In re Estate Management Services Ltd [2003] FJHC 61; HBE0040j.2002s (6 August 2003)

IN THE HIGH COURT OF FIJI
AT SUVA
CIVIL JURISDICTION

WINDING UP ACTION NO. 40 OF 2002

IN THE MATTER of Estate Management, Services Limited

AND

IN THE MATTER of The Companies Act, Cap. 247

Mr. Darrell Lee, the Petitioner
Mr. P. Knight for the Company

JUDGMENT

This is an opposed winding-up Petition.

On 29 July 2002, Darrell Lee (the “Petitioner”) filed a Petition to wind-up Estate Management Services Limited (the “Company”) for the payment of the sum of US $1,078,398.24 being allegedly for payments made to the Company from 26 March 1991 to 25 March 2002 for its operations.

A statutory demand dated 27 March 2002 was served on the Company. On 23 August 2002 Carolyn Schnuerle, a Director of the Company, applied for an injunction to restrain the Petition until further order from advertising the winding-up petition supported by an affidavit sworn by her. However, the petition had already been advertised and the application was withdrawn on 27 August 2002.

The ‘Memorandum of Due Compliance’ dated 16 September 2002 was filed in Court. Then on 18 September 2002 the Company opposed the Petition and was granted 14 days to file affidavit in Reply, this was done on 30 September 2002. On 2 October 2002 the Petitioner was ordered to file affidavit in response which he did on 10 October 2002. To suit the Petitioner, who is a resident of USA, hearing date was fixed for 23 January 2003 when the opposed Petition was heard.

Petitioner’s case

Under the Companies Act, section 221 notice dated 27 March 2002 was served on the company by the Petitioner in which he demanded the payment of the sum of US$1,078,398.24 being payments made to the Company by the Petitioner from 26 March 1991 to 25 March 2002 for its operations.

The Petitioner says that the “company is insolvent and unable to pay it’s debt’ and that ‘in the circumstances it is just and equitable that the company should be wound up’.

The Petitioner filed an ‘Affidavit Detailing and Verifying Amount of Debt’ document in which he stated how the amount claimed is made up.

When the hearing of the petition took place on 23 January 2003 certain questions were asked by the Court to clarify matters before the actual hearing of the petition.

He said in answer to questions from me that he is the Petitioner and that he wants to wind up his own company. He became a shareholder because the Court of Appeal in its decision in Civil Appeal No. 13/02S said that he owns 40% in the Company although so far the Order for transfer of shares to him has not been complied with by the company.

He says that he wants to wind up the company because it owes him the sum claimed in the Petition. He stated that the Petition was filed before the Court of Appeal decision and he wanted to add an additional ground and he admitted that there is no amended petition. He decided to proceed without amending the petition but he said he will prove that $500,000.00 of the alleged debt is due and that ‘that there is no substantial dispute on that’. When asked how the ‘one million’ is made up he said that ‘just to avoid disputes because I know if they dispute, you can rule. I’ve limited my claims to these amounts that were sent directly to Estate Management Services Limited and I have to prove to show it.’

Mr. Lee disputed the affidavit evidence of the company. He said that he does know how the moneys he sent was used. As money was needed he sent it. He said that the ‘shares’ ‘had never been put in his name’. The 40% has not been transferred to me and that bothers me too because the Court of Appeal decision is 2 months old and the burden was on opposing counsel to make that transfer within 20 days’; but he says that ‘I am not sure whether that has anything to do with what we are here for.’

Company’s submission

It is Mr. Knight’s submission that in very general terms, the claim or re-payment of the debt is the subject of a ‘substantial dispute’. He says that there is substance in the dispute and there is on the merits a reasonable argument that this debt is disputed and that therefore winding up proceedings are not the appropriate form of proceedings to take.

Counsel submits that the proper proceedings to take is for Mr. Lee to issue a Writ of Summons against the company claiming repayment of this money and oral evidence can be taken and the Court will then be in a much better position to determine whether or not the debt is in fact owed.

Mr. Knight dealt with the evidence and Mr. Lee’s involvement in the various companies. The company had all along disputed the claim and the service of the s221 Notice, but despite that Mr. Lee proceeded with the issuing of a winding up petition.

Consideration of the application

Now to the consideration of the issue.

The issue for Court’s determination is whether there is a ‘substantial dispute’ as to the alleged debt after considering the submissions made by both counsel.

I reject the company’s submission that it was not served with a Notice as required under section 221 of the Act. I find that it was properly served.

As for the law 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, unreported 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.”

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 I find that there is considerable dispute in regard to amount alleged to be due by the company. To start off with, the Petition was filed before the said Court of Appeal decision and the Petitioner, before the hearing commenced wanted to amend the Petition to vary the amount but that was not possible without giving the company to respond to any proposed amendment. The petitioner decided to proceed with the hearing and based his claim on a lesser amount, namely $500,000.00.

The company disputes the amount claimed, whilst it is not disputed that certain amounts were remitted to the Company by the petitioner for the payment of debts, the facts are so much in dispute that to ascertain the correct amount due it is not possible to do so without the trial of the action. It is not so much that I decide whether $500,000.00 is due and that has been proved without doubt, but there are issues which remain unresolved between the parties. It is also not quite clear whether the petitioner is a shareholder in the Company and wants to wind up his own company in which he is alleging to be a shareholder.

Upon a careful consideration of the affidavit evidence before me and the submissions in writing of both counsel, I am satisfied that there is a substantial dispute. 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 P186) 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 “whether 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 are here triable issues such as would entitle the company to resist a Petition. The following extract from Meggary J’s judgment in In re Lympne Investments Ltd (No. 00250 of 1971) 1972 1 WLR 523 at 527 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] 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.R.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 and in the exercise of my discretion the Company succeeds in its opposition to the Petition.

The Petition is therefore dismissed with costs in the sum of $300.00 payable by the Petitioner to the Company’s solicitor within 28 days.

D. Pathik
Judge

At Suva
6 August 2003