Datuk Kie Yik Wong v Tiong Sii Huang [2023] PGNC 389; N10543 (30 October 2023)

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AND
PACIFIC REGION DEVELOPMENT LTD (Company No. 1-52171)
Seventh Respondent

NOTICE OF MOTION – seeking restraining or interim injunctive orders – s.155(4) – Constitution – Order 12 Rule 1 – National Court Rules – s.142 of the Companies Act 1997 – consideration – criteria for granting interim injunctive relief – whether status quo require granting of restraining orders – whether arguable case demonstrated - whether damages will be an adequate remedy- whether undertaking as to damages filed - ruling

Cases Cited:
Employees Federation of PNG v. PNG Waterside Workers Union (1982) N392
Golobadana No 35 Ltd v. Bank South Pacific Ltd (2002) N2309
Collector of Taxes v. Bougainville Copper Ltd (2007) SC853
Robinson v. National Airlines Commission [1983] PNGLR 476

1. ANIS J: This was an application by the petitioners where they sought interim injunctive orders against the respondents. It was heard on 20 October 2023.

4. In brief, the proceeding is commenced under the provisions of the Companies Act 1997 (CA). The petitioners claim that the first petitioner is a director (first petitioner) and they both are shareholders of the eighth respondent (the Company/Madang Timbers). They allege that the respondents have, by their actions or conduct in regard to the management or affairs of the eighth respondent, caused them to suffer oppression or prejudice and losses concerning their interests in the Company. They primarily allege that the first petitioner was removed as a director by the respondents unlawfully or in breach of s.134 of the CA on 30 December 2020. The also primarily allege that a decision of the Board of Directors of the Company that was made thereafter on 22 August 2022, to issue 20,471,360 new ordinary shares to the first and seventh respondents via a debt to equity conversion and all subsequent actions that followed, were in breach of the provisions of the CA and should be declared null and void.

5. The petitioners claim that at the material time (and to this day), the first to the sixth defendants have operated and managed the Company without their consent, approval and meaningful involvement and participation. The petitioners claim that (i) as a direct result of the actions of the respondents after 30 December 2020 and (ii) their action to issue the new 20,471,360 ordinary shares, their 49.34% collective ordinary shareholding in the Company has been reduced or diluted to less than 1% percent each.

6. The petitioners claim, amongst others, as oppressed or prejudiced shareholders under Division 4, Part IX of the CA. They claim that the actions of the respondents breached various provisions of the CA including ss 44, 47, 134, 164 and 166. And the relief they seek in the Petition include:

“(a) A Declaration that the decision of the Board of Directors of the Company dated 22 August 2022 to issue 20,471,360 new ordinary shares to the First and Seventh Respondents via a debt to equity conversion and all consequential actions taken as a result and in furtherance of the decision are in breach of the Companies Act 1997 and the law and is therefore null and void.

(b) A declaration that the decision of the shareholders at the AGM to remove the First Petitioner as a director of the Company is in breach of the law and is therefore null and void.

(c) An order pursuant to Section 152(a) of the Companies Act requiring the First Respondent to acquire the Petitioners’ 383,320 ordinary shares previously representing 49.34% of the ordinary shares in the Eight Respondent and all the Class B preference shares held by the First Petitioner at a fair market value after accounting for any diminution in the Eight Respondent’s value arising from the related party transactions.

(d) Alternative to order (c) above, an order pursuant to Section 152(2)(g) of the Companies Act 1997 for the Company to be put into liquidation and all necessary orders be made to facilitate the appointment of a liquidator pursuant to Section 291 of the Companies Act 1997.

(e) That an investigative or forensic audit be undertaken on the Related Party Transactions entered into between the Company and the First Respondent, the Seventh Respondent and or parties related to the First Respondent.

7. The respondents have filed their evidence and strenuously deny the allegations raised in the petition. They claim that their actions at the material times were not in breach of the CA but was in accordance with it. They also allege that they had been fair to the respondents, particularly to the first respondent but that it was his own doing that had put him or them generally in the positions that they are at presently with the Company. They deny that their actions amounted to or would amount to acts of oppression as alleged by the petitioners in the petition.

8. The petitioners’ notice of motion (NoM) is made, (i). pursuant to s.155(4) and 166 of the Constitution, (ii), Order 12 Rule 1 of the National Court Rules (NCR), and s.142 of the CA. These sources are not contested so I will proceed on these premise, and in so doing, consider whether I should grant or refuse the interim injunctive relief that are being sought.

(a) Tiong Sii Huang, Kwong Toh Ling, Kwong Leong Ling, Siew Hui Ling, Henry Huat Hui Huang, How Yieng Huong, Pacific Region Development Ltd and Madang Timbers Limited and their servants, agents, officers and employees and others be restrained from acting upon,

(i) the Ordinary Resolution dated 30 December 2020 to remove the First Petitioner as a director of Madang Timbers Limited (the Ordinary Resolution); and

(ii) the decision of Tiong Sii Huang, Kwong Toh Ling, Kwong Leong Ling, Siew Hui Ling, Henry Huat Hui Huang and How Yieng Huong constituting the Board of Directors of Madang Timbers Limited dated 22 August 2022 to issue 20,471,360 new ordinary shares to Tiong Sii Huang and Pacific Region Development Ltd via a debt to equity conversion (the Decision);

(b) Tiong Sii Huang, Kwong Toh Ling, Kwong Leong Ling, Siew Hui Ling, Henry Huat Hui Huang, How Yieng Huong, Pacific Region Development Ltd and Madang Timbers Limited and their servants, agents, officers and employees and others be restrained from taking any or all consequential actions as a result and or in furtherance of the Decision, pending the determination of the substantive issues in these proceedings, including:

(ii) recognizing any action taken on the Decision or the Ordinary Resolution such as calling for meetings of shareholders and or directors without the involvement of the First Petitioner and or the Petitioners, as the case may be;

(vi) passing of directors’ resolutions without the involvement of the First Petitioner.

10. The requirements for granting interim injunction are settled in this jurisdiction. But it must be noted at the outset that the Court’s power to grant or refuse such an application is discretionary. The Court is not absolutely required to be bound by any single criteria that is stated in the case law. However, application of the Court’s discretion must be premised on good or sound judgment, that is, it must follow the law and the facts and circumstances of the case, otherwise, such exercise of discretion may be easily set aside or over-turned on appeal or review by an aggrieved party.

11. The case authorities include Employees Federation of PNG v. PNG Waterside Workers Union (1982) N392, Golobadana No 35 Ltd v. Bank South Pacific Ltd (2002) N2309, and Collector of Taxes v. Bougainville Copper Ltd (2007) SC853. The main criteria are:

12. I note the submissions of the parties. I also refer to the various affidavits that have been relied upon by the parties to either support or oppose the NoM.

13. As a start, I note that the petitioners have filed a joint Undertaking as to Damages on 19 December 2022. This appears to meet the second criteria which I find to be the case.

14. Moving on, I ask myself whether there is an arguable case. When I refer to the petition, I note 2 main events or actions that have triggered or aggrieved the petitioners causing them to file the petition to assert their purported rights under the provisions of the CA. The 2 events are (i), the purported termination of the first petitioner as a director of the Company on 30 December 2020, and (ii), the purported actions taken by the board of directors of the Company after the removal of the first petitioner as a director, in particularly, their decision that was made on 24 August 2022 to issue 20,686,040 new ordinary shares onto the then existing 777,000 ordinary shares of the Company to facilitate its debt to equity conversion.

15. Let me consider the first event. Evidence that is adduced by both parties do not dispute (i) the Annual General Meeting (AMG) of 30 December 2020, (ii) the documents that were produced for the listed agendas for the said AGM, and (iii), the fact that the first petitioner was purportedly removed as a director of the Company in the said AGM. The petitioners, however, contend that the removal of the first petitioner was unlawful because it breached s.134 of the CA. The respondents deny this claim. Annexure P to the first petitioner’s affidavit filed 19 December 2022 contains a copy of the notice of the AGM which is dated 16 December 2020, and it reads “NOTICE OF ANNUAL GENERAL MEETING”. It is not disputed that the Company shortly after or subsequently issued a second notice which is also attached as part of Annexure P, and it reads, “ADDITIONAL AGENDA FOR ANNUAL GENERAL MEETING” and it is dated 22 December 2020.

16. It is stated that Madang Timbers does not have a constitution, thus I note that its affairs or operations are governed by the provisions of the CA. Section 134, which appears relevant for this purpose, reads:

(1) Subject to the constitution of the company, a director of a company may be removed from office by ordinary resolution passed at a meeting called for the purpose or for purposes that include the removal of the director.

(2) The notice of a meeting referred to in Subsection (1) shall state that the purpose or a purpose of the meeting is the removal of the director.

17. When I consider and compare the 2 notices under Annexure P to s.134 of the CA, I note that it is arguable whether the notices are issued in compliance with the requirements of the said provision. For example, sub-section 2 states in mandatory terms that the notice of a meeting... shall state that the purpose or a purpose of the meeting is the removal of the director, and it appears or is arguable whether the 2 notices complied with this mandatory requirement; or whether to include ‘an intention to terminate a director’ not as a separate agenda but under any other business agenda of the AGM may be regarded as compliant with s.134; or whether to state in the notice or supplementary notice of the AGM that ‘it may be possible that the issue of removal of the first petitioner may be raised and considered’, is compliant with s.134; or whether the removal of the first petitioner ought to have been expressly stated as the main or one of the main agendas in the shareholders meeting.

19. In regard to the second event as alleged, firstly, if it is found at trial that the first petitioner was unlawfully removed as a director, that may affect the actions that have been taken by the Company or by the Board of Directors thereafter or as of 31 December 2020 and onwards. That would include the Company’s decision on debt to equity conversion and alleged failure to adhere with the various requests that have been made by the first petitioner to the Company including the financial audit reports and the solvency status of the Company. The findings by this Court that there is an arguable case would give weight or merit to the other claim by the petitioners that they may have also been unfairly oppressed as alleged in the petition.

20. In summary, I find the claims raised in the petition to be meritorious; that there is an arguable case.

21. Will damages be an adequate remedy? When I consider the evidence and the allegations raised in the petition, I make the following observations. First, the petitioners are suspicious of the true financial status of the Company. They appear to claim that the Company may be in serious debt which may not be truly reflected in its various audit reports. This is supported with their various requests and their interactions with the respondents which are adduced in evidence that are before me. I note that the respondents have also provided their responses to the allegations raised by the petitioners in their evidence. They deny these claims. Secondly, I take into account the fact that the petitioners are also seeking as an alternative relief (i.e., relief (d) in the petition) that the Company should be put into liquidation pursuant to s.152(2)(g) of the CA. And thirdly, I take into account my finding of an arguable case.

22. What I must say is that this is not a trial, and so I am not going to consider the arguments in detail or make definite findings on them now. However, what I can say is this. In regard to damages being an adequate remedy, I am not convinced that may be the case for the present matter. Let me elaborate on it this way. On its face value, one may argue that damages may be an adequate remedy in the present case. But even if I am minded to agree, the next consideration would be that if the interim injunction is refused, whether the respondents would be able to pay damages to or adequately recompense the petitioners in the event the Court finds in their favour?

23. Given the uncertainty that now may exist on the financial status or capacity of the Company, which also appears to be challenged, it seems to me that the just and fair thing to do at this juncture for the sake and interest of all the parties concerned, is that I should grant interim orders to preserve the status quo of the Company, that is, until the final determination of the petition.

24. The status quo of the Company is that the first petitioner has been removed as a director, however, he is now challenging that by this proceeding. Secondly, because of the debt to equity conversion, the ordinary shareholdings of the petitioners appear to have been significantly reduced from about 49% ownership interest in the Company to less than 1% each; it is obvious that the actions of the respondents after the removal of the first petitioner as a director has caused the petitioners to significantly lose out on the percentage ownerships or interests in the Company. Whether that is proper or not would be a matter for trial. But the facts at this juncture show that the reduction of the propriety rights or interests in the value of the ordinary shares of the petitioners do not appear to be denied by the respondents. For illustrative purpose, I will restate herein the 2 tables that allegedly shows the ownership of shares in the Company by the petitioners and the respondents, before and after the debt to equity conversion which is pleaded at paras 87 and 88 in the petition:

87. Up until 23 August 2022, the shareholders and shareholding in Madang were as follows:

Name of Share holders	No. of Ordinary Shares	No. of Preference Shares	No. of Class B Preference Shares
1. First Petitioner	191,660 (24.67%)	-	539,783
2. Second Petitioner	191,660 (24.67%)	-
3. First Respondent	191,660 (24.66%)	-
4. Lismore	-	-	5,112,914
5. Pacific Timber	-	-	1,061,717
6. Rayley	-	-	7,949,693
7.Seventh Respondent	202,020 (26%)	33,199	-
TOTAL	777,000	33,199	14,664,107

88. After 23 August 2022, and arising from the unlawful share dilution exercise undertaken by the Respondents, the shareholders and shareholding of the Company are as follows: -

Name of Share holders	No. of Ordinary Shares	No. of Preference Shares	No. of Class B Preference Shares
1. First Petitioner	191,660 (0.9%)	-	539,783
2. Second Petitioner	191,660 (0.9%)		-
3. First Respondent	10,157,980 (47.81%)		-
4. Lismore	-		5,112,914
5. Pacific Timber	-		1,061,717
6. Rayley	-		7,949,693
7. Seventh Respondent	10,707,060 (50.39%)	33,199	-
TOTAL	21,248,360	33,199	14,664,107

25. Therefore, if the respondents are allowed to continue to operate, it is possible they will continue to run or operate the Company as they please to the exclusion of the petitioners given the present status quo of the Company. There is therefore a real threat or possibility of the respondents taking further steps in the Company that may be detrimental to the interests of the petitioners on the matters that are being challenged.

26. The steps taken may also cause irreparable damage and prejudice to the petitioners. See case: Robinson v. National Airlines Commission [1983] PNGLR 476.

27. I therefore find that damages may not be an adequate remedy if I am minded not to grant the interim orders that are being sought.

28. I also find that the balance of convenience and interest of justice favour the granting of the interim orders, that is, premised on my above considerations and findings.

29. In summary, I am minded to grant the NoM and the interim injunctive relief that are sought.

30. An order for cost with this type of application is discretionary. The petitioners have sought in their NoM that costs should be ordered in the cause. I am minded to and will order the cost of the NoM in that manner.

(i) the Ordinary Resolution dated 30 December 2020 to remove the First Petitioner as a director of Madang Timbers Limited (the Ordinary Resolution); and

(b) Tiong Sii Huang, Kwong Toh Ling, Kwong Leong Ling, Siew Hui Ling, Henry Huat Hui Huang, How Yieng Huong, Pacific Region Development Ltd and Madang Timbers Limited and their servants, agents, officers and employees and others are restrained from taking any or all consequential actions as a result and or in furtherance of the Decision, pending the determination of the substantive issues in these proceedings, including:

(vi) passing of directors’ resolutions without the involvement of the First Petitioner.

The Court orders accordingly
_______________________________________________________________
Corrs Chambers Westgarth: Lawyers for the Petitioners
Dentons PNG: Lawyers for the Respondents

National Court of Papua New Guinea

Datuk Kie Yik Wong v Tiong Sii Huang [2023] PGNC 389; N10543 (30 October 2023)