In re Formscaff (Fiji) Ltd [1999] FJHC 50; Hbe0083j.1998s (16 June 1999)

Fiji Islands - In re Formscaff (Fiji) Ltd - Pacific Law Materials

IN THE HIGH COURT OF FIJI

AT SUVA

CIVIL JURISDICTION

WINDING UP CAUSE NO. 83 OF 1998

IN THE MAHE MATTER of FORMSCAFF (FIJI) LIMITED

AND

IN THE MATTER of Companies Act (Cap. 247)

. M. Young for the Petitioner
Mr. D. Sharma for the Come Company

The "petitioner" (The Fiji Fish Company Limited) has petitioned the Court to wind up the 'company' (Formscaff (Fijmited) in respect of $74,476.00 which is alleged to be due due and owing by the company to the petitioner.

The petition is opposed by the company and it has filed affidavits sworn by Sheik Faruk Saheb dated 16 October 1998 and 1 December 1998.

As ordered by Court both Counsel made written submissions to which I have given due consideration.

Petitioner's contention

The Petition was filed on 9 September 1998 wherein the petitioner claimed that the company is "truly and justly indebted" to it in the sum of $122,000.00 being the "amount due and owing for goods ordered by the Company without authority under the name of the petitioner, full particulars of which have been provided to the company from time to time".

It says that on 4 August 1998 a statutory demand for $223,408.19 was served on the company. This debt remains unsatisfied.

The company's contention

The said Sheik Faruk Saheb ('Saheb'), a director of the company swore an affidavit on 16 October 1998 in opposition to the petition.

He denies that the company owes the sum of $122,000.00. The company denies that its accountants have admitted that this sum is owed or any sum at all. It further states that "the issue of any debts owed to and by the Petitioning Creditor is subject to High Court Action No. HBE 192 of 1996 and Action No. HBE 541 of 1998S which actions are still pending before the High Court".

The Company says that it is solvent and able to pay its just debts and liabilities.

Determination of the issue

I have before me for determination of the issue the Petition, Affidavit of Saheb in opposition, affidavits of Grahame Southwick and Neil Peter Underhill for the Petitioner and a supplementary affidavit from Saheb. In addition I have the written submissions from both counsel.

Before the hearing of this opposed hearing of the petition Mr. Young amended his petition by substituting the sum of $74,476 for $122,000.00 as the amount due and owing.

This therefore substantially reduces the initial statutory demand.

The question before me is whether the petitioner should be allowed to proceed to wind-up the company when the debt is disputed.

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

It 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." (Re Great Britain Mutual Life Assurance Society [1880] UKLawRpCh 276; (1880) 16 Ch.D. 246, 253 Jessel M.R.)

Therefore 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 alone and one would keep in mind 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:

"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] UKLawRpEq 171; (1874) 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."

Without going into great details as to how the debt is made up and how it is alleged that it is admitted by the Company, after considering the written and oral submissions of both counsel, I have no doubt whatsoever that the alleged debt is disputed on 'substantial grounds' as required by law.

When one looks at the evidence it is quite obvious that what had been initially claimed under the Statutory Demand is substantially different from what is being claimed now after amendment in the opposition proceedings. This fact straightaway throws doubt as to the accuracy of the claim. How could such a difference arise if the accounts were proper and if in fact the original amount claimed was in fact due supported by proper evidence?

From the whole of the evidence before me and the lengthy argument put forward by counsel for the petitioner there seems to be more to this than the picture which Mr. Young is painting to the Court in regard to the genuineness of the claim.

The petitioner has been harping on the statement that the company has admitted debt of $122,000.00 in its accountant's letter of 21 April 1997 but no such letter of admission has been produced to Court. As Mr. Sharma claims, three different amounts are being claimed and there is nothing to verify the alleged debt of $122,000.00. No evidence is before the Court stating the reason for reducing the amount of the claim.

I agree with Mr. Sharma, on the affidavit evidence before me that the initial claim itself which led to the institution of these proceedings is incorrect. One asks why that is so? Is it that it is not a true claim? If it was the correct amount due, then why the need to reduce it drastically? This is too dangerous a game to play when one is serious about winding-up a company. There is too much at stake for the company. One cannot be altering figures in a winding-up petition in this manner and expect the Court to make an order to wind-up the Company. There is no evidence to show that the company had anything to do with the ordering of any goods which is the subject-matter of the claim. Evidence appears to be to the contrary. Petitioner's affidavit and annexures indicate that the goods were ordered by either Saheb Holdings Limited or Sheik Liaqat Saheb (annexure C in Underhill's affidavit).

There is also so much dispute as to the admissibility etc. of G. Lal's letter of 7 August 1997 on which the Petitioner relies, stating inter alia that there is an admission of debt but which the company vehemently denies. Mr. Sharma has explained how the letter came to be written and the context in which it was written but then he says there is no admission in it.

With the above background to the facts arising out of the petition giving rise to a serious dispute as to the alleged debt on substantial grounds, it will be difficult without viva voce evidence to ascertain the true facts as to the amount claimed to enable the Court to make a winding-up Order.

On the facts and circumstances of this case I adopt the following passage from the judgment of Walker J in In re Amadeus Trading Ltd (The Times Law Report April, 1997 p.36):

"Where there was a complex rift 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 also in the report of 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."

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

The winding up procedure should not be used as a system of debt collecting and 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 a dispute, the petitioner will not satisfy the requirements of being a creditor.

In the outcome, for the above reasons and applying the law to the facts of this case, the company succeeds in opposing the petition.

The petition is therefore dismissed with costs which is to be taxed unless agreed.

D. Pathik
Judge

At Suva
16 June 1999

Hbe0083j.98s