Independent Consumer and Competition Commission v PNG Mainport Liner Services Ltd [2018] PGNC 535; N7664 (17 August 2018)

N7664

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

OS NO. 853 OF 2011

INDEPENDENT CONSUMER AND COMPETITION COMMISSION
Plaintiff

V

PNG MAINPORT LINER SERVICES LIMITED
First Defendant

STEAMSHIPS TRADING COMPANY LIMITED
Second Defendant

STEAMSHIPS LIMITED
Third Defendant

KAMBANG HOLDINGS LIMITED
Fourth Defendant

CONSORT EXPRESS LINES LIMITED
Fifth Defendant

Waigani: Kariko, J
2018:10^th & 17^th August

COMPANY LAW – leave to continue proceedings against company in liquidation – exercise of discretion – relevant considerations – section 298(1)(c)(i), Companies Act 1997

PRACTICE & PROCEDURE – application for party to be removed – relevant considerations – Order 5 Rule 9, National Court Rules

Cases Cited:
Papua New Guinea Cases

Wilfred Pake Giru v POSB (2007) N3155

Overseas Cases

Commissioner of Inland Revenue v Robertson [2017] NZHC 31
Downer Construction (NZ) Ltd v One Hobson Street Ltd (In Liquidation) [2007] NZHC 744
Fisher v Isbey (1999) 13 PRNZ 182
Hook v Gulf Harbour Development Ltd (In Liquidation) & Ors [2005] NZHC 282
McPhail v Durbridge Developments Ltd (in liq) (1998) 8 NZCLC 261
Pub Charity Inc v Gibraltar Hospitality Limited (in liquidation) [2015] NZHC 2554

Legislation:

Companies Act 1997
Independent Consumer and Competition Commission Act 2002
National Court Rules

Overseas legislation

Companies Act of New Zealand 1993

Counsel:

Mr W Yep, for the Plaintiff
Mr D Hill, for the First, Second, Third & Fifth Defendants
Mr M Goodwin, for the Fourth Defendant

DECISION

17^th August, 2018

1. KARIKO, J: Pursuant to a Share Acquisition Agreement dated 12^th November, 2009 the first defendant PNG Mainport Liner Services Limited (PNG Mainport) acquired from the fourth defendant Kambang Holdings Limited (Kambang) shares it held in the capital of the fifth defendant Consort Express Lines Limited.
   
2. The Independent Consumer and Competition Commission (ICCC) filed this action on 10^th November, 2011. The Commission alleges that the acquisition resulted in PNG Mainport having the controlling interest in Consort. It is also alleged that PNG Mainport is wholly owned by the second defendant Steamships Trading Company Limited and the third defendant Steamships Limited. The ICCC asserts that these three defendants (collectively “Steamships”) breached Section 69 of the Independent Consumer and Competition Commission Act 2002 (the ICCC Act) in that the acquisition of shares will have the effect of substantially lessening competition in the market. The ICCC also alleges that Kambang as the seller of the shares aided, abetted, counselled and procured the breach.
   
3. In 2014, that is five years after the acquisition of the shares and two years after this proceeding was filed, Kambang was placed into liquidation. The liquidator relies on Section 298 of the Companies Act 1997 (the Companies Act) in making this application to have Kambang removed as a party to this proceeding. Under Section 298(1)(c)(i) of the Companies Act, no litigation may be commenced or continued against a company in liquidation without the consent of the liquidator or the approval of the Court. The provision relevantly states that “unless the liquidator agrees or the Court orders otherwise, a person shall not ... commence or continue legal proceedings against the company or in relation to its property”.
   
4. With respect to the present matter, the liquidator has refused to give his consent and moves that leave should not be granted by this Court for the proceeding against Kambang to continue.
   
5. Steamships supports the liquidator’s applications.
   
6. It is agreed that if leave is declined, Kambang must necessarily be removed as a party to the proceedings. There is also no dispute that the ICCC requires leave of the Court to continue the litigation against Kambang. There is no controversy either that Steamships is alleged to be the principal offender of the Section 69 breach.
   
7. As to the meaning to be given to the phrase “legal proceedings” found in Section 298(1)(c)(i), I am not persuaded by the plaintiff’s submission that it refers only to proceedings by creditors of the company in liquidation. If that was the intention of the legislature, then the provision would state that. In my view, the phrase must be accorded its plain and ordinary meaning and that is to say that it refers to any proceedings before a court or other tribunal that is charged with resolving a legal dispute. Whilst a legal proceeding need not be a proceeding in court, it does not apply to a purely administrative process; Commissioner of Inland Revenue v Robertson [2017] NZHC 31. It is correct that a good number of proceedings against a company in liquidation are filed by creditors, but not all proceedings are such; Pub Charity Inc v Gibraltar Hospitality Limited (in liquidation) [2015] NZHC 2554 involved claims for negligence while in McPhail v Durbridge Developments Ltd (in liq) (1998) 8 NZCLC 261, Randerson J held the provision also applied to a criminal prosecution.
   
8. In opposing the application, the ICCC relies on the case of Wilfred Pake Giru v POSB (2007) N3155 in which his Honour Hartshorn J identifies the relevant principles for the Court to consider in deciding whether or not to grant leave under Section 298. In the judgement, his Honour referred to and found persuasive value in New Zealand and Australian cases. I am of the opinion that since the Companies Act was closely modelled on the Companies Act 1993 of New Zealand the judgements from that jurisdiction are of strong persuasive value. After noting that Section 248(1) (c) of the Companies Act 1993 of New Zealand is the same as Section 298(1) (c), Hartshorn J referred to and followed the New Zealand High Court case of Hook v. Gulf Harbour Development Ltd (In Liquidation) & Ors [2005] NZHC 282, where the Court relied on the following guiding principles established in Fisher v. Isbey (1999) 13 PRNZ 182 for considering whether or not to grant leave. The principles are:
   
   • (1) The grant of leave is a discretionary matter for the Court.
   • (2) There must be equality among various creditors and the proceedings should not produce a comparative advantage to any particular creditor.
   • (3) The company’s assets should not be dissipated in wasteful litigation particularly if there is a more convenient method for determining the claim.
   • (4) The applicant for leave has the onus of satisfying the Court that leave should be granted.
   • (5) The Court must determine whether it is appropriate for the creditor’s claim to be approved in liquidation, or whether leave should be given to allow the claim to be established by way of civil proceedings.
   • (6) The appropriate test is that the Court be satisfied that the proposed claim is not clearly unsustainable, and the Court should not examine the merits of the case.

9. The High Court of New Zealand again affirmed in Downer Construction (NZ) Ltd v One Hobson Street Ltd (In Liquidation) [2007] NZHC 744 that the above principles are not exhaustive and these two other factors are also considered relevant:
   
   • (7) Leave will usually be declined if the proceedings, even if successful, are likely to be fruitless
   • (8) Delay in the application
     
10. I am satisfied that the claims by the ICCC have some basis to them, that is, they are not clearly unsustainable. To my mind, the factor most relevant to the present application is: Leave will usually be declined if the proceedings sought to be commenced, even if successful, are likely to be fruitless.
    
11. The duties of the liquidator are set out in the Companies Act. Under Section 303, the principal duty of a liquidator of a company is to take possession of, protect, realise, and distribute the assets, or the proceeds of the realisation of the assets of the company to its creditors. Where there are surplus assets or proceeds from realization of those assets, they are to be distributed in accordance with the Act.
    
12. Evidence has been produced by affidavit of the liquidator David Guinn who reports that Kambang is no longer trading and will not trade again, and that its liabilities exceed its assets. It has been argued and I agree that the costs of defending this litigation are likely to be substantial. This is obviously a complex case involving many difficult issues. It would not be surprising that senior counsel will be involved, perhaps from overseas. The liquidator contends that even if the allegations against Kambang are proved, the ICCC would not succeed with the relief sought or relief that may be ordered against Kambang – that is, either the pecuniary penalty under Section 95 or damages under Section 97 of the Companies Act. I am convinced with that proposition.
    
13. The plaintiff has urged the Court to consider this as an important case being the first time the ICCC has taken legal action for a Section 69 breach and it involves complex legal and factual issues. I accept that but in my view, those issues could still be properly addressed and determined without Kambang remaining a party. The crucial question is whether the shares acquisition by Steamships will have the effect of substantially lessening competition in the market. The ICCC is ready to prove its claim and Steamships, as the alleged main offender, is ready to defend. The main pleading of fact against Kambang is that its the seller of the shares. The issue of whether the mere act of selling shares amounts to aiding, abetting, counselling and procuring a Section 69 breach is indeed arguable. The Court may well provide a view on that issue, albeit obiter, but that could be done without Kambang continuing as a party.
    
14. Order 5 Rule 9 of the National Court Rules permits the Court to remove a party who is improperly or unnecessarily joined or who has ceased to be a proper or necessary party. It is my concluding opinion that it is not necessary for Kambang to remain as a party to this action and that it should be removed. This coincides with my determination that leave should not be granted for the proceeding to continue against Kambang.
    
15. The Order of this Court is:
    
    • (1) Leave is refused to the plaintiff to continue this proceeding against the fourth defendant.
    • (2) The fourth defendant shall be removed as a party to this proceeding.
    • (3) The fourth defendant shall bear its own costs of this proceeding.

________________________________________________________________
Leahy Lewin Nutley Sullivan Lawyers: Lawyer for the Plaintiff
Allens Lawyers: Lawyer for the First, Second, Third & Fifth Defendants
O’Briens Lawyers: Lawyer for the Fourth Defendant