Tzen Niugini Ltd v Yema Gaiapa Developers Ltd [2015] PGSC 64; SC1471 (4 September 2015)

SC1471

PAPUA NEW GUINEA
[IN THE SUPREME COURT JUSTICE]

SCA NO. 36 OF 2011

BETWEEN:

TZEN NIUGINI LIMITED
Appellant

AND:

YEMA GAIAPA DEVELOPERS LIMITED
Respondent

Waigani: Gavara-Nanu J, Batari & David JJ.
2013: 1 March
2015: 4 September

PRACTICE & PROCEDURE – Companies Act, 1997; ss. 22, 29 (2) (c), 291, 338(1) - Companies Rules; ss.20, 21&22 - Statutory demand - Petition to wind up a company - Non-compliance with mandatory statutory requirements.

Cases Cited:

Curtain Bros (PNG) Ltd v. University of Papua New Guinea [2005] PGSC35;
SC788.
Department of Works v. In the Matter of International Construction (PNG) Ltd (In Liquidation) (2009) SC1051
Dr Arnold Kukari v. Hon. Don Pomb Polye [2008] PGSC4; SC907
Fly River Provincial Executive (2007) SC917
National Capital Limited v. Loi Bakani, Governor, Bank of PNG SC192
PNG Harbours Board v. Chris Textiles Ltd (2005) N2855
Takori v. Yagari [2008] PGSC 3; SC905

Counsel:

F. Griffin, for the Appellant
L. Kari, for the Respondent

4th September, 2015

1. BY THE COURT: The appellant appeals against the interlocutory judgement of his Honour Justice Kandakasi given on 15 March, 2011, in Waigani in proceeding: MP No. 8 of 2011; In the Matter of the Companies Act, 1997; In the matter of Mr Yema Gaiapa Developments Limited. The judgement was given by way of an ex-tempore ruling in which his Honour granted a stay of the proceeding.

2. Leave to appeal was granted on 26 March, 2012, by the Chief Justice sitting as the Supreme Court.

3. The proceeding was a petition filed by the appellant as a creditor against the respondent in which the appellant sought Orders for the Court to appoint a liquidator pursuant to s. 29 (2) (c) of the Companies Act, to liquidate the respondent which was alleged to be indebted to the appellant in the sum of K1, 044,255.02, being the amount allegedly owed from advance payments made to the respondent by the appellant under a Logging and Marketing Agreement made between them.

4. The appellant claimed that the respondent had failed for a period of one month after service of the appellant's Statutory Demand, to pay the said amount of money, or to secure or enter into a compromise to the reasonable satisfaction of the appellant.

5. The appellant also sought in its petition, Orders for one James Kruse of Deloitte Touche Tohmatsu to be appointed by the Court as liquidator and for the Bank South Pacific (BSP) to be the bank in which the liquidator would open a Trust Account to bank the proceeds of the liquidation.

6. On 15 March, 2011, which was the day on which the appellant's petition was scheduled to be heard, the respondent made an application by way of a notice of motion to stay the proceeding. It is to be noted that by this date, viz; 15 March, 2015, the respondent had failed to comply with the mandatory requirement under 0. 20 of the Companies Rules, namely, to file and serve a notice of its intention to appear at the hearing of the appellant's petition. The respondent was also required to serve the affidavits opposing the petition seven clear days before the hearing of the petition viz. by 8 March, 2011. This is a mandatory requirement under s. 22 of the Companies Rules.

7. The failure by the respondent to comply with the requirements of ss. 20 and 22 of the Companies Rules is one of the grounds of this appeal. The other ground of appeal is that the learned primary judge erred in granting a stay sought by the plaintiff because the respondent had failed to comply with the mandatory requirements of ss. 20 and 22 of the Companies Rules, which obliged the respondent to give notice of its intention to appear on the hearing of the petition. It should be noted that the respondent has conceded that it did not comply with the requirements of ss. 20 and 22; however, it has argued nonetheless that the Court had the inherent power to grant the stay, given that the amount the appellant had claimed was owed was substantial and there were doubts as to whether the appellant was actually owed that amount.

8. The amount demanded by the appellant, according to its Statutory Demand, is the total amount of advances the appellant allegedly made to the respondent up to 11 August, 2010.

9. The essence of the appellant's grievance in this appeal is that because the respondent had failed to file and serve its intention to appear on the hearing of the appellant's petition as required under s. 20 of the Companies Rules and the respondent's failure to file and serve its affidavits opposing the petition on the appellant seven clear days before the time appointed for the hearing of the petition as required under s. 22 (1) of the Companies Rules, the respondent was obligated to meet the appellant's Statutory Demand. It was submitted that if the respondent wanted to be heard on the petition, it should have applied for a special leave to be heard on the petition and to use and rely on its affidavits. The appellant argued that pursuant to s. 20 (3) of the Companies Rules, the respondent having failed to comply with its statutory obligations had no automatic right to be heard even on stay.

10. Under s. 22 (1), the respondent had to serve its affidavits opposing the petition on the appellant seven clear days before the time appointed for the hearing of the petition. The appellant then had to file affidavits, if any, in response to the respondent's affidavits three clear days after the date of service of the respondent's affidavits opposing the petition. The copies of the appellant's affidavits in response then had to be served on the respondent or his lawyer without delay. These requirements are also mandatory.

11. Under s. 21 of the Companies Rules, after the respondent had failed to serve notice of its intention to appear on the hearing of the petition, the appellant should have filed a statement stating that no one had filed an intention to appear on the hearing of the petition, before the hearing of the petition on 15 March, 2011. The appellant does not appear to have complied with this requirement. However, we do not consider this apparent omission by the appellant as being fatal to the appeal because it was evidently a mere formality. In any event, nothing turns on the omission because the error complained of concerns the decision of the primary court to hear and grant a stay application which, it was claimed, was not properly before it.

12. The respondent argued that whilst it is true that it failed to comply with the mandatory requirements of ss. 20 and 22, there was a serious dispute regarding the amount of the debt the appellant claims is owed. Therefore the grant of stay of the proceeding was proper and warranted.

13. A Certificate of Registration of the charge for the amount claimed by the appellant was registered and sealed by the Registrar of Companies on 13 September, 2010. A Statutory Demand for the debt was served on one Kevin Guba, a Director of the respondent on 5 November, 2010, at the registered office of the respondent. In that Statutory Demand, the respondent was given one month to either pay the debt or enter into a compromise or compound it or give a charge over the property of the company (respondent) to secure payment to the reasonable satisfaction of the appellant.

14. In paragraph 6 of the Statutory Demand, the respondent was put on notice that a failure to comply with the Demand within one month, or within such longer period as the Court may order, would constitute a ground for the appellant to apply for the winding up of the respondent under s. 291 of the Companies Act, 1997. In the Statutory Demand the respondent was also reminded that it may apply to the Court under s. 338 (1) of the Companies Act, to set aside the Statutory Demand, and that such an application should be served on the appellant within one month from the date of service of the Statutory Demand.

15. None of the above steps were taken by the respondent in order set aside or challenge the Statutory Demand.

16. Following the failure by the respondent to pay the alleged debt, the appellant filed the petition on 27 January, 2011, to wind up the respondent. The
petition was published in the National Gazette No. G53 on Thursday 24 February, 2011.

17. In the Gazette, it was directed that the petition be heard on 10 March, 2011 at 9.30am. The judgement of the learned primary judge appears at pages 148 to 151 of the Appeal Book. It is noted from the judgment that the learned primary judge noted that given the respondent's failure to comply with ss. 20 and 22 of the Companies Rules, the respondent had no automatic right to apply for a stay. His Honour further noted that the respondent should have obtained special leave before applying for a stay of the proceeding. The relevant parts of his Honour's judgement appear at pages 150 to 151, where his Honour said:

"And so I am guided by what appears to be the import and clear reading of section 297. The opening part, I repeat again. "At any time after the making of an application to the court under section 291 (2)(c) to appoint a liquidator of a company, before a liquidator is appointed, the company or a creditor or shareholder of the company may" do those two things there - one of which is apply for stay.

So, I feel the application is properly granted under section 297 and the company is entitled to make the application it is (sic.) but we have a problem on failure to come within the requirements of the rules in terms of filing an appearance and without filing an appearance, seek leave of the court. Now, in this case, a document called a notice of intention to defend has been filed, I note, by my quickly going through it. That is a document dated 8 March, 2011, that has been filed. The petition for wind up has been filed on 27 January, 2007, a period of time has lapsed.

So, whilst the applicant company may have had the right to file and serve that notice assuming it is in order, that does not give him automatic right to take any step except with leave of the court. That much has been made clear by the Supreme Court in Philip Takori v. That State, that is that if a notice of intention to defend is filed outside the time period stipulated, that party cannot take any further step in the proceedings except with leave of the court.

So, the first thing the plaintiff - sorry, the company applicant should have applied for is leave of the court to pursue its application. That leave was not sought. But when an objection is raised in a knee-jerk reaction counsel for the company asked for leave. Now, all that is not proper. It is inappropriate. It is improper conduct, I should say, on the part of counsel who is representing the parties. If he knows that his client is not coming strictly within the terms of the law or the rules, first things first, leave ought to have been sought. Leave having not been sought; he is not quite entitled to proceed.

But as I said, noting all of those failures on the part of the company, I am also mindful of the very fact being drawn to the court's attention of orders specifically made by the court not being honoured by the petitioner who has advanced monies and part of the debt, it has been put to me, includes advances made purportedly to the company. But the company is saying those were advances made to individuals. And so that is why I said both parties have not come to this court with clean hands.

So, the fairest thing to do in the circumstances in my view, therefore, is to stay these proceedings and if the plaintiff has issued proceedings, which I note there is no contest the plaintiff - sorry, petitioner has issued proceedings for damages, this aspect of its claim as per these proceedings here can easily be taken up as part of the damages the petitioner can seek to recover from the defendant and those can be properly pleaded, defence properly taken and matter proceeded that way.

I also feel that when there is a serious contest on the - on one's indebtedness, the court should be slow to proceeding (sic.) by way of wind up petition - it should be slow to proceed by way of wind up petition because that is almost a summary judgment. That is allowing a company to proceed in a summary manner. Yes, accepting notice of statutory demand being served and all that maybe in order. But the moment there is a debt claimed that should - sorry, dispute on the debt, that should be properly ascertained and crystallized before there can be a wind up. Winding up a company is the ultimate. It is the ultimate. And in order to get to that ultimate, the indebtedness must be made clearly or established clearly beyond must of a contest".

18. With the greatest of respect, we are of the opinion that given the above findings of the learned primary judge, his Honour fell into an error in allowing the respondent to apply for a stay of the proceeding and to grant the stay without the respondent first obtaining special leave to make such an application. We are of the opinion that after the respondent failed to comply with the mandatory requirements of s. 20, the respondent lost its right to be heard even on stay. The only way it could be heard was with special leave of the court under s. 20 (3). In our view the failure by the respondent to comply with the mandatory requirements of ss. 20 and 22 is fatal: Takori v. Yagari [2008] PGSC 3 SC905. It was incumbent on the respondent to strictly comply with the requirements of ss. 20 and 22, because they regulate the practice and procedure in respect of a Statutory Demand and a petition to wind up a company: PNG Harbours Board v. Chris Textiles Ltd (2005) N2855 and Department of Works v. In the matter of International Construction (PNG) Ltd (In Liquidation) (2009) SC1051.

19. Compliance with the aforementioned statutory requirements goes to the jurisdiction of the Court: Fly River Provincial Executive (2007) SC917; Dr Arnold Kukari v. Hon. Don Pomb Polye [2008] PGSC4 SC907 and National Capital Limited v. Loi Bakani, Governor, Bank of Papua New Guinea, SC192. The respondent's failure to comply with the mandatory statutory requirements rendered the respondent's application for stay incompetent and the primary Court had no jurisdiction to grant it: Curtain Bros (PNG) Ltd v. University of Papua New Guinea [2005] PGSC35 SC788. For the same reason, the application was also an abuse of process, as it was not properly before the Court. What was properly before the Court was the hearing of the appellant's petition to appoint a liquidator. The scheduled hearing of the petition did not take place, and the summary manner in which the learned primary judge granted the stay amounted to a denial of the appellant's right to be heard on the respondent's application for stay. This clearly amounted to a breach of natural justice. What then would be the appropriate relief for the appellant?

20. Given the circumstances of the case, we do not think it is appropriate for us to grant the relief sought by the appellant, which is to appoint a liquidator and to nominate a bank for the purposes of the liquidator opening a Trust Account.

21. Consequently, we make the following Orders:

i. The appeal is allowed.

ii. The decision and the Orders of the learned primary judge given on 15 March, 2011, are quashed.

iii. The matter is remitted back to the Civil Track for the respondent to apply for special leave under s. 20 (3) of the Companies Rules, to be heard on the hearing of the petition. Such an application must be made before a different Civil Track judge within fourteen (14) days from the date of this Order.

iv. In the event that the respondent fails to comply with Order (iii) above, the respondent will be deemed to have conceded the relief sought in paragraph 6 of the petition and the appellant will be automatically entitled to the Orders sought under paragraph 6 of the petition, which are as follows:

1. A liquidator be appointed by the Court pursuant to Section 291 (2) (c) of Companies Act for purposes of Liquidating YEMA GAIPA DEVELOPERS LIMITED;

2. James Kruse of Deloitte Touche Tohmatsu be appointed as the Liquidator for the purposes of Liquidating YEMA GAIPA DEVELOPERS LIMITED;

3. The Bank in which the Liquidator is to open a Trust Account be Bank of South Pacific Limited, Port Moresby Branch;

4. The Liquidator pay the Petitioner's costs of and incidental to this petition to be taxed on a common fund basis;

5. Time be abridged for entry of this Order to the time of settlement with the Registrar which shall take place forthwith.

v. The respondent will pay the appellant's costs of and incidental to the appeal.

Orders accordingly.

____________________________________________________________
Young & Williams Lawyers: Lawyers for the Appellant
PNG Legal Services Lawyers: Lawyers for the Respondent