Huon Logistics Ltd v Kekam Ltd [2024] PGNC 342; N11026 (30 September 2024)

N11026

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS NO.667 OF 2023

BETWEEN:
HUON LOGISTICS LIMITED
Plaintiff

AND:
KEKAM LIMITED
Defendant

Lae & Waigani: David J
2024: 24^th July, 2^nd, 18^th & 30^th September

COMPANY LAW– authority to institute legal proceedings – board resolution to institute legal proceedings required - no plaintiff company board resolution authorising legal proceedings – proceedings dismissed in their entirety.

TORT – claim for tort allegedly committed by defendant’s driver – vicarious liability.

Cases Cited:

Papua New Guinean Cases
Kutubu Catering Ltd v Eurest (PNG) Catering and Services Ltd (2016) N6255
Perpetual Shipping Ltd v Auwonya (2017) N7041
Nare v The State (2017) SC1584
Radio Taxis Ltd v Wamo (2018) SC1768
Guard Dog Security Services v Mathews (2019) SC1861
TT Angore Noa Hai Investment Ltd v Buna (2019) N7881
Kanit (trading as Citi-Link Taxi Services) v National Airports Corporation Ltd (2021) SC2084
Application by Justice Foundation for Porgera Ltd (2022) SC2257
Opotio v Bare (2023) N10400
Derwent Ltd v Pakena (2023) N10414
Shaw v Commonwealth of Australia [1963] PNGLR 119
Supreme Court Reference No.4 of 1980 [1982] PNGLR 65
Reference by the East Sepik Provincial Executive (2011) SC1154
Galem Falide v Registrar of Titles and The State (2012) N4775
Board of Management, Holy Spirit Primary School v Moses Sariki (2013) N5446

Overseas Cases
Foss v Harbottle (1843) 461
Salomon v Salomon & Co. Ltd (1897) AC 22

Counsel:
Johnah Langah, for the Plaintiff
Elizah Wembri, for the Defendant

JUDGMENT

30^th September 2024

1. DAVID J: INTRODUCTION: This is the decision of the Court on the plaintiff’s claim for damages for damage caused to its vehicle arising from a motor vehicle accident involving two motor vehicles allegedly belonging to both parties. The plaintiff claims that the accident was caused by the negligence of the defendant’s driver and that the defendant is vicariously liable for the actions or omissions of its driver.
   

PLEADINGS

2. These proceedings were commenced by writ of summons endorsed with a statement of claim (writ) filed on 28 November 2023.
   
3. On 8 April 2024, the defendant filed its defence denying liability. The defendant also pleaded specifically, amongst others, that; the proceedings were filed without a duly executed company resolution authorising the plaintiff to institute the proceedings; and that the correct party was not named in the proceedings to found a claim based on the doctrine of vicarious liability.
   
4. On 15 April 2024, the plaintiff filed a Reply to the defendant’s defence when it averred that, except for the defendant’s admissions, it joined issue with the defendant’s denials and non-admissions. The plaintiff also averred that the defence on lack of authority by company resolution to institute these proceedings and lack of joinder of a party to pursue the claim based on vicarious liability was a sham.
   

EVIDENCE

5. The plaintiff’s evidence consists of oral and documentary evidence. The plaintiff called Russel Joe who gave sworn oral evidence and also relied on the affidavit of Russel Joe sworn and filed on 20 March 2024 (Exhibit P1) which was admitted into evidence without objection. The witness was subjected to cross-examination.
   
6. The defendant relies on and reads the affidavit of Paul Tai sworn on 3 April 2024 and filed on 4 April 2024 (Exhibit D1) which was admitted into evidence without objection. Paul Tai was not subjected to cross-examination.
   

ISSUES

7. The issues for trial that fall for my determination are:
   
   1. Whether it was necessary for the plaintiff company to be authorised by a Board resolution to institute these proceedings?
   2. Whether the claim for vicarious liability can be pursued against the defendant?
   3. Whether the driver of the defendant’s motor vehicle caused the collision between the parties’ vehicles?
   4. If the Court finds that the defendant is liable, what are the plaintiff’s damages?
      

AUTHORITY TO INSTITUTE PROCEEDINGS
Submissions

8. Mr. Langah for the plaintiff submitted that the defence raised by the defendant is a sham as:
   
   1. There is no express requirement in law or under the National Court Rules for the plaintiff company to demonstrate by a board resolution annexed to the writ or state as a fact in its pleadings that it has been authorised by a board resolution to institute these proceedings;
   2. The proposition in the Supreme Court case of Application by Justice Foundation for Porgera Ltd (2022) SC2257 is distinguishable to the present case in that it applies to cases which are of special and significant nature where an application under s.18 of the Constitution is made directly to the Supreme Court; and
   3. The present case is an ordinary civil lawsuit filed under Order 4 Rule 2 of the National Court Rules.
      
9. Mr. Wembri for the defendant submitted that the proceedings should be dismissed for being an abuse of the process of the Court as the plaintiff lacked standing to file the proceedings for want of a company resolution authorising it to institute the proceedings. The submission rode on the back of the principle that a company is a separate legal entity which cannot do some things a natural person can do and therefore a resolution duly passed by its board under s.138 and Schedule 4 of the Companies Act authorising the proceedings to be instituted was required.
   

Reasons for decision

10. I concur with the plaintiff’s submission that the case of Application by Justice Foundation for Porgera Ltd (2022) SC2257 is distinguishable to the present case. That was an application to the Supreme Court under s.18(1) of the Constitution challenging the constitutionality of s.212B(1) of the Constitution and s.5 of the Mining Act which vest exclusive ownership of minerals on customary land in the State by an applicant which was incorporated under the Companies Act. Justice Foundation for Porgera Ltd sought declarations that both laws were inconsistent with s.53 of the Constitution and were therefore invalid. The application was signed on behalf of the applicant by a person describing himself as director and chairman of the board of the applicant. An intervener to the application objected to the competency of the application on the ground that the applicant did not comply with the signing requirements for a s.18(1) Constitution application prescribed under Order 4 Rules 1 and 3 and Form 1 of the Supreme Court Rules 2012 as it was not executed under its common seal. The court said the signing requirements for a company making a s.18(1) Constitution application to the Supreme Court were; the common seal of the company must be affixed; and the application must be signed by a proper officer of the company who states that they are signing for and on behalf of the company, by reference to the date and resolution number of the meeting of the board of directors by which authorisation of the making and signing of the application was given. The court stated further that only when those requirements were met could it be said that the application was signed by the applicant in accordance with the Supreme Court Rules. The objection to competency was upheld and the application dismissed.

11. There is no express requirement in the National Court Rules including Order 4 Rule 2 that a board resolution authorising legal proceedings to be instituted in the name of a company is required. Order 4 Rule 2 states:
    

“Where writ of summons required (4/2)

(1) Proceedings shall be commenced by writ of summons—

(a) where a claim is made by the plaintiff for any relief or remedy for any tort; and

(b) where a claim made by the plaintiff is based on an allegation of fraud; and

(c) where a claim is made by the plaintiff for damages for breach of duty (whether the duty exists by virtue of a contract or of a provision made by or under an Act or independently of any contract or any such provision), and the damages claimed consist of or include damages in respect of the death of any person or in respect of personal injuries to any person in respect of damage to any properly; and

(d) where a claim is made by the plaintiff for damages for a breach of promise of marriage.

(2) In sub-rule (1) "personal injuries" includes any disease and any impairment of a person's physical or mental condition.

(3) Sub-rule (1) does not apply to proceedings commenced by a person who desires to apply for—

(a) a declaration of right; or

(b) an immediate injunction; or

(c) an immediate appointment of a receiver; or

(d) immediate orders under Order 14 Rule 10 (the preservation of property).”

12. However, the Companies Act is superior to the National Court Rules by virtue of s.9 of the Constitution: e.g., Kutubu Catering Ltd v Eurest (PNG) Catering and Services Ltd (2016) N6255, Perpetual Shipping Ltd v Auwonya (2017) N7041. The hierarchy of the laws of Papua New Guinea set out under Section 9 of the Constitution demonstrates that Acts of the Parliament are superior than, other laws made under or adopted by or under the Constitution or any other laws including subordinate legislative enactments. The National Court Rules were promulgated under Section 184 of the Constitution. The Companies Act is a specific legislation relating to companies in Papua New Guinea that contains, among others, provisions that deal with how a company’s business or affairs are to be managed or conducted, so it takes precedence over the National Court Rules in that regard as well. In addition, the National Court Rules will have no application if any rule is inconsistent with any provision of the Companies Act.

13. Under s.11 of the Companies Act, a company must have at least one shareholder (s.11(c)) and at least one director (s.11(d): see also s.128 Companies Act. At least one director of the company must be ordinarily resident in the country: s.128(2) Companies Act. As a shareholder and director do not have to be different persons, it is possible that a company may be constituted by a single person who holds one share and be its sole director.

14. A company is regarded as a legal person that has a separate existence which is independent of its shareholders. This legal concept is statutorily recognised by s.16 of the Companies Act which states:

“A company is a legal entity in its own right separate from its shareholders and continues in existence until it is removed from the register.”

15. Section 16 of the Companies Act entrenches the legal concept of “veil of incorporation” laid down by the House of Lords in the seminal case of Salomon v Salomon & Co. Ltd (1897) AC 22. In that case, the court ruled that a company constitutes a distinct legal entity, separate from its shareholders, even when it functions as a sole proprietorship. The separation of a company as a legal entity on its own from its shareholders creates a “veil of incorporation” shielding shareholders, directors and others from responsibility for acts done in the name of the company: TT Angore Noa Hai Investment Ltd v Buna (2019) N7881, Derwent Ltd v Pakena (2023) N10414. There is no dispute that a company being a legal person only can only act and be managed and represented by human agents. Such agents are the board of directors as its head and managers and employees as hands and legs to carry out the orders or directions of the board for and on behalf of a company.
    
16. By having its own legal personality, a company can institute legal proceedings in its corporate name when a wrong is committed against it or it can be sued in its name if it commits a wrong in the course of its operations. The proper plaintiff rule sometimes called the rule in Foss v Harbottle (1843) 461 follows from the concept of separate legal personality.
    
17. Subject to the Companies Act and any other law, a company has full capacity to undertake any business or activity, do any act, or enter into any transaction (s.17(1) Companies Act). It is not necessary for a company to have a constitution (s.27 Companies Act). Where a company does not have a constitution, the Companies Act will regulate how the company’s affairs will be run (s.29 Companies Act). However, where a company has a constitution:
    
    1. it may restrict its capacity, rights, powers or privileges (s.17(2) Companies Act); and
    2. the company, the board, each director and each shareholder have the rights, powers, duties and obligations set out in the Companies Act except those that are negated or modified in accordance with the Companies Act, by the constitution of the company (s.28 Companies Act).
       
18. Pursuant to s.109 of the Companies Act, the business and affairs of a company must be managed by or under the direction or supervision of the board of the company subject to any modification, exceptions or limitations contained in the Companies Act or in the company’s constitution. Section 109 relevantly states:
    

“MANAGEMENT OF COMPANY.

(1) The business and affairs of a company shall be managed by, or under the direction or supervision of, the board of the company.

(2) The board of a company has all the powers necessary for managing, and for directing and supervising the management of, the business and affairs of the company.

(3) Subsections (1) and (2) are subject to any modifications, exceptions, or limitations contained in this Act or in the company’s constitution.”

19. As a company functions through its board, a decision to institute legal proceedings should be taken at a properly convened and constituted meeting of the board passing a resolution authorising such action. The provisions set out in Schedule 4 (Proceedings of a Company) of the Companies Act govern the proceedings of the board of a company by virtue of s.138 (Proceedings of Board) of the Companies Act which states:
    

“PROCEEDINGS OF BOARD.

Subject to the constitution of the company, the provisions set out in Schedule 4 govern the proceedings of the board of a company.”

20. The terms “board” and “board of directors” are defined in s.108. They mean, directors of the company who number not less than the required quorum acting together as a board of directors (s.108(a)) and where the company has only one director, that director (s.108(b).

21. Two cases on point are Radio Taxis Ltd v Wamo (2018) SC1768 and Opotio v Bare (2023) N10400.

22. In Radio Taxis Ltd v Wamo (supra) at [8], Dingake J sitting as a single judge of the Supreme Court said:

“A company is in law a separate legal person capable of suing or being sued in its own name. Unless the law provides otherwise, the company cannot initiate legal proceedings without a duly passed resolution authorizing the company to litigate. A company that purports to litigate without a duly passed resolution to that effect lacks locus standi and such proceedings amount to an abuse of Court process.”

23. In Opotio v Bare (supra), Dowa J in adopting the view taken by Dingake J in Radio Taxis Ltd v Wamo (supra) at [15] said:

“....Ramu Transport Services Ltd is a company, and under section 16 & 17 of the Companies Act it is a separate legal entity having capacity to sue and be sued in its corporate name. The company functions through its Board of Directors. Where a company intends to institute court proceedings, it must be authorized by the Board of Directors through a collective board resolution pursuant to section 138 and Schedule 4 of the Companies Act. Refer: Radio Taxis Ltd v Wano (2018) SC1768. I find there is no evidence of a resolution by the Board of Directors of RTSL supporting the proceedings initiated by the Plaintiff.....”
24. Going by this judge-made rule, it will be necessary to attach the necessary board resolution and minutes when the litigation is instituted.

25. In this scenario, the onus is upon a plaintiff company to demonstrate that its board has a duly passed resolution authorising the company to institute litigation.

26. In the same vein, where a company is a plaintiff in proceedings that have not been properly authorised, it is possible to retrospectively validate the proceedings with subsequent ratification under the power of management accorded to the board of a company under s.109 of the Companies Act.

27. However, there is another argument that nowhere in the Companies Act or any other law including the National Court Rules can there be found any provision that expressly provides that the existence of board resolution as among the mandatory requirement for the company to institute legal proceedings. The plaintiff advances this proposition.

28. A qualification to that observation, in my view, is that where it is raised in a defence, eg, under Order 8 Rule 14 (Matters for specific pleading) of the National Court Rules or generally and it is taken issue of by the plaintiff company, then the plaintiff is taken to the task of proving that such board resolution authorising the institution of litigation is in existence.

29. The plaintiff has failed to prove by cogent evidence that the plaintiff’s board has authorised these proceedings to be instituted.

30. For these reasons, the plaintiff lacks locus standi and the proceedings amount to an abuse of the process of the Court. The proceedings must be dismissed in their entirety.

VICARIOUS LIABILITY

31. On the other hand, if the proceedings are properly before the Court, I propose to briefly address whether there is any merit in the plaintiff’s claim that the defendant is liable under the principle of vicarious liability which I now do.

32. Mr. Langah for the plaintiff submitted that:
1. A tort was committed against the plaintiff;

2. The tort was committed by the defendant’s employee namely, Jerry T. Ginga; and
3. The tort was committed by Jerry T. Ginga in the course of his employment.

33. Mr. Wembri for the defendant submitted that the plaintiff’s claim must fail as:

1. The claim has no foundation in the pleadings;
2. Jerry T. Ginga was neither an employee or agent of the defendant nor was he under any instructions from the defendant at the material time when the accident occurred;
3. The defendant owns and operates a business trading under the business name, Kekam Hire Cars;
4. Jerry T. Ginga hired the defendants vehicle in a separate business arrangement; and
5. Once the vehicle was hired out by Jerry T Ginga, it was under his control and the defendant cannot be held liable for his misconduct or negligence.
   

Reasons for decision

34. In civil proceedings, the general rule is that he who asserts must prove it (Shaw v Commonwealth of Australia [1963] PNGLR 119, Supreme Court Reference No.4 of 1980 [1982] PNGLR 65, Reference by the East Sepik Provincial Executive (2011) SC1154, Galem Falide v Registrar of Titles and The State (2012) N4775, Board of Management, Holy Spirit Primary School v Moses Sariki (2013) N5446) and the standard of proof is on the balance of probabilities. Hence, the burden may shift to the party who asserts and who must then prove it: JD Heydon, Cross on Evidence, Butterworths, Fifth Edition, 1996, paragraphs 7200-7230.

35. To succeed in establishing vicarious liability at common law, it is necessary to prove that; firstly, a tort was committed; secondly, the tort was committed by an employee; and thirdly, the tort occurred in the scope or course of his or her employment: Nare v The State (2017) SC1584, Guard Dog Security Services v Mathews (2019) SC1861, Kanit (trading as Citi-Link Taxi Services) v National Airports Corporation Ltd (2021) SC2084.
36. Other relevant principles that apply when considering whether an employer is liable under the principle of vicarious liability for a tort committed by an employee were summarised by the Supreme Court in its judgment in Kanit (trading as Citi-Link Taxi Services) v National Airports Corporation Ltd (supra) at headnotes 2 to 5 and these are:

“(2) A wrongful act is deemed to be done by an employee in the course of his or her employment if it is either: (a) authorised by the employer; or (b) is a wrongful and unauthorised mode of doing some act authorised by the employer. An employer will be liable even for acts which he has not authorised, provided they are sufficiently connected with acts which he has authorised: Guard Dog Security Services v Mathews (2019) SC1861; Nare v Independent State of Papua New Guinea (2017) SC1584.

(3) It is neither possible nor desirable to define precisely when conduct will fall within the course or scope of employment. Each case must be determined according to its own facts and circumstances. The critical question is whether the employee’s conduct was sufficiently connected with his or her employment. In determining the nature of employment, a broad approach should be adopted.

(4) Mere opportunity will not suffice. Nor will an employer be liable where the employee is on a frolic or detour of his own: Pembaro v Baki (2015) N6224.

(5) Prohibition will not necessarily exclude liability. Nor will the fact that the wrongful act is intentional, or even criminal: Guard Dog Security Services v Mathews (2019) SC1861.”

37. I adopt these principles and will apply them here.

38. On the issue of whether the plaintiff’s claim has any foundation in the pleadings, I am satisfied that the claim is sufficiently pleaded.

39. The next question to ask is whether the plaintiff has proven its claim on the required civil standard of proof.

40. Was a tort committed? Yes. There is evidence that shows the plaintiff’s motor vehicle described as a Nissan Patrol bearing registration number LBM 777 driven by a Russel Joe was involved in an accident at the roundabout situated at the intersection of the Huon Road and Bumbu roads, Lae, Morobe Province with the defendant’s vehicle described as a Toyota Land Cruiser bearing registration number HAY 634 driven by a Jerry T. Ginga on 31 July 2023 at or about 9:50 pm. The Police Road Accident Report number 15126 made in relation to the accident reports that Jerry T. Ginga was arrested by police and charged for driving under the influence of intoxicating liquor and reckless driving.

41. Was the tort committed by the defendant’s employee? The plaintiff’s evidence adduced through Russel Joe through his oral and affidavit evidence is lacking and does not meet the civil standard of proof.

42. The affidavit evidence of Paul Tai stands unchallenged and uncontroverted. His evidence was not tested by cross-examination He said the defendant’s vehicle was hired by a company called Yaware Coffee Limited on the representation of Jerry T. Ginga from that company. I am satisfied on the evidence and I find as a fact that Jerry T. Ginga was not an employee of the defendant. Consequently, the tort was not committed by the defendant’s employee.

43. Did the tort occur in the scope or course of employment of the defendant’s employee? Given my finding that Jerry T. Ginga was not the defendant’s employee, it is not necessary to address this question. However, for completeness, it suffices to state that the plaintiff’s evidence adduced through Russel Joe by way of his oral and affidavit evidence is lacking and does not meet the civil standard of proof. Jerry T. Ginga’s conduct is not connected or sufficiently connected with any employment with the defendant.

44. The plaintiff has satisfied only one of the three requirements necessary to establish vicarious liability of the defendant. The plaintiff’s claim must fail and is dismissed.

CONCLUSION

45. The proceedings will be dismissed because without a board resolution authorising the plaintiff to initiate these proceedings, it lacks locus standi and the proceedings amount to an abuse of the process of the Court. Nevertheless, the plaintiff’s claim has no merit as it has failed to establish vicarious liability against the defendant.

46. Given the above, it is not necessary to consider the remaining issues and the other submissions of counsel.

ORDERS

47. The formal orders of the Court are:

1. The proceedings are dismissed in their entirety.
2. Unless specific costs orders have been made previously, the plaintiff shall pay the defendant’s costs of and incidental to the proceedings which shall, if not agreed, be taxed.
3. The time for entry of these orders be abridged to the time of settlement by the Registrar which shall take place forthwith.
   

Judgment and orders accordingly.
________________________________________________________________
Albright Lawyers: Lawyers for the Plaintiff
JEMA Lawyers: Lawyers for the Defendant