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National Court of Papua New Guinea |
PAPUA NEW GUINEA
[NATIONAL COURT OF JUSTICE]
OS NO 31 OF 2024 IECMS (COMM)
PAKO F&C HOLDINGS (PNG) LIMITED
Plaintiff
V
PNG SUSTAINABLE DEVELOPMENT PROGRAM LIMITED
First Defendant
AND
CLOUDY BAY SUSTAINABLE FORESTRY LIMITED
Second Defendant
WAIGANI: ANIS J
5 FEBRUARY, 26 MARCH 2025
DECLARATORY RELIEF – Claim premised on s.222(2) of the Companies Act 1997 – whether there was breach of the section by failing to lodge charges for registration within the stipulated time frame – consideration - ruling
PRACTICE AND PROCEDURES – Preliminary matters – whether preliminary objections had been determined earlier on matters concerning standing, privity of contract and mode of proceeding – consideration and ruling
PRACTICE AND PROCEDURES – Interpretation of s.222(1) of the Companies Act 1997 – whether a charge must be registered in the register kept by the Registrar of Companies within 2 months of its creation – or whether a charge must be submitted to the Registrar of Companies for registration within 2 months of its creation – which is the correct interpretation? – consideration and ruling
Cases cited
Mineral Resources Development Company Ltd v. Kumul Petroleum Holdings Ltd and 2 Ors (2024) N10897
Arran Energy (Niugini) Pty Ltd v. Hon. Kerenga Kua and 1 Or (2023) N10272
Papua New Guinea Banking Corporation v Amevo and Bari Investments [1998] PNGLR 240
Christian Life Centre v Associated Mission Churches of PNG & Others (2002) N2261
Maoko v Ling [2008] N3293
Stephen Asivo v. Maigari Ltd and 1 Or (2020) N8330
Telikom Ltd v. Digitec Communications Ltd (2024) N11015
ExxonMobil (PNG) Ltd v. Halimbu Lembo and 2 Ors (2024) N10919
Traisa Transport Ltd v. Mountain Property Holdings Ltd and Ors (2024) N10694
Gawan Kuyan v. Andrew Sallel; Andrew Sallel v. Gawan Kuyan (2008) N3376
Batteng Putto v. Andrew Sallel (2015) N5845
Blassius Reu v. William Meta (2014) N6534
Tavul v Konga (2018) N7599
Gigira Development Corporation Ltd and 2 Ors v. Stanis Talu and 2 Ors (2021) N9027
Jennifer Gawi v. Anna Gawi and 2 Ors (2024) N10860
Counsel
E Sasingian for the plaintiff
E Andersen with counsel assisting J Nigs for the first defendant
D Kamen for the second defendant
DECISION
1. ANIS J: This matter was trialed on 5 February 2025. After closing submissions, I reserved my ruling to a date to be advised.
2. Parties have been notified so I will rule on it now.
BACKGROUND
3. On 20 September 2021, plaintiff, in proceeding WS 794 of 2014, Pako F&C Holdings (PNG) Ltd v. Cloudy Bay Sustainable Forestry Ltd (WS 794 of 2014), was awarded with over K117 million in judgment (the Judgment) against the second defendant. In its effort to execute judgment over the assets of the second defendant, the plaintiff, through the Sherriff, attempted to secure one of the second defendant’s assets, which is a land situated at 9 Mile outside Port Moresby. The land is described as Portion 2486, State Lease Volume 27 Folio 91 (the Property).
4. Apparently, the Property has an existing registered mortgage registered in the name of the first defendant. There is also a fixed and floating charge registered under the Companies Act 1997 (the CA) against the assets of the second defendant in favour of the first defendant. The 2 security documents (the 2 charges) were executed on 28 February 2014, as part of the securities in relation to an agreement that was entered between the first defendant, Lifese Engineering (PNG) Limited, Oppa Limited (the 2 Companies) and the third defendant. The agreement is called Share sale agreement (SSA). It was signed for the sale and purchase of shares of the second defendant by the 2 Companies. Let me elaborate. The first defendant had owned the second defendant and had decided to sell its shares therein over to the 2 Companies. The share purchase price was agreed at K40 million. The 2 Companies paid K15 million, which left a balance of K25 million. The 2 charges were created by the second defendant in favour of the first defendant, as securities against the outstanding K25 million.
5. Based on the Judgment obtained in WS 794 of 2014, the plaintiff sought various enforcement actions. On 14 June 2024 and by a court order in WS 794 of 2014, Andrew Pini was appointed as the Receiver/Manager of the second defendant. When realizing the assets of the second defendant, the status of the 2 charges came to light. The plaintiff, as an unsecured creditor of the second defendant, decided to commence this proceeding to contest the 2 charges.
6. I refer to the Originating Summons filed 8 June 2024 (OS). The plaintiff seeks the following main relief:
EVIDENCE
7. The parties tendered their evidence without the benefit of cross-examination.
8. The plaintiff’s evidence were marked as Exhibit P1 (affidavit of Chin Sik Son filed 8 Jube 2024), Exhibit P2 (affidavit of Eric Stevens filed 11 July 2024), Exhibit P3 (affidavit of Chin Sik Son filed 27 July 2024) and Exhibit P4 (affidavit of Eric Stevens filed 5 August 2024).
9. The first defendant’s evidence were marked as Exhibit D1 (affidavit of Shirely Charlie filed 11 July 2024), Exhibit D2 (affidavit of Lesieli Taviri filed 18 July 2024, 3 Volumes), Exhibit D3 (affidavit of Victor Maka filed 13 August 2024), Exhibit D4 (affidavit of Komdal Lonagata filed 9 October 2024) and Exhibit D5 (affidavit of Rose Pakop filed 9 October 2024).
10. The second defendant did not call any evidence. The second defendant also took a neutral position in the matter.
PRELIMINARY MATTERS
11. A number of preliminary matters were raised by the first defendant.
12. I heard submissions from the parties on them.
13. A hurdle I note which I should address first before considering the preliminary matters, is this. The plaintiff submits that the first defendant had already raised the preliminary matters in an earlier notice of motion which was filed in August of 2024, and that the Court had considered and rejected them.
14. The notice of motion by the first defendant referred to was filed on 18 July 2024 (NoM). The NoM was filed pursuant to Order 12 Rule 40(1)(a)(b) and (c) of the National Court Rules (NCR) on the grounds that the proceeding did not disclose a reasonable cause of action, was frivolous and vexatious, and was an abuse of the Court process.
15. I heard the NoM on 14 August 2024. In a brief ex-tempore ruling that day, I refused to dismiss the proceeding. I recall that although valid arguments were raised by the first defendant, I decided against considering the application in totality but to reserve them for trial. I recall that the main premise for refusing the application was after I was satisfied that the plaintiff had met the criteria as a creditor as stipulated under s.222(2) of the CA.
16. The above approach is not unusual. Courts have wide discretion to refrain from summarily dismissing matters for example, (i), if a preliminary issue cannot be separated from the main issue for trial, or (ii), if the Court considers that the issues should all be properly considered or ventilated at the actual hearing when all the evidence are called and where all the facts come to light. See cases: Mineral Resources Development Company Ltd v. Kumul Petroleum Holdings Ltd and 2 Ors (2024) N10897 and Arran Energy (Niugini) Pty Ltd v. Hon. Kerenga Kua and 1 Or (2023) N10272.
17. Having made this clarity, let me now consider the preliminary matters in totality.
PRIVITY OF CONTRACT, STANDING, REASONABLE CAUSE OF ACTION, FRIVOLITY AND ABUSE OF PROCESS
18. The first defendant asserts that no privy of contract exists between the plaintiff and the parties that signed the 2 charges which were the first and second defendants.
19. The doctrine, Privity of Contract has been settled in this jurisdiction in numerous cases including Papua New Guinea Banking Corporation v Amevo and Bari Investments [1998] PNGLR 240, Christian Life Centre v Associated Mission Churches of PNG & Others (2002) N2261, Maoko v Ling [2008] N3293 and Stephen Asivo v. Maigari Ltd and 1 Or (2020) N8330. These cases have, amongst others, approved the doctrine which is that only the parties to a contract have rights, obligations and liabilities and that only they, to the exclusion of all others, may sue or be sued under it.
20. At this juncture and premised on the undisputed facts in regard to the 2 charges, it is obvious that the plaintiff is not privy to the creation of 2 charges nor the SSA. No privity of contracts appear to exist between the plaintiff, the first defendant and the second defendant on these matters. I also note that there is no evidence or submissions made by the plaintiff to say that it qualifies under an exception to the doctrine.
21. However, in light of the above observations, one may raise this query. How about the plaintiff’s interest as a creditor under s.222(2) of the CA? How does it apply to this case? Let me address that.
22. Section 222(1) & (2) reads:
222. REGISTRATION OF CHARGES.
(1) Subject to this Part, where a company creates a charge to which this Part applies, the company shall submit to the Registrar for registration within two months after the creation of the charge–
(a) a notice for registration of the charge in the prescribed form; and
(b) a certified copy of the document creating or evidencing the charge.
(2) Where this section is not complied with in relation to a charge to which this Part applies, the charge is, so far as it confers any security on the company’s property or undertaking, void against–
(a) the liquidator of the company; and
(b) any creditor of the company. [Underlining mine]
23. It is not disputed that the plaintiff is an unsecured creditor of the second defendant having obtained the Judgment against it. But I note that subsection (2) uses the phrase “any creditor of the company” which, in my view, applies to or includes the plaintiff.
24. My overall finding on the issue is this. Provided that the plaintiff is seeking relief as a creditor of the second defendant to challenge the 2 charges within the meaning or confines of s.222(2), I do not see how the doctrine of Privity of Contract is relevant or applies. I find the first defendant’s argument misconceived in that regard. I make the same finding with the same qualification in relation to sufficient interest or standing, reasonable cause of action, frivolity and abuse of process. I find that the plaintiff has sufficient interest as a creditor to make the claim under s.222(1) of the CA.
25. With these findings, including the qualifications, I turn my attention to the relief as pleaded in the OS and ask myself this question. Is the plaintiff seeking relief that is aimed at voiding the 2 charges in its capacity as a creditor? The 2 primary relief read:
26. As for relief 1, the plaintiff is seeking to nullify the Mortgage agreement that was entered between the first and second defendants on 28 February 2014. The plaintiff is not seeking to void a charge per se. In my view, the relief is unattainable by this proceeding. It also lifts my qualified ruling on want of (i), privity of contract, (ii), standing, (iii), unreasonable cause of action, (iv) frivolity and (v) abuse of process. In other words, all these preliminary arguments put by the first defendant will be upheld in this case when I take into account what the plaintiff is attempting to seek under relief 1. Looking at it differently, even if this Court were to find that s.222 has not been complied with, the Court cannot, by this proceeding, declare the mortgage to the Property null and void. There are several binding contracts that exist, including the Mortgage agreement and the SSA which are binding between the parties who have entered into them.
27. I therefore uphold the first defendant’s submission in that regard, and in so doing dismiss relief 1 of the OS.
28. I turn my attention to the alternative relief sought in the OS. I note that the relief is in similar terms as the first relief. It seeks orders concerning matters or allegations that are outside the scope, intention and purpose s.222 of the CA. I therefore dismiss the alternative relief for this reason, and also, premised on the reasons that I gave in dismissing relief 1.
29. I am left with relief 2. In my view, relief 2, apart from the fixed charge or mortgaged Property which is excluded pursuant to s.222(2) and (4) of the CA, appears to be in order; it is a relief that may be sought under s.222(2) by the plaintiff in its capacity as a creditor. The first defendant, however, also raises this next preliminary issue which is alleged incorrect mode of proceeding. I will address that now.
MODE OF PROCEEDING
30. Premised on my considerations and rulings above, it appears clear or certain that the plaintiff’s OS is premised primarily on its asserted interest under s.222(2) of the CA. And as I have also found above, the scope of what the plaintiff may seek as a creditor is premised on or confined to seeking declaratory orders to void the 2 charges. However, premised on my findings, possible contest may be had only in regard to the registered Fixed and Floating Charge dated 28 February 2014.
31. So, as it is and premised on my findings, the plaintiff’s limited interest in this proceeding is premised on s.222(2) of the CA. And this is where the first defendant takes issue. It submits the plaintiff has invoked an incorrect mode of proceeding by filing a general originating summons. It submits the correct method are those stipulated under the provisions of the CA and rules.
32. To answer this issue, I make the following observations:
2. GENERAL RULES AND PRACTICE OF NATIONAL COURT TO APPLY.
Subject to the Companies Act 1997 and these Rules, the Rules of Court of the National Court and the general practice of that Court, including the course of procedure and practice in chambers, apply in relation to proceedings to which these Rules relate as far as is practicable.
33. In my view, taking into account the above considerations, and also after having allowed relief 2 for consideration having found that the plaintiff has established sufficient interest, I find the mode of proceeding herein to be in order, and therefore, I refuse to dismiss the matter.
34. I will proceed to hear the merit of the arguments.
LODGEMENT OF CHARGE – WHETHER COMPLIANT WITH S.222(1)
35. Section 222(1)(2)(3) and (4) states:
222. REGISTRATION OF CHARGES.
(1) Subject to this Part, where a company creates a charge to which this Part applies, the company shall submit to the Registrar for registration within two months after the creation of the charge–
(a) a notice for registration of the charge in the prescribed form; and
(b) a certified copy of the document creating or evidencing the charge.
(2) Where this section is not complied with in relation to a charge to which this Part applies, the charge is, so far as it confers any security on the company’s property or undertaking, void against–
(a) the liquidator of the company; and
(b) any creditor of the company.
(3) This section does not prejudice any contract or obligation for repayment of the money secured by a charge, and when a charge becomes void under this section the money it secures becomes immediately payable.
(4) The charges to which this Part applies are–
(a) charges (other than charges solely on land) to secure any issue of debentures; and
(b) charges on uncalled share capital of a company; and
(c) charges or assignments created or evidenced by instruments (including instruments creating or evidencing absolute bills of sale or absolute assignments or transfers of book debts) that, if executed by an individual, would be invalid or of limited effect if not registered under the Instruments Act 1953; and
(d) floating charges on the undertaking or property of a company; and
(e) charges on calls made but not paid; and
(f) charges on a ship or aircraft, or on a share in a ship or aircraft; and
(g) charges on goodwill, on a patent or licence under a patent, on a trade mark, or on a copyright or a licence under a copyright; and
(h) charges on the book debts of a company.
36. The material facts for this issue are not in dispute. The 2 charges were created on 28 February 2014. And they were submitted for registration on 11 March 2014 by cover of a letter by the lawyers of the first defendant. The lodgment was acknowledged/stamped on 12 March 2014 by the office of the Registrar of Companies.
37. Evidence of that, which is not contested, is annexed as LT24 to Exhibit D2.
38. The issue for determination in this substantive hearing, in my view, is premised on the interpretation of s.222(1). The plaintiff submits that pursuant to s.222(1), the 2 charges were supposed to be registered by the Registrar of Companies within 2 months of their creation. They submit the 2 charges were actually registered on 7 December 2014, which they say was 10 months after their creation thus was in breach of s.222(1) of the CA.
39. The first defendant submits that the plaintiff’s interpretation of s.222(1) is misconceived or wrong. They submit that the section requires a charge to be submitted for registration within 2 months of its creation.
40. Section 222(1) reads, Subject to this Part, where a company creates a charge to which this Part applies, the company shall submit to the Registrar for registration within two months after the creation of the charge - [Underlining and bold lettering mine]
41. In my view, the definition is express. I uphold the interpretation as understood submitted by the first defendant. The plaintiff’s interpretation of s.222(1) is not correct. Section 222(1) is express which is that in order to register a charge, it must be submitted to the Registrar of Companies within 2 months after it is created, for registration. The use of the phrase after the creation of the charge under s.222(1), in my view, gives clarity to the definition.
42. The adduced evidence shows no issue on the dates of creation and submission of the 2 charges. They were created on 28 February 2014, and they were submitted for registration on 14 March 2014. The total period there was less than 2 months, which was in compliance with the requirement stipulated by s.222(1) of the CA.
43. The plaintiff’s allegation of breach of registration of the 2 charges under s.222(1) of the CA shall therefore fail.
SUMMARY
44. In summary, the plaintiff’s claim will be dismissed.
COST
45. An order for cost is discretionary. I will order cost to follow the event, that is, cost of the proceeding will be awarded to the defendants against the plaintiff on a party/party basis which may be taxed if not agreed.
ORDERS OF THE COURT
46. I make the following orders:
The Court orders accordingly
________________________________________________________________
Lawyers for the plaintiff: Sasingian
Lawyers for first defendant: Dentons PNG
Lawyers for second defendant: Kamen
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