Irabe v Mondoro [2022] PGNC 49; N9425 (4 February 2022)

N9425
PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

OS NO. 209 OF 2018

BETWEEN
PAUL IRABE, PETER PHILLIP AND JOE HABOKAIA-DIRECTORS OF ANGORE CORPORATION LIMITED
First Plaintiff

AND
HULI PETROLEUM RESOURCES LIMITED, KOMO SUSTAINABLE DEVELOPMENT LIMITED – WABI PETROLEUM LTD – SHAREHOLDERS OF ANGORE CORPORATION LIMITED
Second Plaintiffs

AND
SIMON IRAME – GENERAL MANAGER FOR ANGORE CORPORATION LIMITED
Third Plaintiff

AND
ANGORE CORPORATION LIMITED
Fourth Plaintiff

AND
PETER MONDORO, THOMAS TALIBE, THOMAS TAMBO AND STEVEN TOMBENA
First Defendants

AND
THE REGISTRAR OF COMPANIES
Second Defendant

Waigani: Makail, J
2021: 7^th December
2022: 4^th February

COMPANY LAW – Removal of shareholders and directors of company – Right by shareholders and directors to sue on behalf of company – Derivative action – Leave of court necessary – Companies Act, 1997 – Section 143

COMPANY LAW – Removal of shareholders and directors of company – Resolution for shareholders to buy shares in umbrella company – Default of – Conduct of shareholders and directors – Unclean hands – Inequity – Relief sought refused – Decision of removal of directors in order – Companies Act, 1997 – Sections67, 75 &78

Cases Cited:

Polti Wara v. Sapom Kipa (2008) N3402
Paul Pilimbo Pora v. Larry Hull (2009) N3729

Counsel:

Mr. T. Yai, for Plaintiffs
Mr. L. Kari, for First Defendants
No appearance, for Second Defendant

JUDGMENT

4^thFebruary, 2022

1. MAKAIL, J: The Angore area is covered by a Petroleum Development Licence 8 (PDL 8) and has five blocks within the PDL 8.

2. On 12^th June 2009 the fourth plaintiff was incorporated under the Companies Act 1997 and registered with the Investment Promotion Authority.

3. It is an umbrella company created after the Kokopo Landowner Based Benefit Sharing Agreement.

4. The five blocks incorporated each of their companies. They are:

(a) Huli Petroleum Resources Limited (Block 1716).

(b) Wabi Petroleum Resources Limited (Block 1788).

(c) Komo Sustainable Development Limited (Block 1787).

(d) Angore Sustainable Development Limited (Block 1715).
(e) Pureni Resources Holdings Limited (Block 1642).

5. A chairman of each company is appointed a director of the umbrella company the fourth plaintiff.

6. In August 2014 the plaintiffs were removed as shareholders and directors of their respectivecompanies and consequently, as directors of the fourth plaintiff.

7. On 6^th April 2018 they commenced this proceeding to challenge their removal and sought an order for their reinstatement as directors to their respective companies and fourth plaintiff. On 7^th April 2018 they were granted an ex parte interim restraining order to stop the first defendants from accessing funds in the bank account of the fourth plaintiff and altering company records of the fourth plaintiff. This order has not returned to Court for inter parte hearing.

8. In defending the action, the first defendants objected to the competency of the proceeding. First, they argued that if the first plaintiffs are bringing this proceeding as a derivative action for the second and fourth plaintiffs it is necessary for them to seek leave of the Court pursuant to Section 143 of the Companies Act 1997.

9. Second, they argued that the first plaintiffs lacked locus standi to bring this proceeding for the fourth plaintiff because they have been removed as shareholders and directors of their respective companies, namely the second plaintiffs.

10. Before addressing these grounds, first and foremost, it must be the case that this proceeding will be summarily dismissed because the plaintiffs have not complied with Court directions to file and serve written submissions in support of the relief they seek.

11. Even after they filed a notice of motion on 27^th May 2021 seeking an order to vacate the direction and have an open Court hearing, they still failed to turn up on the hearing date and prosecute the motion. Because of that, the notice of motion was dismissed for want of prosecution and the direction for them to file and serve written submissions remained and they still failed.

12. Accordingly, pursuant to the discretion conferred by Order 10, rule 15(1)(b) and (2)(c) (Summary Disposal) of the National Court Rules the Court orders that the proceeding is summarily dismissed forthwith.

13. Alternatively, as to the main grounds for dismissal, Section 143 of the Companies Act 1997 states:

“143. Derivative actions.

(1) Subject to Subsection (3), the Court may, on the application of a shareholder or director of a company, grant leave to that shareholder or director to—

(a) bring proceedings in the name and on behalf of the company or any related company; or

(b) intervene in proceedings to which the company or any related company is a party for the purpose of continuing, defending, or discontinuing the proceedings on behalf of the company or related company, as the case may be.

(2) Without limiting Subsection (1), in determining whether to grant leave under that subsection, the Court shall have regard to—

(a) the likelihood of the proceedings succeeding; and

(b) the costs of the proceedings in relation to the relief likely to be obtained; and

(c) any action already taken by the company or related company to obtain relief; and

(d) the interests of the company or related company in the proceedings being commenced, continued, defended, or discontinued, as the case may be.

(3) Leave to bring proceedings or intervene in proceedings may be granted under Subsection (1), only where the Court is satisfied that either—

(a) the company or related company does not intend to bring, diligently continue or defend, or discontinue the proceedings, as the case may be; or

(b) it is in the interests of the company or related company that the conduct of the proceedings should not be left to the directors or to the determination of the shareholders as a whole.

(4) Notice of the application shall be served on the company or related company.

(5) The company or related company—

(a) may appear and be heard; and

(b) shall inform the Court, whether or not it intends to bring, continue, defend, or discontinue the proceedings, as the case may be.

(6) Except as provided in this section, a shareholder is not entitled to bring or intervene in any proceedings in the name of, or on behalf of, a company or a related company.”

14. It is clear that to bring proceeding on behalf of a company in a derivative action will require leave of the Court under Section 143 (supra). There must be evidence of an order of the Court granting leave to commence proceeding in the name of the company: see also Polti Wara v. Sapom Kipa (2008) N3402 and Paul Pilimbo Pora v. Larry Hull (2009) N3729.

15. The first objection is upheld because the plaintiffs have not produced evidence of an order of the Court granting leave to them to bring this proceeding on behalf of the second and fourth plaintiffs.

16. The proceeding commenced by the second and fourth plaintiffs is dismissed forthwith as being incompetent for want of leave pursuant to Section 143 of the Companies Act 1997.

17. It follows that the action will progress on this proceeding by the first and third plaintiffs only. The first plaintiffs were removed as directors of the second plaintiffs in August 2014. They were removed for a reason.

18. According to the affidavit of one of the first defendants Peter Mondoro filed 21^st May 2021, the plaintiffs and him (Peter Mondoro) received money from the State in the sum of K100,000.00 as Infrastructure Development Grants to buy shares for each block company (second plaintiffs) in the fourth plaintiff.

19. Except for Peter Mondoro who is a shareholder and director of Angore Sustainable Development Limited, after they received the money, the first plaintiffs did not buy shares for their respective block companies (second plaintiffs) in the fourth plaintiff. Following that and after repeated reminders, a meeting of shareholders of the fourth plaintiff was held and a resolution was passed to remove them as shareholders and directors of the fourth plaintiff. The ground for removal was their failure to buy shares for block companies (second plaintiffs) in the fourth plaintiff. If they had paid, it would allow the latter to meet a certain deadline to buy shares in Hides Gas Development Corporation Limited (HGDCL).

20. According to the affidavit of one of the first plaintiffs Paul Irabe filed 6^th April 2018 Mr Irabe gave a long account of his association and involvement in the fourth plaintiff beginning with the assertion that the fourth plaintiff was all the first plaintiffs’brainchild and was incorporated in 2009 for the purpose of being the umbrella company for Blocks 1 to 5 landowners of Angore PDL8 area and he was one of the persons who toiled long and hard to make it a reality.

21. Though not clearly expressed, Mr Irabe seemed to be asserting that the fourth plaintiff represented the interests of landowners of the five Blocks in Angore PDL8 area and will work independently or jointly with Incorporated Land Groups (ILGs) formed by the same group of landowners.

22. Whichever is the case, the dispute between the first plaintiffs and first defendants is about holding of shares by the second plaintiffs in the fourth plaintiff. And while Mr Irabe asserted that he and other first plaintiffs had contributed immensely towards the setting up of the fourth plaintiff, he does not refute the allegation put squarely against him and other first plaintiffs that they received K100,000.00 to buy shares on behalf of the block companies (second plaintiffs) in the fourth plaintiff and did not. Instead, they misused it.

23. The other witnesses who filed affidavits on 11^th June 2021 were Joe Hapokaia, Petersen Pipi and Tom Bewale Mulungu. The third plaintiff also filed an affidavit and Mr Irabe filed an additional affidavit on 22^nd June 2021. The combine effect of these witnesses’ affidavits is that, first, money collected from landowners in the sum of K50.00 per head and paid into the bank account of the fourth plaintiff was their contributions towards buying shares in the fourth plaintiff.

24. Second, a sum of K12 million is expected to be given to the fourth plaintiff by the State for the “benefit of the 5 block shareholding Companies” pursuant to the Licensed Based Benefit Sharing Agreement (LBBSA). Third, the late Governor Anderson Agiru paid K400,000.00 in 2010 “as shareholding for the five blocks for and on behalf of its landowners” but was not recorded on the Investment Promotion Authority (IPA) records of the fourth plaintiff.

25. As to the first assertion, the money paid by individual landowners towards buying of shares in the fourth plaintiff is separate from the payment of K100,000.00 for that purpose. As to the second assertion, if K12 million is eventually given to the fourth plaintiff by the State, again, it is a separate payment from the payment of K100,000.00 to buy shares in the fourth plaintiff.

26. Finally, it is noted that a sum of K400,000.00 has been received in the bank account of the fourth plaintiff on 29^th April 2010 as confirmed by the bank statement attached to the additional affidavit of Mr Irabe. However, again it is beside the point. It does not relieve the first plaintiffs from their obligation to buy shares in the fourth plaintiff using K100,000.00 that was given to them.

27. If the company records are not updated to accurately record the shareholders of the fourth plaintiff, it was the duty of the first and third plaintiffs to ensure that it was done. If they did not do that, they cannot complain. And without refuting the allegation of misuse of K100,000.00, the first plaintiffs complained that they did not receive notice of meeting of their removal as shareholders and directors of the fourth plaintiff. Because of that, they did not attend the meeting and were later surprised to find that they were removed as shareholders and directors of the fourth plaintiff.

28. Their other complaint is in relation to the quorum of the meeting. They asserted that if the meeting was held; it lacked the quorum because as shareholders and directors of the second and fourth plaintiffs, they did not attend.

29. The first defendants contended that the first plaintiffs should not claim to be surprised by their removal as shareholders and directors of the fourth plaintiff because they were parties to the shareholders’ decision in each block company (second plaintiffs) which resolved to buy shares in the fourth plaintiff in 2010, then were reminded to pay up in 2012 by way of several letters and yet failed. Then on 1^st June 2014 notice of a board meeting was given by Mr Mondoro to the first plaintiffs to attend on 3^rd June 2014 at Boroko Restaurant opposite Boroko Police station and they did not. The sole shareholder of the fourth plaintiff being Angore Sustainable Development Limited resolved to remove them as shareholders and directors of the fourth plaintiff.

30 The first defendants’ contention is supported by evidence in the affidavit of Peter Mondoro filed 21^st May 2021 that the first plaintiffs were party to the shareholders’ resolution to buy shares in the fourth plaintiff and were informed to pay up before they were removed. For these reasons, their complaint about being given no notice of meeting and lack of quorum is without merit and dismissed. That said, the real issue is whether they should be granted the relief they seek in this proceeding.

31. Their conduct does not support their claim for the relief they pray this Court to grant. They have come to Court with unclean hands or guilty of inequity. This is because they did not refute the allegation that they received K100,000.00 for the purpose of investing in shares in the fourth plaintiff and they did not. They misused it.

32. Their removal as shareholders is further confirmed by the absence of their names on the share register under Section 78 of the Companies Act 1997 defines as shareholder, amongst others, as “a person whose name is entered in the share register as the holder for the time being of one or more shares in the company....”.

33. According to Section 69 of the said Act:

“(1) Subject to Section 71, the entry of the name of a person in the share register as holder of a share is prima facie evidence that legal title to the share vests in that person.

(2).......”.

34. The first plaintiffs tendered no evidence of their names on the share register. Further, despite their assertion that they have contributed immensely towards the setting up of the fourth plaintiff, there is no evidence of a share certificate to verify their claim. A share certificate is issued under Section 75 of the said Act. It states:

“75. Share certificates.

(1) Subject to Subsection (2), every company shall, within one month after the issue, or registration of a transfer, of shares in the company, as the case may be, send to every holder of those shares—

(a) a share certificate signed under the common seal of the company stating—

(i) the name of the company; and

(ii) the class of shares held by that person; and

(iii) the number of shares held by that person; and

(b) a statement setting out—

(i) the rights, privileges, conditions, and limitations, including restrictions on transfer, attaching to the shares held by that person; and

(ii) the relationship of the shares held by that person to other classes of shares.

(2) Notwithstanding Section 65, where a share certificate has been issued, a transfer of the shares to which it relates shall not be registered by the company unless the form of transfer required by that section is accompanied by the share certificate relating to the share, or by evidence as to its loss or destruction and, where required, an indemnity in a form required by the board.

(3) Subject to Subsection (1), where shares to which a share certificate relates are to be transferred, and the share certificate is sent to the company to enable the registration of the transfer, the share certificate shall be cancelled and no further share certificate issued except at the request of the transferee.

(4) Where a company fails to comply with Subsection (1)—

(a) the company commits an offence and is liable on conviction to the penalty set out in Section 413(1); and

(b) every director of the company commits an offence and is liable on conviction to the penalty set out in Section 414(1).”

35. For the foregoing reasons, the proceeding by the first plaintiffs is dismissed with costs. As for the third plaintiff, it is unclear what this plaintiff’s complaint is about and what relief he is seeking. There is no expressed cause of action in the originating summons against the defendants. For this reason, the proceeding by the third plaintiff is also dismissed with costs. Finally, the ex parte interim restraining order of 7^th April 2018 must be discharged forthwith.

36. The costs will be taxed, if not agreed.

37. The orders of the Court are:

1. The proceeding is summarily dismissed forthwith.
   
2. Alternatively, the proceeding commenced by the second and fourth plaintiffs is dismissed forthwith as being incompetent for want of leave pursuant to Section 143 of the Companies Act 1997.
   
3. The relief sought by the first and third plaintiffs are refused and proceeding is dismissed forthwith.
   
4. The ex parte interim restraining order of 7^th April 2018 is discharged forthwith.
   
5. The first and third plaintiffs shall pay the costs of the proceeding, to be taxed, if not agreed.

6. Time shall be abridged.
________________________________________________________________
Bristle Lawyers: Lawyers for Plaintiffs
PNG Legal Services Lawyers: Lawyers for First Defendants