Timothy Peter Neville and Peter John Dalton Neville v The Privatization Commission (2001) N2184

• Jurisdiction: Papua New Guinea
• Judge: Kandakasi J
• Judgment Date: 26 November 2001
• Court: National Court
• Citation: (2001) N2184
• Year: 2001
• Judgement Number: N2184

Full Title: Timothy Peter Neville and Peter John Dalton Neville v The Privatization Commission (2001) N2184

National Court: Kandakasi J

Judgment Delivered: 26 November 2001

N2184

PAPUA NEW GUINEA

[IN THE NATIONAL COURT OF JUSTICE]

OS 548 of 2001

BETWEEN:

TIMOTHY PETER NEVILLE &

PETER JOHN DALTON NEVILLE

Plaintiffs

AND:

PRIVATISATION COMMISSION

Defendant

WAIGANI: KANDAKASI

2001: 18th September

26th November

PRACTICE & PROCEDURE – Application to be joined as a party and lifting of interim injunctive orders – Applicant coming under the management, administration and control of another entity, the Privatization Commission – That other entity consented to orders sought to be lifted and has not consented to application to join as a party and lifting of injunction – No standing of applicant – Application dismissed.

PRIVATIZATION OF STATE ENTERPRICES – Powers of the Privatization Commission – Commission vested with the assets, management and administration and control of enterprises declared to be privatized – Exercise of the Enterprises powers and functions subject to control and direction of the Commission’s authority – Corporate veil lifted as against the Commission and any third party dealing with such an entity – Commission intended be one stop shop for privatization of enterprises declared to be privatized.

INTERIM INJUNCTIONS – Grant and continuity of – Where balance of convenience fall in favour of-Substantial issue to be argued on substantive proceedings-Fairness and equity dictate grant and continuity of.

COMPANY LAW – Lifting of cooperate veil – Statutory provision vesting control of a company in another amounts to lifting of – Circumstances warrant lifting of in fairness and in equity – Separate legal personality can not be raised if control already removed and would result in an unfair and in equitable result.

Cases Cited

Kenneth Winston Bromley v. Finance Pacific Limited & 2 Ors (unreported and unnumbered judgement).

Inakambi Singorom v. John Kalaut [1985] PNGLR 238 at 241.

Odata v. Ambusa Copra Oil Mill and National Provident Fund Board (unreported judgement) N2106.

Other Cases

South Carolina Insurance Co v. Assurantie Maatschappij [1987] AC 24 at pages 44 – 45.

Counsel

Mr. E. Anderson for the Applicant

Mr. J. Griffin and Varitimos for the Plaintiff/Respondent

Mr. I. Mileng for the Defendant/Respondent

JUDGEMENT

26th NOVEMBER 2001

KANDAKASI, J: The Papua New Guinea Banking Corporation (“PNGBC” or “Bank”) is applying to be joined as a party to the proceedings. It is also seeking a lifting of an interim injunction against it. The injunction was granted in the Bank’s absence with the consent of the plaintiff (‘the Nevilles”) and the Defendant (“the Commission”) on the 4th of September 2001. The injunctive orders prevents the Bank from proceed with a mortgagee sale of the Nevilles assets for failure to meet loan and lease repayment obligations whilst the Nevilles pursue a claim for a recovery of substantial debt due and owing to them from the State. A recovery of those debts will fully settle all of the debts due and owing to the Bank.

The Bank argues that the Commission neither had the powers nor the authority to consent to the injunctive orders. It relies on the principle of separate legal entity upon incorporation under the Companies Act 1997, and argues that, it is entitled to be heard in these proceedings and a set aside of the interim injunctive orders. On the other hand, the Nevilles and the Privatisation Commission argue that, once the Bank was identified for privatisation and placed under the control of the Privatisation Commission, it could no longer assert its separate personality. These arguments present the following legal questions to be determined:

1. Is PNGBC under the control of the Commission?

2. Did the Commission have the power to consent to the grant of the interim injunctive orders?

3. Is PNGBC entitled to raise its separate legal personality as against the Commission and other parties once placed under the control of the Commission?

4. Can PNGBC be joined as a party to these proceedings?

5. Is it fair, reasonable, just and or equitable that the interim injunctive orders be lifted?

The facts and the background leading to these proceedings and the application are not in any serious contention between the parties. The Nevilles, have been the only two directors and shareholders of a company, Coecon Limited (“Coecon”) for over ten years.

For many years Coecon successfully operated a profitable and viable earthmoving and construction business. Some of its business included the carrying out of many large projects for the State. In the process, it has accumulated considerable assets. The value of its assets exceeds its liabilities by many millions of Kina.

By a written contract dated 25th June 1999, Coecon contracted with the State to undertake a major construction work for the National Fisheries Surveillance Project at a site at Put Put, Kavieng, New Ireland Province. It brought a large amount of equipment to the project site and part performed the contract until 27th October 1999. It experienced considerable difficulties in obtaining payment for work done under the contract from the State. The State through its representatives continually informed Coecon that it could not make the payments promptly because of its cash follow problem. There were no complaints over the quality of the work done by Coecon.

Due to the delay in payment from the State, Coecon was placed in a much more difficult financial position. It could have removed its equipment from Kavieng but could have been at a considerable expense. If it did that, it could have incurred further considerable costs in taking the equipment back to Kavieng to continue the contract once the payments were made. In any case, the State instructed Coecon to keep the equipment at Kavieng and assured it that the contract would be completed. This forced Coecon to continued to retain the equipment at Kavieng at considerable expense. That also meant that Coecon’s staff to carry out the contract had to remain on site again at considerable costs to Coecon.

Various meetings were held with representatives of the State to sort out the delay in payment and the completion of the contract. The State continued to maintain that the company’s staff and machinery needed to be in position to complete the contract as soon as the outstanding payments were made. The State also continued to assure Coecon that funds would soon become available.

The delays in payment substantially contributed to Coecon seriously falling behind meeting its loan and lease repayment obligations with the PNGBC. Coecon’s debt to PNGBC continued to increase, and ultimately reached a point where it could not meet its liabilities, unless the State met its liabilities to Coecon. This led PNGBC to foreclosing on Coecon and appointing a receiver, one Mr. Wardley under a deed of appointment dated 18th October 2000. The receivership was brought about solely by the fact that the payments due in respect of the Kavieng contract were not made by the State to Coecon.

Coecon instituted proceedings WS. No. 1617 of 2000, against the State for a recovery of the amounts due and owing to it under the construction contract. Judgment was obtained against the State on 30th July 2001, with damages to be assessed.

The estimated value of the plant and equipment owned by Coecon is very significant. It is in the region of K18 million. According to the appointed receiver, Mr. Wardley, the total debts due and owing to the Bank inclusive of accrued interest and charges add to about K7,052,449.96. The State owes Coecon over K12,000,000.00. If these amounts were paid as and when they fell due under the contract between the State and Coecon, Coecon could not have fallen into arrears and the interest on the arrears would not have accrued. Also, it would not have been necessary for a receiver to be appointed. Mr. Wardley goes on to say that if the claim for work done and standby in respect of the Put Put contract had been paid as when and they fell due by the State, all arrears would have been eliminated. He further states that Coecon would then be in credit of over K6 million.

There is no dispute that Coecon has, over the many years it has existed, acquired considerable property, both real property and plant and equipment. It has improved various parcels of vacant land and developed them by constructing units, houses, and workshops some of which are for its own businesses and operations. The workshops and accommodation are used in the running of the business and are essential to the successful operation of the business and the needs of the company. If such properties and equipment are allowed to be sold by the Bank, they would likely attract a price considerably less than if they were sold in a more timely fashion.

The Privatisation Commission is the sole shareholder of the Bank according to a “Notice of Change of Shareholders” dated the 19th of April 2001 on transfer from Finance Pacific Ltd (“Finance Pacific”). Finance Pacific became the sole shareholder on transfer from Jimmy Maladina on the 23rd of December 1998. On the 30th of March 2001, Finance Pacific was declared in a publication in the National Gazette to be a...