Kurumbukari Ltd v Saud [2015] PGNC 99; N5906 (13 March 2015)

N5906

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

OS NO 62 OF 2015

KURUMBUKARI LIMITED, BASAMUK ENTERPRISE LIMITED, WASS MATAU LIMITED & MAIGARI LIMITED
Plaintiffs

V

STEVEN SAUD, MOSES KUMURA, PETER GULOM,
KENNY MANGOA & SUN BOB
First Defendants

PETER KEMBU
Second Defendant

Madang: Cannings J
2015: 3, 13 March

COMPANIES – application for injunctions under Companies Act, Section 142(1), restraining suspended directors from performing their functions – appointment of interim board – whether suspension amounts to removal

PRACTICE AND PROCEDURE – motion for interim orders restraining defendants from performing functions of directors of a company – whether substantive relief being sought by notice of motion

The plaintiff shareholders of a company applied to the National Court under Section 142(1) of the Companies Act for injunctions against the directors and general manager of the company, restraining the directors from performing their functions as directors and restraining the general manager from taking instructions from the directors. The plaintiffs argued that the injunctions were necessary to give effect to their recent resolutions to suspend the directors and appoint an interim board.

Held:

(1) The Companies Act makes no provision for suspension of a director and there was no evidence that the constitution of the company provided for suspension. The decision of the shareholders (the plaintiffs) therefore appeared to lack any legal basis.

(2) On the evidence available, it appeared the plaintiffs had removed the first defendants as directors, but the procedure in the Companies Act for removal of directors had not been followed; and in the absence of evidence that the constitution of the company made specific provision for the procedure followed by the plaintiffs, the decision to suspend the directors appeared to be unlawful.

(3) The motion sought substantive, not interlocutory, relief, contrary to Order 4, Rule 49(9) of the National Court Rules, and was an abuse of process.

(4) The application for injunctions was accordingly refused.

Cases cited

The following cases are cited in the judgment:

Gawan Kuyan v Andrew Sallel (2008) N3376
NCDC v Yama Security Services (2003) SC707
Yer v Yama (2009) SC996
Vitus Kais v Sali Tagau (2012) N4810

Counsel

G Pipike, for the Plaintiffs
T M Ilaisa, for the Defendants

13th March, 2015

1. CANNINGS J: The plaintiff shareholders of Raibus Ltd apply by notice of motion under Section 142(1) of the Companies Act for injunctions against the directors and general manager of the company, restraining the directors from performing their functions as directors and restraining the general manager from taking instructions from them. The plaintiffs argue that injunctions are necessary to give effect to their resolution, passed at a stakeholders meeting of Raibus Ltd on 22 January 2015, to suspend the directors and appoint an interim board.

2. The four shareholders of Raibus Ltd are companies that represent customary landowners in the land corridor occupied by the Ramu Nickel-Cobalt project:

Kurumbukari Ltd : mine site area

Basamuk Enterprise Ltd : refinery

Wass Matau Ltd : coastal pipeline

Maigari Ltd : inland pipeline

3. The first defendants, Steven Saud, Moses Kumura, Peter Gulom, Kenny Mangoa and Sun Bob, are the directors of Raibus Ltd who the plaintiffs have resolved to suspend. The second defendant, Peter Kembu, is the group general manager of Raibus Ltd. The plaintiffs say that since the shareholders suspended the directors and appointed an interim board and an interim board chairman, Martin Paining, Mr Kembu has defied the shareholders' instructions and refused to accept any directions given to him by the interim board. Mr Pipike, for the plaintiffs, submits that injunctions are necessary to enforce the resolutions of the shareholders which have been made in good faith due to continuing concern as to the manner in which the company has been managed and the failure of the defendants to take heed of the concerns of the shareholders expressed at the most recent annual general meeting in May 2014.

STATUTORY INJUNCTIONS SOUGHT

4. The plaintiffs are seeking statutory injunctions under Section 142(1) of the Companies Act, which states:

The Court may, on an application under this section, make an order—

(a) restraining a person who is engaging in or proposes to engage in conduct that is or would contravene the constitution of the company or this Act from engaging in that conduct; or

(b) requiring a person who has refused or failed, is refusing or failing, or is proposing to refuse or fail, to do an act or thing that he is required to do by the constitution of the company or this Act, to do that act or thing.

5. The specific injunctions that the plaintiffs are seeking are that:

• the first defendants be restrained from acting as directors and from engaging with the second defendant and issuing directives to the management (notice of motion, paragraph 2);
  
• the second defendant be restrained from taking directions from the first defendants (notice of motion, paragraph 3);
  
• the first defendants be restrained from disposing of any of the company's property (notice of motion, paragraph 4);
  
• the first defendants be ordered to return any company property in their possession (notice of motion, paragraph 5);
  
• the second defendant be ordered to attend meetings of the interim board to discuss the affairs of the company (notice of motion, paragraph 6).
  

SHOULD INJUNCTIONS BE GRANTED UNDER SECTION 142(1)?

6. If the Court is to grant an injunction it needs to be satisfied that the defendants:

• are engaging in or proposing to engage in conduct that is or would contravene the constitution of the company or the Companies Act (s 142(1)(a)); or
  
• have refused or failed or are refusing or failing or proposing to refuse or fail, to do an act or thing required to be done by the constitution of the company or the Companies Act (s 142(1)(b)).
  

7. I uphold the submissions of Mr Ilaisa for the defendants that none of those preconditions exist. By holding their ground and refusing to recognise their suspension (in the case of the directors) and the appointment of the interim board, the defendants do not appear to be contravening the constitution of the company or the Companies Act. Nor does it seem that they are refusing to do things required to be done by the constitution of the company or the Companies Act. I have reached that conclusion for three reasons.

8. First, the plaintiffs claim that they have suspended the directors, but the Companies Act makes no provision for suspension of a director and there is no evidence that the constitution of the company provides for suspension. The decision of the plaintiffs to suspend the directors appears to lack any legal basis.

9. Secondly, though the resolutions of the plaintiffs have been expressed in terms of suspension, it appears that in fact, and as a matter of law, what has happened is that the directors have been removed from office. As I pointed out in Gawan Kuyan v Andrew Sallel (2008) N3376 the Companies Act provides an elaborate procedure for removal of directors. Directors of a company are, unless the company's constitution provides otherwise, removed and appointed by the company's shareholders. The shareholders' powers of removal and appointment can only be exercised at a meeting of shareholders or by a resolution in lieu of a meeting, in accordance with Sections 86(1) (exercise of powers reserved to shareholders), 101 (annual meeting of shareholders), 102 (special meeting of shareholders), 103 (resolution in lieu of meeting) and 104 (court may call meeting of shareholders). Other requirements for calling and conducting meetings of shareholders are governed by Section 105 (proceedings at meetings) and, to the extent that a company's constitution does not make provision for it, Schedule 2 (proceedings at meetings of shareholders).

10. Section 134 (removal of directors) of the Companies Act provides specifically for removal of directors:

(1) Subject to the constitution of the company, a director of a company may be removed from office by ordinary resolution passed at a meeting called for the purpose or for purposes that include the removal of the director.

(2) The notice of a meeting referred to in Subsection (1) shall state that the purpose or a purpose of the meeting is the removal of the director.

11. This means that unless the company's constitution provides otherwise, if a director of a company is to be lawfully removed from office the following procedure applies:

• there must be a meeting of shareholders (s 134(1)) or a resolution in writing in lieu of a meeting (s 103);
  
• if there is a meeting of shareholders, at least 14 days written notice of the meeting must be given to all shareholders, directors and auditors of the company (Schedule 2, s 2(1));
  
• the notice must state the nature of the business to be transacted at the meeting in sufficient detail to enable a shareholder to form a reasoned judgment in relation to it (Schedule 2, s 2(2));
  
• the meeting must be called for the purpose or for purposes that include the removal of a director and the notice must state that the purpose, or a purpose, of the meeting is the removal of a director (s 134(2));
  
• the question of removal of a director must be passed by ordinary resolution, ie a resolution approved by a simple majority of votes of those shareholders entitled to vote and voting on the question (ss 87(2), 134(1));
  
• if there is no meeting of shareholders, the resolution for removal of a director must meet the 75% requirements of s 103.
  

12. It is clear from the evidence that the above procedures have not been followed. Further, no evidence has been presented that would show that the manner in which the first defendants have been removed from office – or to use the plaintiffs' word, 'suspended' – have followed any procedure in the constitution of Raibus Ltd. It follows that there is a strong case to say that the first defendants have been unlawfully removed from office and that the interim board has been unlawfully appointed to fill vacancies that do not as a matter of law exist.

13. Thirdly, though there have been a number of meetings attended by representatives of the four shareholder companies at which the question of suspension of the first defendants and the appointment of an interim board have been deliberated on, none of them can properly be regarded as shareholders meetings. As Mr Ilaisa pointed out these meetings have been 'stakeholders meetings'. A lot of people professing an interest in Raibus Ltd have attended but they are not shareholders. From the evidence available it appears that there have been no shareholder meetings at which the plaintiffs have passed the resolutions at issue.

14. The plaintiffs have therefore not shown that the preconditions to the granting of the injunctions exist. I refuse to grant any injunctions under Section 142(1) of the Companies Act.

PRACTICE AND PROCEDURE

15. I uphold another of Mr Ilaisa's arguments for refusing the application for injunctions. The relief sought by the plaintiffs in the notice of motion is almost a mirror image of what is sought in the originating summons. This offends against the basic rule of practice and procedure that a plaintiff should not seek substantive relief in a notice of motion (NCDC v Yama Security Services (2003) SC707 and Yer v Yama (2009) SC996, Vitus Kais v Sali Tagau (2012) N4810). This is a specific requirement of the National Court Rules. Order 4, Rule 49(9) states:

Except as otherwise expressly provided by the National Court Rules, motions shall be for relief on interlocutory matters only and not for the substantive relief claimed in the originating process.

The plaintiffs' motion is therefore an abuse of process.

CONCLUSION

16. All relief sought by the plaintiffs must be refused. Costs will follow the event.

ORDER

(1) All relief sought in the plaintiffs' notice of motion filed 13 February 2015 is refused.

(2) The plaintiffs shall pay the defendants' costs of the proceedings on a party-party basis, which shall, if not agreed, be taxed.

(3) Time for entry of the order is abridged to the date of settlement by the Registrar, which shall take place forthwith.

Ruling accordingly.
_______________________________________________________________
GP Lawyers: Lawyers for the Plaintiffs
Thomas More Ilaisa Lawyers: Lawyers for the Defendants