Ondalane v Kokiva [2024] PGNC 43; N10691 (21 March 2024)

N10691

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

O.S NO. 84 OF 2023

BETWEEN:
KIMALEYA ONDALANE, KULE LAYO, LOO ENO, RUBEN NALEPE, PAWE MENEPA, BILL YANGUAN and OYOMO AMBI as part of the original shareholders of Kupiane Holdings Limited, Kupiane Investments Limited & Porgera Gold Mines Limited
First Plaintiffs

AND:
JOHN ONDALANE as Director of Kupiane Holdings Limited
Second Plaintiff/Respondent

AND:
HARRIET KOKIVA, Registrar of Companies,
Investment Promotion
Authority of PNG
First Defendant

AND:
WARAKOS ONDALANE, PHILIPEN PEAKAPE, PAYAKO YOPE, MASO KARIPE, ERIC WILSON, MAX PEAWIM, NICKER PULI KIPU, ROBERT PETER & MAKUALO OKOKO
Second Defendants

Waigani: Bre AJ
2024: 29^th February and 21^st March

CIVIL PRACTICE AND PROCEDURE – application for joinder by company– joinder principles considered –evidence and originating process considered to apply joinder tests- substantive dispute concerns challenge to legality of current shareholders and directors in company – plaintiff opposes joinder –- board resolution disputed- affects decision-making and instructions for litigation to company-affects sufficient interest- no adverse relief sought against company- joinder refused.

Cases Cited
Coecon Ltd v Westpac Bank (PNG) Ltd (2012) N5097
Kara v Public Curator of Papua and New Guinea (2010) N4048
Magasaki Ltd v Bai (2007) N3221 at [13]
PNG Deep Sea Fishing Ltd v Critten (2010) SC1126
Timbers PNG Ltd v Papua New Guinea Forest Authority (2012) N4638

Legislation
Companies Act 1997 ss16,17,29,38 and schedule 4
National Court Rules O5r8(1)

Counsel
Ms J Nandape, for the Applicant/interested party
Mr Kapili, for the Second Defendant
Mr R Saulep, for the Respondent/Second plaintiff on instructions from Kandawalyn Lawyers

RULING

21^st March 2024

1.BRE, AJ: Kupiane Holdings Limited applies to be joined as an interested party to the proceeding. Kupiane Holdings Limited is a company owned by landowners of the Porgera Gold Mine.

The substantive proceeding concerns a challenge by its former shareholders and directors to the manner of appointment of the current shareholders and directors.

2. There was a preliminary matter of whether the second plaintiff's application filed on 30 April 2023, seeking restraining orders, should be moved as initially scheduled for hearing. After submissions, it became clear that counsel should confirm instructions from the rest of the plaintiffs before proceeding. This application is adjourned to confirm those instructions or take other steps as required including filing a new application. The application is fixed for a special fixture hearing on 15 March 2024^[1]. I proceeded to hear the application for joinder filed on 30 May 2023.

3. The applicant relies on Order 5 rule 8(1) of the National Court Rules (NCR) and the cases of PNG Deep Sea Fishing Ltd v Critten (2010) SC1126 and Kara v Public Curator of Papua and New Guinea (2010) N4048 and the affidavit of Nixon Mangape filed on 30 May 2023. Ms Nandape submits that the relief sought in the substantive proceeding and the plaintiff's notice of motion concern the interested party, Kupiane Holdings Limited, as it seeks to restrain its operations which should be separate from the dispute concerning its shareholders. Kupiane Holdings Limited seeks to be joined as the third defendant. Ms Nandape pointed out relief 5 and others in the Originating Summons and the Notice of Motion filed on 30 April 2023; which seeks declaratory orders concerning the company records and restraining orders to prevent meetings with the company. Mr Kapili supports the joinder application.

4. Mr Saulep opposed the joinder on the basis that Kupiane Holdings Limited must take a neutral position and not be involved in the proceeding as it is a separate legal entity from its shareholders whose legal standing is being challenged. That the relief sought pertains to the shareholding of the company and not the company. Mr Saulep pointed out that a ruling in favour of the application will affect the Court's jurisdiction to decide the issue and the status quo should be preserved. The respondent relies on the affidavit of Jonathan Paraia filed on 16 August 2023.

5. The Court has a discretion on whether to grant joinder or not. I am guided by the well-established principles of joinder in the cases of PNG Deep Sea Fishing Ltd v Critten, Kara v Public Curator of Papua and New Guinea (2010) N4048 and Timbers PNG Ltd v Papua New Guinea Forest Authority (2012) N4638. The tests for establishing whether a proposed party has sufficient interest or that the joinder is necessary are:-

1) the plaintiff opposes the application for joinder,
2) some or all of the relief is sought against the applicant,
3)the applicant will be affected if the relief sought in the substantive proceeding is granted,
4) the joinder is necessary to satisfy any orders made in the proceeding.

6. To me the threshold issue for my consideration is whether the applicant has sufficient interest to be joined as a party to the proceeding given the legal standing of its current shareholders and directors are being challenged by its former shareholders and whether the joinder should be granted considering the second plaintiff opposes the joinder.

7. I am guided by the decision of the Supreme Court in PNG Deep Sea Fishing to have recourse to the evidence and the originating process to apply the joinder tests to decide whether the applicant has sufficient interest.^[2]

8. I gather from the affidavits relied on by both parties that Kupiane Holdings Limited’s shareholding is comprised of representatives, or agents, of landowning groups. The agents then appoint from amongst themselves shareholders to hold in trust the collective interest of the landowner groups in Kupiane Holdings Limited and other related companies.

9. The background to the dispute taken from the master and shareholder agreement annexed to the affidavit of Nixon Mangape is that following court sanctioned mediated orders in 2014, the initial landowner company KYAC was restructured with 52.6% of its shares transferred to Kupiane Holdings Limited (KHL), amongst other transfers. The plaintiffs argue that they have been the initial shareholders and some as directors as well until 22 February 2022, when KHL’s records were changed with the defendants recorded as shareholders and some as directors, effectively removing, or altering the plaintiffs positions from the company register.

10. The substantive claim seeks orders to recognise the history of the court mediated company restructure and their shareholding and declare the actions by the defendant shareholders unlawful and to reinstate the plaintiffs, amongst other declarations.

11. Ms Nandape, submits that any orders issued will affect Kupiane Holdings Limited operations. She submits that, the second dependants are the current shareholders and have been duly registered with the IPA records. She referred to the company extract annexed to Nixon Mangape's affidavit as annexure NM1. She also mentioned that her legal representation by the company has been authorised by a board resolution dated 16 May 2023 which is also annexed to Nixon Mangape's affidavit as annexure NM4.
Ms Nandape points out that only three individuals' representation as shareholders and directors of the board are being challenged. Though as to who those three are, that has not been pointed out.
She states that the chairman, Nixon Mangape's representation as shareholder is not challenged.

12. Jonathan Paraia a current director of KHL objects in his affidavit filed 16 August 2023, to the joinder application on the basis that the board resolution approving the appointment of Nandape and Associates has not been duly constituted by observance of notice and approval formalities required by the Companies Act nor the court mediated agreements of 2014.

13. Both parties agree that Kupiane Holdings Limited does not have a constitution but the mediated master and shareholding agreements of 2014 provide some guidance. I have perused both agreements and note in particular that the shareholding agreement provides some governance rules about the operations of the company including appointment of directors and management of the companies but to me they relate specifically to related companies KYACL and KIL not KHL.

14. The objection to the legal representation touches on the issue of the authority of the current board to make binding decisions and is worth considering further to ascertain if KHL has sufficient interest to join the proceedings. While, a company is a separate legal entity from its shareholders and has corporate legal personality to sue and be sued and enter into contracts etc, pursuant to Section 16 and 17 of the Companies Act, it takes instructions from its board of directors.

15. What is clearly at stake in this dispute are the controlling interests to the ownership and decision-making authorities of KHL. Nixon Mangape, the current chairman of the board of directors deposes that KHL is a majority shareholder in Porgera Gold Mines Limited (PGML), formerly KYACL. The plaintiffs contend in the substantive proceeding that they were the original shareholders in these companies and should not be changed without observing the proper process for alterations to KHL's records. The plaintiffs also hold themselves out as former shareholders of other related landowner companies, Kupiane Investments Limited (KIL) and PGML.

16. In deciding this application, I remind myself that the ultimate beneficiaries of the profitability or otherwise of the landowner companies and its governance and performance are the collective landowners of the Porgera gold mine. The shareholders operate in a trust position in terms of their participation in the companies and are rightly concerned to ensure those entrusted with the governance of the company comply with the appropriate laws including the Companies Act.

18. I note that the plaintiffs allegation of unauthorised changes to KHL’s records is against the defendants, not the company. In the usual course of events, the company secretary ensures changes to the company records observes the constitution or company laws and attends to filing the changes with the IPA. I am also mindful that in the normal course of events, a board resolution passed by a duly constituted board is required for the company to litigate because of the corporate risk posed by litigation that the company will be exposed to.
Here, the directors and shareholders, whether former or current are intertwined with the company, there appears to be no clear separation between the shareholders and the directors. It appears that some of the shareholders become the directors of the company. From the current IPA record as at 22 February 2022 annexed to the affidavit of Nixon Mangape, the current directors are Nixon Mangape, Henry Lara, Jonathan Paraia, Ruben Nalepe, Kai Julina, Nicker Puli Kipu and Warakos Ondalane. Ruben Nalepe is amongst the plaintiffs while Jonathan Paraia has put in an affidavit challenging the legal authority of the current board in making the resolution to appoint Nandape and Associates as its lawyers. It seems the current board are divided and Ms Nandape has not pointed out to me any provision in the mediated agreements nor the Companies Act and Rules that states what the appropriate quorum is to make binding board resolutions.

19. I note from Nixon Mangape's affidavit that the resolution for joinder and to appoint Nandape and Associates was passed through circular resolution. There is a provision in the shareholding agreement clause 7.3 about a quorum of 4 comprising two directors from KHL, and one director each from KGRL and PDA. However, the signed resolutions in the affidavit of Nixon Mangape do not indicate which companies the signatures represent. It is not confirmed if the resolution observed clause 7.3. Regardless, I cannot rely on Clause 7.3 as the process adopted by KHL in the absence of evidence to confirm that clause 7.3 has been adopted by KHL board as its rule. The general rule in the absence of a company constitution is to observe the process under the Companies Act and Rules. See sections 29,138 and schedule 4 of the Companies Act.

In light of the objection by a current director of the board and in the absence of any evidence confirming the required quorum rules to make binding decisions, I find that the participation of KHL in the proceedings in terms of taking instructions will be difficult and may lead to protracted litigation if it is to join the proceedings.

20. Further, the current directors are also trustee shareholders and form the central management and decision –making body of KHL. The second plaintiff urges that KHL remain neutral. Both counsel have not indicated whether the plaintiffs are agents of the Porgera landowning groups but I note from the affidavits produced by both parties that most of the parties are from the various landowner groups. Nevertheless, this is not a key factor in my considerations but is noted in passing that the parties represent landowners who would want to see their companies governed and managed well. Having said that, I agree with Mr Saulep that KHL's joinder as a defendant will show it has taken a position in the dispute and in my view, this may not be in the best interest of the collective landowner groups who are the ultimate beneficiaries of the company and whose interest is in seeing that KHL is governed well.

The parties should be allowed to reach a resolution to the dispute either amongst themselves or through the Court before the company, Kupiane Holdings Limited, takes a position in the dispute.

21. In terms of the other joinder test of whether some or all of the relief sought in the motion of 30 April 2023 or the substantive proceeding are against KHL, relief 4 of the motion and relief 5 of the originating summons are relevant. Relief 4 of the motion seeks to restrain the defendants from holding themselves out as directors or shareholders of KHL and to restrain them from conducting any meetings with KHL or transactions by KHL. Relief 5 seeks to nullify the company changes of 22 February 2022 by relying on the mediated agreements and certain provisions of the Companies Act which would in my view entail access to the company records such as the share registrar, if any is kept, and in effecting any changes to KHL records where so ordered by the Court. In my view these relief if granted are not against KHL, but rather the first and second defendants.

22. On the next joinder test of whether KHL's joinder in the proceeding will ensure court orders are effected accordingly, I consider that it is the prerogative of the plaintiffs to decide who they sue. The second plaintiff opposes this application for joinder. It is not for this Court to compel the plaintiffs to proceed against persons whom they have no desire to sue. See Coecon and Timbers.
Where for instance, orders in relief 5 of the originating summons are granted, it would be in KHL’s interest to facilitate without being a party to the proceedings, given my views that no adverse orders are being sought against KHL.
Further, although, KHL may have good reasons for the joinder, its internal governance arrangements such as the manner of making binding resolutions and taking instructions during litigation must be clarified for this Court to be satisfied that the joinder of KHL is warranted and will not result in complicating the dispute further.

23. For the foregoing reasons, based on the evidence and the relief sought, I am not satisfied that the applicant has met the joinder tests to demonstrate sufficient interest in the proceeding to be joined as a third defendant. The relief sought in the proceeding concerns the shareholding and directorship of KHL and not KHL per se. In the absence of a clear distinction amongst its shareholders and directors and the independence of KHL as a separate legal entity to sufficiently defend itself in the proceedings, I am not satisfied that it has sufficient interest to litigate upon joining. As such, I refuse the application for joinder with costs.

ORDER

24. The formal orders of the Court are:-

1) The Notice of Motion filed 30 May 2023 for joinder of Kupiane Holdings Limited is refused.

2) Costs of the application are awarded to the second plaintiff to be taxed, if not agreed.

3) Time for entry of these Orders is abridged to the date of settlement by the Registrar of the National Court which shall take place, forthwith.

Orders accordingly,

Kandawalyn Lawyers: Lawyers for the Second Plaintiff
Nandape and Associates: Lawyers for Applicant
Mawa Lawyers: Lawyers for the Second Defendant

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^[1] Counsel were later informed by my Associate on 14 March 2023 that this matter will be adjourned generally pending handing down of this ruling.
^[2] Counsel were asked to furnish any caselaw addressing the issue of whether a company should be joined as a party where there is a legal challenge to its shareholding and directorship. Counsel for the applicant filed her submission which she handed up in Court at the hearing of the application while counsel for the respondents referred the Court to two decisions; Magasaki Ltd v Bai ( 2007) N3221 and Kuyan v Sallel (2008) N3376.