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National Court of Papua New Guinea |
PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]
WS No. 763 of 2016 (COMM)
BETWEEN
WIANDUO LOGGING LIMITED
Plaintiff
AND:
JOSEPH HOMPOWAFE
First Defendant
ADRIAN KUM
Second Defendant
AND:
WIRUHO HOLDINGS LIMITED
Third Defendant
Waigani: Anis J
2019: 20 November
2020: 8 May
COMPANIES ACT 1997 – Special shareholders meeting – director’s meeting – whether due processes were followed – Schedules 2 and 4 of the Companies Act – whether notices of special shareholders’ meeting were given to each of the shareholders and directors– whether verbal advices or radio announcements amounts to sufficient compliance with Schedules 2 and 4 - whether the deed of assignment a major transaction – whether compliance with section 110 of the Companies Act – Forestry Act 1991 – whether assignment of timber permit breach sections 79, 80 and 81 of the Forestry Act
Cases cited:
Gawan Kuyan v. Andrew Sallel (2008) N369
Green Investment Ltd v. Wamomo Seafood Exporters Ltd (2019) N8120
Henry Tavul v. Nakikus Konga (2018) N7599
Magasaki Ltd v. Linus Bai (2007) N3221
Counsel:
Mr T Tape, for the Plaintiff
Mr G J Sheppard, for the Defendants
JUDGMENT
8th May, 2020
1. ANIS J: This matter was trialed on 13 and 20 November 2019. I reserved my decision thereafter to a date to be advised.
2. Parties have been notified so I will rule on it now.
BACKGROUND
3. The plaintiff holds a valid Timber Permit. It is described as LFA 11-2 (Timber Permit). The plaintiff complains that on 25 June 2013, the Timber Permit was allegedly transferred to the third defendant under a deed of assignment (the deed). The plaintiff complains that the ‘transfer’ and signing of the deed between the plaintiff and the third defendant, were carried out in breach of the law. It makes references to provisions under the Companies Act 1997 (the Companies Act) and the Forestry Act 1991 (the Forestry Act).
4. The plaintiff’s relief are contained at paragraph 16 of its amended writ of summons and statement of claim (the writ). In summary, the plaintiff seeks orders (i), to declare the deed void for alleged breaches of the provisions of the Companies Act, (ii), to declare the deed unenforceable for alleged non-compliances with sections 79, 80, and 81 of the Forestry Act, (iii), to permanently restrain the defendants and their agents and servants from doing anything in regard to the deed and the Timber Permit or from interfering with its operations or dealings, and (iv) for cost of the proceeding.
5. The defendants have filed their defence. They deny any wrongful or illegal conduct on their part. They acknowledge the 2 meetings of 25 June 2013. They say that both meetings, that is, the first which was a special shareholders’ meeting of the plaintiff, and the second, which was a board meeting of the plaintiff, had been duly constituted under the provisions of the Companies Act. The defendants say that resolutions and agreements entered into at that time were or are valid or enforceable.
COMMON GROUND
6. The plaintiff and the third defendant are both incorporated under the provisions of the Companies Act. Their establishments are not disputed. The plaintiff is the holder of the Timber Permit. This is also not disputed.
ISSUES
7. The main issues in my view, are as follows:
(i) Whether there was a duly constituted special shareholders’ meeting convened on 25 June 2013, that is, in compliance with Schedule 2 of the Companies Act;
(ii) Whether there was also a duly constituted board meeting after that on the same day, that is, in compliance with Schedule 4 of the Companies Act.
(iii) Whether the signed deed would be described as a major transaction, and if so, whether it was signed in compliance with section 110 of the Companies Act;
(iv) Whether the assigning of the Timber Permit to the third defendant was done in breach of sections 79, 80 and 81 of the Forestry Act 1991.
EVIDENCE
8. The plaintiff tendered a total of 3 affidavits. Witnesses Herman Mosoro and Henry Jirehombo were cross-examined in relation to their tendered affidavits. The defendants, on the other hand, tendered a total of 15 affidavits. Witnesses Andrian Kum, Joseph Hompowafe, Casper Yake, Paul Porie and Sailas Wari were cross-examined in relation to their tendered affidavits. The balance of the defendants’ evidence were tendered by consent or without objection.
PLAINTIFF
9. Let me begin by looking at the plaintiff. As stated, the plaintiff was established under the Companies Act. Its powers, functions and operations are governed by the Act. I note that there is not contest in that regard. I will therefore proceed on that basis.
MEETINGS OF 25 JUNE 2013
10. The plaintiff’s main challenge is this. It claims that its former management or board members, had failed to duly conduct a special shareholders’ and board meetings on 25 June 2013. The significance of this date is this. It was on that day that the deed was said to have been signed between the plaintiff and the third defendant, based on purported resolutions which were said to have been passed by the shareholders and the board, at that time. According to the deed which was signed on that day, the plaintiff was said to have assigned its interest in the Timber Permit over to the third defendant. The said assignment, based on the deed, is said to give power or authority to the third defendant to deal with the Timber Permit as it pleases or in accordance with the deed’s terms and conditions.
11. The plaintiff argues that the due processes for calling a special shareholders’ and board meetings under the Companies Act were overlooked or were not followed by the former management of the plaintiff or by those persons who were responsible for such at that time which included the first defendant. As such, the plaintiff argues that any meetings called at that time were null and avoid or that they were called in breach of the set mandatory procedures as set out under the Companies Act.
SCHEDULES 2 & 4 – COMPANIES ACT
12. Schedule 2 clauses 2.1 and 2.2 and Schedule 4 clause 2.2 of the Companies Act, are relevant. I set them out herein as follows:
SCHEDULE 2.—PROCEEDINGS AT MEETINGS OF SHAREHOLDERS.
Sec. 105.
......
1. Chairman.
(1) Where the directors have elected a Chairman of the board, and the Chairman of the board is present at a meeting of shareholders, he shall chair the meeting.
(2) Where no Chairman of the board has been elected or where, at any meeting of shareholders, the Chairman of the board is not present within 15 minutes of the time appointed for the commencement of the meeting, the shareholders present may choose one of their number to be Chairman of the meeting.
(3) Subsections (1) and (2) are subject to the constitution of the company.
2. Notice of meetings.
(1) 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 and to every director and an auditor of the company not less than 14 days before the meeting.
(2) The notice shall state—
(a) 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; and
(b) the text of any special resolution to be submitted to the meeting.
(3) An irregularity in a notice of a meeting is waived where all the shareholders entitled to attend and vote at the meeting attend the meeting without protest as to the irregularity, or where all such shareholders agree to the waiver.
(4) Subject to the constitution of a company, the accidental omission to give notice of a meeting to, or the failure to receive notice of a meeting by, a shareholder does not invalidate the proceedings at that meeting.
(5) Subject to the constitution of the company, where a meeting of shareholders is adjourned for less than one month, it is not necessary to give notice of the time and place of the adjourned meeting other than by announcement at the meeting which is adjourned.
.......
SCHEDULE 4.—PROCEEDINGS OF THE BOARD OF A COMPANY.
Sec. 138.
......
1. Chairman.
(1) The directors may elect one of their number as Chairman of the board.
(2) The director elected as Chairman holds that office until he dies, resigns, is prohibited from being a director of a company under Section 425, 426 or 428 or the directors elect a Chairman in his place.
(3) Where no Chairman is elected, or where at a meeting of the board the Chairman is not present within five minutes after the time appointed for the commencement of the meeting, the directors present may choose one of their number to be Chairman of the meeting.
2. Notice of meeting.
(1) A director or, where requested by a director to do so, an employee of the company, may convene a meeting of the board by giving notice in accordance with this section.
(2) Not less than two days notice of a meeting of the board shall be sent to every director who is in the country, and the notice shall include the date, time, and place of the meeting and the matters to be discussed.
(3) An irregularity in the notice of a meeting is waived where all directors entitled to receive notice of the meeting attend the meeting without protest as to the irregularity or where all directors entitled to receive notice of the meeting agree to the waiver.
......
SERVICE - NOTICE OF MEETINGS
13. The first question I ask is this. Where is the evidence of due service of the notices of both meetings, namely, the special shareholders’ meeting and the board meeting of the plaintiff that were said to have been conducted on 25 June 2013?
14. Let me begin first with the ‘notice(s)’ that had been or were said to have been issued to the shareholders. The requirement is, and I quote, 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 and to every director and an auditor of the company not less than 14 days before the meeting [Schedule 2 clause 2.1]. I refer to the evidence. The plaintiff asserts in its evidence that no such written notices were ever issued. It submits that the notices or the meetings held were issue or carried out contrary to the provisions of the Companies Act. The defendants, on the other hand, has provided evidence to address that, and I refer in particular to exhibits D1 and D2, that is, the affidavits of Adrian Kum and Joseph Hompowafe. Mr Hompowafe’s affidavit addresses this issue. He was the Chairman of the directors of the plaintiff at the material time in 2013. At paragraph 10 of his affidavit, he states, and I quote,
10. Proper notice of the SSM and the BoDM was given to the Shareholders and Directors of the Plaintiff to attend the meetings verbally and through Radio Wewak. The announcement on Radio Wewak was aired for the entire week prior to the meetings of the 25th June 2013.
15. Mr Hompowafe’s evidence was tested. It was revealed in cross-examination that he had instructed one Anton Pakio to issue the verbal announcements on his behalf. The plaintiff therefore submits that his evidence was hearsay and should be struck out. I decline to do so given that other witnesses that were called to testify in Court for the defendants, also supported this fact, that is, the verbal announcements on the radio for the shareholders and directors to attend the meetings on 25 June 2013. The plaintiff’s response on point may be found at exhibits P1 and P3. Exhibit P1 is the affidavit of Herman Mosoro. He is a director and Chairman of the plaintiff. He was a director of the plaintiff at the material time in 2013. Exhibit P3 is the affidavit of Henry Jirehombo. He is a current director of the plaintiff. He was also a director of the plaintiff at the material time in 2013. Their evidence on point are at paragraphs 10 and 7 respectively, and I quote,
10. However, there is a purported shareholders’ meeting claimed to have been called and held on the 25th of June 2013 but there was never such a meeting called and held. There was no Notice of Shareholders’ meeting circulated or published and the Defendants have been using list of purported shareholders who signed besides their names are from another formal shareholders’ meeting held in 2011 and not 25th of June 2013. The true copy of the names of list of shareholders is annexed herewith and marked with letter “F”.
......
7. In the Affidavit of Joseph Hompwafe, sworn on the 16th of May 2019 and filed on 17th of May 2019 at paragraph 10 he says he issued verbal notice of meeting and announced in the radio. Those alleged facts are not true. I was never verbally informed or any meeting. There was no radio announcement, not even verbal notice of any meeting to be conducted on the 25th of June 2013.
16. The next query I have is this, whether making verbal announcements in a public radio station constitutes giving notice within the meaning of Schedule 2 clauses 2.1 and 2.2 of the Companies Act. The simple answer to that, in my view, is, “no it does not”. Clause 2.1 expressly requires written notice to be issued, and it states that it shall be sent to every shareholder entitled to receive notice of the meeting and to every director and an auditor of the company not less than 14 days before the meeting. The provision means that service of written notices of the shareholders’ meeting are mandatory. See cases: Magasaki Ltd v. Linus Bai (2007) N3221, Green Investment Ltd v. Wamomo Seafood Exporters Ltd (2019) N8120 and Henry Tavul v. Nakikus Konga (2018) N7599. The defendants’ only argument or response to the claim by the plaintiff of want of notice of the special shareholders’ meeting, is their evidence that they had broadcasted or verbally notified the shareholders’ of the special shareholders’ meeting of 25 June 2013, through announcements by radio, that is, Radio Wewak in the period leading up to the meeting. The defendants did not disclose the dates and times of the broadcasts nor the content of the announcement itself. In any event, such information, if disclosed, would be, in my view, irrelevant for this purpose. Having considered the evidence of the defendants, I note that there is nothing there that proves service of any written notices of the special shareholders’ meeting upon each of the 68 or so shareholders, the directors and the company auditor, not less than 14 days before the meeting of 25 June 2013.
17. Without complying with Schedule 2 clauses 2.1 and 2.2, I am not satisfied that the shareholders’ meeting of 25 June 2013 was lawful or that it was validly constituted in the first place. I find that the meeting held on 25 June 2013 could have been a meeting or a gathering. But I find that it could not have been a duly constituted special shareholders’ meeting because due processes under, amongst others, Schedule 2 clauses 2.1 and 2.2 of the Companies Act had not been observed or complied with. Consequently, I find that any resolution or agreements reached therein to be invalid or void.
18. Of interest and perhaps for clarity, let me also refer to Schedule 2 clause 2.3. It states and I quote in part. An irregularity in a notice of a meeting is waived where all the shareholders entitled to attend and vote at the meeting attend the meeting without protest as to the irregularity, or where all such shareholders agree to the waiver. I therefore ask myself this. Can this be the case for the shareholders that had attended the meeting of 25 June 2013? I note, however, that this was not addressed by the parties in their submissions, so I will proceed with it as a remark. There are still difficulties if the clause is to apply. I have already found that written notices, which were mandatory, were never given to each of the shareholders, the directors and the company auditor, of the special shareholders’ meeting. Without any physical written notices been issued, Schedule 2 clause 2.3 would become or would have become irrelevant for this case. See case: Henry Tavul v. Nakikus Konga (supra).
19. I now refer to notices concerning the board meeting which was said to have been held soon after on the same date on 25 June 2013. I ask myself this. Where notices of the board meeting served as required under Schedule 4 clause 2.2? The plaintiff, in its evidence states that no formal notices had been issued under Schedule 4 of the Companies Act before the board meeting on 25 June 2013 proceeded. I refer to the defendants’ evidence. The defendants’ evidence and argument are the same. They say that notices of the board meeting had been verbally broadcasted by radio at the same time with the broadcast or announcements of the special shareholders’ meeting.
20. In my view, clause 2.2 is also express and mandatory. It 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, and the notice shall include the date, time, and place of the meeting and the matters to be discussed. The case law on point is also settled. In Gawan Kuyan v. Andrew Sallel (2008) N369, Justice Cannings stated at paragraph 69 of his judgment, and I quote,
As to the managing director, Mr Sallel was removed from that position by a resolution at a meeting on 21 August 2006, which was said to be a meeting of the board of directors. However, there was no quorum present and the meeting in a number of other respects failed to satisfy the provisions governing proceedings of a meeting of the board of a company under Section 138 and Schedule 4 of the Companies Act. The board was not properly constituted, its proceedings were not lawful and it lacked power to resolve to terminate Mr Sallel or appoint Mr Bumbum Bais as managing director.376
21. See also cases: Henry Tavul v. Nakikus Konga (supra);
22. In the end, I find no evidence disclosed by the defendants which shows compliance with Schedule 4 clause 2.2 of the Companies Act. In my view, the defendants’ argument that there was as valid board meeting held by the board members on 25 June 2013, must also fail. I find that whatever meeting that was held at that time, it was not a duly constituted board meeting of the plaintiff within the provisions of the Companies Act. The meeting or the gathering, was conducted without observance of or that it was conducted in breach of Schedule 4 clause 2.2. I find therefore that any resolutions or agreements reached at that time, including the deed, shall be regarded as invalid or void.
MAJOR TRANSACTION
23. I refer to the next issue re major transaction. I decline to address that given my earlier findings. It would follow that since the 2 meetings were not validly constituted, as found above in my judgment, any transactions or resolutions passed then or on 25 June 2013 by the shareholders or directors of the plaintiff, would be regarded or declared as invalid or void.
TRANSFER OF TIMBER PERMIT
24. I will say the same for this next issue, that is, whether the transfer of the Timber Permit in the deed was done in breach of sections 79, 80 and 81 of the Forestry Act. I find the issue defeated by my earlier rulings above in the judgment.
25. That said, let me make this remark. The plaintiff’s argument appears misconceived. The deed only speaks of assigning the rights in the Timber Permit. A deed of assignment is not the same as a deed of transfer or an agreement to transfer a timber permit. The latter may be subject to the provisions of the Forestry Act as alleged by the plaintiff whereas the former may not.
OTHER CLAIMS
26. The plaintiff also alleges breach of director’s duties against the first defendant. It is contained at paragraph 11 of the writ. I note however that no relief is sought for the said allegation against the first defendant or the defendants. As a result, I decline to deal with the said issue and dismiss it.
27. I also refer to the plaintiff’s pleadings concerning illegality and fraud. I find that these claims appear to have been abandoned. In any event, I find no basis for these allegations and I dismiss them.
RELIEF
28. I refer to the writ. The plaintiff seeks, and I quote in part,
(a) A declaration that the purported Deed of Assignment of 25th June 2013 purportedly between the Third Defendant and the Plaintiff is null and void ab inito.
(b) A declaration that the Papua New Guinea Forest Authority has never approved any transfer of the Logging Permit of the Plaintiff LFA No. 11-2 to the Third Defendant or any other person and therefore LFA No. 11-2 cannot be transferred to the Third defendant base on the purported Deed of Assignment.
(c) An order that the Purported Deed of Assignment of 25th June 2013 is unenforceable, even if it is valid, for want of approval pursuant to Sections 79, 80 and 81 of the Forestry Act 1991.
(d) A permanent injunction against all the Defendants and their associates, servants and/or agents from:
(i) using, relying or acting in any manner upon the purported Deed of Assignment of 25th June 2013.
(ii) using, relying or acting in any manner upon the Plaintiff Company’s Timber Permit License Number LFA 11-2 of the Hawain Local Forest Area.
(iii) doing, conducting or carrying on any logging or such similar activity in the Plaintiff Company’s Logging Permit Area, LFA 11-2 of the Hawain Local Forest Area.
(iv) interfering, harassing or threatening any and all members of the Plaintiff Company Board of Directors, Management, employees, servants, agents and their families.
(v) interfering with the operations of the Plaintiff Company and its business associates, servants and agents including logging operations within the Plaintiff Company’s Timber Permit License Area LFA No. 11-2 of the Hawain Local Forest Area.
(e) Any further Orders deemed appropriate by the Court in the circumstances of the case.
(f) Cos of the Court proceedings.
29. For the reasons I give in my judgment, I will grant relief (a) and (d) and (f). I refuse relief (b) and (c). In regard to relief (e), I will also, for clarity, order that the purported special shareholders’ and board of directors’ meetings of the plaintiff which were held on 25 June 2013, were held in breach of the provisions of the Companies Act, namely, Schedule 2 clauses 2.1 and 2.2 and Schedule 4 clause 2.2, and as such, that these meetings are invalid or null and void.
COST
30. As stated, cost of the proceeding will be awarded together with the 3 relief as I have stated above, in favour of the plaintiff. Cost will be assessed on a party/party basis which may be taxed if not agreed.
THE ORDERS OF THE COURT
31. I will make the following orders:
(i) using, relying or acting in any manner upon the purported Deed of Assignment of 25th June 2013.
(ii) using, relying or acting in any manner upon the Plaintiff Company’s Timber Permit License Number LFA 11-2 of the Hawain Local Forest Area.
(iii) doing, conducting or carrying on any logging or such similar activity in the Plaintiff Company’s Logging Permit Area, LFA 11-2 of the Hawain Local Forest Area.
(iv) interfering, harassing or threatening any and all members of the Plaintiff Company Board of Directors, Management, employees, servants, agents and their families.
(v) interfering with the operations of the Plaintiff Company and its business associates, servants and agents including logging operations within the Plaintiff Company’s Timber Permit License Area LFA No. 11-2 of the Hawain Local Forest Area.
The Court orders accordingly.
_______________________________________________________________
Kandawalyn Lawyers: Lawyers Plaintiff
Young and Williams Lawyers: Lawyers for the Defendants
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