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National Court of Papua New Guinea |
PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]
MP No. 57 of 2019 (COMM)
IN THE MATTER OF THE COMPANIES ACT 1997
AND:
IN THE MATTER OF MAYFUELS LIMITED 1-57219
Waigani: Anis J
2019: 12th November
2020: 31st January
NOTICE OF MOTION – Section 142(1)(a) and (b) – Companies Act 1997 – interim injunction – whether Court should exercise its powers and grant interim orders pending hearing of the substantive matter – requirements for grant of injunction under section 142 of the Companies Act discussed
Cases Cited:
In the Matter of the Companies Act, In the matter of Canopus No. 101 Limited (2019) N8162
Kurumbukari Limited v. Steven Saud (2015) N5906
Nivani Ltd v. West New Britain Provincial Government (2018) N7190
Counsel:
Mr E Wamp, for the Petitioners
Mr D Bidar, for the Respondents
RULING
31st January, 2020
1. ANIS J: Petitioners William George May and William George May Jr (the petitioners) filed a notice of motion (application) seeking interim relief including injunctions, on 4 November 2019. It was heard on 12 November 2019. I reserved my ruling thereafter to a date to be advised.
2. Parties have been notified so I will rule on it now.
BACKGROUND
3. The petitioners file this petition against the respondent company Mayfuels Limited (the company). The company is a fuel supplier. Based on the petition, the company was incorporated on 28 July 2006. It was intended to be operated as a family business for the May family. Petitioner William George May is the father of petitioner William George May Jr and Mr Norman Carl May. The petitioners claim that the family had an agreement in place before they incorporated the company in 2006. According to the agreement, as claimed by the petitioners, the parties had agreed amongst others, that petitioner William George May would own 34 shares in the company; secondly, that petitioner William George May Jr would own 33 shares; thirdly, that Norman Carl May would own 33 shares, and fourthly, that all the shares would be held in trust by these persons who would later transfer them equally amongst the May family’s 6 children.
4. The petitioners claim that incorporation and registration of shares of the company had been left with Mr Norman Carl May to process. They allege that contrary to the terms of the agreement, that Norman Carl May had altered the shareholdings or ownership of the company. They plead various alleged actions or inactions of Mr Norman Carl May which they say were carried out contrary to various provisions of the Companies Act 1997 (the Companies Act). They also plead various attempts by themselves to try to rectify the ownership issue with the company. The petitioners say that, as at the date of filing the petition, the shareholdings record of the company showed Mr Norman Carl May as its sole owner and shareholder.
5. The petitioners are aggrieved so they file this petition, that is, under section 152 of the Companies Act and, if I may add, Rule 14(c) of the Companies Rules. They allege that the actions of the company and Mr Norman Carl May were oppressive against their rights as shareholders. They seek various relief in their petition. The relief include an order for compensation. It also include orders sought to rectify the company’s record and restore the petitioners’ shares and positions as directors in the company.
APPLICATION
6. In the meantime, the petitioners file this application. It is made under section 142(1)(a) and (b) of the Companies Act. The petitioners seek, amongst others, to, in the interim, retain their positions as directors of the company, and also to restrain the company from dealing with any matters relating to its shareholdings pending the determination of the petition. The main relief sought are, and I quote:
......
7. Section 142(1)(a) and (b) states, and I quote in part:
142. Injunctions.
(1) The Court may, on an application under this section, make an order—
(a) restraining a person who is engaging in or proposes to engage in conduct that is or would contravene the constitution of the company or this Act from engaging in that conduct; or
(b) requiring a person who has refused or failed, is refusing or failing, or is proposing to refuse or fail, to do an act or thing that he is required to do by the constitution of the company or this Act, to do that act or thing.
(2) An application may be made by—
(a) the company; or
(b) a director or shareholder of the company; or
(c) an entitled person; or
(d) the Registrar.
......
COMPETENCY/ABUSE OF PROCESS
8. The company and Norman Carl May (respondents) have raised various preliminary issues. As a start, let me say this. The petitioners are making this application as ‘directors’ and ‘shareholders’ of the company. And essentially, the application seeks to maintain the status quo pending determination of the petition.
9. However, there are 4 matters I see that I have trouble grappling with under this sub-heading. The first is this. The petitioners’ claim that they are directors of the company is not supported with the current company record that is adduced in evidence. I refer to the latest company extract that is attached at annexure E to the affidavit of petitioner William George May Jr which was filed on 15 October 2019. The company’s extract, as at 17 April 2019, does not show the petitioners as current registered directors or shareholders of the company. The status quo, based on the evidence, shows persons other than the petitioners to be directors and shareholder of the company. They are, Neil Marcus Daniel and Marcelo Salinas, who are registered as directors, and Norman Carl May who is registered as the sole shareholder. I therefore fail to see how the status quo could be maintained by temporarily removing the present directors and by allowing the petitioners, who are not current directors of the company, to take charge as directors pending the final determination of the petition. The second matter or reason is this. Relief 1 and 2, in my view, are not interim but rather are substantive in nature. To seek them and claim that they are interim, in my view, is an abuse of the court process. The third matter or reason is this. If I am minded to grant the 2 relief, it would mean that I would essentially be appointing 2 new directors to the board of the company, and also that I would also essentially restrain the current directors from performing their functions in the company. These are not, in my view, the intended purposes of section 142 of the Companies Act. I will later address section 142 in my judgment. But in conclusion herein, I find it an abuse of court process, that is, to ask for interim relief in the manner as is sought by the petitioners under terms 1 and 2 of the application. I uphold the submissions of the respondents in relation to these 2 relief. Relief 1 and 2 are therefore dismissed.
10. This now leaves me with relief 3 and 4. The first question I see relevant and therefore ask is this. Since there is evidence which says that the petitioners are not current directors and shareholders, do they therefore have standing for me to consider these relief? To answer that, let me refer to the Companies Act. I note that the term shareholder under section 142 also include a former shareholder. I say this in view of section 141 of the Companies Act. It states, and I quote:
141. Interpretation.
In this Part, unless the context otherwise requires, the terms "entitled person", "former shareholder", and "shareholder" include a reference to a personal representative of an entitled person, former shareholder, or shareholder and a person to whom shares of any of those persons have passed by operation of law.
11. So when the petitioners claim to be shareholders under section 142(2)(b), it include their positions as former shareholders of the company. There are evidence adduced by the petitioners which show that they had been appointed as directors and shareholders in 2018. I say this, amongst others, in light of an earlier company search extract that had been conducted of the company. It is dated 31 August 2018 and is marked as annexure P to petitioner William George May Jr’s affidavit. In the said company extract, the directors of the company then were Mr Norman Carl May and the petitioners. The shareholders were as follows, that Mr Norman Carl May held 40 shares whilst the petitioners each held 30 shares, that is, out of a total of 100 shares of the company. To me, it is prima facie evidence that the petitioners, at one time, were shareholders of the company. I therefore find that the petitioners, as former shareholders of the company, have standing to make the application under section 142(2)(b) of the Companies Act.
OTHER MATTERS
12. The respondents also raise arguments relating to the merit of the petition. They argue that the claim is time barred and therefore is likely to fail. I ask myself this. Is this issue properly before the Court for consideration? I would answer “no” to the question for this simple reason. The argument is substantive in nature and if so desired by the respondents, in my view, should be raised separately by way of a notice of motion or otherwise in the substantive hearing, for determination. The consequential relief for such an issue include dismissal of the proceeding. I note that no such relief or application is properly before me to consider and make a determination. Filing a proper application, in my view, will allow the parties the opportunity to properly present their evidence and submissions to the Court on the matter. To raise the issue now in this application without a proper foundation or source is both unfounded as well as unattainable. See case: Nivani Ltd v. West New Britain Provincial Government (2018) N7190.
13. The other argument the respondents raise is this. They argue that Mr Norman Carl May has not been named as a party and therefore his right to be heard has been violated under section 59 of the Constitution of Papua New Guinea (the Constitution). I find the argument misconceived. I note that the petition is filed following completion of the required form that is specified under the Companies Rules and as well as pursuant to the adopted practice and procedures for matters of this nature.
14. Mr Norman Carl May is expressly named as a respondent or person of interest, in the petition.
15. In regard to the Companies Rules, the relevant provisions are Rules 3, 10 and 20. Rule 3 states, and I quote in part:
Every petition, notice of motion and summons and all notices, affidavits and other documents in any proceedings under the Act shall be entitled “In the National Court of Papua New Guinea, in the matter of the Companies Act 1997, and in the matter of ......” (the company to which the proceeding relates) with the addition of the words “in liquidation” where the company is in liquidation.
16. Rule 10 states, and I quote in part:
(1) Subject to any order to the contrary, a petition, notice of motion and summons shall be served on every person against whom any order or other relief is sought, but the Court or a Judge may at any time-
(a) direct that service be effected or notice of proceedings given to any person who may be affected by the order or other relief sought; and
(b) direct how the service is to be effected or the notice given;
and any person so served or notified is entitled to be heard.
(2) A document referred to as an exhibit in an affidavit must be made available for inspection by any person on whom service of the affidavit is required.
17. And Rule 20(1) and (3) state, I quote in part:
(1) A person who intends to appear on the hearing of a petition shall serve on the petitioner or his lawyer notice of his intention.
......
(3) A person who has failed to comply with this section shall not be allowed to appear on the hearing of the petition without the special leave of the Court.
18. In this case, I note that Mr Norman Carl May had been served with the petition. Service upon him has not been disputed. And he has, together with the company, filed a notice of appearance. This, in my view, is consistent with Rule 20(1) of the Companies Rules. By filing a notice of appearance, Mr Normal Carl May’s interest in the matter, in my view, is secured. He is heard now and will continue to be heard throughout the duration of the petition.
ISSUES
19. Let me address the issues. They are as follows, (i), whether Mr. Norman Carl May should be restrained from making any changes to the share register of Mayfuels Limited or to the records held by the Registrar of Companies of Mayfuels Limited, that may or would contravene the provisions of the Companies Act until further orders from this Court, and (ii), whether Mr Norman Carl May should be restrained from holding out any meetings or passing any resolutions as the shareholder of Mayfuels Limited, that may contravene the provisions of the Companies Act until further orders of this Court.
ELEMENTS
20. I refer to the source of the application, that is, section 142 of the Companies Act. Let me begin by saying this. The Companies Act is an Act of Parliament and pursuant section 9 of the Constitution, it is superior to common law and equity. Common law and equity are part of the Underlying Law that have been adopted under Schedule 2.2 of the Constitution since Papua New Guinea’s Independence on 16 September 1975.
21. Injunctions in the present case are being sought under statute, that is, statutory injunctions under section 142 of the Companies Act. The requirements for granting an injunction by this type of application, are expressly set out under section 142(1)(a) and (b). See cases: Kurumbukari Limited v. Steven Saud (2015) N5906 and In the Matter of the Companies Act, In the matter of Canopus No. 101 Limited (2019) N8162. In summary, they are:
(a) if a person is engaged in or proposes to engage in conduct that is or would contravene the constitution of the company or the Companies Act; or
(b) if a person has refused or failed, is refusing or failing, or is proposing to refuse or fail, to do an act or thing that he or she is required to do by the constitution of the company or the Companies Act.
22. I note that evidence adduced in the present case shows that the company does not have a constitution. I will therefore proceed on that basis in addressing the application.
CONSIDERATION
23. I have considered the evidence filed by both parties. To me, the allegations raised by the petitioners in the petition refer solely to the alleged conducts of Mr Norman Carl May. Mr Norman Carl May is, as stated above, the sole shareholder of the company. He has filed a responding affidavit on 21 October 2019.
24. When I consider Mr Norman Carl May’s affidavit, I note that he does not, at this stage, challenge or contest the relevant allegations that are the subject of the application. Let me summarise the allegations in my own words. The first relates to events that had unfolded, according to the petitioners, before the company was incorporated in 2006. The petitioners claim that an agreement had been entered into amongst the May family, the terms of which have been discussed above in my judgment, in 2006, that is, prior to the company being incorporated. They claim that contrary to the terms of the agreement, shareholdings had been altered by Mr Norman Carl May before he submitted them for entry with the Registrar of Companies. The second allegation relates to events that had allegedly occurred in April of 2010. The petitioners claim that the company’s record of its shareholdings in 2010 shows that they each held 15 shares whilst Mr Norman Carl May held 70 shares. They allege that the actions or inactions of Mr Norman Carl May in making the entries, were carried out contrary to the agreement and the provisions of the Companies Act. The third allegation relates to events between 2011 and 2018. The company’s record of its shareholdings for that period, they claim, shows that they each held 30 shares whilst Mr Norman Carl May held 40 shares, that is, out of the 100 shares of the company. They claim that the record also shows the petitioners and Mr Norman Carl May as directors of the company. Again, the petitioners allege that the actions or inactions of Mr Norman Carl May in making the entries, were carried out contrary to the agreement and the provisions of the Companies Act. The fourth allegation is based on the recent company extract. The extract is dated 17 April 2019. It shows that the petitioners are no longer board members or shareholders of the company. The record shows Mr Norman Carl May as the sole shareholder of the company with 100 acquired shares. It also shows 2 new appointed directors of the company, namely, Neil Marcus Daniel and Marcelo Salinas.
25. The petitioners allege that the changes made at those occasions had been made by the respondents or Mr Norman Carl May, without their knowledge or consents and without complying with the relevant provisions of the Companies Act. The relevant provisions they claim include provisions for appointment and removal of directors under sections 131, 133, 134 and 135 of the Companies Act, provisions concerning obtaining resolutions for transfer or purchase of shares under section 47 of the Companies Act, and provisions concerning transfer of shares under section 65(4) and (5) of the Companies Act.
26. Based on these allegations and by this application, the petitioners are concerned that Mr Norman Carl May, in light of his past alleged actions or inactions, (i), may have engaged in, or (ii), may still be engaging in or (iii), may intend to engage in, conduct(s) that have or may contravene the provisions of the Companies Act. As such, they, under relief 3 and 4, seek to injunct or restrain Mr Norman Carl May from taking steps that may alter the status or ownership of the company including passing board resolutions, pending the final determination of the matter.
27. With no direct evidence opposing these allegations, I am satisfied, on the balance of probabilities that there is prima facie evidence disclosed to my satisfaction that calls for injunctions to be issued pending the determination of the petition or until further orders of the Court. The events described by the petitioners show possible breaches of the 2006 agreement as alleged by the petitioners. They also show possible instances of want of due processes, pursuant to the relevant provisions the Companies Act, that is, in regard to the appointment and termination of the petitioners as directors of the company and in relation to acquisitions of shares by the company and Mr Norman Carl May. Evidence adduced also shows that new directors may have been appointed without following the due processes that are specified for such appointments under the provisions of the Companies Act. And this. Evidence adduced by the petitioners also show past conducts of the respondents or of Mr Norman Carl May, which suggest that they or Mr Norman Carl May, may continue with these practices. For example, the respondents or Mr Norman Carl May, may take steps to alter the ownership status of the company or its board of management, that is, without following due processes whilst the matter is still before the Court.
28. Let me remind myself that I am not making any final determination on the material issues or allegations raised by the petitioners. These would have to be tested or proven at the trial proper when all the evidence are adduced by the parties.
SUMMMARY
29. I am therefore inclined to grant relief 3 and 4 of the application.
COST
30. The petitioners have asked for cost to be awarded as cost in the cause. I will make an order to that effect. Effectively, cost will be reserved to the petition and may be awarded to the successful party in the proceeding.
ORDERS OF THE COURT
31. I make the following orders:
(i) Pursuant to section 142(1)(a) and (b) of the Companies Act, Mr. Norman Carl May is restrained from making any changes to the share register of Mayfuels Limited or records held by the Registrar of Companies for Mayfuels Limited, until further orders from this Court.
(ii) Pursuant to section 142(1)(a) and (b) of the Companies Act, Mr. Norman Carl May is restrained from holding any meetings or passing any resolutions as shareholder of Mayfuels Limited, until further orders from this Court.
The Court orders accordingly.
________________________________________________________________
Edward Wamp Lawyers: Lawyers for the Petitioners
O’Briens Lawyers: Lawyers for the Respondents
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