Gigira Development Corporation Ltd v Talu [2021] PGNC 159; N9027 (16 August 2021)

N9027

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

MP (COMM) NO. 19 OF 2020 (IECMS) (NO. 2)

IN THE MATTER OF THE COMPANIES ACT 1997, SECTION 152(1)(2)(3) & (4)(g) AND IN THE MATTER OF THE COMPANIES RULES, RULE 14(c)

AND:
IN THE MATTER OF PETROLEUM EXPLORATION JOINT VENTURE LIMITED (1-35304)

BETWEEN:
GIGIRA DEVELOPMENT CORPORATION LIMITED
First Petitioner

AND:
TUKUPA DEVELOPMENT CORPORATION LIMITED
Second Petitioner

AND:
KEWAPA DEVELOPMENT CORPORATION LIMITED
Third Petitioner

V

STANIS TALU
First Respondent

AND:
PUKULA HEREBA
Second Respondent

AND:
DANIEL NERE
Third Respondent

Waigani: Anis J
2021: 20^th July, 16^th August

NOTICE OF MOTION –– Application to dismiss based on want of compliance with time limitations – s. 16(1)(a)(d) and (2) – Frauds and Limitations Act, 1988 – considerations – proceedings that are commenced under s. 152, their natures and the types of relief that may be awarded by the Court - whether petition is time barred under s. 16(1)(a)(d) and (2)

Cases Cited:

Gigira Development Corporation Ltd and Ors v. Stanis Talu and Ors (2021) N8852
Re International Construction PNG Ltd (2007) N3337
Sabatica Pty Ltd v. Battle Mountain Canada Ltd and 1 Or (2003) SC 709
Re Kimbe Nivani Properties Ltd (2017) N7696
Kimbe Nivani Properties Ltd v. Nivani Ltd (2019) SC1842

Text:

Halsbury's Laws of England, Vol 28 (4th ed)

Counsel:

D Bidar, for the Petitioners
G Manda, with counsel assisting G Makap, for the Respondents

RULING

16^th August, 2021

1. ANIS J: This is a second recent notice of motion filed by the first, second and third respondents (the respondents). It was filed on 28 June 2021 (NoM) seeking to dismiss the proceeding, and it was contested and heard on 20 July 2021. I reserved my ruling thereafter to a date to be advised.

2. This is my ruling.

BACKGROUND

3. I have set-out the background of the matter in my earlier decision in Gigira Development Corporation Ltd and Ors v. Stanis Talu and Ors (2021) N8852. I restated that here:

3. The 3 petitioners (the petitioners) are companies created under the Companies Act 1997 (the Companies Act). They are landowner companies of one of the oil and gas rich provinces of Papua New Guinea, the Hela Province. They represent more than 6,000 landowners from the area where Petroleum Development License One (PDL 1) is situated. In May of 1999, the petitioners entered into a joint venture agreement (JV) amongst themselves. From the JV, they established an umbrella company, the subject of this proceeding, called Petroleum Exploration Joint Venture Limited (PEJVL or the company). The petitioners hold equal shares in PEJVL.

4. The petitioners file this petition as shareholders, pursuant to s. 152 of the Companies Act. They argue or assert their rights as shareholders of PEJVL in their petition to allege that the affairs of the company have been, or are being, or are likely to be, conducted in a manner that is, or any act or acts of the company have been, or are, or are likely to be, oppressive, unfairly discriminatory, or unfairly prejudicial to them as shareholders.

5. In the petition, and I will paraphrase, the petitioners allege that the respondents, in their executive capacities (1^st and 2^nd respondents as chairman and director) and purported position (3^rd respondent as general manager) of the company at the material time, acted against its interest. They say monies that had been provided by the Government to the company to the tune of K18 million, which was for the beneficiaries (i.e., landowners of the area where PDL 1 is situated) whose interests the petitioners (as shareholders of the company) represent, had been unlawfully dealt with by these respondents. They say the company or PEJVL operates a Bank South Pacific Limited account which is its original and only account. They say the respondents deceitfully or illegally opened a separate account purportedly for the company with the ANZ bank. They say the first K10 million had been paid by the State on 6 December 2011, which was accepted by these respondents and paid to the company’s said illegitimate or unauthorized ANZ bank account. They say the respondents then used up the K10 million that was deposited in the ANZ account for their own purposes or outside the interest of the company, within weeks from the date of deposit. They say in April of 2013, they had learnt that the remaining balance of the K18 million, that is, K8,000,000 was paid into the ANZ account. They say in the petition that PEJVL then took steps to commence proceeding in the National and Supreme Courts, that is, WS No. 375 of 2013 - Petroleum Joint Venture Limited and Ors v. Stanis Talu and Ors, and SCA 24 of 2019 - Petroleum Joint Venture Limited v. Stanis Talu & Ors v. (earlier proceedings). It is not disputed that similar allegation or claims had been made by PEJVL against the respondents. Restraining orders were obtained and the K8 million was ordered and paid into the National Court Trust Account. On 11 March 2019, the National Court dismissed the proceeding after a hearing. PEJVL appealed the decision to the Supreme Court. On 28 October 2020, the Supreme Court dismissed the appeal as incompetent. The petitioners claim that on 22 February 2021, the K8,300,000 from the National Court Trust Account was paid into the trust account of the respondents’ lawyers Greg Manda Lawyers.

6. The petitioners were aggrieved by the actions or inactions of the respondents and or PEJVL and filed the present petition. In summary, they say in the petition that the actions and omissions by the respondents amount to unlawful, deceitful, and fraudulent conducts and an unlawful conversion of the funds and property of the company and the petitioners. They also say that the actions and omissions by the respondents were performed collectively and severally, and that they conspired with full intent and knowledge to defraud the company and the petitioners and cause them financial loss.

7. On 26 February 2021, interim ex parte orders were granted by this Court in favour of the petitioners against the respondents and their lawyers, amongst others, against the use of K8,300,000 that had been paid by the National Court Trust Account into the trust account of Greg Manda Lawyers.

MOTION

4. The NoM seeks to dismiss the petition pursuant to s. 16(1)(a)(d) and (2) of the Frauds and Limitations Act 1988 (F&LA). In so doing, it also seeks to discharge the interim orders of 26 February 2021. The second relief is a repeat of the balance of the respondents’ earlier notice of motion of 18 May 2021 which is also still pending. These may be argued later together with the balance of the petitioners’ notice of motion filed on 26 February 2021, depending on the outcome of relief 1 sought in the present NoM.

ISSUE

5. The main issue herein is whether the cause of action by the petitioners is time barred pursuant to s. 16(1)(a)(d) and (2) of the F&LA.

SECTION 16(1)(a)(d) and (2)

6. Section 16(1)(a)(d) and (2) states:

16. Limitation of actions in contract, tort, etc.

(1) Subject to Sections 17 and 18, an action—

(a) that is founded on simple contract or on tort; or

(b) to enforce a recognisance; or

(c) to enforce an award, where the submission is not by an instrument under seal; or

(d) to recover any sum recoverable by virtue of any enactment, other than a penalty or forfeiture or sum by way of penalty or forfeiture,

shall not be brought after the expiration of six years commencing on the date on which the cause of action accrued.

(2) An action for an account shall not be brought in respect of any matter which arose more than six years before the commencement of the action.

7. I should also state s. 18 which reads:

18. Claims for specific performance, etc.

Section 16 does not apply to any claim for specific performance of a contract or for an injunction or for other equitable relief.

CAUSE OF ACTION/TIME LIMITATION

8. To set the foundation of the legal arguments for consideration as have been presented by the parties, it is appropriate, in my view and in this case, to firstly identify the cause or nature of the proceeding that is commenced by the petitioners.

9. I refer to the petition. It is filed under s. 152(1), (2), (3) and (4)(g) of the Companies Act 1997 (the Companies Act) and Rule 14(c) of the Companies Rules. In regard to Rule 14(c), it states, and I will paraphrase, that proceeding under s. 152 may be commenced by filing a petition in a prescribed form. The Companies Rules was relevant under the old-repealed Companies Act Chapter No. 146 and has survived and continues to apply to the present Companies Act. See cases: Re International Construction PNG Ltd (2007) N3337. In regard to s. 152, I set out the relevant provisions herein:

152. Prejudiced shareholders.

(1) A shareholder or former shareholder of a company, or any other entitled person, who considers that the affairs of a company have been, or are being, or are likely to be, conducted in a manner that is, or any act or acts of the company have been, or are, or are likely to be, oppressive, unfairly discriminatory, or unfairly prejudicial to him in that capacity or in any other capacity, may apply to the Court for an order under this section.

(2) Where, on an application under this section, the Court considers that it is just and equitable to do so, it may make such order as it thinks fit including, without limiting the generality of this subsection, an order—

(a) requiring the company or any other person to acquire the shareholder's shares; or

(b) requiring the company or any other person to pay compensation to a person; or

(c) regulating the future conduct of the company's affairs; or

(d) altering or adding to the company's constitution; or

(e) appointing a receiver of the company; or

(f) directing the rectification of the records of the company; or

(g) putting the company into liquidation; or

(h) setting aside action taken by the company or the board in breach of this Act or the constitution of the company.

(3) No order may be made against the company or any other person under Subsection (2) unless the company or that person is a party to the proceedings in which the application is made.

(4) Failure to comply with any of the following sections is conduct which is unfairly prejudicial for the purposes of this section:—

......

(g) Section 110.

10. And s. 110 begins as follows:

110. Major transactions.

(1) A company shall not enter into a major transaction unless the transaction is—

(a) approved by special resolution; or

(b) contingent on approval by special resolution.

11. Case law on s. 152 is not well developed in this jurisdiction. The provision is derived from New Zealand’s equivalent to the Companies Act, and the provisions are similar or identical. Assistance therefore may be sought from similar cases abroad. The observation or similarity of the provisions has been captured by the Supreme Court in the case of Sabatica Pty Ltd v. Battle Mountain Canada Ltd and 1 Or (2003) SC 709. The Supreme Court stated, and I quote:

Section 152 has not received any judicial consideration in our jurisdiction. The New Zealand Companies Act s 209 as amended by s 11 of the Companies Amendment Act 1980 provides:

"(1) Any member of a company that the affairs of the company have been or are being or a likely to be conducted in a manner that is, or any act or acts of the company have been or are likely to be, oppressive, unfairly prejudicial, to him (whether in his capacity as member or in any other capacity) or, in a case falling within section 173 (3) of this Act, the Attorney-General, may make an application to the Court for an order under this section.

(2) If on any such application the Court is of the opinion that it is just and equitable to do so, the Court may make such order as it thinks fit, ..."

While the New Zealand legislation has significant variations, the use of the words "oppressive, unfairly discriminatory or unfairly prejudicial" is common. In Thomas and HW Thomas Ltd [1984] 1 NZLR 686, at page 693 Richardson J said:

"In employing the words ‘oppressive, unfairly discriminatory or unfairly prejudicial’ Parliament has afforded petitioners a wider base on which to found a complaint. Taking the ordinary dictionary definition of the words from the Shorter Oxford English Dictionary: oppressive is ‘unjustly burdensome’; unfair is ‘not fair or equitable; unjust’; discriminate is ‘to make or constitute a difference in or between; to differentiate’; and prejudicial, ‘causing prejudice, detrimental, damaging (to rights, interests, etc). I do not read the subsection as referring to three distinct alternatives which are to be considered separately in watertight compartments. The three expressions overlap, each in a sense helps to explain the other, and read together they reflect the underlying concern of the subsection that conduct of the company which is unjustly detrimental to any member of the company whatever form it takes and whether it adversely affects all members alike or discriminates against some only is a legitimate foundation for a complaint under s 209. The statutory concern is directed to instances or courses of conduct amounting to an unjust detriment to the interests of a member or members of the company. It follows that it is not necessary for a complainant to point to any actual irregularity or to an invasion of his legal rights or to a lack of probity or want of good faith towards him on the part of those in control of the company."

This passage is helpful in indicating the nature of the cause of action under s 152 of the Act and we would adopt it.

......

We agree with counsel for the Appellant that the trial judge fell into error in characterizing the Appellant’s claim as falling within s 147 (1) of the Companies Act and failed to consider s 152 of the Act. We accept the submission by counsel for the Appellant that the Respondents did not have to be cast as "directors" to be liable under s 152 of the Companies Act. The claim may be brought against "any person" who breaches the section.

......

In respect of delay, we consider that this is a matter which may be raised in defence to the action at the trial. Similarly, the fact that the Appellant did not challenge the fairness or appropriateness of the scheme for merger of Lihir and NML are matters which may be raised by the Respondents at the trial.

12. I note that the underlying purpose of a claim that is commenced under s. 152 concerns the conduct of the company in question, which in real terms refers to and includes the fiduciary duties or the conducts of the board members, director(s), or the executive members of the company or “other person” which may include former executives or directors of a company. And sometimes, this can easily be confused as if it was an action for breach of such fiduciary duties of these persons in the company as the underlying cause of action. And the same may be said in regard to time limitations for bringing such proceedings. Perhaps and as a guide, I would refer to paragraph 844 in Halsbury's Laws of England, Vol 28 (4th ed), which reads:

"Liability to account of persons in fiduciary capacity. Where any person as agent or guardian, or in any other fiduciary capacity, is in possession of money for which it is his duty to account or has received and converted to his own use such money, then so long as the relation of confidence exists between the parties no lapse of time can bar the right to an account from the beginning of the transactions, nor will time begin to run when the relation is terminated."

13. I have considered the submissions of the parties in regard to this matter. So, I ask myself this. Is the petition pleading a cause of action for breach of contract as alleged? The answer to that is clear, which is that it is not a claim for contract, tort or fraud, as alleged by the respondents. The pleaded source of the petition is provided for under s. 152 of the Companies Act. The cause of action by this petition is created and granted by statute, not by common law or equity. It is available under the Companies Act for shareholders or entitled persons to use. One may describe or regarded it as equitable in nature, but regardless, or as stated, it is not.

14. The petitioners herein are shareholders of Petroleum Exploration Joint Venture Limited (PEJVL or the company). Claims such as breach of contract, tort, or fraud, as alleged by the respondents, cannot be commenced as of right or directly by shareholders of companies against third parties. If the petitioners were do so in the present matter, they would firstly require leave of the Court. Such an action would be regarded as a derivative action or proceedings, that is, where a shareholder or an authorized person of a company may bring an action to prosecute, defend, or discontinue a proceeding, for or on behalf of the company, against a third party or parties. A derivative action involves prosecuting or defending against the primary rights of a company. A notable factor why a shareholder in a derivative action would require the Court’s leave is because the shareholder, unlike the company, would not have primary rights in the matter in question in the first place. So, for example and in the present case, what the respondents are asserting against the petitioners relate to challenges that involve or refer to primary rights of PEJVL, something which the petitioners have no standing or direct interest over, and which is not what is being pursued here. The petitioners herein have standing to pursue their personal actions under s. 152, which they have done. They allege that the company’s conduct, carried out by its executives or former executives, was oppressive, unfairly discriminatory, or unfairly prejudicial to them, and they seek relief under s. 152(2) and other additional relief as pleaded in the petition. This is not to say that the petitioning Court cannot consider factors such as allege breach of contract, alleged breach of fiduciary duties or alleged fraudulent conducts, as part of its findings or considerations towards determining the underlying issues. These particulars or claims if raised in the petition would be secondary towards establishing the underlying cause of action under s. 152. If, however, it is proven otherwise that the petitioners have other hidden motives for filing the petition, then the petition may fail but it should be left for the trial Court to decide.

15. It is therefore my view that a petition filed under s. 152 of the Companies Act is not subject to s.16(1)(a) of the F&LA. And if I may add, s. 152 falls under Division 4. – Personal Actions by Shareholders. It is a personal action by the shareholders against the company and the respondents. It is not an action commenced by the shareholders on behalf of the company to pursue its (i.e., PEJVL’s) direct or primary interest. And this. To seek recovery of money to be ordered back to the company or PEJVL, which is sought as part of the relief in the petition, is permitted given the Court’s wider powers under s. 152(2). The Court can make such an order, again, only if the claim is successful and if the Court finds it just and equitable to do so.

16. For these reasons, I find the time limitation argument premised on s.16(1)(a) baseless and dismiss it.

17. The respondents’ second argument on time-bar is that the petition seeks to recover any sum recoverable by virtue of any enactment, other than a penalty or forfeiture or sum by way of penalty or forfeiture, and therefor is time-barred pursuant to s. 16(1)(d). The argument is premised on 2 reasons. Firstly, they claim that the petition is based on breach of the directors’ duties under the Companies Act where as a result, the petitioners are seeking to recover monies had been the subject of these alleged breaches, and secondly, they refer to some of the relief sought in the petition and claim that the petitioners are seeking to recover funds that are held in the National Court Trust account in proceeding WS 357 of 2013 or in the account purportedly created by the respondents. As such, they claim that it is in fact a recover action thus falls under section 16(1)(d).

18. I note the arguments including the case authorities that have been cited by the parties. I begin by making the following observations. It is misconceived to claim that this proceeding is premised on breach of the directors’ duties or fiduciary duties. There are separate provisions under the Companies Act for that, and if that had been the underlying reason or cause of action, the petitioners would have pleaded that. And I emphasis that this proceeding is commenced, not under the common law or equity, but rather, under statute law. The underlying cause of action is premised on s. 152 where the petitioners would be required to establish allegations of oppression, unfairness, unfair discrimination, or unfair prejudice, which may involve or require consideration of other provisions of the Companies Act that are covered by or may relate to s.152, including provisions that relate to directors’ duties and obligations. But ‘breach of directors’ duties’ in itself cannot be the foundation or cause of action, for the person who has invoked s. 152 of the Companies Act and who has filed a petition under it, like in the present case.

19. The other misconception by the respondents is this. The respondents submit that the petitioners are actually seeking to recover monies that belong to the company by filing the petition under s. 152. The petitioners submit otherwise. My findings are as follows. This is not a monetary claim that is sought to be recovered by the shareholders pursuant to an enactment. It is rather a personal action by them. They do not have any direct say on the company’s money or funds that may have been due to the company which may have been misapplied by its executives or former executives. They (i.e., the petitioners), as private persons or individuals, would have no standing to inquire or pursue recovery action, which would really be a matter for the company to pursue against those persons or third parties. Again, s. 152 provides for a personal cause of action. Petitioners that invoke it would be required to prove their allegations of oppression, unfair discrimination, or unfair prejudice. That is the underlying cause of action. And only upon satisfaction by the Court can it consider whether it would be just and equitable to may make such order as it thinks fit. And apart from the relief that are pleaded under s. 152(2) of the Companies Act, the Court would be at liberty to grant other orders or relief that the petitioners may also seek in their petition. In the present case, compensation is amongst a primary relief that is sought in the petition. In general, there is no fixed sum for that. The Companies Act under s. 152(2), grants a wider discretion upon the National Court to award compensation or monies which is not limited but of course which would depend on what may be established by evidence or submissions of the parties. But that is only one of many other types of relief the Court may award including those expressly stated under subsection 2. I think the key phrase to note of s. 16(1)(d) of the F&LA is the term to recover any sum recoverable by virtue of any enactment. Claims under s. 152 is separate to the types of claims that are covered by s. 16(1)(d). Section 16(1)(d) therefore has no relevance or application to an action that is commenced under s. 152 of the Companies Act.

20. The third argument on limitation by the respondents is this. They claim that the cause of action falls under s. 16(2) of the F&LA, that is, an action for an account. This type of claim, they submit, is available under the common law where directors may be held to account for monies that belong to the company for the beneficiary which are the shareholders. As such, they argue that it is subject to the 6-year limitation period. This argument is somewhat related to their argument on directors’ fiduciary duties raised above. I have, to a greater extent, already covered that in my decision. For all the reasons I give above, I reject this argument by the respondents. I will add that the petitioners herein have not derived their cause of action from the common law but rather from a statute, namely, the Companies Act.

21. I find no merit in and dismiss the respondents time limitation argument under s. 16(2) of the F&LA.

SUMMARY OF FINDINGS

22. Further to my above findings, there is a fundamental consideration that appears to have been overlooked by the respondents, which is this. The respondents’ arguments are premised on the basis that the petitioners are exercising their primary rights in regard to claims under contract, tort, or fraudulent conducts in regard to the actions of the company or the respondents. This is however not the case. The petitioners would not have standings to make such direct assertions as alleged by the respondents given their status as shareholders. Their action is commenced under s. 152 of the Companies Act. Dealings between PEJVL, the respondents and third parties, are matters where PEJVL would have primary rights or claims over, against these third parties or the respondents. To directly assert that these are in fact the claims of the shareholders herein, which is not, is misconceived. The only manner where such action may be possible is by way of a derivative action, that is, the shareholders would first apply for leave and if leave is granted, commence proceeding on behalf of the company to assert its primary rights whether it be to prosecute, defend or discontinue a proceeding amongst others. See s. 143, Companies Act and the case Re Kimbe Nivani Properties Ltd (2017) N7696.

23. Even if I may be wrong with my findings on time limitation, I have this to say. The shareholders commenced this proceeding against the company and the respondents shortly after when final attempts by the company to take actions against the respondents, failed. That may be seen in proceeding SCA No. 24 of 2019 which is adduced in the evidence and submissions of the parties. The company’s appeal and its cause of action against the respondents was dismissed on competency grounds on 14 March 2019. As such, the time for the shareholders to act has or would have commenced from that day onwards given their indirect interests in the matter. As such, time limitation issues would not arise under section 16 of the F&LA; they would be well within time in filing the petition.

24. Finally, I find none of the case law that had been relied upon by the respondents relevant. However, the case which, in my review, requires attention or clarity is the Supreme Court case of Kimbe Nivani Properties Ltd v. Nivani Ltd (2019) SC1842. I note the submissions on point by the parties. In my view, the case may be distinguished from the present case. The case of Kimbe Nivani was based on a derivative action that had commenced at the National Court, under s. 143 of the Companies Act. The action was in pursuit of the primary rights of the concerned company against a third party. It was not an action that began under s. 152 of the Companies Act. It was on that basis that the Supreme Court held, and I quote in part, Actions brought for breaches of directors’ duties under the Companies Act 1997 are actions in tort for the breach of a statutory duty. Accordingly, they are subject to the 6 year time limit imposed by 16(1)(a) of the Frauds and Limitations Act 1988. For this reason, plus others covered in my decision herein, I find the case distinguishable to the present case, and that it has no application herein to assist the respondents with their arguments.

CONCLUSION

25. In conclusion, I do not find the time limitation arguments by the respondents valid, and I dismiss them. Section 16(1)(a) & (d) and (2) of the F&LA do not apply to proceedings that are commenced under s. 152 of the Companies Act. There may be an exception to that which is delay, but that may be raised at the actual hearing if the respondents wish, as held or was noted by the Supreme Court in the Sabatica case.

26. I dismiss relief 1 of the respondents’ notice of motion filed on 28 June 2021.

COST

27. I will reserve making an order on cost until after I determine the balance of the pending relief 2, which may be merged or heard together with the plaintiffs’ notice of motion of 26 February 2021.

ORDERS OF THE COURT

28. I make the following orders:

(1) I dismiss relief 1 of the Respondents’ Notice of Motion filed on 28 June 2021.

(2) The balance of the Notice of Motion of 28 June 2021 and the balance of the petitioners’ Notice of Motion filed on 26 February 2021, unless resolved, shall be set down for hearing.

(3) Costs of the application is reserved to the joint hearing of the 2 motions.

(4) Time for entry of these orders is abridged to the date and time of settlement of these orders by the Registrar which shall take place forthwith.

The Court orders accordingly.
________________________________________________________________
Goodwin Bidar Nutley: Lawyers for the Petitioners
Greg Manda: Lawyers for the Respondents