Aivia v Beno [2020] PGNC 105; N8297 (24 April 2020)

N8297
PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

OS NO. 836 OF 2018

BETWEEN
PAUL AIVIA , LEO PUTE, THOMAS TANGOR, LEO AILOLO, TONY MISIKLAI, JOE BIRIS, BONNY NAROL, DAVID KORIAM, ROBERT ELANG, JOHN BEREP SEKE, HERMAN KALUKA, LEONARD KOLANG & FRANCIS SOLOMON in their capacity as Directors of G.R. Logging Limited
Plaintiffs

AND
MICHAEL BENO
First Defendant

AND
DAVID MALAI
Second Defendant

AND
CLEMENT KAPUN
Third Defendant

AND
BENSON APNANUNG
Fourth Defendant

AND
MICHAEL SISIL
Fifth Defendant

AND
ALPHONSE YAKIO
Sixth Defendant

AND
ANDREW TAKMAP
Seventh Defendant

AND
PIUS ARUNG, OTTO AMBIL, PAUL SERENG, AUGUSTINE MEIANG, PAUL YUNGUL, PETER MUDIO in their capacity as Directors of G.R. Logging Limited
Eighth Defendants

&

OS NO. 867 OF 2018

BETWEEN
BENSON APINANUNG, MICHAEL AVOLIO, WILLIAM BEKIO, MICHAEL BENO, CLEMENT GLENGIO, DAVID MALAI, MICHAEL SISIL, ANDREW TAKMAP, ALHONSE YAKIO, CLEMENT KAPUN
Plaintiffs

AND
JOE BIRIS, PAUL AIVIA, BONNY NAROL, THOMAS TANGOR, DAVID KORIAM, ROBERT ELANG, JOHN SEKE, FRANCIS SOLOMON, CLEMENT MURAP, ISAAC MIKIE, HERMAN KALUKA, ARNOLD PAGOS AND MATHEW KALINGIO
First Defendants

AND
BONNY NAROL, TONY MISIKLAI, LEO PUTE AND LEO AILOLO
Second Defendants

AND
HARRIET KOKIVA, ACTING REGISTRAR OF COMPANIES AND INVESTMENT PROMOTION AUTHORITY
Third Defendant

Waigani: Makail, J
2019: 16^th & 23^rd April
2020: 24^th April

COMPANY LAW – Calling of meeting – Special Shareholders Meeting – Notice of Meeting – Giving of notice of meeting – Mode of giving of notice of meeting – Agenda for meeting – Removal and appointment of directors – No indication of removal and appointment of directors in notice – Companies Act, 1997 – Sections 102, 134(2) – Schedule 2

COMPANY LAW – Rectification and correction of company records – Powers of Registrar of Companies – Appeal from decision of Registrar of Companies – Registration of change of directors and shareholders of company – Dispute over validity of shareholders’ meeting – Lack of jurisdiction – Companies Act, 1997 – Sections 71, 395A, 395B & 408

Cases Cited:

Powes Parkop v. Wari Vele (No 3) (2007) N3322
Wandaki v. Henao (2009) N3676
Yalbees v. Amaiu (2018) N7393
Simon Kaiwi v. Dr William Tongamp (2018) N7435
Magasaki Limited v. Bai (2007) N3221
Bevan Saile v. Andrew Posai (2008) PGNC117
Angore Corporation Limited v. Tobias Hondomo (2013) N5380
Pora Wan Pty Ltd v. Jacob Kop & Ors (1996) N1485

Counsel:

Mr. I. Molloy with Ms. C. Copland, for Plaintiffs in OS No 836 of 2018
Mr. T. Tape, for First & Third Defendants in OS No 836 of 2018
Mr. A. Furigi, for Second, Fourth, Fifth, Sixth, Seventh and Eighth Defendants in OS No 836 of 2018
Mr. A. Furigi, for Plaintiffs in OS No 867 of 2018
Mr. T. Tape, for Plaintiffs (Michael Beno & Clement Kapun) in OS No 867 of
2018
Mr. I. Molloy with Ms. C. Copland, for First Defendants (Joe Biris, Paul
Aivia, Thomas Tangor, Francis Solomon, Herman Kaluka & Robert Elang) and
Second Defendants in OS No 867 of 2018
Mr. F. Kua, for First Defendants (David Koriam, John Seke, Clement Murap,
Isaac Mikie, Arnold Pagos and Mathew Kalingo) in OS No 867 of 2018

JUDGMENT

24^th April, 2020

1. MAKAIL, J: These two proceedings were consolidated by order of the Court and heard on 15^th and 23^rd April 2019. Parties elected not to test the evidence of each other because they agreed that the facts are not substantially in dispute and all it required is the application of the law to the facts.

2. This is a typical landowner dispute over controlling interest in a company called G.R. Logging Limited. In this sort of dispute, there will be two or more groups of landowners claiming to have controlling interest in the company. In this case there are two groups, one led by Michael Beno and Benson Apinanung (Michael Beno led group) and the other by Paul Aivia and Joe Biris (Paul Aivia led group).

3. The company is what is commonly referred to as a “landowner company”. Its only asset is a Timber Permit TP 14-04 over an area of land in the Kandrian District, West New Britain Province which it was seeking to renew.

4. Its application was recommended for renewal by the National Forest Board but the Minister for Forest issued the Timber Permit to a company called Pulie Anu Timber Company Limited. This company was not even an applicant for the Timber Permit. An application for leave for judicial review in OS (JR) No 116 of 2017 to challenge the grant of the Timber Permit is pending hearing in the National Court after a successful appeal to the Supreme Court following its initial refusal by the National Court.

5. The Michael Beno led group instructed Furigi Lawyers to withdraw the judicial review proceeding. They claimed that the decision was made in a unanimous resolution at a meeting of the board of directors of the company. The Paul Aivia led group took the opposite view and opposed the withdrawal. This led to each group instituting court proceeding to challenge the validity of their authority.

OS No 867 of 2018 proceeding filed 19^th November 2018

6. In this proceeding the Michael Beno led group, comprising Benson Apinanung and others, seek orders declaring inter alia:
   
   • (a) That the shareholders’ meeting of 28^th September 2016 which removed certain directors and appointed others was for various reasons non-compliant with the Companies Act 1997 and that the resolutions at that meeting are void and of no effect and that the previous directors be reinstated; and
     

(b) That the board meeting held on 27^th October 2018 was non-compliant with the Companies Act and that any resolution passed at that meeting is void and of no effect

OS No 836 of 2018 proceeding (amended originating summons filed 14^th November 2018

7. Paul Aivia & others (persons appointed on 28^th September 2016) seek orders inter alia:

(a) Declaring that a supposed board meeting on 19^th February 2017 and resolutions passed at that meeting are null and void for various reasons including that the meeting was not called by directors of the company; and

(b) Declaring that a board meeting held on 3^rd November 2018 was null and void inter alia because persons who were not directors of the company purported to vote as directors and there was no quorum.

(c) An order restraining the Michael Beno led group from, inter alia, dealing with the company’s records making decisions on behalf of the company and, in particular, purporting to appoint legal representation for the company in the judicial review proceeding.

8. The affidavit evidence is voluminous and, in some respects, unsatisfactory and repetitious. Resolution of the issues starts with the shareholders’ meeting held on 28^th September 2016.

9. Prior to the meeting there were 26 shareholders, 9 of whom were deceased leaving 17 living shareholders. Out of the 17 shareholders 8 were present with 3 proxies. The Paul Aivia led group argued that the meeting had quorum pursuant to Schedule 2, paragraph 2.4(2) of the Companies Act, 1997. It was overseen by an Investment Promotion Authority (IPA) lawyer.

10. The unanimous resolution was the removal of the following persons as directors of the company:

(a) Benson Apinanung

(b) Michael Avolio

(c) William Bekio

(d) Michael Beno

(e) Clement Glengio

(f) David Malai

(g) Andrew Takamap

(h) Alphonse Yakio

(i) Clement Kapun

11. The shareholders also appointed new directors. They were 13 of them:

(a) Paul Aivia

(b) Joe Biris

(c) David Koriam

(d) Arnold Pagos

(e) Isaac Mikie

(f) Francis Solomon

(g) Herman Kaluka

(h) Mathew Kalingio

(i) Clement Murap

(j) Robert Elang

(k) Thomas Tangor

(l) Bonny Narol

(m) John Seke

12. The Paul Aivia led group argued that pursuant to Sections 133 and 134 of the Companies Act, the directors of a company may be appointed or removed by ordinary resolution of the shareholders.

Remedies under Companies Act

13. The changes in the directorships and shareholding approved at the meeting were lodged and accepted by IPA and registered in Form 13 and Form 16 on 4^th October 2016 under Section 396 of the Companies Act as indicated by the Company Extract dated 22^nd October 2018.

14. The Paul Aivia led group argued that pursuant to Section 396(4) of the Companies Act, registration of a document in the register or, in fact, refusal of registration raises no presumption as to the validity of the document or its correctness. The onus is still on anyone to show that the particulars recorded are wrong. A person dealing with the company is entitled to rely on the IPA records.

Appeal against Decision of Registrar of Companies

15. They argued that where a party is aggrieved or disputes the records of the IPA, that party must appeal the decision of the Registrar of Companies (Registrar) to the National Court within one month of the date of the decision pursuant to Section 408 of the Companies Act or within such further time as the National Court may allow. One month from 4^th October 2016 expired on 4^th November 2016. The Michael Beno led group are out of time to appeal or have not done so. To issue the proceeding in the current form is an abuse of process.

Rectification and Correction of Register

16. The alternative to an appeal, they argued, is to apply to the National Court for rectification of the share register under Section 71 of the Companies Act, or to apply to the Registrar for rectification or correction of the register under Section 395A of the Companies Act, or to the National Court if objection is made to the proposed rectification under Section 395B.

17. The proceeding instituted by Michael Beno led group, they submitted, is defective and abuse of process because they did not exhaust all these remedies available to them under Sections 71, 395A and 395B of the Companies Act.

18. Until and unless they exhaust these remedies and resolutions taken at the meeting on 28^th September 2016 are set aside, the appointments as recorded in the IPA records stand and actions of persons other than the directors appointed at that time are ineffective.

19. However, the dispute as to the directorship of the company is not merely a mistake, slip, clerical error or omission as envisaged by the process of rectification of the share register or correction of the register by the Registrar or the National Court as submitted by group led by Paul Aivia.

20. It is a substantive one because it goes back to the shareholders’ meeting where the directors’ removal and appointments were made. The validity of the shareholders meeting is being questioned and this question does not fall within the Registrar’s jurisdiction to determine. Neither can it be a subject of appeal under Section 408 of the Companies Act. Those submissions by the Paul Aivia led group are misconceived and disregarded.

Validity of Shareholders’ Meeting of 28^th September 2016

21. The Paul Aivia led group submitted that the onus of proof is on the Michael Beno led group who are trying to displace the board appointed on 28^th September 2016. The evidence, they said, is not sufficient to discharge the onus of proof.

22. Here the credibility of the deponents of the affidavits is questionable because the affidavits are contrary to Order 11, rule 22 of the National Court Rules. The deponents are plainly not literate in the English language, yet they have sworn affidavits without an interpretation clause. Under Order 11, rule 22(3), an affidavit by an illiterate deponent must be read to him. Otherwise the affidavit is inadmissible.

23. Secondly, a number of affidavits are in identical terms. Although it does not mean that the affidavits are necessarily false, it does heighten suspicion: Powes Parkop v. Wari Vele (No 3) (2007) N3322; Wandaki v. Henao (2009) N3676; Yalbees v. Amaiu (2018) N7393 and Simon Kaiwi v. Dr William Tongamp (2018) N7435.

24. Thirdly, some deponents have given conflicting evidence because they have changed sides, first giving evidence for one side, then for the other. These include David Koriam, John Seke, Michael Beno and Clement Kapan.

25. However, it is not necessary to give consideration to these series of objections to the admissibility or credibility of the evidence because if parties focus on the primary issue of the validity of the shareholders’ meeting of 28^th September 2018, there is no dispute between the parties that first there is in existence, a notice of shareholders’ meeting. A copy of it may be found in the affidavit of John Siwi marked as annexure “B”. Secondly, it was published in the National newspapers. It is in the following terms:

“Notice is hereby given Pursuant to Section 102 of the Companies Act 1997 to all shareholders of G.R. Logging Limited representing LFA No 14-04 that there will be a Special Shareholders’ Meeting of G.R. Logging Limited as specified below:

Agenda: 1. Update of Shareholder registry and shareholding issues

2. Update of Director registry

3. A.O.B

Venue: Sara Village, Ward 1, Kandrian Coastal LLG
Kandrian, WNBP.

Dated: 28^th September 2016
Time: 12:00 noon”.

26. The group led by Michael Beno argued that the notice of shareholders’ meeting is fraught with illegality and rendered it invalid and the meeting and any resolutions passed at the meeting void and of no effect.

27. The notice of meeting:

• was not given to all the shareholders
• was given or published in the newspaper
• lacked details or agenda (notice of removal and appointment of directors)
• lacked authority by shareholders to update share register
• absence of “Director Registry” (sic) in the Companies Act
• was given by the Company Secretary Paul Aivia who was unauthorised
  

Giving of Notice of Meeting

28. Schedule 2 of the Companies Act sets out the requirements of a meeting of shareholders when the company has no Constitution. In this case, there is no dispute that the company has no Constitution and therefore, Schedule 2 applies.

29. Schedule 2(b) states that “Written notice of the time and place of a meeting of shareholders shall be sent to every shareholder entitled to receive notice of the meeting.......”.

30. In this case, there is no dispute that the notice of meeting was published in the National newspaper on 13^th September 2016. Whether it is a prescribed mode of giving notice has not been explained by the parties and if it is a preferred mode, it remains a rebuttable presumption. Where shareholders deny having knowledge of it, the presumption is discharged unless there is evidence to the contrary.

31. Where the shareholders are villagers, I would have thought that the preferred and effective mode of giving of notice is by physical delivery to each shareholder. The Paul Aivia led group do not deny the assertion by Michael Beno led group that as shareholders they were not given notice of the shareholders’ meeting of 28^th September 2016. As a result, they did not attend the meeting. This is a fundamental breach of their right as shareholders to attend the meeting.

Lack of Details (Agenda- Notice of Removal and Appointment of Directors)

32. Directors of a company make decisions for and on behalf of the company and its shareholders. They are what I would call the ‘heart and soul’ of a company. Just as they are important to the running of the company, so is their appointment and removal. Where it is proposed that persons be appointed or removed as directors, the proposed action must be communicated to them in a notice and must be clearly expressed.

33. The Michael Beno led group argued that the notice failed to set out in the agenda the proposed action to remove them and appoint other persons to be directors. I agree with this submission. As a director, each of them is entitled to be given details of the meeting agenda. This is why Section 134(2) of the Companies Act requires that a notice of meeting to remove a director must state that the purpose of the meeting is for the removal of a director. As the National Court held in Magasaki Limited v. Bai (2007) N3221 which was adopted in Bevan Saile v. Andrew Posai (2008) PGNC 117 and Angore Corporation Limited v. Tobias Hondomo (2013) N5380 a notice of meeting intending to remove a director must state that purpose. Here, the notice of meeting failed to meet this requirement or is in breach of Section 134(2) of the Companies Act. It is invalid.

Lack of Authority by Shareholders to update Share Register

34. The argument advanced by the Michael Beno led group is that, shareholders lacked authority to update the Register. The authorised person or persons is the director. I agree. This matter was erroneously regarded as a matter for the shareholders to consider and was placed on the agenda. Where changes are made in the shareholders by the shareholders in a shareholders’ meeting, the authorised person or persons to lodge the application to change shareholders and update the register is the director under Section 70 of the Companies Act. This is a further breach of the notice of meeting requirement.

Authority of Director to update Register

35. Conversely, where there are changes made in relation to directors at the shareholders’ meeting, it is the Board who is authorised to lodge the application to change and update the register under Section 137 of the Companies Act. As the National Court held in Magasaki Limited v. Bai (supra), “It is the responsibility of the directors to have no other person to file a form with the Registrar of companies to notify change of directors”. This is a further breach of the notice of meeting requirement.

Absence of Director’s Registry (sic) in the Companies Act

36. The attack on the notice of meeting that it included on the agenda an update of director’s registry (sic) when no director’s register exist in the Companies Act is evidence of a rushed job as it were, by the Michael Aivia led group. If proper care and attention were given, the notice could have been better expressed to convey the purpose of the meeting to the intended recipients. That is, the meeting was called purposely to remove and appoint directors. On a much serious note, it could be viewed as a deliberate act to conceal the real intention behind the calling of the meeting and deny the directors an opportunity to be heard. Where changes have been made to the directors, it will be the board’s responsibility to ensure notice in the prescribed form of the change in the directors is submitted to the Registrar for registration under Section 137 (supra). This is another breach of the notice requirement.

Notice of Meeting given by Unauthorised Person

37. There is no dispute that Michael Aivia who was the Company Secretary called the shareholders’ meeting. The Michael Beno led group argued that Section 102 of the Companies Act authorises the board of a company to call a shareholders’ meeting unless the board authorises a person to call the meeting. Here there is no evidence that the board authorised Michael Aivia to call the shareholders’ meeting of 28^th September 2016. Consequently, he lacked authority to call the meeting. I agree. This is another example of a party’s disregard of the proper protocols for calling of shareholders’ meeting and constitutes a serious breach of the notice requirement.

Chairman of Shareholders’ Meeting

38. A further ground is that, the meeting was chaired by the IPA lawyer contrary to Schedule 2.1 of the Companies Act. The authorised person is the Chairman and in his absence, one of the shareholders may choose one of them to act as Chairman. I agree. There is no denial that the shareholders’ meeting was chaired by Victor Nape a lawyer with the IPA as verified by the Minutes of Meeting No 1 of 2016 at paragraph 2 which may be found in annexure “G” to the affidavit of Paul Gilio filed 1^st April 2019. He is not a shareholder and not eligible to act as Chairman of the meeting. This is a breach of the meeting requirement under Schedule 2(1) of the Companies Act.

Effect of Illegality

39. The Paul Aivia led group argued that the Court should be reluctant to give over control of a company to persons who are intent on giving up the company’s only asset and have conflict of interest. They relied on Section 112 of the Companies Act and submitted that directors of a company have a duty to act in good faith and in the best interests of the company. The company had only one asset which was the Timber Permit TP 14-04 which it was seeking to renew when it was awarded to the other company.

40. They pointed out that Michael Beno and David Malai are directors of the other company while Arnold Pagos and Isaac Miki are shareholders of that company. The lawyer for Benson Apinanung and others acted for that company and has a clear conflict of interest attempting now to represent G.R. Logging Limited. All of them are manifestly intent on not acting in the company’s best interests.

41. However, there has never been a time in the history of these cases where it is recorded in the pleadings and relief sought that the proceeding OS No. 836 of 2018 by Paul Aivia led group that they will be raising the issue of director’s duty of care and conflict of interest. As far as I can see, the consolidated proceedings are focussed on the validity of the shareholders’ meeting and subsequent board meetings. Those submissions are, therefore, misconceived and disregarded.

42. Additionally, such submissions are contrary to a growing body of case law such as Pora Wan Pty Ltd v. Jacob Kop & Ors (1996) N1485; Magasaki Limited v. Bai (supra); Saile v. Posai (supra) and Angore Corporation Limited v. Tobias Hondomo (supra) which have made it quite clear that a meeting of shareholders convened without compliance with the Companies Act and the Constitution of the company if it has one, renders such a meeting invalid and resolutions passed therein are also invalid.

43. It must be the finding of the Court that the shareholders’ meeting on 28^th September 2016 is illegal and all the resolutions passed in the Minutes of Meeting No 1 of 2016 are void and of no effect forthwith. It is the further order of the Court that those directors in the Michael Beno led group who were removed as directors be reinstated forthwith and the Registrar shall, accordingly, amend its records.

44. It must also follow that those directors who were appointed at the shareholders’ meeting on 28^th September 2016 along with Paul Aivia and Joe Biris who subsequently convened and passed resolutions at a board meeting on 27^th October 2018 must be declared illegal, null and void.

45. There is no dispute that after the shareholders’ meeting on 28^th September 2016 the Michael Beno led group including David Malai were adamant that they were illegally removed as directors of the company. Skipping the board meeting of 19^th February 2017 which some said, no notice of that meeting was given, they made representation to the Registrar who subsequently restored them on the IPA records. I refer to the Company Extract of 30^th October 2018 and marked annexure “C” to the affidavit of David Malai sworn 18^th November 2018.

46. It was not the end of the matter because they found out later that the company records at the IPA office were changed again and they were removed as directors. I refer to the Company Extract of 6^th November 2018 and marked as annexure “D” to the affidavit of David Malai (supra). It resulted in another board meeting organised and convened by the Michael Beno led group on 3^rd November 2018 at 10:00 am at Savalu Camp, Pulie Anu, Kandrian District, West New Britain Province. The board resolved to appoint Furigi Lawyers to act for G.R. Logging Limited and to withdraw the judicial review proceeding OS (JR) No 116 of 2017.

47. As to notice of board meeting, Schedule 4.2 of the Companies Act states that “Not less than two days notice of a meeting of the board shall be sent to every director who is in the country.......”. It does not prescribe a mode of giving that notice.

48. The Michael Beno group adopted the same form of giving notice by the Paul Aivia led group when they gave notice of shareholders’ meeting. They published the notice in the Post Courier and National newspapers on 30^th October 2018. It was directed to 27 directors. According to the Minutes of Meeting only 14 directors attended. The rest did not. It highlights the potential of denying all directors to a notice if publishing the notice was the preferred mode.

49. In a country like Papua New Guinea where majority of landowners live in the villages it is never an easy task to manage a landowner company where the multitude of directors are scattered all around the villages within the project area in a geographical sense. Communication and accessibility for these directors will always remain a challenge unless a better form of communication is adopted.

50. Where the parties in this case have decided to form a landowner company to stand for their resource rights and interests, as the Court said in Pora Wan case (supra), if ordinary village people prefer to incorporate a company under the Companies Act, they must be prepared to comply with the provisions of the Act in managing the company. This includes the giving of notice to directors of the company.

51. It is quite difficult to be certain if publishing a notice of meeting in the newspaper will bring the notice to the attention of a villager/director who is in a village located in Kandrian. The notice of board meeting of 30^th October 2018 must suffer the same fate as the notice of shareholders’ meeting. I find it is in breach of the requirement to give notice under Schedule 4.2 of the Companies Act. The consequence of that is, the meeting is illegal and the resolutions passed in the meeting of 3^rd November 2018 are illegal, null and void.

Order

52. For avoidance of doubt, the orders sought in paragraphs 1, 2, 3, 4, 5, 9 and 10 in the originating summons (OS No 867 of 2018) filed 19^th November are granted.

53. The orders sought in paragraphs 6, 7, 8, 11, 12 and 13 in the originating summons (OS No 867 of 2018) filed 19^th November are not granted.

54. The orders sought in paragraphs 4(a), (b) & (c) and 5(a) & (b) of the amended originating summons (OS No 836 of 2018) filed 14^th November 2018 are granted.

55. The orders sought in paragraphs 1(a), (b) & (c), 2(a), (b) & (c), 5(c) &(d) and 6 of the amended originating summons (OS No 836 of 2018) filed 14^th November 2018 are not granted.

56. Each party shall bear their own costs of the proceedings.

Judgment and orders accordingly.
________________________________________________________________
Simpson Lawyers : Lawyers for Plaintiffs in OS No 836 of 2018
Kandawalyn Lawyers: Lawyers for First & Third Defendants in OS No 836 of
2018
Furigi Lawyers: Lawyers for Second, Fourth, Fifth, Sixth, Seventh & Eighth
Defendants in OS No 836 of 2018
Furigi Lawyers: Lawyers for Plaintiffs in OS No 867 of 2018
Kandawalyn Lawyers: Lawyers for Plaintiffs (Michael Beno & Clement Kapun)
in OS No 867 of 2018
Simpson Lawyers : Lawyers for First Defendants (John Biris & Ors) in OS No
867 of 2018
Felix Kua Lawyers : Lawyers for First Defendants (David Koriam & Ors) in OS
No 867 of 2018