Tavul v Konga [2018] PGNC 499; N7599 (6 December 2018)

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AND:
HON. NAKIKUS KONGA in his personal capacity and as Governor of the East New Britain Provincial Government and Chairman of the East New Britain Provincial Executive Council
First Defendant

AND:
ISAAC MINICUS, RONALD KUK, JACK DIUVIA, LEVI MANO, DANIEL ROLPAGAREA and EPHREDDIE JUBILEE, as the Board of East New Britain Development Corporation Limited
Third defendants

MOTION TO DISMISS – Order 12 Rule 40 of the National Court Rules – whether cause of action disclosed – whether action frivolous or an abuse of the court process

COMPANIES ACT 1997 & ORGANIC LAW ON PROVINCIAL GOVERNMENTS AND LOCAL LEVEL GOVERNMENTS – company incorporated under the Companies Act and owned by the provincial government – section 6 of the Organic Law on Provincial Governments and Local Level Governments – powers and functions of a provincial government and a provincial executive council – Organic Law on Provincial Governments and Local Level Governments in general – whether meeting by a provincial executive council is the same as a shareholders meeting - representation of the provincial government in the shareholders meeting – manner and process – sections 86, 87, 101, 102, 104 and 105 of the Companies Act - appointment of proxy as a representative for the provincial government – sections 10(1)(2) & (3) and section 23(1)(4) & (5) of the Organic Law on Provincial Governments and Local Level Governments, and schedule 2.6 of the Companies Act – types of shareholders meetings discussed – sections 101, 102, 103 and 104 of the Companies Act – shareholders meeting in this case – notices to directors of a shareholders meeting – sections 105, 134 and schedule 2.2 of the Companies Act – validity of appointment of directors by shareholder – whether due processes had been followed – whether injunctive relief warranted under the circumstances

The plaintiffs were board members of a company called East New Britain Development Corporation Ltd. The company was incorporated under the Companies Act of 1997. The East New Britain Provincial Government was its sole shareholder. The plaintiffs claimed that the defendants had no right or authority to terminate them as directors and to appoint new directors, to the company. They sought declaratory relief against the defendants which included recognition or re-instatement of their respective positions as company directors.

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
Miai Larelake v. Hon Havila Kavo (2008) N3563
Maps Tuna Ltd v. Manus Provincial Government (2007) SC857

Mr N Kopunye with instructing counsel Ms S. M. Kiene, for the Plaintiffs
Mr Killian, for the First and Second Defendants
Mr N. Kubak, for the Third Defendants

1. ANIS J: The plaintiffs are purported directors of a company called East New Britain Development Corporation Ltd (ENBDC or the company). They commenced this proceeding to challenge the actions of the first and second defendants who purportedly removed them as directors of ENBDC.

2. The first and second defendants argued that the termination of the plaintiffs and the appointments of the third defendants had followed due processes. The third defendants supported the first and second defendants.

3. The trial was completed on 11 October 2018. Presentation of submissions by the parties proceeded afterwards on 15 October 2018. I reserved my decision thereafter to a date to be advised.

5. The parties tendered a total of 15 affidavits. The plaintiffs filed 6 affidavits, the first and second defendants filed 1 affidavit, and the third defendants filed 8 affidavits. The plaintiffs called 2 of their witnesses who were cross-examined, namely, Henry Tavul and Molly Pesso Waninara. All the other evidence were tendered by consent. That said, I note one affidavit which was tendered without the benefit of cross-examination which was the affidavit of William Lamur which was filed on 5 October 2018. The documentary evidence are marked as exhibits and are set out in a table format as follows:

Exhibit No.	Description	Date filed
P1	Affidavit, Henry Tavul	03/09/18
P2	Affidavit, Hosea Turbarat	03/09/18
P3	Affidavit, Abigail Waula	03/09/18
P4	Affidavit, Henry Tavul	06/09/18
P5	Affidavit, Molly Pesso-Waninara	05/10/18
P6	Affidavit, William Laudin Lamur	05/10/18
B1	Affidavit, Nakikus Konga	18/09/18
C1	Affidavit, Isaac Minicus	13/09/18
C2	Affidavit, Isaac Minicus	27/09/18
C3	Affidavit, Ronald Kuk	27/09/18
C4	Affidavit, Jack Diuvia	27/09/18
C5	Affidavit, Daniel Rolpagarea	27/09/18
C6	Affidavit, Ephreddie Jubilee	28/09/18
C7	Affidavit, Levi Mano	28/09/18
C8	Affidavit, Isaac Minicus	09/10/18

6. The plaintiffs commenced this proceeding on 3 September 2018. On the next day, they sought and were granted interim restraining orders against, amongst others, their removal as directors of ENBDC. In their originating summons, they seek, and I read in part:

7. The plaintiffs’ claim is this. They say that they are and continue to remain as duly elected directors of ENBDC. They say that the actions of the first and second defendants, that is, in purporting to terminate them as directors and also in purporting to appoint the third defendants as the new directors of ENBDC, are null and void. The plaintiffs say that these actions breach provisions for appointment and termination of directors, as provided for under the constitution of ENBDC and under the Companies Act 1997 (the Companies Act).

8. Prior to the trial, the third defendants had a pending application to dismiss the proceeding. The application was filed on 27 September 2018. It was then agreed by consent that the application would be heard together with or at the trial of the matter. Therefore, and at the hearing, parties also filed submissions and presented arguments in relation to the application.

10. The third defendants argue that the proceeding should be dismissed pursuant to Order 12 Rule 40 of the National Court Rules because, (i), they say that the proceeding discloses no reasonable cause of action, (ii), they say that the proceeding is frivolous and vexatious and, (iii), they say that the proceeding amounts to abuse of the court process.

12. Let me try to understand this. The status quo of the matter was maintained with interim restraining orders obtained by the plaintiffs on 4 September 2018. As it is, the plaintiffs continue to remain as directors of ENBDC. They have been directors of the company for many years before this dispute in 2018. The company is solely owned by the East New Britain Provincial Government (ENBPG). The plaintiffs claim that their purported termination by the first defendant was done contrary to the requirements of the Companies Act and the company’s constitution. They want the Court to determine whether the first and second defendants have powers to terminate their appointments, and, whether their said actions, had followed due process under the Companies Act or the ENBDC’s constitution.

13. The defendants submit these. They say that the plaintiffs have no standing in bringing this proceeding because they are no longer directors of ENBDC. They say that because the plaintiffs are no longer directors of ENBDC, they have no right to bring a proceeding such as this. They also say that the plaintiff’s cause of action should be for damages and therefore must be properly pleaded in a writ of summons and not under an originating summons. The defendants also say that the plaintiffs have wrongly named the second defendant as a party. They submit that the second defendant cannot be regarded as a legal person pursuant to section 6 and section 23 of the Organic Law on Provincial Governments and Local-Level Governments (OLPGLLG). The defendants refer to section 142(4) of the Companies Act. They say that the plaintiffs have abused the Court process and the Court should not have granted the interim orders because they were already terminated as directors of ENBDC before they were restored back by interim orders of the Court. They argue that the plaintiffs’ actions and the Court’s decision in restoring them as directors in the interim, were in direct breach of section 142(4) of the Companies Act. Finally, the defendants argue that the correct mode of proceeding in this case, should have been to challenge the decision of the Registrar of Companies pursuant to section 408 of the Companies Act, that is, the Registrar’s decision in accepting the company forms and to register the names of the third defendants as the newly appointed directors of ENBDC. They say that the plaintiffs have overlooked that process and have instead gone ahead to file this proceeding. They argue that this therefore amounts to abuse of the court process.

14. I think a simple test to begin would be to ask this. Are there case precedents similar like the one the plaintiffs have commenced herein? The answer to that is “yes there are”. I refer to the cases namely, Gawan Kuyan v. Andrew Sallel; Andrew Sallel v. Gawan Kuyan (2008) N3376, Batteng Putto v. Andrew Sallel (2015) N5845 and Blassius Reu v. William Meta (2014) N6534. These cases involve proceedings that were commenced by way of originating summonses concerning termination of company directors and transfer of shares under the Companies Act. In my view, the National Court does have jurisdiction, similarly like proceedings that may be commenced under the provisions of the Companies Act, that deals with matters concerning appointment and termination of directors. In this case, the plaintiffs filed this proceeding using their preferred originating process, namely, an originating summons, to assert their rights as directors of ENBDC. They are alleging that their rights, duties and obligations as directors of ENBDC have been affected or violated by the purported invalid actions of the first and second defendants.

15. I find that the plaintiffs have standing and interest in this proceeding. I must remind myself that there is already an interim order which, amongst other things, maintains the status quo meaning that the plaintiffs currently retain their positions as directors of ENBDC pending the final determination of the proceeding.

16. In relation to the defendants’ argument that the correct mode should have been to file a writ of summons and to sue for damages, I find the argument misconceived. Firstly, the plaintiffs have the right to choose what mode of proceeding and relief they wish to seek. In this case, they have chosen to assert their rights as directors and seek declaratory relief against the actions of the defendants which they say have clouded their respective positions they hold with the company. Let me also say this. This is not similar like a private employer/employee situation or relationship where after termination, an employee’s recourse may only be in damages. In this case, the plaintiffs’ employer is ENBDC and not the first and second defendants. That is why the plaintiffs are questioning their (i.e., the first and second defendants’) authorities in purporting to terminate them as directors of ENBDC, and to assert their (i.e., the plaintiffs’) rights. Therefore, the first and second defendants cannot, in my view, argue at an interlocutory stage that the plaintiffs have been terminated when the plaintiffs are challenging the defendants’ said purported authorities. I therefore dismiss this argument at this stage.

17. In regard to the defendants’ argument that the second defendant has been wrongly named as a party, I find that to be the case. The second defendant is not a legal person that can be sued or be sued. The appropriate person should have been the ENBPG. I firstly refer to section 6 of OLPGLLG. It reads, and I quote in part,

18. I also refer to section 23(1) of the OLPGLLG which reads in part, There shall be an executive arm of a Provincial Government to be known as the Provincial Executive Council. A provincial executive council is an executive arm of a provincial government. See cases: Miai Larelake v. Hon Havila Kavo (2008) N3563 and Maps Tuna Ltd v. Manus Provincial Government (2007) SC857. I will therefore grant leave and order that the second defendant be removed as a party to the proceeding. That said, the removal of the second defendant, in my view, does not affect the proceeding or the legal challenge made by the plaintiffs. The real challenge here relates to the actions of the first defendant and his capacity at the material time.

19. I now refer to the defendants’ argument concerning section 142(4) of the Companies Act. Subsection 4 reads and I quote in part, An order may not be made under this section in relation to conduct or a course of conduct that has been completed. I find the defendants’ argument in this regard misconceived. Firstly, the provision shall apply if a party invokes Division 2, Part IX – Enforcement of the Companies Act. The plaintiffs have not invoked the division in this proceeding. Secondly, the provision is no absolute or mandatory upon the National Court. I can only refer to the words used at the start of the provision which begins with and I quote, An order may not be made. So even if I may be wrong with the first reason, the Court’s power to grant an injunction in relation to conduct or a course of conduct that has been completed, remains discretionary. I also note that the injunctive orders obtained by the plaintiffs are interim, that is, pending the outcome of the proceeding that is already before the National Court.

20. Finally, the defendants argue that the claim should be dismissed because the correct process should have been to appeal against the decision of the Registrar of Companies, that is, under section 408 of the Companies Act. Section 408 reads in part, A person who is aggrieved by an act or decision of the Registrar under this Act may appeal to the Court within one month after the date of notification of the act or decision, or within such further time as the Court may allow. The defendants submit that the plaintiffs should have commenced proceedings under the said provision and appeal to the National Court. Again, I find the argument misconceived. It is obvious that the plaintiffs are not challenging the decision of the Registrar of Companies. That is not the main issue in this proceeding. Rather, they are seeking to enforce their rights, and in so doing, challenge the purported actions of the first defendant.

21. With these, except for the order removing the second defendant from the proceeding, I dismiss the balance of the relief sought in the third defendant’s notice of motion filed on 27 September 2018.

22. I will now move on to consider the main issues. In my view, they are, (i), whether the first defendant can appoint and terminate the directors of ENBDC, or what is the correct process for appointing and terminating a director or an executive board member of ENBDC, (ii), whether due process was followed when the plaintiffs and other directors were purportedly terminated, (iii), whether due process was followed for the appointment of the third defendants, and (iv), subject to the above issues, whether the actions of the first defendant should warrant permanent injunctive orders made against him.

23. Whilst the company constitution may be regarded as valid, I note that it was not formally passed or adopted by ENBDC until recently on or about 4 August 2018 or in September 2018. Evidence disclosed do not show an earlier date when the constitution was formally adopted. Before that, the company had been operating under the provisions of the Companies Act. Again, I must add that it was only this year when Issac Mincus’s chairmanship was contested by the company in proceeding OS 358 of 2018, that it was revealed that the company’s constitution had been approved by the office of the Registrar of Companies back in 1998. That then prompted the company to formally pass resolution to adopt its constitution on 4 August 2018 or in September of 2018.

24. Now, the event that triggered filing of this proceeding relates to individual letters which are all dated 6 August 2018. The contents of the letters are identical, and they were written and sent by the first defendant to the plaintiffs (and I refer to Exhibits P1, P2, and P3). In the letters, the first defendant notified the plaintiffs that they had been terminated as directors of the company as at 8 June of 2018. The letters read in part at pages 2, and I quote:

Your removal and ensuring change took effect by ordinary resolution passed and endorsed by me as PEC Chairman and Proxy Shareholder in ENBPEC Meeting No. 04/2018 on the 8^th June 2018.

25. The East New Britain Provincial Executive Council’s (ENBPEC) decision of 8 June 2018 is marked as annexure E to Mr Minicus’s affidavit which is attached to Exhibit P1 as part of the plaintiffs’ evidence. The attachment or minute is titled “East New Britain Provincial Government Provincial Executive Council”.

26. So, the event on 8 June 2018 occurred prior to the adoption of the company’s constitution. Therefore, and for this purpose, the Companies Act and not the constitution of the company, would have applied at the material time. I find that to be the case and I will proceed on that basis, that is, applying the Companies Act rather than the company’s constitution. In any event and if I may add, there are less dissimilarities between the Companies Act and ENBDC’s constitution on the material sections and clauses. I note that this is also reflected in the submissions of the parties. Counsel for the parties have made submissions concurrently under the Companies Act and the company’s constitution.

27. I set out in part, annexure E to Mr Minicus’s affidavit which is attached to Exhibit P1 as follows:

The Provincial Executive Council during its Meeting No.04/2018 on 08^th June, 2018 in Kokopo:-

We certify that the above are true and correct records of the Decisions reached by the Provincial Executive Council Meeting No. 04/2018 held in Kokopo on the 08^th June, 2018.

______________________________	__________________________
*HON. NAKIKUS KONGA, MP Governor & Chairman of PEC*	*MR. SAM STANLEY* *Executive Officer of PEC*

28. The defendants have, in their written submissions, said that the ENBPEC’s meeting held on 8 June 2018 was a shareholders meeting, that is, shareholders meeting of ENBDC. I refer to the third defendants’ submission under sub-heading 3 which is titled, Was there a proper shareholders meeting? It reads in part, and I quote,

We submit that as there is only one shareholder, namely the Provincial Government, a duly conducted PEC meeting which had as part of its agenda the removal and appointment of directors, was a proper shareholder meeting.

The acceptance of the minutes and resolutions of the said meeting signed by the First Defendant as Chairman of the meeting is prima facie evidence of the proceedings of the said PEC meeting. This accords with Schedule 2.7 of the Act.

(1) The board shall ensure that minutes are kept of all proceedings at meetings of shareholders.

(2) Minutes which have been signed correct by the Chairman of the meeting are prima facie evidence of the proceedings.

30. Reference made in the schedule of, the board, means the company board members, and reference made in the schedule of, the Chairman, refers to the Chairman as appointed by the board of directors. If the Chairman fails to attend the meeting, the shareholders may choose one of their members to chair the meeting. The shareholders meeting requirements and its process, are clearly set out under schedule 2. Let me set them out here in part as follows:

(1) Where the directors have elected a Chairman of the board, and the Chairman of the board is present at a meeting of shareholders, he shall chair the meeting.

(2) Where no Chairman of the board has been elected or where, at any meeting of shareholders, the Chairman of the board is not present within 15 minutes of the time appointed for the commencement of the meeting, the shareholders present may choose one of their number to be Chairman of the meeting.

(1) Written notice of the time and place of a meeting of shareholders shall be sent to every shareholder entitled to receive notice of the meeting and to every director and an auditor of the company not less than 14 days before the meeting.

(a) the nature of the business to be transacted at the meeting in sufficient detail to enable a shareholder to form a reasoned judgment in relation to it; and

(3) An irregularity in a notice of a meeting is waived where all the shareholders entitled to attend and vote at the meeting attend the meeting without protest as to the irregularity, or where all such shareholders agree to the waiver.

(4) Subject to the constitution of a company, the accidental omission to give notice of a meeting to, or the failure to receive notice of a meeting by, a shareholder does not invalidate the proceedings at that meeting.

(5) Subject to the constitution of the company, where a meeting of shareholders is adjourned for less than one month, it is not necessary to give notice of the time and place of the adjourned meeting other than by announcement at the meeting which is adjourned.

(a) by a number of shareholders, who constitute a quorum, being assembled together at the place, date, and time appointed for the meeting; or

(b) subject to the constitution of the company, by means of audio, or audio and visual communication by which all shareholders participating and constituting a quorum, can simultaneously hear each other throughout the meeting.

(1) Subject to Subsection (3), no business may be transacted at a meeting of shareholders if a quorum is not present.

(2) Subject to the constitution of the company, a quorum for a meeting of shareholders is present if shareholders or their proxies are present who are between them able to exercise a majority of the votes to be cast on the business to be transacted by the meeting.

(3) Where a quorum is not present within 30 minutes after the time appointed for the meeting—

(a) in the case of a meeting called under Section 102(b), the meeting is dissolved;

(b) in the case of any other meeting, the meeting is adjourned to the same day in the following week at the same time and place, or to such other date, time, and place as the directors may appoint, and, subject to the constitution of the company, where, at the adjourned meeting, a quorum is not present within 30 minutes after the time appointed for the meeting, the shareholders or their proxies present are a quorum.

31. The basic question then to ask, in my view, is this. Whether a Provincial Executive Council (PEC) meeting of a provincial government, can also be termed, regarded or implied as a shareholders meeting within the meaning of the Companies Act. The obvious answer to that is, “of course not”. Let me explain. The powers and functions of a PEC are set-out in the OLPGLLG. A PEC is the executive arm of its provincial government (section 23 of the OPGLLG). The ENBPEC’s powers and functions are of no exceptions. There is no provision in the OPGLLG that states that a PEC may control or manage companies that are created and governed under the Companies Act. If there is such a provision or law, it was not brought to the attention of this Court. As such and in my view, the ENBPEC has no business whatsoever to make any decisions for or to deal with the affairs of ENBDC, which is a company that is duly established and controlled, by the Companies Act, and more recently now by its constitution. A meeting that is held by the ENBPEC like the one held on 8 June 2018 is just that, that is, a PEC meeting. I note that the minute of 8 June 2018 was signed off by the first defendant as the chairman of the ENBPEC and not as the chairman appointed under schedule 2.1 of the Companies Act. The secretary who counter-signed the minute was the executive officer of the ENBPEC. The evidence, in my view, expressly confirms this Court’s view that the meeting of 8 June 2018 was a PEC meeting and not a shareholders meeting of ENBDC. Now, what was discussed and resolved in the ENBPEC meeting of 8 June 2018 requires some attention. In the meeting, it appears that the ENBPEC had deliberated on matters that concerned the affairs of the company, that is, replacement of directors of ENBDC. In my view and as stated above, this was clearly beyond the ENBPEC’s powers and functions as are set out under the OLPGLLG.

32. I find as a matter of fact that the PEC meeting of 8 June 2018 was not a shareholders meeting. I find that the meeting may have been a normal PEC meeting but that the resolutions passed therein concerning ENBDC are without any foundations and are null and void. I find that the ENBPEC had no authority whatsoever to pass any resolutions for or in relation to the company. I also find that the first defendant had either deliberately or misguidedly convened the meeting of 8 June 2018 and had treated it as a shareholders meeting of ENBDC.

33. Even if I may be wrong with the above findings, and I am to assume that the ENBPEC’s meeting of 8 June 2018 was a shareholders meeting, the argument would, in my view, still fail. Let me explain. The defendants argue that the shareholders meeting was convened and conducted, as opposed to the other type of shareholders meeting whereby shareholders may pass an ordinary resolution, for example, in lieu of a meeting. These are set out under sections 86, 87, 101, 102,103 and 104 of the Companies Act. I set them out in part, as follows:

(1) Powers reserved to the shareholders of a company by this Act may be exercised only—

(2) Powers reserved to the shareholders of a company by the constitution of the company may, subject to the constitution, be exercised—

(1) Unless otherwise specified in this Act or the constitution of a company, a power reserved to shareholders may be exercised by an ordinary resolution.

(2) An ordinary resolution is a resolution that is approved by a simple majority of the votes of those shareholders entitled to vote and voting on the question.

(1) Subject to Subsection (2), the board of a company shall call an annual meeting of shareholders to be held—

(2) A company is not required to hold its first annual meeting in the calendar year in which it was first incorporated (whether or not under this Act), but shall hold that meeting within 18 months of such incorporation.

(3) The Registrar may, on the application of the company, and for any special reason the Registrar thinks fit, extend any of the periods referred to in Subsection (1) or (2) even if, as a result, the period is extended beyond the calendar year.

(4) The company shall hold an annual meeting of shareholders on the date on which it is called to be held.

(b) shall be called by the board on the written request of shareholders holding shares carrying together not less than 5% of the voting rights entitled to be exercised on the issue.

(2) If the Board fails to convene a special meeting of the shareholders within 21 days of the receipt of the written request of shareholders holding shares carrying together not less than 5 percent of the voting rights, the shareholders may request the Court to order a meeting of the shareholders under Section 104.

(1) Subject to Subsections (2) and (3), a resolution in writing signed by not less than 75% of the shareholders who would be entitled to vote on that resolution at a meeting of shareholders who together hold not less than 75% of the votes entitled to be cast on that resolution is as valid as if it had been passed at a meeting of those shareholders.

(a) relates to a matter that is required by this Act or by the constitution to be decided at a meeting of the shareholders of a company; and

(a) it is impracticable to call or conduct a meeting of shareholders in the manner specified in this Act or the constitution; or

(b) it is in the interests of a company that a meeting of shareholders be held,

the Court may order a meeting of shareholders to be held or conducted in such manner as the Court directs.

34. In summary, shareholders meeting may be conducted under section 101 (annual meeting of shareholders), section 102 (special meeting of shareholders), section 103 (resolution in lieu of a meeting) or under section 104 (by order of the National Court). And so, in this case, one would have to ask this: Where would the first defendant’s claim of a shareholders meeting fall under? The ENBPEC meeting, which was alleged by the defendants to be a duly conducted shareholders meeting, could not have fallen under any of the recognised four (4) types of shareholders meetings that are authorised by the Companies Act. The ENBPEC meeting therefore would have still been regarded as without any foundation or null and void, or it would have nevertheless been regarded as an invalid meeting of shareholders that was conducted outside of or in breach of the mandatory provisions of the Companies Act.

35. The parties, as I have already stated above, acknowledge that the shareholder of ENBDC is the ENBPG. The ENBPG owns or is the trustee shareholder in the company for the people of East New Britain.

36. The plaintiffs contend that the first defendant cannot hold himself out as a shareholder or trustee shareholder of the ENBPG. The first defendant, in reply, submits that he as the Governor of ENBPG of course cannot be a shareholder of the company. But he claims that he was duly appointed as a proxy for the ENBPG. I will address the proxy issue below in my judgment, but that aside, the parties query as a legal matter whether the ENBPG, in its capacity as the shareholder of ENBDC, can be duly represented by the ENBPEC in terms of passing shareholders resolution or resolutions.

37. Let me refer to the OLPGLLG. I begin at section 6. It reads in part, and I quote, A Provincial Government.....may acquire, hold and dispose of property of any kind. I note that it was on that basis that the ENBPG has acquired and now owns shares in ENBDC. Section 10 subsection (1) establishes a provincial government, or, in this case, the ENBPG. But what I think is significant for this purpose are subsections 2 and 3 of section 10, and section 23(1)(4) and (5). I quote them in part as follows,

(2) A provincial legislature, to be known as the Provincial Assembly or by whatever local name is considered appropriate, is hereby established for each Provincial Government.

(1) There shall be an executive arm of a Provincial Government to be known as the Provincial Executive Council.

(4) The total membership of the Provincial Executive Council shall be five or one third (whichever is greater) of the total membership of the Provincial Assembly.

(5) The principal function of a Provincial Executive Council shall be to implement the laws and policies made or adopted by the Provincial Assembly and to implement the laws and policies of the National Government applying to the province.

38. So, by Statute, provincial assemblies are established for provincial governments. A provincial assembly shall primarily consist of all members of parliament of a province with each member representing his or her electorate. It makes perfect sense, in my view, given that a provincial government is created purposely to serve a group of people within a given province, and a provincial assembly of course represents or captures the interests or views of these people through their elected representatives who will represent them, that is when the members actually sit and deliberate on matters in their provincial assembly. A PEC of course is regarded as an executive arm of a provincial government. Its core function, apart from its role to the National Government, is to implement the laws and policies that are made or that are adopted by its provincial government.

39. So, in the present case, the defendants claim that the ENBPEC can pass resolution for and on behalf of the ENBPG which they say would be binding upon ENBDC. This understanding or submission, in my view, is wrong. The ENBPEC, pursuant to the OLPGLLG, can only implement the laws, policies or resolutions that are passed by the ENBPG at its provincial assembly. Evidence disclosed by the defendants do not show that the said process had been observed or conducted by the first defendant. There is no evidence of a resolution passed by the provincial government in the provincial assembly, which states that substantive changes shall be made to the board of directors or to the directors, of ENBDC, that is, in terms of terminating the current directors and appointing new directors. And any resolutions that is passed by the ENBPG concerning ENBDC, would have to be presented by a duly appointed proxy of the ENBPG, to the shareholders meeting of the company.

40. Subject to my findings on the issue of appointment of a proxy below, I find the above to be the correct process whereby the ENBPG may be heard as a shareholder in ENBDC.

41. The plaintiffs also claim that the first defendant was not duly appointed as the proxy on behalf of the shareholder, ENBPG. As such, the plaintiffs claim that his conduct or representation at the material time was invalid or void.

42. The plaintiffs have provided evidence to raise the argument. The plaintiffs were the directors of ENBDC immediately before the dispute in 2018. They give evidence which shows that no formal meetings were ever conducted by the shareholder at the material time as alleged by the defendants. They also give evidence which shows that the first defendant was not duly appointed as a proxy by the shareholder, to call a shareholders meeting or represent the shareholder in any such meetings. I am satisfied with the evidence disclosed by the plaintiffs regarding these. As such and in my view, the burden of proof shifts, and in this case, I would need to be satisfied that the first defendant had been duly appointed as a proxy to represent the shareholder at the material time. Having considered the defendants’ evidence, I find no such evidence disclosed to the Court. The first defendant’s evidence in my view provides no real assistance on the issues. There is no proof disclosed of his purported appointment as the proxy of the shareholder, that is, in compliance with the provisions of the Companies Act. By that I mean and refer to schedule 2.6 of the Companies Act. It states:

(1) A shareholder may exercise the right to vote either by being present in person or by proxy.

(2) A proxy for a shareholder is entitled to attend and be heard at a meeting of shareholders as if the proxy were the shareholder.

(3) A proxy shall be appointed by notice in writing signed by the shareholder and the notice shall state whether the appointment is for a particular meeting or a specified term not exceeding one year.

(4) No proxy is effective in relation to a meeting unless a copy of the notice of appointment is produced before the start of the meeting.

(5) The constitution of a company may provide that a proxy is not effective unless it is produced by a specified time before the start of a meeting if the time specified is not earlier than 48 hours before the start of the meeting.

43. The defendants, however, have not provided any evidence to show that they have met the requirements of schedule 2.6, namely, 2.6(3) & (4). The first defendant, it seems, has relied solely on the Investment Promotion Authority (IPA) records to make his argument. The IPA records disclosed in evidence, in my view, merely show registration of names of the purported newly appointed directors, the third defendants. As I had commented at the hearing which I now maintain, the primary role of a Registrar of Companies is simply that, that is, to register and keep entries of records that are submitted by companies. And it is not uncommon for entries that are kept therein to be inaccurate, wrong or open to challenge regarding the correct status or information concerning a company from time to time. Entries entered that are subject to disputes or legal challenges are also not uncommon. In this case, the plaintiffs challenge the legal status of the first defendant as a proxy, the validity of the shareholders meeting and the purported appointments of the third defendants as reflected in the IPA records. So, to argue that because the changes of directors have been accepted and registered by the Registrar, it therefore means that the first defendant had been (or must have been) duly appointed as a proxy and had duly (or must have duly) conducted the shareholders meeting at the material time, is simply misconceived or absurd. As stated, such matters are open to challenges, and they are now before this Court. The defendants were required to bring evidence to show or support their assertions. They have not done so in this case. Without any relevant evidence coming from the defendants to rebut the claim, I am inclined to believe the plaintiffs’ evidence.

44. I therefore find the plaintiffs evidence to be accurate or true, which is that the first defendant was not duly appointed as a proxy within the provisions of the companies Act. I also find that without the said appointment, the first defendant could never have held, conducted or be present on behalf of the shareholder, in relation to any shareholders meeting that is constituted under the Companies Act at the material time.

45. Given my findings, it may be, in my view, futile to consider the plaintiffs’ claim that they were not notified or served with notices of the meeting of 8 June 2018.

46. But let me say this. Section 105 of the Companies Act states that schedule 2 governs proceedings concerning meetings of shareholders of a company. It also makes it mandatory for schedule 2 to be inserted into the constitution of a company. I note that I have already ruled above that the constitution of ENBDC shall not apply herein. That said, I will make this remark. ENBDC’s constitution has adopted schedule 2.2 of the Companies Act. The equivalent provisions in the company constitution are clauses 19.5 and 19.6. Also relevant is section 134 of the Companies Act. Let me set them out in part, herein,

(1) Subject to the constitution of the company, a director of a company may be removed from office by ordinary resolution passed at a meeting called for the purpose or for purposes that include the removal of the director.

(2) The notice of a meeting referred to in Subsection (1) shall state that the purpose or a purpose of the meeting is the removal of the director.

(a) the nature of the business to be transacted at the meeting in sufficient detail to enable a shareholder to form a reasoned judgment in relation to it; and

Written notice of the date, time and place of a meeting of Shareholders shall be sent to every Shareholder entitled to receive notice of the meeting and to every Director and an Auditor of the Company not less than 14 days before the meeting.

(a) state the nature of the business to be transacted at the meeting in sufficient detail to enable a Shareholder to form a reasoned judgment in relation to it; and

(b) include the text of any special resolution to be submitted to the meeting.

47. The defendants’ main arguments on compliances with these requirements are as follows. Firstly, they say that it was not necessary to serve notices on the plaintiffs who were directors at the material time. The defendants submit that the plaintiffs were employees of the company and as such service of the notices upon them was not required. At the hearing and on the subject matter, I drew to counsel for the 3^rd defendant the express requirement under the Companies Act, that is, the requirement to serve notices of a shareholders meeting on each director. In response, counsel drew my attention to the second argument which is this. Counsel referred to schedule 2.2(3) of the Companies Act. The said clause was also adopted into the constitution of ENBDC namely under clause 19.7. Both clauses are identical and read:

An irregularity in a notice of a meeting is waived where all the shareholders entitled to attend and vote at the meeting attend the meeting without protest as to the irregularity, or where all such shareholders agree to the waiver.

48. The defendants argue that the ‘irregularity’, that is, want of service of the notices of meeting on each director, was or would have been waived by the shareholders under the clauses 2.2(3) or 19.7. The defendants submit that such failure was not fatal to the meeting at the time. When I look at the clause, the use of the word “in”, in my view, means an irregularity in the notice itself, or a defect in the notice document. Such irregularity is not the same, in my view, as failing to serve a notice on a director regarding a shareholders meeting. I therefore dismiss the defendants’ submission in this regard.

49. The defendants do not deny that they did not serve the plaintiffs with notices of the shareholders meeting. So, assuming the ENBPEC meeting of 8 June 2018 was a duly constituted shareholders meeting of ENBDC, it would have been conducted in breach of the schedule 2.2, clauses 19.5 and 19.6 of the Companies Act and the company constitution respectively.

50. The defendants raise the defence of estoppel. They argue that the actions of the plaintiffs in facilitating the registration process concerning the appointment of the third defendants with the IPA, estops them from now seeking to undo the process.

51. I dismiss this ground based on my findings in this judgment. I will add the following. The first defendant, now being found as not a duly appointed proxy of the shareholder, has no interest or business to inquire into the internal affairs of ENBDC. He has no authority to make this argument. My second view is this. Furnishing company forms for registration with the Registrar of Companies do not in themselves imply full compliances or conformity to a law such as the Companies Act. The records, as I have stated above in my judgment, may be open to challenge in Court or for example be open to challenge under the prescribed provisions of the Companies Act.

52. The plaintiff seeks permanent injunctive relief against the first defendants, his agents and servants, that is, from interfering with the affairs of ENBDC. Let me recite relief 9 in the originating summons. It reads:

(a) effecting and or giving effect to the removal of the Plaintiffs as Directors of ENDBC Ltd; and

(c) terminating and or otherwise interfering with the services of the employees and officers of the ENDBC Ltd who hold positions or roles in the senior management or management of ENDBC Ltd.

53. Given my findings above regarding want of a valid shareholders meeting that was purportedly conducted by the first defendant and given my latter finding concerning the lack of authority by the first defendant to act as a duly appointed proxy of the shareholder, I am also inclined to grant the injunctive relief.

54. Let me say this. Public policy or interest requires that this Court should grant this equitable relief. The actions of the first defendant, with respect and in my view, which is based on my findings in this judgment, is of grave concern. His actions are outside and contrary to the provisions of the Companies Act as well as to the role and functions of a provincial executive council. The first defendant, by his actions, has attempted to take absolute charge and run ENBDC through the ENBPEC under his authority as its Chairman or Governor. One can only wonder how this is ever possible. The ENBPG is the sole shareholder of ENBDC. The first defendant, as Governor of ENBP, does not have an automatic right as a proxy to represent the ENBPG in ENBDC or its affairs. ENBDC, as I have ruled above in my judgment, is governed by the Companies Act, and recently now by its constitution. For any person to be regarded as a duly appointed proxy of the shareholder, compliances with the provisions of the Companies Act and now the company constitution, are mandatory. Public interest, in my view, demands these, particularly given the fact that the ENBPG’s shares in ENBDC are being held in trust by the said provincial government for and on behalf of the people of East New Britain.

55. I am also of the view that the actions of the first defendant may appear ‘fraudulent’ in nature. In this case, I use the term “fraudulent” as a remark rather than as a finding of fact, on the following basis. The first defendant had no authority concerning the affairs of the company, that is, ENBDC which was established under the Companies Act. Without the said authority, the first defendant had conducted a PEC meeting on 8 June 2018, the PEC being the executive arm of the ENBPG that is established under the OLPGLLG, and had deliberated on matters that concerned ENBDC, which was a company that was duly established and controlled by the provisions of the Companies Act at the material time. And it was based on the meeting that the first defendant had purportedly appointed the third defendants as directors of the ENBDC. As a result of the actions of the first defendant or the defendants, the company, its executive members including the plaintiffs, the company’s staff and its operations, have been affected, that is, all because of the invalid or void actions of the first defendant.

56. All these, in my view, should warrant this Court to grant the injunctive relief.

57. In regard to the issue, whether the first defendant can appoint and terminate the directors of the ENBDC Ltd, my answer is, “no, because no valid shareholders meeting of ENBDC was held at the material time, and also, at the material time, the first defendant was not duly appointed as the proxy for the shareholder, within the meaning of the Companies Act”. In regard to the second issue, whether due process was followed when the plaintiffs and other directors were purportedly terminated, my answer is the same which is, “no, because no valid shareholders meeting of ENBDC was held at the material time, and also, at the material time, the first defendant was not duly appointed as the proxy for the shareholder, within the meaning of the Companies Act”. In regard to the third issue, whether due process was followed for the appointment of the third defendants, my answer is, “no, due process would not have followed, and I repeat my answers to the first and second issues. I also say this. I have not expressly covered this issue in my judgement because it was unattainable given my other findings”. In regard to the fourth issue, whether the actions of the first and second defendant would warrant permanent injunctive orders made against them, my answer is, “yes, I will grant permanent injunctive orders against the first defendant, his agents and servants”.

58. I will grant the relief sought by the plaintiffs with slight variations based on my findings.

59. Cost awarded in civil proceedings is discretionary. In this case, the plaintiffs are successful, so I will order cost to follow the event based on the normal cost scale, that is, party/party basis to be taxed if not agreed.

(ii) no notice was given to the Plaintiffs of the intention to remove them as Directors of the ENBDC Ltd;

(iii) no shareholders meeting was called and conducted in accordance with the provisions of the Companies Act 1997.

(ii) no notice was given to the Plaintiffs of the intention to remove them as Directors of the ENBDC Ltd;

(iii) no shareholders meeting was called and conducted in accordance with the provisions of the Companies Act 1997.

(i) effecting and or giving effect to the removal of the Plaintiffs as Directors of ENBDC Ltd; and

(iii) terminating and or otherwise interfering with the services of the employees and officers of the ENBDC Ltd who hold positions or roles in the senior management or management of ENBDC Ltd.

______________________________________________________________
South Pacific Legal Services: Lawyers for the Plaintiffs

Kubak & Kubak (Rabaul) Solicitors & Barristers: Lawyers for the Third Defendants

National Court of Papua New Guinea

Tavul v Konga [2018] PGNC 499; N7599 (6 December 2018)