Niugini Building Supplies Limited v National Housing Estate Limited (2020) SC1985

• Jurisdiction: Papua New Guinea
• Court: Supreme Court
• Judge: Kandakasi DCJ, Manuhu & Yagi, JJ
• Judgment Date: 31 July 2020
• Citation: (2020) SC1985
• Judgment Number: SC1985
• Year: 2020
• Docket Number: SCA NO. 57 OF 2018

Full Title: SCA NO. 57 OF 2018; Niugini Building Supplies Limited v National Housing Estate Limited (2020) SC1985

Supreme Court: Kandakasi DCJ, Manuhu & Yagi, JJ

Judgment Delivered: 31 July 2020

SC1985

PAPUA NEW GUINEA

[IN THE SUPREME COURT OF JUSTICE]

SCA NO. 57 OF 2018

BETWEEN

NIUGINI BUILDING SUPPLIES LIMITED

Appellant

AND:

NATIONAL HOUSING ESTATE LIMITED

Respondent

Waigani: Kandakasi DCJ, Manuhu & Yagi, JJ

2019: 26th February

2020: 31st July

COMPANY LAW – Incorporation of a company under Companies Act – consequence of – separate legal personality from shareholders and directors – incorporating a company by the State with State Ministers holding shares – absence of provisions in the Companies Act for State owned companies to be treated differently from other companies - consequence of – Same as those following other incorporations – Companies Act 1997 ss. 16, 36, 37, 78 and 291

PROPERTY LAW - Transfer of State assets to company incorporated under the Companies Act 1997 – whether assets of the company are properties of the State – whether company is State for the purposes of s. 13 of the Claims By And Against the State Act 1996 and protected against enforcement proceedings – Normal consequences of incorporation of a company under the Companies Act applies

Facts

The Appellant secured a National Court judgment in the sum of K4,879,263.21 against National Housing Corporation (NHC) and the Respondent (NHEL). The NHEL and the NHC failed to satisfy the judgment despite numerous demands and follow ups for them to satisfy the judgment. This caused the Appellant to serve on the NHEL a statutory demand for a total sum of K5,918,746.79, inclusive of interests. The NHEL failed to meet the demand. That led to the Appellant filing a petition for winding up of NHEL. Upon the NHEL’s motion and upon hearing the parties, the National Court dismissed the petition and found it was an abuse of the Court’s process. The Court reasoned that, the NHEL was “the State” within the meaning of s. 13 of the Claims By and Against the State Act 1996 (CBASA) which prohibits execution or enforcement of judgments against the State. The Court was of the view that two Ministers holding the only issued shares in NHEL means, NHEL and its assets were a property of the State. Aggrieved by that decision, the Appellant lodge an appeal to the Supreme Court claiming the trial judge fell into error in reasoning as he did and failed to note that the NHEL was incorporated only under the Companies Act 1997 and was a separate entity from the State. The Companies Act was the relevant and applicable Act and not the CBASA. According to the relevant provisions of the Companies Act and relevant accepted legal provisions, the State as a shareholder through its Ministers has an interest only in the shares and any interest paid and not in the assets of NHEL.

Held:

1. The phrase “the State” has been considered in numerous Supreme and National Court judgments but the leading judgment is the decision of the Supreme Court in SCR No. 1 of 1998: Reservation Pursuant to Section 15 of the Supreme Court Act (2001) SC672.

2. The decision in SCR No. 1 of 1998: Reservation Pursuant to Section 15 of the Supreme Court Act (supra) and the decision in National Capital District Commission v. Jim Reima & Ors (2009) SC 993, settled the question of whether Provincial Governments and Local-level Governments are State for the purposes of s. 13 and 5 of the CBASA.

3. Also, the decision in SCR No. 1 of 1998: Reservation Pursuant to Section 15 of the Supreme Court Act (supra), made it clear that the protection under s. 13 of the CBASA “does not apply to assets and finances of developmental enterprises of provincial governments that have independent corporate statuses and operate commercially. They are subject to the ordinary laws as corporate citizens. However, any profits these developmental enterprises contribute to the provincial budgets become assets belonging to the people and they are also protected from execution processes.”

4. In its decision in Mineral Resources Development Company Ltd. v. Mathew Sisimolu (2010) SC1090 and PNG Power Ltd v. Ian Augerea (2013) SCI245, the Supreme Court developed and applied the correct tests, criteria or factors to take into account for the purposes of considering where a statutory corporation or authority is “the State” within the meaning of s. 5 of the CBASA or a governmental body under s. 255 of the Constitution.

5. Applying the relevant test, criteria or factors per Mineral Resources Development Company Ltd. v. Mathew Sisimolu (supra) and PNG Power Ltd v. Ian Augerea (supra), the Court determined that NHEL is not “the State” for the purposes of s. 13 of the CBASA because:

(a) it is not an entity established pursuant to a specific statute but under the Companies Act by reason of which the governing and applicable Act is the Companies Act.

(b) no specific statutory provision deems its employees as employees in the public service and to whom the Public Services (Management) Act 1995 (as amended) applies as to their rights, duties and obligations according;

(c) its Board and its chief executive officer are appointed by its shareholders albeit State Ministers and not directly by the government of the day;

(d) there is no specific statutory obligation placed in the NHEL to give effect to the policies of the government and not to pursue its own corporate will and desire and there is nothing to oblige it to directly account to the people of Papua New Guinea through the NEC except as it may be through the relevant government minister shareholders; and

(e) there is no statutory provision obliging it to provide quality, reliable and affordable housing to the people of Papua New Guinea in addition to what the NHC is already obliged to do, instead of operating as a profit orientated business;

(f) In the absence of any evidence or a legislation establishing the NHEL which amongst others, creates it with a clear statement of its purpose, structure and organization and the kinds of control the NEC and or the State has over its activities, the NHEL was established in addition to the NHC to enable the State to enter the commercial real estate market in association with outside government interest up to at least 30% of the total share in NHEL.

6. Having regard to the provisions of s. 16, 78, 36 and 37 of the Companies Act 1997, the State as a shareholder through the two Ministers of State has an interest only in the shares and any dividends that may be declared and paid, but not the Company (NHEL) and its assets.

7. Applying the foregoing factors and principles, learned trial Judge erred in:

(a) finding NHEL was “the State” within the meaning of s. 13 of the CBASA; and

(b) in his decision that the winding up petition was an abuse of process.

8. Accordingly, the appeal was upheld with costs and the substantive winding up petition was reinstated and remitted for trial before a different Judge.

Cases Cited

SCR No. 1 of 1998: Reservation Pursuant to Section 15 of the Supreme Court Act (2001) SC672.

PNG Power Ltd v. Ian Augerea (2013) SCI245.

Investment Corporation of Papua New Guinea v. Paul Pora, Minister for Finance and Physical Planning and The Independent State of Papua New Guinea [1993] PNGLR 45.

Post PNG Limited v. Westpac Bank PNG Limited (1999) SC608.

Pato v. Enga Provincial Government [1995] PNGLR 469.

Pupune v. Makarai & Ors (1997) N1647.

Wagambie and Kupo v. General Rockus Lokinap & Ors [1991] PNGLR 145.

MAPS Tuna Ltd v. Manus Provincial Government (2007) SC857.

Mineral Resources Development Company Ltd. v Mathew Sisimolu (2010) SC1090.

Naomi Vicky John v. National Housing Corporation (2005) N2770.

Dan Salmon Kakaraya vs. The Ombudsman Commission & The State (2003) N2478.

John Napi v. Kundiawa General Hospital Board (2006) N3047.

Bernard Uriap v. Simon Tokivung & Ors (2008) N3444.

Okam Sakarius & Ors v. Chris Tep, Projector Manager & Cocoa Coconut Agency (2003) N2355.

Otto Napi v. National Capital District Commission (2004) N2797.

Albert Purame v. Ase Tipurupeke Land Group Inc., MRDC & Secretary for Department of Petroleum & Energy (2005) N2806.

National Capital District Commission v. Jim Reima & Ors (2009) SC 993.

Konze Kara v. Public Curator of PNG (2017) N7161.

Pacific Rim Contractors – Singapore Pty Ltd v. Huala Hire and Contractors Limited (2012) N4710.

Odata Ltd v. Ambusa Copra Oil Mill Ltd & National Provident Fund Board of Trustees (2001) N2106.

TT Angore Noa Hai Investment Ltd v. Kau Buna (2019) N7881.

Eki Investments Limited v Era Dorina Limited; Era Dorina Limited v Eki Investments Limited (2006) N3176

Legislations Cited:

Claims by and Against the State Act 1996

Companies Act 1997

Electricity Commission...