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G.R. Logging Limited v Benson Apinanung & Othrs

Dispute over logging rights in the Pulie Anu area of West New Britain

Concessions mentioned in this document:


                                                           SC2139
                         PAPUA NEW GUINEA
                [IN THE SUPREME COURT OF JUSTICE]

                            SCA No. 33 OF 2019

                             BETWEEN
LEO PUTE, LEO AILOL, TONNY MISIKLAI & LEONARD KOLANG
       in their capacity as Directors of G.R. Logging Limited
                                  Appellants

                       AND:
 BENSON APINANUNG, MICHAEL AVOLIO, WILLIAM BEKIO,
MICHAEL BENO, CLEMENT GLENGIO, DAVID MALAI, MICHAEL
     SISIL, ANDREW TAKMAP and, ALPHONSE YAKIO
                               First Respondents

                            AND:
               MICHAEL BENO AND CLEMENT KAPUN
                              Second Respondents

              Waigani: Gavara-Nanu J, David J and Hartshorn J
                       2021: 28th April & 29th July

Practice & Procedure – Companies Act, 1997, ss. 70, 134 (2); Schedule 4.2
to 4.7 - Company not having Constitution – Directors’ meetings – Notice of
directors’ meetings – Service of notice of meetings on directors –
Appointment of company directors.

Cases Cited

Paru Aihi v. Peter Isowaimo (2013) SC1276
Nominees Niugini Ltd v. IPBC (2017) SC1646
Sir Arnold Amet v. Peter Charles Yama (2010) SC1064

Counsel:

I. Shepherd with C. Copland, for the Appellants
A. Furigi, for the First Respondents
T. Tape, for the Second Respondents

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1.      BY THE COURT: The appellants appeal against part of the
decision of the National Court given on 24 April, 2020, at Waigani, in respect
of proceedings OS No. 836 of 2018 and OS No. 867 of 2018, (consolidated).
The two proceedings concerned control of G.R. Logging Limited (the
company) by two landowner groups in the Kandrian District, West New
Britain Province. One group was led by Paul Aivia and Joe Biris, who are the
appellants. The other group was led by the Michael Beno, who are the
respondents.

2.      As the learned primary judge observed in his decision, this was a
typical landowner dispute. The proceedings concerned a Timber Permit,
(TP14-04) which the company held over an area of land in the Kandrian
District of West New Britain Province. The company sought to renew the
Timber Permit.

3.      In about October or November, 2016, the National Forest Board
recommended renewal of the company’s Timber Permit to the Minister for
Forests.

4.      Despite that recommendation, the Minister granted a Timber Permit to
another company, namely Pulie Anu Timber Company Limited (PATCL).
This led to a series of legal proceedings being instituted including, proceeding
OS (JR) No. 116 of 2017, in which the company challenged the decision of
the Minister to grant a Timber Permit to PATCL.

5.     The respondents’ group instructed Furigi Lawyers, who were their
lawyers to withdraw the proceeding while the appellants’ group wanted to
proceed with the proceeding.

6.     This gave rise to the two groups instituting the two consolidated
proceedings (OS 836 of 2018 and OS 867 of 2018).

7.     Proceeding OS 836 of 2018, was filed on 14 November, 2018. By an
amended originating summons, the group led by Paul Aivia, who were
appointed directors in the shareholders’ meeting held on 28 September, 2016,
sought among others, the following orders:

               (a)       A declaration that the purported Board meeting on
                      19 February, 2017 and the resolutions passed at that
                      meeting were null and void for reasons among others
                      that the meeting was not called by the Directors of the
                      company.

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              (b)     A declaration that a Board meeting of 3 November,
                      2018, was null and void, for reasons among others, that
                      the persons who were not Directors of the Company
                      purported to have voted as Directors and there was no
                      quorum.

              (c)     An order restraining the group led by Michael Beno
                      from among others dealing with the Company’s records,
                      making decisions on behalf of the company, and in
                      particular, purporting to appoint legal representatives
                      for the Company in the judicial review proceedings.

8.     In proceeding OS 867 of 2018, which was filed on 19 November,
2018, the Michael Beno led group comprising Benson Apinanung and others
sought among others, the following orders:

               (a)    The shareholders meeting of 28 September, 2016, which
                      removed certain Directors of the Company and
                      appointed others was for various reasons among others,
                      non-complaint with the Companies Act, 1997, and that
                      the resolutions passed at that meeting were void and of
                      no effect and that the previous Directors be reinstated;
                      and;

               (b)    A Board meeting held on 17 October, 2018, was non-
                      complaint with the Companies Act and that any
                      resolution passed at that meeting was null and void and
                      of no effect.

9.     This appeal is against certain orders of the National Court in
proceeding OS No. 836 of 2018. There are six grounds of appeal, which can
be summarized as follows:

               (i)    The trial judge erred in law or mixed facts and law in
                      dismissing the relief sought in paragraphs (1) (a), (b),
                      (c), 2 (a), (b), (c) and 3 (a), (b) and (c) after finding
                      that some Directors of the Company were not given
                      notice of the Directors’ meeting held on 19 February,
                      2017.

               (ii)   The trial judge erred in law and mixed fact and law in
                      dismissing the relief sought in paragraphs mentioned in
                      ground (i) above, which he later held that the giving of
                      notice of the meeting of the Directors of the Company

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                      to all Directors in Papua New Guinea was mandatory
                      and that the failure to give notice to all the Directors
                      was in breach of Schedule 4.2 of the Companies Act,
                      1997, with the consequence that any meeting that was
                      subsequently held would be illegal and any resolutions
                      passed at such meeting would be null and void.

              (iii)   The trial judge erred in law and in mixed fact and law
                      in that after finding that the notice of the meeting of the
                      Directors of the Company held on 19 February, 2017,
                      was not given to all the Company Directors, the trial
                      judge having found that the meeting of the Directors
                      purportedly held on 19 February, 2017, was illegal and
                      the resolutions passed at that meeting were null and
                      void.

              (iv)    The trial judge erred in law and mixed fact and law in
                      not granting the relief sought in ground (1) above, on
                      the grounds that no notice of Directors held on 19
                      February, 2017, was given to some of the Directors of
                      the Company which was contrary to Schedule 4.2 of the
                      Companies Act, 1997.

              (v)     The trial judge erred in law and mixed fact and law by
                      failing to find that the meeting of the Company
                      Directors held on 19 February, 2017, was illegal for
                      failure to give notice to all the Directors about the
                      meeting as required under Schedule 4.2 of the
                      Companies Act, 1997, as he found regarding the
                      meeting held on 30 October, 2018.

              (vi)    The trial judge erred in law and mixed fact and law in
                      failing to find that resolutions passed at the meeting of
                      the Company Directors held on 30 October, 2018, were
                      null and void because not all the Directors were given
                      notice about the meeting.



10.   The relief sought can be summarized as follows:

              (i)     The notice published on 13 February, 2017, regarding
                      the Company’s Board meeting be declared null and
                      void as it was notice improperly given and was illegal.

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                        Furthermore, not all the Directors of the Company
                        were served with the notice.

                (ii)    The purported meeting of the Company Board held on
                        19 February, 2017, at Savalu Camp Site be declared
                        null and void because the notice for the meeting was
                        irregular and the meeting lacked quorum.

                (iii)   The purported unanimous resolution of the Company
                        Board passed at the meeting held on 19 February,
                        2017, be declared null and void as it was contrary to
                        Schedule 4, Clause 7 of the Companies Act.
                        Furthermore, the resolution was not signed or assented
                        to by all the Directors of the Company; thus the
                        resolution was not unanimous.

                (iv)    The appeal be allowed.

                (v)     Costs to follow the event.

11.     Mr. Shepherd, counsel for the appellants argued that there was
evidence upon which the learned primary judge could have found the meeting
of the directors of the company held on 19 February, 2017, null and void, like
he did with the meeting of 30 October, 2018. It was argued that this was an
oversight on the part of the primary judge because the factual basis upon
which the meeting of 30 October, 2018, was nullified also existed for the
meeting of 19 February, 2017; in that insufficient notices were given to the
directors for both meetings. It was also argued that any resolutions passed at
the meetings were in breach of Schedule 4.7 of the Companies Act 1997,
because the resolutions were not unanimous and not all the directors signed or
assented to those resolutions. The notice for the 19 February, 2017, meeting
was purportedly published on 13 February, 2017.

12.      Mr. Furigi, counsel for the first respondent argued that the appellants
are barred from raising matters in paragraph 3 (a) to (f) in the Notice of
Appeal because they were not raised in the primary court. These grounds
relate to the notices given for the directors' meeting on 19 February, 2017, and
resolutions passed in that meeting which the appellants claim were null and
void and illegal because they breached Schedule 4.2 and 7 of the Companies
Act. It was also argued that the arguments by the appellants are not supported
by evidence, especially affidavits of Paul Aivia, John Siwi and Tony Misiklai.
It was submitted that the appellants had no basis to argue that even the notice
for the directors’ meeting on 19 February, 2017, was published by an
unauthorized person. It was also argued that the appellants had no basis to

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argue that there was no quorum for that meeting. A lot of emphasis was
placed on what the respondents claim were matters or issues the appellants
raise which it was argued were not raised in the primary court.

13.    Mr. Tape, counsel for the second respondent supported arguments by
Mr. Furigi that issues raised before this Court were not raised in the primary
court and should not be raised. Mr. Tape submitted that although the relief
sought in the appeal were also sought in the primary court, no arguments were
advanced in support of them, in particular to declare the meeting of 19
February, 2017, unlawful null and void. He argued the appellants did not
challenge the validity of that meeting in the primary court.

14.    Both Mr. Furigi and Mr. Tape argued that the validity of the directors'
meeting on 19 February, 2017, should not be raised before this Court, as it was
not argued by the appellants in the primary court although there was material
before the primary court.      This was the overarching argument by the
respondents. They argued that the appeal should be dismissed.

15.     There is a cross-appeal by the respondents, which is essentially based
on the respondents’ arguments that the primary judge erred in declaring that
meetings of 3 November, 2018 and 30 October, 2018, breached Schedule 4.2
and 4.3 of the Companies Act in that insufficient notices were given to the
directors of the Company regarding the meetings and were therefore null and
void.

16.     It was argued by both counsel for the respondents that the learned
primary judge erred in that, the notices were proper and Schedule 4.2 and 4.3
of the Companies Act were not breached. They argued that the notices were
not irregular and did not breach the requirements of the Schedule 4.2 which
they argued is in very general terms as it does not specify the type and nature
of the notices to be given. They argued that the publication of the notices in
the newspapers were proper and sufficient to meet the requirements of
Schedule 4.2 of the Companies Act.

17.    Mr. Shepherd told the Court that it is not true that the issues raised
before this Court, particularly the validity of the directors’ meeting of 19
February, 2017, were not argued by the appellants in the primary court. He
submitted that these issues were raised and argued in the primary court. He
submitted that arguments by the respondents and the respondents’ cross-appeal
which was grounded on these claims should be dismissed.

18.     Looking at the transcript of the proceeding, we note that in the primary
court the validity of the meeting of 19 February, 2017, was raised and argued
by Mr. Ian Molloy, who was lawyer for the plaintiffs (appellants). Mr. Molloy

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told the Court that his clients were seeking orders that the meeting of 19
February, 2017, was null and void because the meeting among others, was not
called by the directors of the Company. Thus, he argued that the resolutions
passed at that meeting including appointment of Furigi Lawyers as Company
Lawyers were null and void. More importantly, Mr. Molloy told the primary
judge that the issue was sufficiently covered by the Companies Act itself. (p.
1956 A/B). Mr. Molloy also argued that the respondents were directors of
PATCL the rival company, thus they had a conflict of interest to be directors of
the Company. It was argued that for the same reason, it was improper for Mr.
Furigi who had been acting as lawyer for PATCL to act for the Company.
These issues were directly related to the appointment of new Company
directors and their lawyers at the 19 February, 2017, meeting (p. 1961 A/B).

19.     In responding to Mr. Molloy’s arguments, Mr. Furigi argued that the
appointment of directors at the 19 February, 2017, meeting, was by a
unanimous resolution of the directors present at that meeting. Mr. Furigi
further argued that pursuant to that resolution, Furigi Lawyers acting for the
Company, filed proceeding OS (JR) 116 of 2017, to maintain the status quo
and to allow resource owners associated with PATCL to hold the Timber
Permit and benefit from their recourses. He referred to the appellants as
“outsiders coming under the cover of the Company” trying to challenge the
Deed of Assignment, pursuant to which the Timber Permit was held by
PATCL. (p. 1971 A/B). Mr. Furigi also denied that he had a conflict of interest
in acting for the Company. (p. 1972 A/B). He argued that the Deputy
Registrar of Companies also endorsed the meeting of 3 November, 2018, as
well as the resolutions passed to give effect to the decisions made on 19
February, 2017, meeting. He argued that meeting of 19 February, 2017, was
valid. (p. 1975 A/B).

20.     Interestingly though, at the conclusion of his submissions before the
primary judge, Mr. Furigi argued that there did not seem to be a challenge to
the validity of the 19 February, 2017, meeting, in which Furigi Lawyers were
also appointed to act for the Company and that there was no clear challenge to
the validity of the 3 November, 2018, meeting. Thus, he submitted that the
validity of the two meetings stood without challenge (p. 1976 A/B). However,
this was immediately contradicted by Mr. Tape who in the opening part of his
submissions told the primary judge that – “They are challenging the two board
meetings. And the first board meeting is the board meeting held on 19
February, 2017. And second board meeting held on 3 November, 2018”. (p.
1977 A/B).

21.    Mr. Molloy in his reply to Mr. Furigi and Mr Tape’s submissions
argued that the resolution of the Board meeting of 19 February, 2017, was not
unanimous as claimed by the defendants (respondents) because the persons

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who voted in that meeting were not directors appointed in 28 September,
2016, meeting and were not directors according to the Registrar. He argued
that same could be said about the meeting of 3 November, 2018. He also
argued that the records were tampered with to legitimize the persons who
voted as directors in those two meetings. (p. 2000 A/B). It was further argued
that the meeting of 19 February, 2017, was not attended by all the directors
who were entitled to attend the meetings because like for other board
meetings, notices for the meeting were not served on all the directors.

22.    It can therefore be seen from the above discussions that the validity of
the 19 February, 2017, meeting, was a seriously contested issue before the
primary court. (p. 1975 A/B).

23.    It should be noted that the validity of a Deed of Assignment relied
upon by respondents was disputed by the appellants. They claimed that the
purported signatures of a number of appellants in the Deed of Assignment
were forged. They denied signing the Deed of Assignment.

24.    His Honour, when commenting on how notices of meetings for the
shareholders who came from villages should be served, said the notices should
be served by physical delivery of the notices to each shareholder.

25.     His Honour found that the appellants did not deny the claim by the
respondents that they were not given notice of the shareholders’ meeting of 28
September, 2016. This resulted in the respondents not attending the meeting.
His Honour found that this was a fundamental breach of the respondents’
right. His Honour said where it was proposed that persons would be
appointed or removed as directors, such proposed actions had to be
communicated to them in a notice and must be clearly expressed in the notices
as required by s. 134 (2) of the Companies Act. His Honour accepted the
respondents’ arguments that the notice of the 28 September, 2015, meeting did
not comply with s. 134 (2) because the notice did not set out in the agenda of
the meeting proposed action to remove them as directors and to appoint new
directors. His Honour also agreed with the respondents that the shareholders
lacked authority to update the Register, his Honour said that authority was
vested in the directors under s. 70 of the Companies Act. His Honour found
that Michael Aria, Secretary of the Company called the meeting of 28
September, 2016, but he had no authority to call the meeting. Another flaw
with the 28 September, 2016, meeting was that it was chaired by Mr. Victor
Nape, a lawyer with the IPA, it was held that this was in breach of Schedule
2.1 of the Companies Act. His Honour held that the meeting could only be
chaired by the Chairman or in his absence by a shareholder appointed by the
shareholders.

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26.    Consequently, his Honour found that the meeting of 28 September,
2016, was illegal, and all resolutions passed in that meeting were null and void
and of no effect. His Honour then ordered that those persons who were
removed as directors at the 28 September, 2016, meeting including Michael
Beno be reinstated forthwith and the Registrar to amend its records
accordingly. His Honour held that those persons appointed directors at the 28
September, 2016, meeting of the shareholders together with Paul Aivia and
Joe Biris, who subsequently passed resolutions at the Board meeting of 27
October, 2018, was illegal, null and void.

27.     The excerpts of the primary judge’s decision which we consider
pertinent, appear at pages 1912 to 1913 of the Appeal Book, where his Honour
said:

               “There is no dispute that after the shareholders’ meeting on 28
               September, 2016, the Michael Beno led group including David
               Malai were adamant that they were illegally removed as
               Directors of the company. Skipping the board meeting of 19
               February, 2017, which the (sic.) some said no notice of that
               meeting was given, they made representation to the Registrar
               who subsequently restored them on the IA records. I refer to
               the Company Extract of 30th October, 2018, and marked
               annexure “C” to the affidavit of David Malai sworn 18
               November, 2018.

               It was not the end of the matter because they found out later
               that the company records at the IPA office were changed again
               and they were removed as directors. I refer to the Company
               Extract of 6 November, 2018, and marked as annexure “D” to
               the affidavit of David Malai (supra). It resulted in another
               board meeting organized and convened by the Michael Beno
               led group on 3 November, 2018, at 10:00 am at Savalu Camp,
               Pulie Anu, Kandarian District, West New Britain Province.
               The board resolved to appoint Furigi Lawyers to act for G.R.
               Logging Limited and to withdraw the judicial review
               proceeding OS (JR) No. 116 of 2017.
               As to notice of board meeting, Schedule 4.2 of the Companies
               Act states that “Not less than two days notice of a meeting of
               the board shall be sent to every director who is in the
               country......” It does not prescribe a mode of giving the notice.

               The Michael Beno group adopted the same form of giving
               notice by the Paul Aivia led group when they gave notice of
               shareholders’ meeting. They published the notice in the Post

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               Courier and National newspapers on 30 October, 2018. It was
               directed to 27 directors. According to the Minutes of Meeting
               only 14 directors attended. The rest did not. It highlights the
               potential (sic.) denying all directors to a notice if published the
               notice was the preferred mode.

               In a country like Papua New Guinea were (sic) majority of
               landowners live in the villages it is never an easy task to
               manage a landowner company where the multitude of directors
               are scattered all around the villages within the project area in
               a geographical sense. Communication and accessibility for
               these directors will always remain a challenge unless a better
               form of communication is adopted.

               Where the parties in this case have decided to form a
               landowner company to stand for their resource rights and
               interests, as the Court said in Pora Wan case (supra), if
               ordinary village people prefer to incorporate a company with
               the provisions of the Act in managing the company. This
               includes the giving of notice to directors of the company.
               It is quite difficult to be certain that publishing a notice of
               meeting in the newspaper will bring the notice to the attention
               of a villager/director who is in a village located in Kandrian.
               The notice of board meeting on 30 October, 2018, must suffer
               the same fate as the notice of shareholders’ meeting. I find it is
               in breach of the requirement to give notice under Schedule 4.2
               of the Companies Act. The consequences of that is, the meeting
               is illegal and the resolutions passed in the meeting of 3
               November, 2018, are illegal, null and void.” (Our underlining).

28.     His Honour went on to dismiss the relief sought for a declaration that a
notice published on 13 February, 2017, purportedly giving notice of a board
meeting of the company on 19 February, 2017, was null and void, and or
alternatively was of no force or effect, on one or more of the following
grounds:

               (i)   The person who published the notice of the meeting
                     purporting to be directors were not directors of the
                     Company.

               (ii) The person who published the notice of meeting
                    purporting to be directors were not employees of the
                    Company doing so on request by a director of the
                    Company.

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               (iii) The notice was not sent to every director of the Company
                     who was in the country.

29.     The primary court refused the relief orders sought to declare the
meeting of directors on 19 February, 2017, was irregular pursuant to Schedule
4.2 (3) of the Companies Act, because there was no waiver of such irregularity
in the notice of meeting as not all the directors entitled to receive notice of the
meeting attended the meeting without protest as to the irregularity, or because
not all directors entitled to receive notice of the meeting had agreed to the
waiver and that there was lack of quorum. His Honour also refused to declare
that the purported resolution of the directors’ meeting of 19 February, 2017,
was not unanimous and contrary to Schedule 4 Clause 7 of the Companies
Act; and further that the resolution was not signed or assented to by all
directors then entitled to receive notice of a board meeting.

30.     The similar relief sought to declare the directors’ meeting of 3
November, 2018, held at Savalu Logging Camp null and void, was refused for
similar reasons as those relating to the directors’ meeting of 19 February,
2017.

31.     From the foregoing observations, it is clear that the validity of the
directors’ meeting of 19 February, 2017, was before the primary court. The
issue was argued by counsel for appellants and respondents and the primary
court made a determination, in which it ruled against the appellants by
refusing to grant the principal relief sought, which was to declare the meeting
of 19 February, 2017, null and void and of no effect.

32.    We therefore reject the arguments by both Mr. Furigi and Mr. Tape that
the validity of the meeting of 19 February, 2017, was not argued by Mr.
Molloy in the primary court.

33.     But even if the validity of the meeting of 19 February, 2017, had not
been argued by Mr. Molloy, whether the meeting was valid or not raised the
issue of compliance with Schedule 4.2 and 4.7 of the Companies Act. That
was a legal issue which the Court could by its own motion consider and
determine. Whether proper notices were issued regarding the meeting and
whether the resolutions passed in the meeting were unanimous and whether
the resolutions were signed or assented to by all directors who were then
entitled to receive notice of the meeting are all requirements of Schedule 4.2
and 4.7 of the Companies Act. There was affidavit evidence given by
witnesses in support of the appellants in the primary court that the notice of
the meeting of 19 February, 2017, and the meeting itself did not comply with
Schedule 4.2 and 4.7. Such evidence automatically raised the issue of

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compliance with Schedule 4.2 and 4.7. This Court therefore had inherent
power to determine whether the requirements of Schedule 4.2 and 4.7 were
complied with, irrespective of whether the appellants’ lawyers raised the issue
in their submissions. See, Sir Arnold Amet v. Peter Charles Yama (2010) SC
1064; Paru Aihi v. Peter Isowaimo (2013) SC 1276 and Nominees Niugini Ltd
v. IPBC (2017) SC 1646.

34.    As can be noted from the excerpts of the primary Judge’s judgment,
there was no dispute that the notices of the meetings were only published in
the National Newspaper. Notices were not served personally on the directors.
This was the basis upon which the primary judge made practical suggestions
on how notices of meeting should be served on shareholders or directors, as
the case may be, in Papua New Guinea. His Honour said there should be
personal service of the notices of meetings on the directors. We agree entirely
with the learned primary judge because as directors it is their duty to attend
meetings. This relates directly to a directors’ duty to the shareholders.
Furthermore, it is the right of a director to be heard, if the meeting is
proposing to remove him.

35.     There is undisputed evidence that not all the directors were served or
made aware of the meeting of 19 February, 2017. The direct consequence of
this was that Schedule 4.2 was breached and because the resolutions passed in
the meeting could not be unanimous, since not all the directors received the
notice as a result the resolution could not be signed or assented to by all the
directors.

36.      Consequently, in our view it follows that the only finding open for the
learned primary judge to make was to declare that the meeting of 19 February,
2017, was null and void and of no effect. Since his Honour made a finding
that is to the contrary, we respectfully find that his Honour fell into an error.

37.     We therefore allow the appeal and grant orders in terms of paragraph 4
of the Notice of Appeal.

38.    The respondents’ cross-appeal is dismissed.

39.    The respondents will pay the appellants’ costs of and incidental to the
appeal and cross-appeal, which if not otherwise agreed are to be taxed.

______________________________________________________________
Simpsons Lawyers: Lawyers for the Appellants
Furigi Lawyers: Lawyers for the First Respondents
Kandawalyn Lawyers: Lawyers for the Second Respondents

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