Bennet v Wuagima Yakari Investments Ltd [2022] PGNC 60; N9451 (4 March 2022)

N9451

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

OS NO. 110 OF 2021 (IECMS)

BETWEEN:
KELVIN BENNET
Plaintiff

AND:
WUAGIMA YAKARI INVETSMENTS LTD
Defendant

Waigani: Tamade AJ
2021: 30^th September
2022: 4^th March

COMPANY LAW – agreement entered between plaintiff and agent to register company in PNG for the purposes of securing funds to finance legal proceedings filed by land owners of Porgera – whether agreement between plaintiff and a third party is one based on principal and agent -plaintiff requested agent to register company for the purpose of concealing his identity – company is a separate legal entity once registered despite the intention of the officials of company – whether the Defendant company is a sham company or a front for the purpose of soliciting funds to the landowners of Porgera to fund their court cases - Whether there was a breach of agreement between the Defendant company and the Plaintiff - Whether the Plaintiff is entitled to the whole of the judgment sum in WS 1014 of 2016 and to the respective relieves sought in the Originating Summons - Plaintiff has caused it upon himself to conceal his identity under the so-called agreements with his business partners in PNG and not cement himself as a shareholder of the Defendant company to protect any interest he claims to have – plaintiffs claim is dismissed

Cases Cited:
Papua New Guinean Cases

State v Wyborn [2004] PGNC 3; N2847
CBS Inc, CBS Records Australian Ltd, Bali Merchants Pty Ltd v Ranu Investments [1978] PNGLR 66
Odata Ltd v Ambusa Copra Oil Mill Ltd [2001] PGNC 110; N2106

Overseas Cases

Salomon v A Salomon & Co Ltd [1896] UKHL 1, [1897] AC 22

Counsel

Mr Game, for the Plaintiff
No appearance For the Defendant

04^th March 2022

1. TAMADE AJ: This matter came before me for hearing of the substantive matter on 30 September 2021. Mr Game appeared for the Plaintiff whilst there was no appearance by the Defendant.

2. Mr Game informed me that he was just handed the file to appear in Court and was not prepared for the hearing nevertheless he was instructed to just attend and make submissions.

3. I addressed Mr Game that it was unacceptable for a lawyer to throw his client’s case to the Court and expect the Court to do the work for him. I was not assisted with any written submissions nor referred to any case law however Mr Game skipped through the Affidavit in support of the matter and the orders sought in the Originating Summons.

4. Having made these observations on the unhelpful attitude of counsel, I now come to a decision in relation to this matter.

5. The Plaintiff is an Australian citizen working as a Transit Officer in Perth, Western Australia.

6. On or about June of 2013, the Plaintiff was connected to a group of landowners from Porgera, Enga Province through his elder brother, Mathew Bennet, from Sydney.

7. These landowners from Porgera were seeking financial assistance to fund some of their court cases.

8. The Plaintiff then entered into an agreement with one Robert Pati who is also a landowner at Porgera who was given the mandate by Kupiane Gold Resources Limited (KGRL) to secure funds from investors to fund Court cases that KGRL was involved in.

9. The Plaintiff then became a director of the Defendant company with one Robert Pati as the other director and the sole shareholder and the Plaintiff would transfer funds to the Defendant company in which Robert Pati would transfer to KGRL for the purpose of funding their legal fees in matter described as WS 1006 of 2012.

10. What is important to note in the agreement with Robert Pati is the following as outlined in paragraph 12 of the Affidavit of the Plaintiff:

1. That since all of the directors of KGRL and Mr Pati came from the same part of Porgera and were known to each other, Mr Pati would ensure my interest as the Financier was protected at all times for purpose of the proposed financial assistance to KGRL
   
2. That because Papua New Guineans, particularly landowners had notoriety for backtracking on contracts, deceit and theft, and because I was a foreigner and relatively unknown to the landowners, I would use the Defendant as a vehicle or conduit to loan the funds to KGRL
   

100. The Defendant and Mr Pati, as my agents, would on my behalf enter into and execute an appropriate binding contract with KGRL to facilitate the financial assistance.
     

4. That I as the Financier would make funds available to KGRL from Australia through the Defendant and Mr Pati as my agents in PNG
   
5. That as an added security to my interest in the money the subject of the proposed loan arrangement, I would be appointed as a director to the Defendant to ensure that safety and control of my money and
   
6. That in the event KGRL defaulted in repaying the loan, the relevant financial assistance contract would be enforced in the PNG Courts on my behalf by the Defendant as my agent.
   

11. The Plaintiff and Robert Pati and the Defendant company therefore entered into two separate agreements with KGRL to fund proceeding WS 1006 of 2012. Sole Taro the lead Plaintiff in WS 1006 of 2012 has told the Plaintiff that WS 1006 of 2012 involved money and properties worth almost K500 million and that his faction were entitled to half of that worth.

12. On 24 April 2014, the Plaintiff alleges that Robert Pati had informed him that two separate agreements known as Financial Assistance Agreement (FAA) were executed between Robert Pati on behalf of the Defendant company and KGRL. FAA1 was between the Defendant company on behalf of the Plaintiff with KGRL for the financial assistance and FAA2 was between Robert Pati and KGRL for Pati’s services as the facilitator of the financial assistance.

13. The Plaintiff alleges that Robert Pati handled all the financial transactions in PNG on behalf of the Plaintiff however he was not honest in managing the funds.

14. The Plaintiff alleges that proceedings WS 1006 of 2012 was resolved through mediation and that Sole Taro and his faction realized all monies due and payable by reason of the settlement. I find no evidence of that except that the Affidavit of the Plaintiff only attaches a Court Order that states that matter WS 1006 of 2012 was resolved through mediation however there is no evidence of the actual terms of settlement through mediation.

15. KGRL board of directors on 2 June 2016 wrote to Robert Pati and informed him that they will not honour FAA1 and FAA2 as the conditions of those agreements were not met. As the Defendant had only paid K194 000 under FAA1 (which was finance from the Plaintiff), KGRL would reimburse that money and 100 percent interest. Mr Robert Pati was to receive a commission of K30 000 under FAA2 for facilitating the K194 000.

16. Aggrieved with KGRL’s decision not to honour the FAA1 and FAA2, the Plaintiff as a director of the Defendant company ordered Robert Pati to sue KGRL to honour FAA1. A Writ of Summons titled WS 1014 of 2016 was filed in which the Plaintiff funded the case with instructions to Robert Pati of the Defendant company in which judgment was entered for the Defendant against KGRL in the sum of K2 683 868 with costs of those proceedings.

17. Robert Pati then filed a Writ of Summons in WS 680 of 2017 to enforce FAA2 and the Plaintiff states in his Affidavit that those proceedings are still pending.

18. The Plaintiff therefore states that he was never informed of the outcome of WS 1014 of 2016 and found out afterwards. In addressing the matter with Robert Pati, Pati insisted that the judgment in WS 1014 of 2016 should be shared equally amongst them as Pati is the owner of the Defendant company and that he had fought hard for the judgment in that proceeding.

19. The Plaintiff therefore claims that Robert Pati being a sole shareholder of the Defendant and the other Director having access to the bank account of the Defendant company has every intention to benefit from the judgment in WS 1014 of 2016 and therefore he fears that Pati will not give the proceeds of WS 1014 of 2016 to the Plaintiff thereby he has sought redress through these proceedings.

Issues

20. Is the Defendant company a sham company or a front for the purpose of soliciting funds to the landowners of Porgera to fund their court cases?

21. I pose this question as the Plaintiff has stated in evidence that the Defendant company was set up to protect the identity of the Plaintiff as the financier and that the Defendant and Robert Pati would act as agents for the Plaintiff as financier to solicit funds to landowners of Porgera to fund their litigation cases.

22. Case law is clear on the notion of separate legal personality. Shareholders of a company and those who are the controlling mind of the company are separate in law when it comes to legal personality. The principle of separate legal personality was set down in the land mark case of Salomon v A Salomon & Co Ltd [1896] UKHL 1, [1897] AC 22. It was held that:

"The attribute that incorporation gives is that of separate legal entity to the body corporate. There is a company and the individual or individuals forming that company are separate legal entities, however complete the control might be one or more of those individuals over the company".

23. Section 16 of the Companies Act also sets out the notion of separate legal personality:

16. Separate Legal personality.

A company is a legal entity in its own right separate from its share holders and continues in existence until it is removed from its register".

24. The Plaintiff implores me in this case, to my mind, to look behind the cooperate veil to find that he is the person behind the Defendant company and that Robert Pati and him using the Defendant company would achieve his purpose of investing in the landowners of Porgera and that the Defendant company would protect his identity, this appears to me to be a sham company intended for the purpose of concealing the Plaintiff’s identity, a proposition I draw from this case.

25. Justice Salika (as he then was) considered the defence of separate legal personality in the case of State v Wyborn [2004] PGNC 3; N2847 (20 July 2004) where the accused was charged with a criminal offence as a director of a company.

26. The case of Niugini Building Supplies Ltd v National Housing Estate Ltd [2020] PGSC 90; SC1985 (31 July 2020), the Supreme Court considered the issue of separate legal personality from corporations to it’s shareholders who were the entities of the State as distinct.

27. Shares in a company are therefore personal property pursuant to section 36 of the Companies Act and therefore the shareholders of a company are separate from the legal entity itself.

28. The case of CBS Inc, CBS Records Australian Ltd, Bali Merchants Pty Ltd v Ranu Investments [1978] PNGLR 66, Pritchard J (as he was then) stated that:

“A company is not unlike a puppet which appears on stage for the public to see. However in every case behind the scenes there is a person manipulating the strings who is in fact exercising control.”

29. The lifting of the corporate veil can only be done in cases where fraud has been committed and or the entity has been used for an improper purpose as also discussed in the CBS Australia Records case.

30. In the case of Odata Ltd v Ambusa Copra Oil Mill Ltd [2001] PGNC 110; N2106 (6 July 2001), Justice Kandakasi (as he was then) considered the issue of lifting of the corporate veil between a parent company and a subsidiary. In that case it was held that:

“The corporate veil may be lifted in a number of circumstances including when it is fair to do so in all of the circumstances and having regard to the extent of the control of the affairs of the company by whoever is behind it.

In the present case, NPF formed Ambusa as its subsidiary and had control of the board and the activities of Ambusa including the entering into of negotiations, finalising negotiations and signing the contract with Odata and eventually terminating it. NPF even assumed the carriage and conduct of the defence of Ambusa. These factors point to Ambusa being only a front and or agent of NPF and in the circumstances it is only fair that the corporate veil should be lifted to allow NPF to face Odata’s claim.”

31. The Plaintiff says that the Defendant company and Robert Pati were his agents to represent him to the landowners of Porgera whereby he was to finance their litigation and they will in return pay him back and Robert Pati. There is no evidence by Robert Pati or the Defendant company that this was the arrangement nor is there any evidence to show that Robert Pati as a shareholder and director or the controlling person behind the Defendant company has committed fraud using the Defendant company to enable this Court to lift the corporate veil and look behind it. The Plaintiff only has mere speculations that Robert Pati and or the Defendant company once in receipt of the judgment sum in WS 1014 of 2016 will not share the proceeds of the judgment with him.

32. Whether there was a breach of agreement between the Defendant company and the Plaintiff?

33. The Plaintiff states in his Affidavit that an agency existed between him as the principal and Robert Pati, his business partner and the Defendant company as the conduit to fund the landowners of Porgera. I find that the corporate veil over the Defendant company prohibits me from a finding that an agency exists with the Defendant company and Robert Pati as agents and the Plaintiff as principal.

34. The Defendant is a separate legal entity entering into agreements with Kupiane Gold Resources Ltd and the Defendant as the financier.

35. Does there exist an agency between the Plaintiff as principal and the Defendant as agent?

36. To my mind, the Plaintiff agreed and chose to be bound by the entity which is the Defendant company and to conceal his identity and allow Robert Pati to operate the Defendant company. The Defendant company is therefore a separate legal entity in law entering into an agreement with Kupiane Gold Resources Ltd to fund court cases for the Porgera landowners.

37. Whether the Plaintiff is entitled to the whole of the judgment sum in WS 1014 of 2016 and to the respective relieves sought in the Originating Summons?

38. I am of the view that the party entitled to the relief sought in WS 1014 of 2016 is the party named and decided in that case. If it is the Defendant company, the Plaintiff as a director can resolve those issues as between the management of that company.

39. I am not assisted by the Plaintiff’s counsel as to adequate legal representation as to matters of findings of fact and law and I can only draw from the Affidavit filed by the Plaintiff.

40. This is a case that has not been made out on the required civil standard. To my mind, the Plaintiff has caused it upon himself to conceal his identity under the so-called agreements with his business partners in PNG and not cement himself as a shareholder of the Defendant company to protect any interest he claims to have. This may have been due to poor legal or business advice however he has done so to his own detriment.

41. I am not minded to grant the relief sought by the Plaintiff in the Originating Summons as the claim has not been made out.

42. I therefore make the following orders:

1. The Plaintiff’s claim is refused, and these proceedings are dismissed in its entirety.
2. No Order as to costs.
   

Orders accordingly.

Niuage Lawyers: Lawyers for the Plaintiff
No Appearance for the Defendant