In re Kishore Kumar Carriers Ltd [1997] FJHC 88; Hbe0016j.97s (18 July 1997)

Fiji Islands - In re Kishore Kumar Carriers Ltd - Pacific Law Materials

IN THE HIGH COURT OF FIJI

AT SUVA

CIVIL JURISDICTION

WINDING UP CAUSE NO. 16 OF 1997

IN THE MATTER of
KISHORE KUMAR CARRIERS LTD

AND

IN THE MATTER
of the Companies Act 1983 (Cap 216)

p class=MsoNormal>JUDGMENT

This is an opposed winding-up Petition in which AIR PACIFIC LIMITED (the 'Petitioner') has petitioned the Court to wind up KISHORE KUMAR CARRIERS LTD (the 'Company') for a debt of $2091.23 allegedly owed by the Company to the Petitioner.

The Petitioner's claim comprises of freight charges between the period August 1996 and October 1996 as well as dishonoured cheque for $758.20, and bank charges of $30 thereon and outstanding invoice balance of $1303.03.

A Notice under section 221 of the Companies Act (the 'Act') dated 15 November 1996 was served on the Company demanding payment forthwith and stating that otherwise "it is intended to present a petition to wind-up your Company without further notice". The Petitioner states that the company is insolvent and is unable to pay its debt. It seeks an order to wind-up the Company.

The Petitioner relies on the Company's "without prejudice" letter of 22 January 1997 through its Solicitors Messrs. Scott Grahame & Company when it agreed to pay the said sum of $2091.23. This was accepted by the Petitioner stating "provided however that an additional sum of $200 is paid with the remaining payment as proposed on account of disbursement paid out and costs".

KISHORE KUMAR, a director of the Company, in his affidavit sworn 11 February 1997 sets out his reason for opposing the Petition. In short he says that one of the cartons containing certain items were damaged by the Petitioner during "freighting" from Nausori to Labasa. The Petitioner's agent agreed to give credit for $1000.00 from the Company's bill of $2091.23. Relying on this agreement the Company paid the sum of $758.20 by cheque but the Petitioner refused to abide by its undertaking. Whereupon the Company commenced an action in the Nausori Magistrate's Court being civil action No. 24/97 claiming damages in the sum of $1050 albeit this action was commenced on 10 February 1997 (after the issue of this Petition of 13 January 1997).

The Company says that neither does it owe the sum claimed nor that it is insolvent. It says that it is in a healthy financial condition and has a turnover of over $890,000.00; and furthermore the Company has a large capital and assets valued at over $1,100.000.00.

Consideration of the issue

The issue for Court's determination is whether the Petitioner should be allowed to proceed with the Petition when the debt is in dispute.

For the Company to succeed it is required to prove that the dispute is on substantial grounds.

The undisputed facts are that the Company disputed the claim right from the time when the section 221 Notice was served on the Company (vide letter dated 6 December 1996) except that subsequently during correspondence it agreed to settle the amount in a "without prejudice" letter to Petitioner's solicitors (vide letter dated 22 January 1992). Secondly, it drew the Petitioner's attention to the Notice stating that it is defective in that it does not fully comply with the provisions of the Companies Act.

With that background and on the facts of this case I find that the dispute is on substantial grounds. To show its bona fides in the matter the Company has instituted the said action in the Magistrate's Court at Nausori and which is pending in that Court. In all these circumstances it would be improper to make an order to wind-up the Company on this Petition on the basis of the alleged admission of debt based on a "without prejudice" letter.

In In re AMADEUS TRADING LTD (The Times LAW REPORT April, 1997 p.36), WALKER J held that:

"Where there was a complex raft of disputed facts and allegations on both sides which cried out for cross-examination, it was inappropriate for a claimant to resort to a petition to wind-up a company which was his adversary".

There in the report to this case it is stated:

"His Lordship had been persuaded on the totality of the affidavit evidence, that there was here a triable issue such as would entitle a defendant to resist a summons under Order 14 of the Rules of the Supreme Court: .... Accordingly, the petition was dismissed with costs."

Similarly, in the case before me, on the facts this is a proper case where the above principle can be applied which I do.

On the affidavit evidence and on the submissions made by counsel it is quite clear that there is a dispute based not on trivial or unsubstantial but on solid grounds. Hence it cannot be said that the Company has neglected to pay the sum demanded.

I therefore hold that the Company disputes on substantial grounds its liability to pay.

The law on the issue before me is that winding up is not to be used as a system of debt collecting and therefore the court will not grant a winding up order where there is a dispute as to whether or not a debt is actually owed. That is exactly the position in this case. Also, if there is such a dispute, the petitioner will not satisfy the requirements of being a creditor. All that is required for a petition to be a struck out is that there is a dispute on 'substantial grounds'. In some of the cases, the courts have required that the debt be disputed 'in good faith and on substantial grounds' (STONEGATE SECURITIES LTD v GREGORY (1980) 1 All E.R. 241 at 243-244) whereas in others the requirement of 'good faith' has been omitted. In Re a company (No. 001946 of 1991) ex. p. FIN SOFT HOLDING SA (1991) BCLC 737 at 740, HARMAN J considered that there were not two tests but simply one which is: 'Is there a substantial dispute as to the debt upon which the petition is allegedly founded?' As a consequence, it has been held that where there is such a dispute then the bona fide of the company is simply irrelevant.

There is a general principle that a petition for winding up with a view to enforcing payment of a disputed debt is an abuse of the process of the Court and should be dismissed with costs. (PALMER'S COMPANY LAW Vol 3,15.214 and cases cited therein).

In PALMER'S (ibid) is set out the principles involved in considering disputes as to debt and I have borne these in mind in considering the matter before me. There it is stated:

"To fall within the general principle the dispute must be bona fide in both a subjective and an objective sense. Thus the reason for not paying the debt must be honestly believed to exist and must be based on substantial or reasonable grounds. "Substantial" means having substance and not frivolous, which disputes the court should ignore. There must be so much doubt and question about the liability to pay the debt that the court sees that there is a question to be decided. The onus is on the company "to bring forward a prima facie case which satisfies the court that there is something which ought to be tried either before the court itself or in an action, or by some other proceedings."

Where a dispute is on substantial grounds turning on disputed questions of fact which require viva voce evidence, the dispute cannot be decided on Petition and one would bear the following passage from the judgment of MEGARRY J in IN re LYMPNE INVESTMENTS LTD (No. 00250 of 1971) 1972 1 WLR 532 at 527 in mind:

"Nor is it right, or in accordance with the modern practice, to stand over the petition in order that the disputed issues may be resolved in other proceedings. That practice, I may say, seems to stem from In re London and Paris Banking Corporation (1874) [1874] UKLawRpEq 171; L.R. 19 Eq. 444. The Companies Court must not be used as a debt-collecting agency, nor as a means of bringing improper pressure to bear on a company. The effects on a company of the presentation of a winding up petition against it are such that it would be wrong to allow the machinery designed for such petitions to be used as a means of resolving disputes which ought to be settled in ordinary litigation, or to be kept in suspense over the company's head while that litigation is fought out. Further, Mann v. Goldstein [1968] 1 W.L.R. 1091, cited with approval in the New Zealand Court of Appeal in Bateman Television Ltd. v. Coleridge Finance Co. Ltd. [1969] N.Z.L.R. 794, provides authority for saying that when a petition is based on a debt which is disputed on substantial grounds, the petitioner is not a "creditor" within section 224(1) of the Act of 1948 who has the locus standi requisite for the presentation of the petition, even if the company is in fact insolvent."

In the outcome, for the above reasons and applying the law to the facts of this case, the Company succeeds in opposing the Petition. I therefore dismiss the Petition with costs to be taxed if not agreed.

D. Pathik
JUDGE

At Suva
18 July, 1997

Hbe0016j.97s