SCA No 160 of 2018; International Finance Company v K. K. Kingston Limited (2019) SC1872

• Jurisdiction: Papua New Guinea
• Judge: Yagi, Collier and Berrigan JJ
• Judgment Date: 13 November 2019
• Court: Supreme Court
• Citation: (2019) SC1872
• Year: 2019
• Judgement Number: SC1872

Full Title: SCA No 160 of 2018; International Finance Company v K. K. Kingston Limited (2019) SC1872

Supreme Court: Yagi, Collier and Berrigan JJ

Judgment Delivered: 13 November 2019

SC1872

PAPUA NEW GUINEA

[IN THE SUPREMECOURT OF JUSTICE]

SCANo 160 of 2018

BETWEEN

INTERNATIONAL FINANCE COMPANY

Appellant

AND

K. K. KINGSTON LIMITED

Respondent

Waigani: Yagi, Collier and Berrigan JJ

2019: 30th October & 13th November

SUPREME COURT – CIVIL APPEAL – appeal against a decision of a primary judge which set aside a statutory demand issued under the Companies Act 1997 – statutory demand issued for the payment of debt – debt being the redemption price for shares in a company – statutory demand issued for a specified amount – whether there exists a substantial dispute as to the debt claimed, Companies Act 1997, ss. 338(1) and 4(a) – power of the Court is discretionary – whether the decision of the primary judge was unreasonable or plainly unjust – no identifiable error was manifest in the decision – appeal dismissed with costs.

Cases Cited

Papua New Guinea Cases

Government of PNG v Barker [1977] PNGLR 386

PNG Balsa Company Ltd v New Britain Balsa Company Ltd (2004) N2520

Curtain Bros (PNG) Ltd v University of Papua New Guinea (2005) SC788

Pacific Rim Constructors – Singapore PTE Ltd v Huala Hire & Construction Ltd (2012) N4710

BeMobile Ltd v Wettao (2014) N6776

Northbuild Construction PNG Limited v All Power Services Limited (unnumbered, Supreme Court, Sawong, Collier and Geita JJ, 15 December 2016, SCA 117 of 2016)

National Superannuation Fund Ltd v Yawenaik Holdings Ltd (2018) SC1709

Overseas Cases

Hare v Nicoll [1966] 2 Q.B. 130

Coulton v Holcombe [1986] 162 CLR 1

Di Luca v Juraise (Springs) Ltd [1997] EWCA Civ 2419

Bishop Industries (Wellington) Limited v Construction Labour Hire Limited [2016] 2848

Legislation cited:

Companies Act 1997

Companies Regulation 1998

Counsel:

Mr D. Hill with Ms W. Mai, for the Appellant

Mr I. Molloy with Mr E. Rere, for the Respondent

REASONS FOR JUDGMENT

13 November, 2019

1. BY THE COURT: This is an appeal from the decision of the National Court in OS No. 50 of 2018 – K. K. Kingston Limited v International Finance Company, in which the primary Judge set aside a statutory demand for payment of debt in the sum of K7,264,333.33. The statutory demand was issued by the International Finance Company (IFC)and served on K. K. Kingston Limited (Kingston) on 8 January 2018. The primary Judge’s decision was made pursuant to s 338(1) and (4) of the Companies Act 1997.

2. The appellant contends that the primary Judge erred in making the above finding, and therefore erred in setting aside the statutory demand in the exercise of his discretion.

3. In order to disturb the National Court decision, the respondent must establish that his Honour’s conclusion that a bona fide substantial dispute existed between the parties was “clearly wrong”: see Government of PNG v Barker [1977] PNGLR 386 at 397; Northbuild Construction PNG Limited v All Power Services Limited (unnumbered, Supreme Court, Sawong, Collier and Geita JJ, 15 December 2016, SCA 117 of 2016) (Northbuild); Curtain Bros (PNG) Ltd v University of Papua New Guinea (2005) SC788 (Curtain Bros); National Superannuation Fund Ltd v Yawenaik Holdings Ltd (2018) SC1709.

4. Before turning to the grounds of appeal, it is useful to examine relevant background facts and the decision of the primary Judge.

BACKGROUND

5. Many of the relevant background facts are common ground. The key fact which is not agreed is whether IFC validly exercised a contractual right of redemption of its shares in Kingston.

6. In 2010, IFC entered into two agreements to acquire a shareholding in Kingston of a total of 196 “A” Ordinary Shares. These agreements were:

· A subscription agreement dated 2 March 2010 between IFC, Kingston, Mr Keith Kingston (Mr Kingston) and Kula Fund II Limited whereby IFC agreed to subscribe and pay for 88 A Ordinary Shares in Kingston for a subscription price of AUD$1.89 million (the Subscription Agreement); and

· A share purchase agreement dated 2 March 2010 between Mr Keith Kingston, IFC and Kula Fund II Limited, whereby IFC agreed to purchase 108 A Ordinary Shares in Kingston from Mr Kingston for AUD$2.31 million (the Share Purchase Agreement).

7. IFC, Mr Kingston, Kula Fund II Limited and Kingston also entered into a Shareholders Agreement dated 2March 2010 (the Shareholders Agreement) where provision was made for the relationship of the shareholders after IFC became a shareholder of Kingston pursuant to the Share Purchase Agreement and the Subscription Agreement.

8. The process whereby IFC was to obtain 88 A Ordinary Shares under the Subscription Agreement was set out in the Subscription Agreement as follows:

Section 2.01. Subscription...

a) On the terms and subject to the conditions of this Agreement, the Subscribers agree to subscribe and pay for the A Ordinary Shares in the Company (the “Subscription Shares”) specified in the table below:

Subscriber	Number ofA Ordinary Shares	Subscription Price (AUS$)	Approximate percentage shareholding
IFC	88	1.89 million	7.48%
…

(b) Subject to the terms of this Agreement and the satisfaction (or waiver by the Subscribers) of the conditions of subscription set forth in Section 4.01 (Conditions of Subscription), either:

(i) the Company may request the Subscribers to subscribe for the Subscription Shares by delivering a Subscription Notice to the Subscribers; or

(ii) the Subscribers may notify the Company that they shall subscribe for the Subscription Shares by delivering a Subscription Notice to the Company,

at least ten (10) Business Days prior to the date of the Subscription specified in such Subscription Notice which date shall be no later than the Cut-off Date (“the Subscription Date”).

(c) If a Subscription Notice is delivered by the Company to the Subscribers in accordance with section 2.01(b)(i), or the Subscribers deliver a Subscription Notice to the Company in accordance with section 2.01(b)(ii), then the Company shall be obliged to issue the Subscription Shares to the Subscribers on the Subscription Date and shall take all necessary corporate and other action, including but not limited to all appropriate steps to ensure that a general meeting of the Company's shareholders or a meeting of the board of directors, as applicable, is promptly convened, to ensure that the Subscription Shares shall be issued to the Subscribers on the Subscription Date, in accordance with the terms of this Agreement.

(d) On the Subscription Date:

(i) the Subscribers shall pay the amount equal to the Subscription Price in dollars to the following account of the Company:

…

(ii) the Company shall:

(A) issue to the Subscribers, or as the Subscribers direct, the Subscription Shares free of all Liens or other encumbrances or rights of third parties and record the Subscribers as the legal and beneficial owners of the Subscription Shares in the Company's Share Register; and

(B) deliver to the Subscribers, or as the Subscribers direct: (A) a share certificate in customary form; and (B) a certified copy of the relevant extract of the Company's Share Register, evidencing the Subscribers' valid title to the Subscription Shares, free of all Liens or other encumbrances or rights of third parties; and

(C) provide the Subscribers with evidence satisfactory to the Subscribers that the Subscription Shares have been duly and validly authorized and issued, and are fully paid and non-assessable and otherwise freely transferable without requiring any Authorization of any Authority, and that all other legal requirements in connection with their authorization, issue and delivery have been duly satisfied. (save any post-issue filings and other requirements to be undertaken by the Company in accordance with section 2.01(f)).

The parties agree that the fulfillment of the obligations of the Company set forth in sections 2.01(d)(ii)(A) through (C) above are conditions precedent to the application of any funds disbursed by the Subscribers under section 2.01(d)(i) to the Subscription for the Subscription Shares and that, accordingly, any funds disbursed in accordance with section 2.01 (d)(i) shall be held in trust by the Company (for the benefit of the Subscribers) until the acts set forth in section 2.01(d)(ii)(A) through (C) have been performed and the Subscribers have notified the Company in writing that such funds can be released to the Company,...

9. In section 1.01 of the Subscription Agreement the following relevant definitions are set out :

· "Cut-off Date" means “31 May 2009 or such other date as the parties may agree”;

· "Subscription" means “the subscription for shares of the Company by the Subscribers as...