Rondulg Investments Ltd (1-67625) v Maipson [2021] PGNC 443; N9317 (29 November 2021)

N9317

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

MP (COMM) NO 43 OF 2017 (COMM)

BETWEEN:
IN THE MATTER OF THE COMPANIES ACT 1997

AND:
IN THE MATTER OF RONDULG INVESTMENTS LIMITED (1-67625)

AND:
JAMES MAIPSON

Waigani: Anis J
2021: 8^th & 29^th November

ASSESSMENT OF COMPENSATION – Compensation payable under action commenced under s. 152 of the Companies Act – Prejudiced shareholder – court ordered or directed compensation as opposed to damages to be assessed – compensation based on findings on liability by the trial Court – compensation should not be based on matters not been considered or ruled upon by the trial Court – consideration – assessment – amount awarded as compensation

Cases Cited:

Culture Shock (1-61817) In re (2016) N6786
Gigira Development Corporation Ltd v. Talu (2021) N9027
University of PNG v. Duwaino (2011) SC 1119
Madang Cocoa Growers Export Co. Ltd v. NDB (2012) N4682
Agnes Kapipi v. Andrew Andu (2015) N6125
Thomas Tulin v. Toyota Tsusho (PNG) Ltd (2018) N7685

Counsel:

S.Gor, for the Petitioner
E. Noki, for the Respondents

DECISION

29^th November, 2021

1. ANIS J: This was a hearing on assessment of compensation. I reserved my ruling on 8 November 2021 to a date to be advised.

2. This is my ruling.

BACKGROUND

3. The petitioner is Patmilia Investments (PNG) Limited (Petitioner). On 2 October 2017, it filed this petition. The claim was based on the Petitioner’s right as a former prejudiced shareholder under statute, namely, the Companies Act 1997 (the Companies Act). The cause of action and relief is provided for under statute, that is, s. 152 of the Companies Act. The Petitioner herein was an aggrieved former shareholder of Rondulg Investments Ltd (the company/first respondent). It claimed, amongst others, compensation against the respondents on the basis that 100 of its shares in the company had been wrongfully transferred by James Maipson (the second respondent), the only other shareholder in the company, to himself (i.e., Mr Maipson). It sought relief for the respondents to transfer back its 100 shares. It also sought compensation against the respondents.

4. On 9 March 2018, the trial on liability in the matter proceeded ex parte. On 20 August 2019 (Court Order of 20 August), Hartshorn J handed down his decision where he held the respondents liable. The actual orders read:

1. Pursuant to s. 152(2)(f) and (h) Companies Act 1997, the purported transfer of the Petitioner’s 100 shares to James Maipson is cancelled and the Petitioner’s 100 shares in Rondugl Investments Limited is given back to the Petitioner and the records of Rondugl Investments Limited at the Companies Office shall be changed to reflect this;
   
2. Pursuant to s. 152(2)(b) Companies Act, James Maipson shall pay compensation to the Petitioner, such compensation to be assessed;
   

100. Pursuant to s. 152(2)(b) Companies Act, Rondugl Investments Limited shall pay compensation by way of damages to the Petitioner for breach of duty and conversion, such compensation to be assessed;
     

4. James Maipson shall pay to the Petitioner the costs of and incidental to this Petition on a full indemnity basis to be taxed if not otherwise agreed.
   

5. This Court is sitting specifically to determine what compensation amounts it should award for orders b) and c).

ISSUES

6. So, the main issue for determination herein is precisely that, that is, what compensation should the Court award against the respondents for their wrongful actions, namely, breach of duty and conversion, which the Court had found amounted to actions that were or were likely to be, oppressive, unfairly discriminatory or prejudicial to Patmilia as a former shareholder at the material time, within the meaning or requirement of s. 152.

SECTION 152

7. Section 152 subsections (1) & (2) of the Companies Act read:

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.

CLARITY ON ASSESSMENT

8. Paragraph 8 in Hartshorn J’s decision on liability (unpublished decision of 20 August 2019) contains his Honour’s findings. It reads:

8. I am satisfied that this action in transferring Patmilia’s shares without its consent and without any consideration constitutes amongst others, an act that has been, or is, or is likely to be oppressive, unfairly discriminatory or prejudicial to Patmilia in its capacity as a shareholder. Patmilia has satisfied the court to the requisite standard that it is entitled to the relief which it seeks. This includes its costs on an indemnity basis given the unrebutted evidence of the conduct of Mr. Maipson.
   

9. Hartshorn J, on 20 August 2019 exercised his powers under s. 152(2) of the Companies Act. His Honour, having heard the matter, considered it is just and equitable to do so, and in so doing, proceeded to grant the relief as he did. So, with that in mind, it is clear, in my view, that my role in assessing compensation herein is limited or confined to terms b) and c), which is to determine what amount of compensation I should award, (i), against the second respondent personally, and (ii), against the first respondent for breach of duty and conversion.

10. The Petitioner has been awarded back its 100 shares in the company. However, the parties have now informed the Court that the transfer has not yet occurred. To me, there is already an order in place granting back the 100 shares of the Petitioner. As such, there is no need to dwell further on this claim (i.e., that transfer of shares has not yet occurred) except to say that there are enforcement processes available under the rules which may be applied. Also, I note that the loss that had been suffered by the Petitioner in that regard has been restored by term a) of the Court Order of 20 August. And this. I note that no separate further order for assessment of compensation was made under order a) for this Court to assess. Instead, compensations were ordered separately for assessments under orders b) and c).

CASE LAW - CONTENTIONS

11. A relevant and perhaps the only recorded domestic case on point is Culture Shock (1-61817) In re (2016) N6786. The petitioner therein had her 25 shares in the company transferred without her knowledge or consent by the other directors of the company to a third party. She was aggrieved and filed her petition where she sought various relief under s. 152 of the Companies Act. She sought orders including compensation against the company and the individuals concerned who had participated in the said dealing.

12. At paragraph 8, Hartshorn J stated,...I am satisfied that this action in transferring Ms. Taraka’s shares without her consent and without any consideration constitutes amongst others, an act that has been, or is, or is likely to be oppressive, unfairly discriminatory or prejudicial to Ms. Taraka in her capacity as a shareholder. In so doing, His Honour awarded amongst others compensation against the actions of the company and the respondents, in a sum of K25,000. Relief 2 in particular reads,...Pursuant to section 152 (2) (b) Companies Act 1997, Culture Shock Limited, Ms. Charlene Samuel and Arma Holdings Limited shall pay the sum of K 25,000 in compensation to the petitioner;

13. I note that the Petitioner’s submission on assessment of damages or on what should be an appropriate compensation, was premised on a purported oral agreement (the purported agreement/ the agreement). It says the parties entered into the agreement in December 2011. The agreement is pleaded in the Petition. In summary, the Petitioner submits that compensation should be awarded based on the sale of and proceeds of a property that was included or captured in the agreement. The property is described as Allotment 7 Section 122, Granville (Konedobu), NCD (the second property). The Petitioner submits that damages should be assessed firstly based on what was agreed in the agreement, and in particular, its percentage of payment, which it claims, continues to remain due and owing after the second property was sold on or about 9 November 2016. It submits that the outstanding balance of what is still owed to it is K401,691.56. The Petitioner secondly claims that before the sale of the second property, the property had been leased out by the respondents, and based on its calculations and as per the terms of the purported oral agreement, it was entitled to receive its share of K74,000 from the proceeds of the lease or rents. It submits that the said sum also remains outstanding and that the Court should, in its assessment of an appropriate compensation award, make awards that should take into account these 2 factors or sums; that the Court should be guided by these sums which the Petitioner claims are real or accurate.

14. The respondents oppose the assessment. They submit that no real damages were suffered because no evidence were adduced to establish them, that is, in regard to the finding by the trial Judge that their actions were oppressive, unfairly discriminatory or prejudicial to Patmilia in its capacity as a former shareholder. As such, they submit the Petitioner has failed to prove its losses suffered. Because the Petitioner has failed in that regard, the respondents submit, the Court should not award any compensation to it. The respondents refer to the case Gigira Development Corporation Ltd v. Talu (2021) N9027 and quote, amongst others, at [19] where the Court stated in part,... 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.... Other cases also cited in support were, University of PNG v. Duwaino (2011) SC 1119, Madang Cocoa Growers Export Co. Ltd v. NDB (2012) N4682, Agness Kapipi v. Andrew Andu (2015) N6125 and Thomas Tulin v. Toyota Tsusho (PNG) Ltd (2018) N7685.

15. The respondents’ counsel also submits that the Court’s power to award compensation is discretionary and, as such or in this case, must be based on the findings of the Court on liability made on 20 August 2019. They submit that the Court should not assess compensation based on the assessment method used by the Petitioner. They submit that the Petitioner’s assessment is inaccurate or based on irrelevant considerations, that is, in reference to the purported oral agreement that is pleaded in the Petition. They submit that compensation should be considered confined to or based under s. 152 of the Companies Act.

CONSIDERATION

16. I note the submissions of the parties.

17. Let me address the claim by the respondents that no compensation may be awarded to the Petitioner because it has failed to prove what or how it had suffered from actions of the respondents. I reject this submission for various reasons. The first reason is this. I note that orders b) and c) of the Court of 20 August expressly state that the respondents shall pay compensation and that compensation is to be assessed. It is a question, in my view, of how much compensation the respondents must be ordered to pay the Petitioner; it is not a question of whether the respondents should at all pay any compensation to the Petitioner. The orders were not made in manners like for example, “liability is entered with damages to be assessed”, or “default judgment is entered with damages to be assessed”, or “the defendant is liable for negligence with damages to be assessed”. Order b) reads in part, James Maipson shall pay compensation to the Petitioner, such compensation to be assessed, and order c) reads in part, Rondugl Investments Limited shall pay compensation by way of damages to the Petitioner for breach of duty and conversion, such compensation to be assessed. These orders are in mandatory terms.

18. I also note that this is not an appeal court where there is room to backtrack or revisit an earlier order such as the Court Order of 20 August. Rather, the hearing is to determine the amount of compensation which the Court has already ordered the respondents to pay. I will therefore be guided by the powers that are imposed therein.

19. The other reason is this. Contrary to the submissions of the respondents, there is evidence and undisputed facts in regard to the actions of the respondents which have or would have caused the Petitioner to suffer, that is, in the terms described under s. 152, that their actions were or were likely to be oppressive, unfairly discriminatory or prejudicial to the Petitioner. I am of the view that it goes without saying that obviously the Petitioner has or did suffer at the hands of the respondents. The facts pleaded in the Petition were not contested and have led to the decision of Hartshorn J of 20 August 2019. Evidence adduced shows that on 31 May 2017, that is, 6 months after sale of the second property in November of 2016, the first respondent conducted a purported meeting where the second respondent was the sole attendee and where he passed a purported company resolution to transfer the Petitioner’s 100 shares in the company to himself. The Petitioner was not notified, and no valuable consideration was given before the shares were transferred to the second respondent. That then was the basis for the Petitioner filing this proceeding under s. 152. The 100 shares have been ordered to be transferred back to the Petitioner by Hartshorn J on 20 August 2019. It is these wrongful actions of the respondents in transferring the shares of the Petitioner that compensation has been ordered by the Court on 20 August 2019. Again, compensation payment ordered by the Court is not premised on the agreement and what the Petitioner may have suffered as a result of the alleged breaches, which in fact was not what the Court had found or taken into account in its decision on 20 August 2019. The agreement was set out in the Petition by the Petitioner as part of the background facts. If for whatever reason the Petitioner believes that the agreement was not considered by the Court on 20 August 2019 then it should have appealed that decision to the Supreme Court.

20. I therefore uphold the respondents’ submission in regard to the method of assessment relied upon by the Petitioner. In my view, the pleading of the purported oral agreement was part of the background facts or information in the petition in the matter. They in themselves were not facts that were relevant for the purpose of the cause of action. The cause of action was premised on s. 152 of the Companies Act which is available for actions by prejudiced shareholders or former shareholders. As such, it is misconceived, in my view, for the Petitioner to make submissions on assessment based on what the parties may have agreed upon in a separate arrangement or oral agreement. The terms of the alleged oral agreement may be found at Exhibit P (Affidavit of Andy Stachurski filed on 2 August 2021). The agreement was said to have been entered between the Petitioner and the first respondent. To me, that in itself appears to be a separate matter where the parties to it may sue under their rights upon filing proper Court proceeding. This is not a cause of action for breach of contract. I find the submissions and evidence of the Petitioner in regard to the agreement, as I will further explain below, misconceived for this purpose. And I also note that the only compensation awards this Court is tasked to address as per the Court Order of 20 August, are those ordered under terms b) and c) and nothing else.

21. At this stage, I am guided by the compensation award of K25,000 made in Culture Shock. When I compare the 2 cases, I find the present case to be more serious and perhaps complex than in Culture Shock, that is, in terms of the actions of the respondents and what had transpired in relation to the grant of the 100 shares by the first respondent to the Petitioner, and in relation to the transfer of the Petitioner’s said 100 shares without any consideration, notice and knowledge over to the second respondent. Unlike in Culture Shock, the petitioner herein was the main financier to the business dealings of selling properties by the first respondent. Evidence, which had been proven at the trial on liability, which was not contested, showed that the Petitioner had acquired 100 shares in the first respondent for a sum of K411,700. The money was used by the first respondent to purchase and resell its first property described as allotment 75 section 488, Waigani, NCD (first property). The Petitioner also contributed K650,000 in the first respondent to purchase and sell the second property.

22. An appropriate compensation for relief b) and c), in my view, would be to order each respondent to compensate the Petitioner in the sum of K50,000 each, that is, K50,000 compensation against the first respondent and K50,000 compensation against the second respondent. I would have considered to award a sum that is higher than K50,000 against each of the respondents had the Petitioner’s shares not been restored in the first defendant. There is already an order to that effect, and in my view, a higher compensation sum may be regarded as unreasonable or unjustified.

SUMMARY

23. In compliance to terms b) and c) of the Court Order of 20 August, I will order compensation in favour of the Petitioner in the sum of K50,000 against the first respondent and K50,000 against the second respondent.

COST

24. Cost order has already been made by the Court on 20 August 2019 which is that...James Maipson shall pay to the Petitioner the costs of and incidental to this Petition on a full indemnity basis to be taxed if not otherwise agreed.

ORDERS OF THE COURT

25. I make the following orders:

(1) Pursuant to s. 152(2)(b) of the Companies Act, James Maipson shall pay K50,000 compensation to the Petitioner.

(2) Pursuant to s. 152(2)(b) of the Companies Act, Rondugl Investments Limited shall pay K50,000 compensation by way of damages to the Petitioner for breach of duty and conversion.

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

The Court orders accordingly
________________________________________________________________
Fiocco & Nutley Lawyers: Lawyer for the Petitioner
Bradshaw Lawyers: Lawyer for the Respondent(s)