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Independent Public Business Corporation of Papua New Guinea v Motor Vehicles Insurance Ltd [2015] PGNC 296; N6584 (17 June 2015)

N6584

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS 1252 OF 2010

BETWEEN:
INDEPENDENT PUBLIC BUSINESS CORPORATION
OF PAPUA NEW GUINEA

Plaintiff

AND:
MOTOR VEHICLES INSURANCE LIMITED
First Defendant/Second Cross Claimant

AND:
NOMINEES NIUGINI LIMITED
Second Defendant/First Cross Defendant to Second Cross Claim

AND:
NATIONAL SUPERANNUATION FUND LIMITED
Third Defendant

AND:
BENJAMIN TERENCE O’DWYER. TERENCE JAMES O’DWYER and BACKWELL LOMBARD CAPITAL PTY LTD
Second Cross Defendants to Second Cross Claim

AND:
DR JOHN MUA

Third Cross Defendant to Second Cross Claim

AND:

BERNARD FONG

Fourth Cross Defendant to Second Cross Claim

Waigani: Hartshorn J
2015: 13^th And 17^th June

APPLICATION pursuant to Order 12 Rule 1 and Order 14 Rules 10 (1) and (4) National Court Rules – injunction to restrain payment of dividends

Cases cited:

Airlines of Papua New Guinea Ltd v. Air Niugini Ltd (2010) N4047
American Cyanamid Company v. Ethicon Ltd (1975) 1 All ER 594
Canopus No. 16 Ltd v. Maisi Trust Co Ltd (2008) N3401
Collector of Taxes v. Bougainville Copper Ltd (2007) SC853
Craftworks Niugini Pty Ltd v. Allan Mott (1997) SC525
Eastern Highlands Provincial Government v. Aita Ivarato [1998] PNGLR 268
Fiona Trust & Holding Corporation v. Yuri Privalov [2008] EWHC 1478
Golobodana No 35 Ltd v. Bank of South Pacific Ltd (2002) N2309 Chief
Keyapaka Investments Pty Ltd v. Dat (1998) N1772
Louis Medaing v. Ramu Nico Management (MCC) Ltd (2010) N4127
Ramu Nico Management (MCC) Ltd v. Eddie Tarsie (2010) SC1075
Sioti Bauf and Lavoi Nodai v. Poliamba Pty Ltd [1990] PNGLR 278
Tarsie v. Ramu Nico (MCC) Ltd (2010) N3960

Counsel:

Mr. K. Imako, for the Plaintiff
Mr. E. G. Andersen, for the First Defendant/Second Cross Claimant
Mr. P. A. Lowing and Mr. G. Geroro, for the Second Defendant/First Cross Defendant to Second Cross Claim
Mr. J. Brooks, for the Third Defendant

17^th June, 2015

1. HARTSHORN J: This is a decision on an application for an injunction to restrain the payment of dividends.

2. Motor Vehicles Insurance Ltd (MVIL) the first defendant second cross claimant applies for amongst others injunctive relief to restrain Nominees Niugini Ltd (NNL) the second defendant and first cross defendant to the second cross-claim, from receiving the 2014 final dividend on any Bank South Pacific Ltd (BSP) shares in its name. A similar injunction is sought to restrain BSP from paying such dividend to NNL. Further, orders are sought for BSP to pay the dividend and all future payments payable on BSP shares held by NNL, into the National Court Registry Trust Account pending the determination of this proceeding substantively.

3. MVIL relies upon Order 12 Rule 1 and Order 14 Rules 10 (1) and (3) National Court Rules.

4. The application is supported by the Independent Public Business Corporation Ltd (IPBC) the plaintiff, and is opposed by NNL. National Superannuation Fund Ltd the third defendant, takes no position.
Background

5. This proceeding concerns an Equity Monetisation Contract (EMC) between MVIL and NNL. IPBC seeks amongst others to set aside the EMC as it is claimed that it was entered into in breach of certain statutory requirements.

The application

6. MVIL seeks to prevent the payment to NNL of the 2014 dividend and any future money that becomes payable on BSP shares in the name of NNL and to have the money preserved by having it paid into court pending the ultimate outcome of the proceeding. This is necessary, it is submitted, as damages would not be an adequate remedy and the balance of convenience favours the money being preserved.

7. NNL submits amongst others that the relief sought is not necessary as damages would be an adequate remedy. Further, MVIL should not be entitled to the relief that it seeks as it has not come to court with clean hands.

Law

8.

a) As for Order 12 Rule 1 National Court Rules, this provision in essence allows the court at any stage of proceedings on the application of any party, to make such orders as the nature of the case requires notwithstanding that the applicant does not make a claim for those orders in the originating process. As I said in Canopus No. 16 Ltd v. Maisi Trust Co Ltd (2008) N3401, this Rule provides for what was permitted in Collison v. Warren [1901] UKLawRpCh 65; [1901] 1 Ch 812. In that case a defendant successfully obtained a mandatory injunction against the plaintiff even though he had not filed a counterclaim, as what he was seeking arose out of the same contract upon which relief was being sought in the proceedings.

b) Order 14 Rule 10 is as follows:

“10 Preservation of property

(1) In proceedings concerning any property, or in proceedings in which any question may arise as to any property, the Court may make orders for the detention, custody or preservation of the property.

(2) An order under Sub-rule (1) may authorize any person to enter any land or to do any other thing for the purpose of giving effect to the order.

(3) In proceedings concerning the right of any party to a fund, the Court may order that the fund be paid into Court or otherwise secured.”

9. MVIL relies upon Keyapaka Investments Pty Ltd v. Dat (1998) N1772 a decision of Injia J (as he then was). His Honour held that the court has unlimited jurisdiction to issue injunctions, interim or permanent, for the preservation of property, real or personal, whether the property be situated on customary land or registered land.

10. MVIL submits as follows as to the various parts of Rules 10 (1) and (3). As to ‘Property’, in the present case the orders sought are for preservation of the Dividend, the right to a dividend being a chose in action and a form of property for the purposes of Order 14 Rule 10 (1) and a ‘fund’ for the purposes of Rule 10 (3).

11. As to ‘Proceedings concerning’ or ‘in which a question may arise as to’ that property, MVIL submits that the dividends on the Shares have always been the subject matter of the action. Paragraph 6 of the original prayer for relief in the original statement of claim by IPBC is as follows:

“6. An order that NNL account for and pay to MVIL, in a sum to be determined by the Court, all dividends paid on the 530,105,000 BSP shares from the aforesaid transfer date to judgment and or payment.”

12. Further, in MVIL’s second cross claim filed 27^th April 2015, MVIL claims against NNL:

“b. The return in full to MVIL of all BSP shares that were delivered to NNL pursuant to the terms of the EMC (and which have not previously been returned to MVIL) including all gross dividends and accretions thereon from the date of delivery of those shares to NNL to the date of judgment hereon, and in exchange therefor the return to NNL from MVIL of the sum drawn down by MVIL under the EMC plus interest at the rate specified in the Judicial Proceedings (Interest on Debts and Damages) Act from the date of the said drawdown to the date of judgment hereon;”

13. As to ‘detention custody or preservation’ of the property, the orders sought do not seek payment of the disputed property to MVIL but its payment into court, which is the classic form of preservation of sums of money.

14. Given the above and in the absence of any submission to the contrary by NNL, I am satisfied that the orders sought are within the terms of Order 14 Rules 10 (1) and (3).

Discretionary tests

15. MVIL submits that the case law is that the usual tests for interim injunctions should be met for a successful application pursuant to Order 14 Rule 10. Reliance is placed upon the decisions of Tarsie v. Ramu Nico (MCC) Ltd (2010) N3960, Louis Medaing v. Ramu Nico Management (MCC) Ltd (2010) N4127 and Ramu Nico Management (MCC) Ltd v. Eddie Tarsie (2010) SC1075. NNL does not submit otherwise as to the case law and also submits that the usual principles on the grant of interim relief apply.

Clean hands - disclosure of material facts

16. However before a consideration of the usual principles, NNL makes submissions on three other matters that I will deal with first. NNL submits that this court’s power to grant an injunction is discretionary, an injunction is an equitable remedy and that an applicant for an injunction must disclose all material facts. In not doing so, it is submitted, MVIL does not come to court with clean hands. A failure to disclose material facts is fatal to an injunction application and here it is submitted, MVIL has not disclosed material facts.

17. Reliance is placed upon the cases of Golobodana No 35 Ltd v. Bank of South Pacific Ltd (2002) N2309 and Eastern Highlands Provincial Government v. Aita Ivarato [1998] PNGLR 268 in which the decision of Sheehan J in Sioti Bauf and Lavoi Nodai v. Poliamba Pty Ltd [1990] PNGLR 278 was referred to with approval. I refer also to my decision in Airlines of Papua New Guinea Ltd v. Air Niugini Ltd (2010) N4047 which referred to the above cases on this point.

18. In Sioti Bauf (supra), Sheehan J said:

“The court held that a party seeking to obtain an interim injunction, ex parte, is under an obligation to demonstrate utmost good faith and to bring to the attention of the court all facts material to the applicants right to the injunction as well as any material which could be put in favour of the defendant. He had (sic) a duty to make full and proper disclosure.”

19. Notwithstanding that in that passage the reference is to relief sought ex parte, the obligation remains when application is made inter partes, in my view.

20. The facts not fully disclosed by MVIL, submit NNL, are those surrounding the proceeding WS 1300/13 between NNL and MVIL, including how default judgment was entered against MVIL. It is submitted that MVIL did not take proactive steps to defend WS 1300/13. MVIL and IPBC were served with the Writ of Summons but they did not file relevant documents to defend the claim even though they were fully aware of the proceeding and the effect that failure to file the relevant documents would have on the outcome of WS 1300/13.

21. As to whether these facts are material to MVIL’s right to the injunction sought, if they are material, then that is in relation to whether MVIL has a serious question to be tried. As counsel for NNL conceded in his oral submissions that MVIL does have a serious question to be tried, it is not necessary for me to consider this issue further.

Clean hands – contempt proceedings

22. NNL also submits that MVIL has not come to court with clean hands for another reason. This is because NNL commenced contempt proceedings against NNL when the Chairman of MVIL caused NNL to be in a position where it could not comply with a court order. The Chairman of MVIL, it is submitted, caused the Inland Revenue Commission to issue a s.272 notice so that NNL would not receive funds the subject of a court order. The issue of the contempt proceedings was done male fides and was improper, it is submitted. This application to restrain the payment of dividends is an immediate and “necessary” connection “between the misconduct and the equity sued for” as posited in the Fiona Trust case, it is submitted.

23. NNL relies upon the English and Wales High Court decision of Fiona Trust & Holding Corporation v. Yuri Privalov [2008] EWHC 1478 and the following passage of Mr. Justice Andrew Smith:

“As to what constitutes a sufficiently close connection for the maxim to apply so as to deprive an applicant of equitable relief that he would otherwise have been granted, the test commonly cited is that of “an immediate and necessary relation to the equity sued for”, which was propounded [...] in Dering v Earl of Winchelsea (1787) “If [the defendant’s submission relying upon the plaintiff’s misconduct] can be founded on any principle, it must be, that a man must come to a Court of Equity with clean hands and; but when this is said, it does not mean a general depravity; it must have an immediate and necessary relation to the equity sued for; it must be a depravity in a legal as well as a moral sense” [...]. I confess that for my part I find it difficult to understand what precisely is meant by the stipulation that there must be a “necessary” connection between the misconduct and the equity sued for. [...] [T]he question whether the maxim should apply to deprive an applicant for relief will often arise when trickery on the part of the applicant designed to promote his case has been detected and so in the event the misconduct does not assist him to advance his case, but nevertheless, leaving aside the question of “clean hands”, he would be granted equitable relief. In such circumstances it cannot be that the applicant needed to succeed in his trickery in order to obtain equitable relief. It might be that the connotation of “necessary” is that the misconduct is inherently directed towards the equitable relief sought. But what is clear from the authorities is that there must be a sufficiently immediate relationship between the misconduct and the relief. The enquiry whether the maxim is to be applied is, of its nature, fact-sensitive, and there is a danger in making any general statements about the limits of its application. However, the authorities do, I think, justify these observations: that the maxim is directed, at least typically, to conduct that is in some way immoral and deliberate; that not all misconduct deprives an applicant of equitable relief and the misconduct may be too trivial for it to import this consequence; and the court will assess the gravity and effect of misconduct cumulatively, so that, while the elements of misconduct taken individually might be too trivial for the maxim to be applied, they might be sufficient taken together.”

24. Even if the conduct as detailed in the conversation between Mr. Geroro and Dr. Ngangan is correct, can it be said that it has “an immediate and necessary relation to the equity sued for”; and “a depravity in a legal as well as a moral sense”, is it conduct that is in some way immoral and deliberate and is it misconduct?

25. The conduct occurred in early 2014, more 12 months ago. In my view it cannot be described as depraved in a legal or moral sense or immoral. It may have been deliberate, but is it misconduct to give information about someone else to the Internal Revenue Commission?

26. I am not satisfied that the conduct about which complaint is made comes within the category of behaviour referred to in the passage from the Fiona Trust case to which counsel for NNL would have this court follow. I need not consider this issue further.

Undertaking as to damages

27. NNL takes issue with the undertaking as to damages given by MVIL on the ground that it does not cover third parties. From a perusal of it, I am satisfied that the undertaking as to damages given by MVIL is appropriate in the circumstances and I refer to para 90 of Ramu Nico Management (MCC) Ltd v. Tarsie (2010) SC1075 in this regard.

28. Having dealt with these matters I now consider the usual injunctive relief principles.

Injunctive relief

29. The first question is whether MVIL has demonstrated a serious case to be tried on the substantive proceedings: Ramu Nico Management (MCC) Ltd v. Tarsie (2010) SC1075; American Cyanamid Company v. Ethicon Ltd (1975) 1 All ER 594; Craftworks Niugini Pty Ltd v. Allan Mott (1997) SC525 and Chief Collector of Taxes v. Bougainville Copper Ltd (2007) SC853.

30. As referred to previously, counsel for NNL in his oral submissions conceded this point.

31. The next question is whether damages would be an adequate remedy. The rationale for the court considering whether damages would be an adequate remedy was explained by Lord Diplock in American Cyanamid (supra) at 408:

“[t]he court should go on to consider whether, if the plaintiff were to succeed at the trial in establishing his right to a permanent injunction, he would be adequately compensated by an award of damages for the loss he would have sustained as a result of the defendant’s continuing to do what was sought to be enjoined between the time of the application and the time of the trial. If damages... would be an adequate remedy and the defendant would be in a financial position to pay them, no interim injunction should normally be granted, however strong the claimant’s claim appeared to be at that stage.”

32. MVIL submits that an award of damages would not be ‘adequate’ because NNL appears to have no assets with which to pay such damages, NNL has failed to give any explanation or account whatsoever for a number of other sizeable amounts of MVIL money which it has received, the Dividend may be lost to the Internal Revenue Commission because of NNL’s tax affairs, and NNL has a history of non-compliance with its legal obligations.

33. Further, NNL is a nominee company with no apparent assets with which to pay any damages award to the extent that it includes the Shares. Despite the opportunity, NNL has failed to attempt to produce any evidence of its ability to pay and in NNL’s defence to MVIL’s cross claim it specifically pleads that it is only a nominee company.

34. The fate of three sums of money paid to NNL totaling over K1.86 million has been explicitly put in question without NNL providing any answer. Further NNL’s bank accounts are subject to a garnishee notice by the Internal Revenue Commission, and if the Dividend is paid to NNL and seized by the Commission as a consequence of NNL’s personal tax situation and this court rules that the Dividend was MVIL’s property it may be lost to MVIL forever or require MVIL to contest with the Internal Revenue Commission as to its rights to the Dividend. The Income Tax Act makes no provision for interest to be paid by the Internal Revenue Commission on refunded monies.

35. There is a history of non compliance by NNL with its legal obligations, including failing to lodge annual returns, failing to pay K22.8 million or such lesser sum as it had access to to the court in SCA44/14, and accumulating tax liabilities of nearly K30 million. With respect to the tax position of NNL, it is again conspicuous that NNL has failed to produce to the court any evidence of any substantive objection to the Assessment whatsoever.

36. NNL submits that MVIL will not suffer irreparable loss and that damages will be an adequate remedy for the following reasons:

a) MVIL has recovered K41.9 million of the K100 million Loan from Woodlawn Capital Pty Ltd in February 2015, in proceedings instituted in the Supreme Court of New South Wales. It will not be prejudiced if it was not able to enjoin the dividend payment;

b) The dividends in question are in the sum of approximately K1,326,917.20, an amount that can be recovered from NNL, and is easily traceable as NNL holds a bank account in Papua New Guinea. MVIL concedes that NNL would have resources to pay damages (paragraph 20, affidavit of Bernard Eliuda dated 26^th of May 2015). Furthermore, Mr. John Leahy, as a Papua New Guinea tax law expert, deposes that, in his opinion, NNL’s current tax liability is substantially less than the amount of the default judgement. Therefore, there should be no proper basis for the Inland Revenue commission to garnishee the dividend amount.

c) The prejudicial effect to MVIL and IPBC of not having the dividends preserved would be insignificant given both entities are funded by the State. Furthermore, there is no evidence to suggest that either of the respective businesses, assets, credit standing or financial position of MVIL and IPBC are going to be adversely affected to the point of bankruptcy or some irreparable situation. NNL, on the other hand, is a private enterprise which has not had the benefit of its ownership of BSP shares of the last 5 years. This has been due primarily to the inordinate delay caused by IPBC’s procrastination through sporadic and continuous amendments of its pleadings and change of lawyers, and, more recently, the extreme switch in position taken by MVIL.

d) Crucially, the grant of IPBC and/or MVIL’s enjoinder application would be pre-empting or pre-judging the decision of the Supreme Court in SCA44/14 relating to the validity of the same underlying transaction giving rise to the respective claims of the parties in each separate proceeding. There could potentially be a Supreme Court decision binding on this court that prevented IPBC and MVIL from challenging the legality of the EMC.

37. As to NNL’s submission that MVIL will not suffer irreparable loss, that is not an answer to whether MVIL would be adequately compensated by an award of damages and whether NNL would be in a financial position to pay them. Neither is what MVIL has recovered, and that it will not be prejudiced if its application is refused as it is funded by the State. As to the apparent concession by MVIL that NNL would have resources to pay damages, counsel for MVIL submitted that is not the case given the actions taken by the Inland Revenue Commission and the evidence of Mr. John Leahy that amongst others, NNL only has non liquid assets being in the main receivables representing loans made by it to its related party in Australia.

38. Similarly, that this application and a similar application by IPBC would be pre-empting or pre-judging the decision of the Supreme Court in SCA 44/14 is also not an answer to whether MVIL would be adequately compensated by an award of damages and whether NNL would be in a financial position to pay them.

39. Given the evidence filed on behalf of MVIL and NNL, and after considering the submissions of counsel I am not satisfied that an award of damages would be adequate for the reasons submitted by counsel for MVIL.

40. The next question then is where does the balance of convenience lie?

41. MVIL submits that NNL has not bought any evidence of any particular inconvenience that it will suffer as a result of the Dividend being paid into court. The property would be preserved by the National Court. If MVIL ultimately fails in its case it is a substantial organisation capable of paying any damages arising from the Dividend being held at court rather than in the hands of NNL. Conversely, there is a substantial risk as outlined previously, that if paid to NNL and subsequently found to have been MVIL’s ‘property’ or ‘fund’ the Dividend could be lost to MVIL for all practical purposes.

42. Counsel for NNL submitted that because in its view there could be a Supreme Court decision binding on this court that prevents IPBC and MVIL from challenging the legality of the EMC, the balance of convenience favours that the relief sought not be granted.

43. If the scenario referred to by NNL came to pass, if the money the subject of the application had been paid into court, it will have been preserved for whoever is ultimately successful. I am of the view that the balance of convenience favours the granting of the orders that MVIL seeks.

Orders

44.

a) pursuant to Order 12 Rule 1 and Order 14 Rules 10 (1) and (3) National Court Rules (NCR), an injunction is granted restraining the second defendant from receiving in its own name any monies representing the 2014 final dividend payable by Bank South Pacific Limited (BSP) on any and all shares in BSP recorded by BSP as being in the name of Nominees Niugini Limited (the ‘Shares’) save as is set out herein.

b) pursuant to Order 12 Rule 1 and Order 14 Rules 10 (1) and (3) NCR, an injunction is granted restraining BSP from paying to the second defendant, any final dividend on the Shares for the financial year ended 2014 save as is set out herein.

c) pursuant to Order 12 Rule 1 and Order 14 Rules 10 (1) and (3) NCR, BSP shall pay the 2014 final dividend payable on the Shares directly into the National Court Registry Trust Account pending determination of the substantive proceedings in WS 1252 of 2010.

d) pursuant to Order 12 Rule 1 and Order 14 Rules 10 (1) and (3) NCR, all future dividends, capital distributions or other payments whatsoever payable on the Shares shall be paid directly into the National Court Registry Trust Account pending determination of the substantive proceedings in WS 1252 of 2010.

e) the parties are at liberty to apply to amend, vary or set aside these orders on 3 clear day’s notice.

f) the second defendant shall pay the first defendant’s costs of this motion.

g) the time of entry of these orders is abridged to the time of settlement by the Registrar which shall take place forthwith.

____________________________________________________________

Allens Lawyers: Lawyers for the Plaintiff
Gadens Lawyers: Lawyers for the First Defendant
Leahy Lewin Lowing Sullivan Lawyers: Lawyers for the Second Defendant
Ashurst Lawyers: Lawyers for the Third Defendant