In re All Safe Safety and Protection Proprietory Ltd [2001] FJHC 250; HBE0043.2001 (9 November 2001)

IN THE HIGH COURT OF FIJI
AT SUVA
CIVIL JURISDICTION

WINDING UP CAUSE NO. 43 OF 2001

IN THE MATTER of ALL SAFE SAFETY AND PROTECTION PROPRIETORY LIMITED

AND

IN THE MATTER of Companies Act, 1983

Mr. M. Arjun for the Petitioner
Mr. D. Sharma for the Company

JUDGMENT

This is an opposed winding-up Petition.

The Petition was filed by TNT Express Worldwide Ltd (the ‘Petitioner) on 30 March 2001. An affidavit in opposition was filed on 10 May 2000 by Allsafe Safety & Protection Proprietory Limited (the ‘Company’). An Affidavit in Reply was filed by the Petitioner on 25 July 2001.

As agreed both counsel filed written submissions by 2 October 2001 and I stated that I will give judgment on notice.

The Petitioner has petitioned the Court to wind up the company on the ground that the company is indebted to it in the balance sum of $14.930.46 for services
rendered as per Invoice Nos. 39557, 40206, 40282, 40448, 40458 and 41014 plus interest, full particulars whereof are well known to the Company.

A Notice under s221 of the Companies Act Cap.247 (the ‘Act’) claiming the said sum was served on the company on 6 February 2001 but it failed to pay same. The Petitioner says that the company is insolvent and is unable to pay its debts. Therefore, it says that in the circumstances it is just and equitable that it should be wound up.

Company’s submission

The company is disputing the alleged debt, saying that it does not owe any monies to the Petitioner. The company’s dealing with the Petitioner was on a cash on delivery (COD) basis but on 19 May 2000 a credit account was opened and at that time no monies were owed but the petitioner says that although it was COD nevertheless the Company did not always make punctual payment.

When the Petitioner sent an invoice to the Company on 2 June 2000 the balance brought forward was a nil balance. But then the Petitioner says that there was an error on the invoice as it was not realised by the Petitioner that some balance was still outstanding.

In these circumstances the learned counsel for the company submits that this is a triable issue as to the balance amount owing, if any. Mr. Sharma submits that no receipts were produced by the Petitioner when payments were made. The allegations are therefore disputed by the company. Mr. Sharma says that proper evidence and cross-examination will be required to resolve the disputed areas between the parties.

Petitioner’s submission

The Petitioner submits that although there was a C.O.D. arrangement it was not strictly adhered to as the ‘company was not always in a position or ready to pay up forthwith at time of actual delivery, the prevalence of goodwill, etc.’ The invoice that are subject of the present debt are: 39557, 40448, 40458, 40206, 40282, 41010 and 41014. It says that it is clear that services were rendered to the company but the company denies the debt.

The Petitioner’s counsel submits that the debt is ‘not disputed on a substantial ground in that it is not a bona fide dispute’. He says that the company disputes the debt ‘on a ground that is frivolous and without substance and which the court can only ignore’. The company is unable to pay its debts.

Consideration of the issue

I have carefully considered the written legal submissions from both counsel.

The issue for the Court’s determination is whether there is a substantial dispute as to the alleged debt to enable me to refuse to make an order to wind up the company.

There are certain principles governing the granting of a winding up order. 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."

In Offshore Oil N.L. and Investment Corporation Of Fiji Limited (Civ App. 29/84 F.C.A. at p.15 of cyclostyled judgment) Barker J.A. said:

"The law is clear that there is a discretion in a Court seized of a winding-up petition, to decline to hear the petition where the debt is contested on substantial grounds".

Also in Bateman Television Limited (In Liquidation) and Another v Coleridge Finance Company Limited 1971 NZLR p.929 Judicial Committee, it was held:

"3. The general rule is that an order for winding up will not be made on disputed debt but a Judge has discretion to make a winding up order on disputed debts which is not reviewable unless exercised on a wrong principle or the Judge included or omitted consideration of a relevant fact or was wholly wrong".

On the affidavit evidence before me it is clear that the business dealing was on a COD basis but at some stage it is alleged by the Petitioner that this arrangement
was departed from and replaced to an extent with a credit transaction. This allegation is vehemently disputed by the Company. It says that a nil balance was shown at one time but then followed later by an account showing balance ‘brought forward’ when the transactions were supposed to be on a COD basis.

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 here. 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 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 (1930) 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.

On the facts and on the law applicable this petition must fail. A real dispute turning on disputed questions of fact which require viva voce evidence cannot properly be decided on petition. It was held In re Company No. 00212 of 1995 The Times Law Reports (1995 P.186) that in such a situation "the correct course was to strike out the petition, whether the company was, or was not solvent at the time".

It was also stated by Walker J that "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." (In re Amadeus Trading Ltd, The Times Law Reports 1 April 1997 p.36).

On the totality of the evidence there were here triable issues such as would entitle the company to resist a Petition. I conclude with the following extract from Megarry J’s judgment in In re Lympne Investments Ltd (No. 00250 of 1971) 1972 1 WLR 523 at 527 which is apt:

"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 these reasons and bearing in mind the law on the subject the Company succeeds in opposing the Petition.

The Petition is therefore dismissed with costs in the sum of $200.00 to counsel for the Company.

D. Pathik
Judge

At Suva
9 November 2001