Wangua v Pundari [2021] PGNC 525; N9368 (30 August 2021)

N9368

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

OS NO. 134 OF 2021

JESSIE WANGUA in his capacity as the Acting Managing Director & Chief Executive Officer of Kumul Telikom Holdings Limited
Plaintiff

-V-

JOHNSON PUNDARI in his capacity as the Chairman of the Board of Directors of Kumul Telikom Holdings Limited
First Defendant

KUMUL TELIKOM HOLDINGS LIMITED
Second Defendant

Waigani: Kariko, J
2021: 16^th & 30^th August

COMPANY LAW – majority state-owned enterprise – suspension of managing director – suspension by circular resolution – no notice to managing director of meeting – circular resolution not signed by all director – power of the board to suspend - validity of suspension

Cases Cited:

Blassius Reu v William Meta (2014) N6534
Gawan Kuyan v Andrew Sallel (2008) N3376
Green Investment Ltd v Wamomo Seafood Exporters Ltd (2019) N8120
Henry Tavul v Nakikus Konga (2018) N7599
Madang Development Corporation Ltd v Rabtrad Madang Ltd (2006) N3091

Legislation:

Companies Act 1997
Kumul Consolidated Holdings Act 2002

Counsel:

Mr N Kopunye, for the Plaintiff
Mr S Kati, for the first Defendant
Mr B Nutley, for the Second Defendant

JUDGMENT

30^th August, 2021

1. KARIKO, J: The plaintiff, Jessie Wangua, challenges his suspensions as the Managing Director of Kumul Telikom Holdings Limited (Telikom) by the company’s Board of Directors pursuant to a circular resolution dated 4^th July 2021.
   

FACTS

2. The relevant facts and circumstances giving rise to this proceeding, are not in dispute. They are:
   
   • (1) Telikom is incorporated under the Companies Act 1997, and it is Majority State-Owned Enterprise under the Kumul Consolidated Holdings Act 2002 (KCH Act).
   • (2) Kumul Consolidated Holdings Limited (KCH) is the sole shareholder of Telikom.
   • (3) Under the KCH Act, the directors of the Telikom Board are appointed by the National Executive Council (NEC), and a total of 7 directors may be appointed.
   • (4) Under the KCH Act also, the Managing Director is a member of the Board.
   • (5) The plaintiff was appointed the Acting Managing Director of Telikom by the NEC on 18^th December 2020 which was duly gazetted.
   • (6) The plaintiff signed a contract of employment in respect of the appointment on 28^th January 2021, which was amended on 26^th March 2021 (the Contract).
   • (7) A “whistleblower” wrote a letter dated 1^st June 2021 to the Chairman of Kumul Consolidated Holdings (KCH) in which acts of serious misconduct were alleged against the plaintiff.
   • (8) The allegations were referred to the first defendant, Johnson Pundari, the Chairman of the Telikom Board who put them to the plaintiff on 27^th June 2021
   • (9) The plaintiff responded on 1^st July 2021 denying the allegations.
   • (10) On 4^th July 2021, the first defendant decided to hold an urgent meeting of the Board by way of circular resolution of Directors to deal with the allegations against the plaintiff.
   • (11) The circular resolution sought to:
     • (a) Have the allegations independently investigated,
     • (b) The plaintiff be suspended during the investigation,
     • (c) Amos Tepi be appointed to act in the plaintiff’s position during the suspension.
   • (12) At this time, the Telikom Board had 4 other directors beside the plaintiff, and they were the Chairman, Cedric Rondoke, Kili Tambua and Paul Morgan.
   • (13) The circular resolution was sent to all directors except the plaintiff.
   • (14) The first defendant and Cedric Rondoke signed in favour of the circular resolution on 4^th July 2021, while Paul Morgan signed the next day, 5^th July 2021.
   • (15) Cedric Rondoke’s term of appointment as director lapsed at midnight 4^th July 2021.
   • (16) Another “whistle blower” letter dated 5^th July 2021 was received by the second defendant, again containing serious allegations of misconduct against the plaintiff.
   • (17) On 6^th July 2021, letter suspending the plaintiff from office was prepared.
   • (18) On 7^th July 2021, the plaintiff was asked to respond to the second “whistle blower” letter, which he did the same day.
   • (19) Two days later, the plaintiff was served the suspension letter.
   • (20) The suspension of the plaintiff was endorsed by KCH on 12^th July 2021.
   • (21) Following the plaintiff’s suspension by the Telikom Board, certain developments took place:
     • Amos Tapi was appointed Acting Managing Director of Telikom until further notice.
     • The resolutions contained in the circular resolution were considered by the KCH Board on 13^th July 2021.
     • KCH Board endorsed the plaintiff’s suspension, while the appointment of Amos Tapi was set aside and instead, Paul Komboi was appointed as the OIC of Telikom.
   • (22) The plaintiff filed this action on 13^th July 2021, challenging his suspension.
     

RELIEF CLAIMED

3. The plaintiff seeks as substantive relief:
   
   • (1) A declaration that he was duly appointed by the National Executive Council as Acting Managing Director Telikom.
   • (2) A declaration that the Telikom Board has no power to suspend him as the Managing Director of Telikom.
   • (3) A declaration that any or all resolutions passed by the Telikom Board on or around 6th July 2021 to suspend him as the Acting Managing Director of Telikom was in breach of the KCH Act and by operation of section 36(1) of the Interpretation Act.
   • (4) An injunction against the defendants from taking steps to suspend or remove the plaintiff as the Acting Managing Director of Telikom.
   • (5) Other orders as the court deems fit.
     

ISSUES

4. The main question for determination is whether the plaintiff’s suspension was unlawful and invalid because:
   
   • (a) The circular resolution was not proper and lawful?
   • (b) The Board did not have the power to suspend him as the Acting Managing Director?
     

SUBMISSIONS RE: THE CIRCULAR RESOLUTION

5. The plaintiff submitted that the relevant requirements for a Board meeting are found in s.13 of the KCH Act, and they were not followed to pass the circular resolution. In particular, these provisions were not complied with:
   
   • The Company Secretary may call a meeting of the Board if requested by 3 directors; s.13(2).
   • The Company Secretary shall give 7 days’ notice of the meeting to all directors; s.13(3)
   • Four (4) directors constitute a quorum; s.13(5)(a) of the KCH Act.
     
6. It was pointed out that while s.13(7) permits the Board to determine its procedures for meetings, including circular resolutions, there was no evidence of the approved procedures for circular resolutions.
   
7. The plaintiff also argued that if s.13 of the KCH Act is not applicable, then as there is no company constitution for Telikom, Schedule 4 of the Companies Act 1997 governs directors’ meetings. For the purpose of this case, the following provisions of the Schedule are relevant, but they were also not complied with:
   
   • A director may call a meeting by giving no less than 2 days’ notice; Sch.4 Cl. 2
   • A quorum is the majority of the directors; Sch.4 Cl.4
   • A circular resolution shall be endorsed by all the directors; Sch.4 Cl.7(1).
     
8. The plaintiff cited Green Investment Ltd v Wamomo Seafood Exporters Ltd (2019) N8120 for the proposition that Board a resolution of a directors meeting held in breach of Schedule 4, is invalid. References were also made to the cases of Blassius Reu v William Meta (2014) N6534; Gawan Kuyan v Andrew Sallel (2008) N3376 and Henry Tavul v Nakikus Konga (2018) N7599 to submit that resolutions of meetings of shareholders and directors held contrary to the Companies Act 1997 and Schedule 4 are ineffective and null and void.
   
9. The defendants responded that s.13 of the KCH Act provides for the board of directors of KCH and not Telikom as a Majority State-Owned Enterprise, and that in relation to directors’ meetings, regard should be made to the Companies Act instead.
   
10. As to the circular resolution, the defendants argued that:
    
    • The issue required urgent attention of the Board as the item under consideration was serious, and the terms of two of the directors were due to lapse on 4^th July 2021. In the circumstances, the proposal to suspend the plaintiff could only be addressed by circular resolution;
    • The plaintiff was not entitled to be given the circular resolution as it involved an issue in which he had an interest; and
    • The resolution was endorsed by a quorum, as 3 of the 4 directors entitled to vote on the resolution, endorsed it.
      
11. The case of Madang Development Corporation Ltd v Rabtrad Madang Ltd (2006) N3091was relied on in support of the statement that circular resolutions are appropriate for urgent matters.
    

VALIDITY OF THE CIRCULAR RESOLUTION

12. I accept the submission by the defendants that s.13 of the KCH Act only applies to meetings of the KCH Board because s.2 (Interpretation) provides the following:
    

“Board” means the Directors acting collectively;

“Director" means a person appointed as a director of the Corporation under Section 11;

"Corporation" means Kumul Consolidated Holdings, formerly named the Independent Public Business Corporation of Papua New Guinea;

13. As Telikom is an incorporated company, one must look to the Companies Act for provisions regarding meetings of directors. Section138 of this Act states that unless provided for by the company constitution, the proceedings of the board (including meetings and resolutions) are governed by Schedule 4 of the Act.
    
14. While the Companies Act and Schedule 4 are not pleaded by the plaintiff, it was raised in argument and the defendants were invited to address the issues, particularly as to whether the plaintiff was entitled to be given the circular resolution, and whether a proper quorum passed the circular resolution.
    
15. None of the parties referred to or produced a copy of Telikom’s constitution. Schedule 4 therefore becomes appropriate to consider. A circular resolution must meet the requirements of the Schedule.
    
16. Sch.4 Cl.2 provides that not less than 2 days’ notice shall be given of meetings to every director in the country. While the term “circular resolution” is not used in the Companies Act, clearly it is what is being referred to in Sch.4 Cl.7(1), which states:
    

“A resolution in writing, signed or assented to by all directors then entitled to receive notice of a board meeting, is as valid and effective as if it had been passed at a meeting duly convened and held.” (My emphasis)

What this means is that directors can pass a resolution without a meeting if the resolution is put in writing and is signed or assented to by all the directors entitled to notice of a meeting.

17. The evidence shows that:
    
    • Telikom had 5 directors at the time (including the plaintiff).
    • All 5 directors of Telikom were in the country at the time, meaning they were all entitled to notice of a meeting.
    • Only 3 of the 5 directors signed the resolution, two on 4^th July 2021 and one the next day
      
18. This means that:
    
    • Due to conflict of interest, the plaintiff could not vote on the proposed resolution.
    • While the plaintiff would not have been able to vote on the resolution, he was nevertheless entitled to receive the resolution. It would have been the same had there been a normal meeting to consider the proposed resolution – he would have been entitled to receive notice of the meeting, but he would not have been able to vote on the issue concerning his suspension.
    • All the other directors had to sign or assent to the resolution for it to be validly passed.
      
19. It is clear to me that based on the evidence, not all the directors were provided the circular resolution and not all the directors required to vote on the resolution signed or consented to it.
    
20. While I accept the defendants urging that the circular resolution was appropriate given the urgency and seriousness of the issue at hand, I nevertheless find that the circular resolution of the Telikom Board dated 4^th July 2021 was not passed in accordance with Sch.4 Cl.7(1) of the Companies Act. Consistent with the views of the courts expressed in the cases referred to by the plaintiff and cited in [7] of this judgment, I consider the resolutions of the Telikom Board contained in the circular resolution to be invalid and of no effect.
    
21. Although the pleadings challenge the validity of the circular resolution based on the KCH Act and the Interpretation Act, I determine it invalid based on the requirements of the Companies Act.
    

POWER TO SUSPEND

22. Given my decision regarding the validity of the circular resolution, I deem it unnecessary to discuss in detail whether the Board had power to suspend the plaintiff.
    
23. For completeness however, I briefly state that in my view the Telikom Board had power to suspend the plaintiff as the head of operations of the company. In any company, responsibility for management lies with the board, but it is not always in the hands of the board. In large companies, management is undertaken by full-time executives, some of whom may also serve as directors. That is the situation here. The plaintiff wore two hats – one as a director of the company and the other as the chief executive officer. His engagement as a director was subject to the KCH Act while his employment as the chief executive officer was subject to the terms of the contract of employment he entered into with Telikom.
    
24. Clause 15 of the contract states that Telikom may suspend the plaintiff from duties in cases of serious misconduct to allow the investigation for his removal as director to be considered pursuant to the KCH Act. The allegations against the plaintiff suggested serious misconduct and the Telikom Board was therefore entitled to suspend the plaintiff, not only to allow for unhindered further investigation (if necessary) but also to allow his directorship to be further considered by KCH.
    

INJUNCTIVE RELIEF

25. As the shareholder has since the plaintiff’s suspension moved on to appoint a new executive head of Telikom, I will not consider the injunction sought as substantive relief.
    

ORDER

26. I issue the following orders:
    
    • (1) A declaration that the suspension of the plaintiff as Acting Managing Director of Kumul Telikom Holdings Limited on or about 4^th July 2021 by circular resolution, is invalid and of no effect.
    • (2) Kumul Telikom Holdings Limited shall pay the plaintiff’s costs of and incidental to this proceeding, to be taxed if not agreed.
    • (3) Time for entry of these orders shall be abridged to the date of settlement by the Registrar, which shall take place forthwith.

________________________________________________________________
Kopunye Lawyers: Lawyer for Plaintiff
Kandawalyn Lawyers: Lawyer for the First Defendant
Goodwin Bidar Nutley Lawyers: Lawyer for the Second Defendant