N8157

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

MP NO. 31 OF 2019 (NO. 2)

BETWEEN:
IN THE MATTER OF THE COMPANIES ACT, 1997

AND:
IN THE MATTER OF L & A ILB (PNG) LTD (1-14935)

Waigani: Anis J
2019: 11 October & 17 December

COMPANIES ACT 1997 – Notice of Motion to intervene – section 143(2) and (3) of the Companies Act – whether the company or related company does not intend to bring, diligently continue or defend, or discontinue the proceedings, as the case may be – whether it is in the interests of the company or related company that the conduct of the proceedings should not be left to the directors or to the determination of the shareholders as a whole.

PRACTICE AND PROCEDURES – Section 155(4) of the Constitution, Rule 2 of the Company Rules and Order 12 Rule 40(1) of the National Court Rules – their applications – section 297 of the Companies Act – its application 

COMPANIES ACT 1997 – Notice of motion to stay or dismiss the proceeding – whether direct evidence showing debt due – whether action frivolous or abuse of the court process – nature of the claim – former husband and wife – existing proceeding in PNG and in Australia concerning divide of personal property and interests – whether this proceeding is aimed at disrupting the overall process or the interests of the former wife

Cases Cited:

Carl Export Ltd v. Camp Administration Ltd (2009) SC 1050
In the matter of the Companies Act re Piunde Ltd (2015) N5971

Counsel:

Mr B Nutley, for the Substituted Petitioner
Mr P Lowing, for the Respondent and the Intervener
Mr D Kakaraya, for an Interested Creditor 

RULING

17th December, 2019

1.	ANIS J:	I heard two applications, one by the respondent and other by an intervener Lady Ni, on 11 October 2019.  The respondent had sought to stay or dismiss the proceeding.  Lady Ni had sought to intervene and she supported the application for stay or dismissal of the petition.

2.	The applications were contested.  I reserved my ruling to a date to be advised.  Parties have been notified so I will rule on them now.

BACKGROUND

3.	The initial petitioner was Kenmore Limited.  It filed the petition against L & A ILB (PNG) Ltd (the respondent) on 24 June 2019.  It has since been substituted by L & A Construction Limited (the Petitioner).  There is also another interested creditor, Nosrida Limited.  It filed its Notice of Intention to Appear on 26 September 2019.  Mr Kakaraya made appearance for the said company.  Nosrida Limited supports the Petitioner’s position in the matter and in relation to the two applications that are before the Court.

4.	The petitioner’s claim is this.  It says that the respondent owes it a sum of K9, 897, 813.  It claims that the Australian & New Zealand Banking Group PNG Ltd (ANZ Bank) has issued notice to their group to say that they have committed an act of default, that is, in relation to a loan facility that ANZ has with the L & A Group.  The L & A Group include the petitioner and the respondent.  The respondent denies that it owes money as alleged by the petitioner.  It claims that the petition is frivolous and an abuse of the Court process and argues that it should be stayed or dismissed.

THE 2 APPLICATIONS

5.	The respondent’s application was filed on 14 August 2019.  It seeks these main relief:

1.	Pursuant to Order 12 Rule 40 of the National Court Rules and the inherent jurisdiction of this Honourable Court, these proceedings be stayed or generally dismissed as being frivolous, vexatious and an abuse of the process of the Court.

2.	Alternatively, pursuant to Section 297 of the Companies Act 1997 and the inherent jurisdiction of this Honourable Court, these proceedings be stayed or restrained permanently or if temporarily until the final determination and rulings in proceedings No. 7779/2018 in the Family Court of Australia and OS No. 677/2017 in the National Court at Waigani, National Capital District.

6.	The second application was filed by Lady Yumei Ni Cragnolini on 6 September 2019.  She is a director and shareholder of both the petitioner and the respondent companies.  The main relief sought in her notice of motion is this:

1.	In accordance with Section 143(1)(b) of the Companies Act, the inherent jurisdiction of the Honourable Court and section 155(4) of the Constitution that Lady Yumei Ni Cragnolini as a shareholder and director L & A ILB (PNG) Limited and a shareholder of  L and A Construction Ltd be granted leave to intervene in the proceedings in which both L & A ILB (PNG) Ltd and L and A Construction Ltd are parties.

7.	Let me deal with the application to intervene first.  It is moved pursuant to section 143(1)(b) of the Companies Act 1997 (the Companies Act) and also pursuant to section 155(4) of the Constitution.  Let me start by considering section 143(1)(b) of the Companies Act.  If I find it to be irrelevant, I will proceed to consider section 155(4) of the Constitution.  Section 143 states, and I quote in part:

143.	Derivative actions.
(1)	Subject to Subsection (3), the Court may, on the application of a shareholder or director of a company, grant leave to that shareholder or director to—
……
(b)	intervene in proceedings to which the company or any related company is a party for the purpose of continuing, defending, or discontinuing the proceedings on behalf of the company or related company, as the case may be.
(2)	Without limiting Subsection (1), in determining whether to grant leave under that subsection, the Court shall have regard to—
(a)	the likelihood of the proceedings succeeding; and
(b)	the costs of the proceedings in relation to the relief likely to be obtained; and
(c)	any action already taken by the company or related company to obtain relief; and
(d)	the interests of the company or related company in the proceedings being commenced, continued, defended, or discontinued, as the case may be.
(3)	Leave to bring proceedings or intervene in proceedings may be granted under Subsection (1), only where the Court is satisfied that either—
(a)	the company or related company does not intend to bring, diligently continue or defend, or discontinue the proceedings, as the case may be; or
(b)	it is in the interests of the company or related company that the conduct of the proceedings should not be left to the directors or to the determination of the shareholders as a whole.
......

8.	I have considered the submissions of the parties.  In my view, firstly, I find section 143(1)(b) to be the correct source.  Lady Ni is a shareholder and director of the respondent company and as such qualifies, in my view, to apply under section 143(1)(b) with the intention to defend the respondent against the petition that is on foot.  I note that she is also a director and shareholder of the petitioner.  I did not see any real or serious objections to her being granted leave to intervene.  Regardless, I have also had regard to section 143(2) and (3) of the Companies Act.  In my view, the elements or considerations favour this Court granting leave to Lady Ni to intervene and be heard in the matter on behalf of or to defend the respondent against the petition that is filed by the petitioner L & A Construction Ltd.  The main considerations I give in arriving at this decision are as follows.  The petitioner and the respondent are owned, in terms of shareholdings and directorship, by former husband and wife.  They are Sir Luciano Cragnolini and Lady Ni (the couple).  At this juncture, it is Sir Luciano Cragnolini that seeks, through the petitioner, to liquidate the respondent.  And Lady Ni, on the other hand, intends to defend the respondent company from being liquidated.  I also note that at this point in time, the relationship of the couple has differed with proceedings already underway as disclosed in evidence to resolve their matrimonial properties both in Papua New Guinea and in Australia.  Initial attempt to liquidate the respondent by the initial petitioner Kenmore Ltd was avoided when Lady Ni had provided evidence which showed that she had, on behalf of the respondent, fully settled the debt that was owed to Kenmore Ltd.  Kenmore Ltd was then removed and was substituted with the petitioner.  The initial action by Lady Ni in defending the respondent, to me, is further proof of her interest to defend or protect the respondent against the present action, as required by section 143 subsections (2) and (3) of the Companies Act.  

9.	I am therefore satisfied under section 143(3) of the Companies Act, and I grant the relief sought by Lady Ni.  I find that the respondent, being owned by the couple, and given the present status of their relationship, that it is prudent that Lady Ni be granted leave to intervene to defend the interest of the respondent given that she is the only other director and shareholder of the respondent.  I also find that given the adverse interest of Sir Luciano Cragnolini in the matter in terms of his intention to liquidate the respondent when he is also a director and shareholder of the said company, that it should not be left alone to a directors of the respondent to address the matter for the company (i.e., the respondent); that the shareholder Lady Ni should be granted leave to intervene.

10.	I therefore order that Lady Yumei Ni Cragnolini as a shareholder and director L & A ILB (PNG) Limited and a shareholder of L and A Construction Ltd be granted leave to intervene in the proceedings in which both L & A ILB (PNG) Ltd and L and A Construction Ltd are parties.

11.	Let me now address the second application, that is, the one filed on 14 August 2019.

ISSUES

12.	The main issues are, (i), whether the sources relied upon are without merit or baseless therefore whether the notice of motion should be dismissed, (ii), whether the petition should be stayed pending other related proceedings that are currently on foot, or whether the petition should be dismissed as being frivolous, vexatious and an abuse of the Court process.

WHETHER MOTION IS COMPETENT

13.	The respondent cites various sources as the basis for its application to dismiss or stay the proceeding.  They are, (i), Order 12 Rule 40 of the National Court Rules, (ii), Inherent Jurisdiction of the Court that is making reference to section 155(4) of the Constitution, and (iii), section 297 of the Companies Act.

14.	Counsel for the petitioner argues, amongst others, that section 297 of the Companies Act applies to other proceedings that are pending excluding the petition.  Counsel submits therefore that the case of Carl Export Ltd v. Camp Administration Ltd (2009) SC 1050 is not relevant in this instance.  Counsel also refers to the case In the matter of the Companies Act re Piunde Ltd (2015) N5971.

15.	Section 297 states, and I quote in part:

At any time after the making of an application to the Court under Section 291(2)(c) to appoint a liquidator of a company and before a liquidator is appointed, the company or any creditor or shareholder of the company may—
(a)	in the case of any application or proceeding against the company that is pending in the Court or the Supreme Court, apply to the Court or the Supreme Court, as the case may be, for a stay of the application or proceeding; or
(b)	in the case of any other application or proceeding pending against the company in any court or tribunal, apply to the Court to restrain the application or proceeding,

and the Court or the Supreme Court, as the case may be, may stay or restrain the application or proceeding on such terms and conditions as it thinks fit.

16.	I think the best way to begin answering the issue, is to quote what the Supreme Court had said in the case of Carl Export Ltd.  At paragraph 19, the Court stated and I quote:

19.  Our conclusion is that the power to stay a petition to wind up a company presented pursuant to s291 of the Companies Act, before the liquidator is appointed, is founded in the inherent jurisdiction of the court to prevent abuses of the process of the court.  In terms of rules of court, an application could be based on National Court Rules O8 r 27 (a pleading which is an abuse of the process of the court) or similarly O12 r40, because the Companies Rules Rule 2 provides:

"Subject to the Companies Act and these Rules, the Rules of Court of the National Court and the general practice of that Court, including the course of procedure and practice in Chambers, apply in relation to proceedings to which these Rules relate as far as is practicable".

17.	The Supreme Court stated at paragraph 21: 

21.  An application to stay the proceedings on a winding up petition presented under s291(2)(c) before the company is put into liquidation involves different considerations.  The application is made pursuant to the court's inherent jurisdiction to stay an application made under s.291 (2) (c).  Any  person who has sufficient interest in the company such as the company itself, a shareholder, director or a creditor can bring an application to stay the s291(2)(c) application on the grounds that the application amounts to an abuse of the process of the court.  The purpose of the application is to prevent abuse of the court process by an applicant who seeks to liquidate the company on some misconceived or unmeritorious grounds.   

18.	With these, I will make the following findings.  Firstly, I find all the sources cited by the respondent, that is, all except section 297 of the Companies Act, to be in order.  This is better explained by the Supreme Court in Carl Export Ltd and I can only refer to its decision and I have quoted that above in my judgment.  In summary, this Court has seized of the matter under section 291(2)(c) of the Companies Act.  Section 291(c) states 1 of the 3 manners in which a liquidator may be appointed which is by the National Court.  Secondly, the National Court, after seizing of the matter, has inherent jurisdiction under section 155(4) of the Constitution which it may exercise under the circumstances of the case.  These plus the application of Rule 2 of the Company Rules and Order 12 Rule 40(1) of the National Court Rules.  This Court therefore may dismiss the petition based on grounds of frivolity or abuse of the Court process, that is, if it can be established by the respondent, a shareholder or a director of the respondent company to the petition.  I also uphold the petitioner’s submission concerning section 297 of the Companies Act.  The section is express and it is also clarified by the Supreme Court in the case of Carl Export Ltd.  The provision applies to staying of related proceedings and not to proceeding that is the subject of a petition.

19.	But in summary and given my findings upholding the other sources that have been relied upon by the respondent, I find the respondent’s application to be competent.  I will now proceed to consider its merit.

CONSIDERATION

20.	The respondent submits that the petition is frivolous, vexatious and an abuse of the process of the Court.  As such, it submits that it should be stayed or be dismissed.

21.	I have had the benefit of perusing the evidence filed by both parties to the petition.  Let me consider the evidence of debt filed by the petitioner.  The alleged debt claimed is K9, 897, 813.  To me, and from the evidence disclosed, I cannot tell for sure if the debt is owed by the respondent, as a debt, as required under the provisions of the Companies Act, to the petitioner.  I also find it odd that the petitioner would call in evidence of debt that may be owed by the respondent to a third party, that is, ANZ, and to argue that as the basis why it wants the respondent to be liquidated.  From the evidence adduced, I note that ANZ Bank has given notice of a default.  But ANZ’s notice of a default was not given to the respondent, but rather, to the L & A Group.  I note that evidence also shows that the loan facility that has been provided by ANZ appears to have been provided to various companies that are owned by the couple and not just to the respondent, or at least and at this stage, that fact is unclear.

22.	The next consideration is this.  There are existing proceedings that are pending before the National Court as well as in the Family Courts abroad in Australia.  In relation to proceeding filed at the National Court, it is described as OS 677 of 2017 (CC4).  Sir Luciano Cragnolini is suing Lady Ni to enforce an agreement they had had after their divorce on how they were going to take ownership of the L & A Group and the properties therein.  Lady Ni had issues with the agreement, and Sir Luciano Cragnolini has therefore gone to the Court as described to assert and enforce the agreement.  The agreement is called the Expert Determination Agreement.  In August of 2018, Lady Ni applied to stay the said proceeding because of proceedings that have been commenced in the Family Court in Australia.  The application was made before His Honour Justice Kassman on 6 August 2018.  His Honour reserved his decision thereafter to a date to be advised.  At this stage, the parties are still awaiting the said Court’s decision.  Lady Ni argues that if the application in proceeding OS 677 of 2017 is granted then that would pave way for the Family Court in Australia to assume jurisdiction and hear and determine ownership of the properties that the couple own.  In the Family Court in Australia, Lady Ni is seeking to have the matrimonial property dispute resolved under the Australian law.  She says her reason for doing that is because of the fact that they (i.e., Sir Luciano Cragnolini and herself) own substantial assets in Australia.

23.	The final consideration in my view is this.  This case is different in the sense that both Sir Luciano Cragnolini and his former wife Lady Ni substantially own the L & A Group of Companies.  That includes owning the petitioner and the respondent.  And I think it is important to point out that based on the Expert Determination Agreement, the couple had agreed that Sir Luciano Cragnolini would own the petitioner whilst Lady Ni would own the respondent.  The agreement is contested and is pending before a separate National Court proceeding as explained above.  And it is perhaps correct to assume that the relationship between the couple is tense or unsettled.  This is reflected for example in this instance where Sir Luciano Cragnolini is seeking orders through the company which he owns which is the petitioner for this Court to liquidate the respondent, which, based on the Expert Determination Agreement, is supposed to be owned by Lady Ni.  What I fail to understand and as such tend to agree with Mr Lowing’s submission is that the action taken by Sir Luciano Cragnolini may be regarded as “economic suicide” for the L & A Group or against the economic interest of the couple.  I have to ask myself this.  Would it not be in the best interest of the couple to ensure that their business interests or companies remain solvent whilst they try to divide their properties or assets or their various business interests?  They already have various proceedings on foot to do just that, that is, to try to divide their business assets and interests.

24.	When I take all these into account, I make the following findings.  Firstly, I do not see that the petitioner has established a clear debt that is outstanding and owing to it by the respondent.  There is no direct evidence from the petitioner’s record that shows that such a huge debt is owed by the respondent to it.  The petitioner appears to be drawing evidence of its debts based on other sources such as the ANZ Bank.  In regard to the pending National Court proceeding and the Family Court proceeding in Australia, I do not find these directly connected to the petitioner and the respondent in this proceeding.  The said proceedings between the couple, in my view, are private actions where the couple are trying to assert their rights over their shared properties.  However, I do find that the related proceedings are indirectly related to the present proceeding given that the ownership and assets owned by the two companies (i.e., the petitioner and the respondent) may be at stake based on proceedings, namely, OS 667 of 2017 and the FC proceeding that is commenced abroad in Australia.  

25.	Finally, I find reasons to believe and uphold Mr Lowing’s submission where he submits that the real issue or reason for this petition is because of the existing feud between the couple rather than an action that is based on substance.  I also uphold counsel’s submission that the intended action taken by the petitioner or by Sir Luciano Cragnolini would be “suicidal economically” as far as the interest of the parties are concerned.  My agreement is based on common sense or rationality.  In this instance, I note that the couple have divorced.  Prior to that, and as husband and wife, they held or part owned many businesses and assets in Papua New Guinea and in Australia and perhaps elsewhere as well.  In Papua New Guinea, they both part own the petitioner and the respondent.  They are presently in the process of ascertaining and dividing their assets and businesses amongst themselves, and proceedings are already underway to ensure of that.  Despite the delay in receiving their decision in relation to proceeding OS 667 of 2018, which should be forthcoming I would say at some stages in the near future, once received, should assist them see whether they would sort out their properties or assets under Australian law or jurisdiction.  With these at play and for the petitioner to try liquidate the respondent, to me suggests that the action of the petitioner is irrational, frivolous and also an abuse of the Court process.  I find that to be the case.

SUMMARY

26.	I will therefore dismiss the petition on these grounds, including the grounds relating to frivolity and abuse of the Court process.

27.	I note that Nosrida Limited has supported the petitioner’s position.  Therefore, the dismissal of the petition means that its claim cannot be fully determined based on the petition that is being dismissed.  However, its interest in my view is not prejudiced by the dismissal as I have not determined the merits of its claim.  I also do not see prejudice to its claim if it so wishes to pursue later.  The same applies to other creditors or prospective creditors of the respondent.

COST

28.	Award of cost is discretionary.  I will award cost in the usual way, that is, against the petitioner and in favour of the respondent, on a party/party basis to be taxed if not agreed.  

29.	I decline to make an award of cost against Sir Luciano Cragnolini personally as submitted by the respondent.  He is not a party to the proceeding.  The petitioner is.

ORDERS OF THE COURT

30.	I make the following orders 

1.	The petition is dismissed.

2.	Cost of the respondent to the petition shall be borne by the petitioner on a party/party basis to be taxed if not agreed.

3.	Time for entry of these orders is abridged to the date of settlement by the Deputy Registrar of the National Court which shall take place forthwith.
________________________________________________________________
O’Briens Lawyers:    Lawyers for the Petitioner
Leahy, Lewin Lowing Sullivan Lawyers:    Lawyers for the Respondent
Warner shand Lawyers:    Lawyers for Nosrida Limited