Odata Limited v Ambusa Copra Oil Mill Limited and National Provident Fund Board of Trustees (2001) N2106

• Jurisdiction: Papua New Guinea
• Judge: Kandakasi J
• Judgment Date: 06 July 2001
• Court: National Court
• Citation: (2001) N2106
• Year: 2001
• Judgement Number: N2106

Full Title: Odata Limited v Ambusa Copra Oil Mill Limited and National Provident Fund Board of Trustees (2001) N2106

National Court: Kandakasi J

Judgment Delivered: 6 July 2001

N2106

PAPUA NEW GUINEA

[IN THE NATIONAL COURT OF JUSTICE]

WS NO: 236 of 2001

BETWEEN:

ODATA LIMITED

Plaintiff

AND:

AMBUSA COPRA OIL MILL LIMITED

First Defendant

AND:

NATIONAL PROVIDENT FUND BOARD OF TRUSTIES

Second Defendant

Waigani: Kandakasi J

2001 : 12 June

6 July

PRACTICE & PROCEDURE — Interlocutory — Applications to strike out proceedings for failure to disclose cause of action — Such applications can only be granted in the clearest of cases.

CONTRACT LAW — Privity of Contract — subsidiary company agent of parent company if parent is in control — Corporate veil no bar to bringing an action against a parent company which is in fact the major player — Corporate veil may be lifted if fair to do so in all the circumstances of the case.

COMPANY LAW — Corporate veil — Important starting point is the separate legal personality of corporations upon incorporation — Protection of corporate veil available to legitimate or proper use — But not available for those abusing or otherwise seeking to avoid liability — Circumstances in which the corporate veil may be lifted considered — Courts should be ready to lift the veil if fairness, equity and justice so require — s.16 Companies Act 1992.

LEGISLATIONS — Investment Promotion Act 1992 — Foreign enterprises need to obtain certificates under s.25 of the Act before carrying on business in Papua New Guinea — Failure to obtain certificate does not automatically render contracts with foreign enterprises null & void — s.41A only grants a right to the other party to apply for a declaration that such a contract is unlawful and void — Applications under S.41A of the Act has to be considered on their own merits with fairness and equity in mind.

WORDS AND PHRASES — "Carrying on business" — s. 3(1)(a) of Investment Promotion Act 1992 — On its own suggest some physical activity must take place in Papua New Guinea first to give rise to the need to apply for certification under s. 25 — But when read together with other provisions including s.41A no physical activity in the country is required as long as the activity is to be performed wholly or partly in Papua New Guinea.

Facts

The Plaintiff ("Odata") is suing on the basis of a contract between itself and the First Defendant ("Ambusa"). Ambusa was incorporated by the Second Defendant ("NPF") as a subsidiary. That was in association with or in a joint venture with simple village people who knew nothing about the venture or running any business and did not participate in any of the decisions of Ambusa. NPF was fully in control of the Ambusa, including a negotiation of the contract, its signing and eventual termination.

The Defendants by notice of motion seek to dismiss the proceedings. That is on the basis that, Odata has not complied with the requirements for certification as a foreign enterprise before carrying on business in Papua New Guinea under s. 25 of the Investment Promotion Authority Act 1992 and on the on the basis of the doctrines of privity of contract and corporate veil for NPF.

Failing a dismissal of the proceedings, the Defendants asked for security for costs in the sum of K299, 779.33 being two thirds of their estimated costs.

Held

1. On the facts, Odata was not carrying on business in Papua New Guinea but may have been carrying on business in Papua New Guinea within the meaning of s.3 (1)(e) only by having regard to other provisions such as s. 41A of the IPA Act as a matter of law and therefore required to apply for a certificate under s. 25 of the IPA Act.

2. Odata as a foreign enterprise's failure to obtain a certificate under s.25 of the IPA Act does not automatically render its contract with Ambusa null and void. Instead, s. 41A grants a right to the Defendants to apply for a declaration that such a contract is unlawful and void which right they have not exhausted.

3. When an application under s. 41A of the IPA Act is made it has to be considered on its own merits including the principles of fairness and equity in the interest of doing justice, having regard to the conduct of the parties.

4. The corporate veil may be lifted in a number of circumstances including when it is fair to do so in all of the circumstances and having regard to the extent of the control of the affairs of the company by whoever is behind it.

5. In the present case, NPF formed Ambusa as its subsidiary and had control of the board and the activities of Ambusa including the entering into of negotiations, finalising negotiations and signing the contract with Odata and eventually terminating it. NPF even assumed the carriage and conduct of the defence of Ambusa. These factors point to Ambusa being only a front and or agent of NPF and in the circumstances it is only fair that the corporate veil should be lifted to allow NPF to face Odata's claim.

6. Odata does have a reasonable cause of action against the Defendants. Accordingly it is improper to strike out this action merely on technicality in an interlocutory application such as this.

7. It is within the Court's discretion to determine what amounts should be fixed for security for costs. That discretion is to be guided by the principles of whether:

(a) the application is promptly made?

(b) the plaintiff's claim is bona fide or is one likely to succeed?

(c) the Defendant has contributed to the plaintiff's impecuniosity?

(d) the amount to be fixed for security for costs is reasonable an will have the effect of nullifying the proceedings?

(e) there exists a cross-claim on the merits with substance?

8. Having regard to the Defendants conduct and their effects in the present case as well as the lack of any justification for the estimate of costs and the amount asked for by them to be given for security for costs, it is declined. But, in the exercise of the Court's discretion, a sum of K20, 000.00 is fixed as the appropriate amount to be given in security.

Cases Cited

PNG Forest Products Pty Ltd & Inchape Berhad v. The State and Genia [1992] PNGLR 85 Ronney Wabia v. BP Exploration & Ors N1697

Bougainville Copper Foundation v. Galeva Kwarara [1988-89] PNGLR 110

Graham Rundle v. Motor Vehicles Insurance (PNG) Trust [1988] PNGLR 20

CBS Inc and CBS Records Australia Ltd and Bali Merchants Pty Ltd v Ranu Investments Pty Ltd (CBS) [1978] PNGLR 66

Pinpar Development Pty Limited v. TL Timber Development Pty Limited N1857

Jacob Luke v John Ralda [1992] PNGLR 549

Kappo Limited v. Hau and Ors (23/05/97) SC520

Fortunaso Limited v. Bank of South Pacific Limited [1992] PNGLR 275

Osprey Industries v. Hallam [1992] PNGLR 557

Yarlett v. New Guinea Motors Limited [1984] PNGLR 156

Reynolds v. Walcott [1985] PNGLR 316

Driver v. Swanson [1977] PNGLR 30

Bank of Hawaii (PNG) Limited v. Papua New Guinea Banking Corporation & Ors (unreported and unnumbered judgement delivered on 8th June 2001)

Other Cases Cited

Hubbuck & Sons Ltd -v- Wilkinson Heywood & Clark Ltd [1899] All ER 244

Dyson v. Attorney General [1911] 1 KB 410

First City Trust Co. vs. Woodlawn Properties Ltd (1990) (RPR (2d) 259, 272; 80 Sask R 299; 66 DLR 4th, 470

Salomon v. Salomon & Co. Limited (1897) AC 22

Woolfson v.Strathclyde Regional Council 1978 SC(HL) 90,

Tunstall v. Steigmann [1962] 2 QB 593)

Chen v. Butterfield (1996) & NZCLC 261,086.

Jones v. Lipma [1962] 1 All ER 442

Gilford Motor Co v. Horne [1933] Ch 935)

Trevor Ivory Ltd v. Anderson (1992) 6 NZCLC 67, 611; [1992] 2 NZLR 517

Creasey v. Breachwood Motor Ltd [1992] BCC 638.

Morris v. Hanley (2000) NSWSC 957 (25 August 2000)

Counsels

Mr. P. Mills for the Defendants/ Applicants

Mr. T. M. Rei for the Plaintiff/Respondent

6th July 2001

KANDAKASI, J: By notice of motion, the Defendants are applying to dismiss these proceedings because they argue that no reasonable cause of action is disclosed against them. They argue that, the Plaintiff ("Odata") did not apply for and get either a certificate or an exemption under section 25 or 26 of the Investment Promotion Authority Act (1992) ("the IPA Act"), from the Investment Promotion Authority ("IPA"). Additionally, the Second Defendant ("NPF") argues that, there is no cause of action against it on the basis of the doctrines of privity of contract and corporate veil. It argues that the contract, on the basis of which Odata is suing is between Odata and the First Defendant ("Ambusa"). Ambusa entered into the contract in its own capacity as a principle and not as an agent of NPF. NPF owns 50% of the shares...