membership of the three ILGs has resulted in a number of cases pending before the court over purported failure of the ILG Company to deliver on its perceived profitable operations and alleged gross mismanagement, fraud and corruption by company officers.
    
21. One faction favoring changes to the directorship and shareholdings is being resisted by another. It is also the defendants’ case that the replaced shareholders and directors had in effect voted themselves out of office by failing to conduct meetings as required under the Companies Act. The failure to conduct meetings under the constitution of a company or an ILG is in my view, a notorious fact in respect of many land owner companies and ILGs today. Those appointed to hold executive positions in ILGs or its subsidiaries or shareholding companies, become consumed with power and difficult to remove simply by avoiding their legal and moral obligations to call general meetings and special meetings under the Companies Act or the Land Groups Incorporation (Amendment) Act. When their terms under the group constitution or the two Acts are up, they conveniently do not call the meetings, to test their support and mandate to stay in office. They continue to dwell under false delusions that they are untouchable albeit, in breach of the law aside from the various criticisms, some true, some perceived or mere conjecture, of their management.

22. One obvious solution is to seek Court intervene to order a meeting in compliance with company or group constitution or under the Companies Act or the Land Groups Incorporation (Amendment) Act. The defendants did not do that in this case.
    
23. While these disputes protracted, amongst shareholders, directors and company executives, Lolokoru Estates as separate legal entity suffer with real threat of going into liquidation and out of business.
    
24. One faction, being the defendants have in my view genuinely attempted to resolved the company’s dilemma the proper way by calling meetings of the ILGs. But were those meetings validly convened? And did the alterations to the company registrar follow proper procedure? Did IPA alter its register records with due diligence? These are criminal issues that can only be resolved on the facts.
    
25. Section 37 (1) (a) (i) of the Companies Act makes it clear that a share in the company confers on the holder, the right to vote at a company meeting on a resolution to appoint or remove a director. The entry of the name of the person in the share registers as holder of a share is evidence that legal title to the share and the accompanying rights and privileges vest in that person (s.69 (2) ). Meetings of the company referred to in s.37 (1) (a) (i) are those meetings called and convened or that purpose under ss. 102 and 103 of the Act as special meetings of shareholders and resolution in lieu of meeting.
    
26. There is no evidence in this case that a special meetings of shareholders was convened to effect the changes as envisaged under s.37 (1). Because of that the changes to the IPA register were not made as required under the Companies Act. Consequently, the registration of nominal of directors and appointment of new directors by the Companies Registrar contravened ss.37, 102 and 103 Companies Act.
    
27. The changes to Lolokoru Estates shareholders and Board of Directors register at IPA were purportedly made under the Land Groups Incorporation Act. According to the affidavits of Dr. Steven Yennie and Lawrence Waluka, legitimate meetings of the three ILGs were held and a chairman for each ILG was elected together with Company Directors.
    
28. I find their affidavits of little assistance. They are largely on issues of hearsay mismanagement of Lolokoru Estates, verbose and too general. The best evidence on the meetings held should come from the chairman and members of the management committee of the Land Group won, directors elected in a purported valid meeting. And while the Land Groups Incorporation (Amendments) Act is clear on the procedure for calling, attendance and conduct of the meeting of an ILG, it is quite clear on the evidence that the meetings were hastily conducted and that attendance and passing of resolutions were by clan representatives only. I accept the contentions by Ms. Waiwai and Mr. Lakakit that there is no evidence on the number of registered member of each ILG and the names and number of registered members who attended and voted at each purported ILG meeting. Dr. Steven Yennie only set out the numbers of clans forming ILG. He did not give the number of members in each Land Group. The minutes gave the number of people attending the meeting for Kulumo and Dava ILGs only. They did not disclose the membership number. That evidence came from the affidavit of the Fourth Plaintiff, Ps. John Kembu. He not only set out the number of clans comprising each ILG but he also set out the membership number for each ILG.
    
29. The essence of this requirement is that under s.14D (3) of the Land Groups Incorporation (Amendment) Act, attendance at the meeting of the ILG must be 60% of the total membership. The minute of the meeting for Kulumo ILG showed 129 members inclusive of clan leaders and children were present. There is no evidence on the total membership of the group. From the affidavit of Ps. John Kembu, Kulumo has 17 clans with a total of 217 members. This means that less than 60% of Kulumo ILG members attended the meeting.
    
30. In respect of Dava ILG, the minutes indicated 136 members inclusive of clan leaders attended the meeting. Dava ILG has 221 according to the affidavit of Ps. John Kembu. Although the attendance complied with the 60% requirement, there is no evidence of the names and ages of those who attended the meeting. In respect of Taucha ILG, Ps. John Kembu states that it has 147 members. The minutes of the meeting does not disclose the members attending apart from the clan representatives which numbered 13. This is less than 60% required by law.

31. The act also authorizes members to request a meeting of the ILG. The request must, however, be made by 50% of the members. In that event, the chairman or in his absence, the vice chairman must convene the meeting within 14 days of the request. That is a mandatory requirement. There is no evidence in any written form that the meeting convened for each ILG followed that process. This requirement under s.14C of the Land Groups Incorporation (Amendment) Act is essentially to protect the ILG Executive against busy-bodies interfering with the administrative affairs of the ILG. But if it’s imperative for ILG members to meet and that is supported by 50% of the total membership, then the chairman or vice chairman has no option but to hold that meeting.
    
32. Furthermore, the Land Groups Incorporation Act says in s.14D (4) the resolutions at a meeting must be supported by more than 60% of the members of the group present. It is clear from the minutes that the resolutions on the change of Chairman and Directors were passed by clan representatives and not the 60% of the members present.
    
33. Similarity, where the votes were to be taken on the removal of a member or a member of the management committee, the motion must be passed by 70% of the group members present. This provided for under s.14D (5). This process was again not followed according to the minutes of the three ILGs.
    
34. Under s.14F (1), a member of the management committee can only be removed by reason death, incapacitation or if he/she wishes to retire. A resolution must, however, be passed by the members of the land group at the general meeting or a special general meeting (s.14F (2).
    
35. There is no evidence that members of the management committee for each three ILGs were lawfully removed under s.14D (5). Nor is there evidence that those replaced had either died or were mentally affected or had intended to retire.
    
36. What is clear from the evidence is that the defendants had attempted and succeeded in so doing to use the Land Groups Incorporation (Amendment) Act to change the shareholding, Board of Directors and the management of Lolokoru Estates Ltd. The intention is good and honourable in a purported salvage and rescue of a land owner company from the jaws of gross management, fraud and corruption.
    
37. But they went about it in a totally wrong way in failing to comply with the provisions of the Companies Act. The registered shareholders are the only authorities with legal standing to appoint or remove a director at a meeting of the company called for that purpose (s.37(1). No such meeting was convened by the Shareholders or Board of Directors.
    
38. In their attempt to utilize the Land Groups Incorporation (Amendment) Act the defendants also failed miserably in holding meetings of the ILG in contravention of due process under the Act. The resolutions taken at the meeting of ILG by clan representatives contravened the Land Groups Incorporation (Amendment) Act and therefore void. Aside from that, there is glaring inconsistencies in the company extract attached to the affidavit of Dr. Steven Yennie.
    
39. For instance, in relation to Tauchale ILG meeting on 5/1/14, Ben Raka, Nelson Giru, Gordon Dende and Lawrence Giru were purportedly appointed as Directors of the company. On that same date, they signed the s.130 (1) Consent and Certificate of Director in Form 15. The Company Extract, however, shows those purported Directors were appointed on 22/12/13. In the case of Otto Dau, who was purportedly appointed as Chairman of Tauchale ILG on 5/1/14, the Company Extract showed that he was appointed on 8/1/14.
    
40. In respect of Kulumo ILG, the Land Group met on 21/12/13 from 4.05pm to 5.45pm. Gabriel Dende and Henry Gorea were elected as Directors with William Meta as Chairman of the ILG. The two Directors signed their Form 15 consent on the same date and appeared on the Company Extract as being appointed on 21/12/13. William Meta was recorded as being appointed on 8/1/14.
    
41. For Dava ILG, the meeting was purportedly held on 22/12/13 at 1.30pm. Junior Kau, Ian Robert and Mismin Gorea were appointed as Directors. They signed the Form 15 consent on the same day and the Company Extract showed they were appointed on 22/12/13. Kaspar Lacha was elected as chairman on 22/12/13. The Company Extract showed him as being appointed on 8/1/14.
    
42. Those inconsistencies also showed someone was in hurry to make changes to company registrar. It also showed IPA officers had failed to carry out due diligence checks on the forms submitted to ensure due compliance with the Companies Act and the Land Groups Incorporation (Amendment) Act. The glaring differences in the cases of Tauchala ILG and the appointment of the shareholders would have been quite obvious to the Registrar of Companies. That failure may suggestion collusion involving officers of IPA.
    
43. In the end result, I find that the appointment of the First, Second, Third, Fourth and Fifth defendant were in contravention of the provisions of the Land Groups Incorporation (Amendment) Act and the Companies Act. Therefore, the appointments are declared null and void and of no effect.
    
44. The relief sought in the originating summon is hereby granted by way of declaration that:
    
    1. The registration of the First Defendants as shareholders and Directors in the Third Plaintiff company is in breach of the provisions of the Companies Act 1997 and therefore null and void and of no effect.
       
    2. The registration of the Second Defendant as Director in the Third Plaintiff company is in breach of the provisions of the Company Act 1997 and therefore null and void and of no effect.
       
3. The registration of the Third Defendant as Secretary in the Third Plaintiff company is in breach of the provisions of the Companies Act 1997 and therefore null and void and of no effect.
   
4. The registration of the Fifth Defendants as Directors in the Third Plaintiff company is in breach of the provisions of the Companies Act 1997 and therefore null and void and of no effect.
   
5. The purported board meeting convened by and with the full knowledge of the First and Second and Defendants on the 12 December 2013 to alter the Board of Directors is ultra vires the Companies Act 1997 and is null and void and of no effect.
   
6. And the court further orders that any alteration including appointment of new directors, shareholders and the secretary and entered in the record of the Investment Promotion Authority to effect the changes mooted in the 12 December 2013 illegal, ultra vires the Companies Act 1997 and thus null and void.
   
7. All entries, if any, at the Investment Promotion Authority made by and with the full knowledge and participation of the First, Second and Third Defendant, Fourth and Fifth Defendants are to be cancelled.
   
8. The First, Second and Third Defendant, Fourth and Fifth Defendants are restrained from holding themselves out as Directors, Shareholders Secretary, Chairman respectively as aforesaid and not to hold meetings whatsoever and to do anything or purport to do anything whatsoever for and on behalf of Lolokoru Estate Limited and its Shareholders.
   
9. The Sixth Defendant remove the First, Second and Third Defendant, Fourth and Fifth Defendants as Chairman, Directors, General Manager and Secretary respectively as aforesaid from the registry and record at the Registry of Companies at the Investment Promotion Authority.
   
45. The sixth defendant is hereby ordered to rectify forthwith, pursuant to s.71 (1) (a) of the Companies Act and reinstate the records prior to 21^st December 2013 as the correct records of Lolokoru Estates kept in IPA.

46. The First, Second, Third, Fourth and Fifth Defendants are to vacate, surrender and give up occupation and possession of Lolokoru Estates Ltd premises, assets, and estates – real or tangible forthwith.
    
47. The plaintiffs and the intervener have the costs at 80% / 20% in favour of the Plaintiffs in this case to be taxed if not agreed.
    

Wagambie Lawyers: Lawyers for the Plaintiff
Kimbu & Associates Lawyers: Lawyers for the Defendant
Lakakit & Associates Lawyers: Lawyers for the Intervener