International Embroidery Ltd v Pacific Embroidery (Fiji) Ltd [2004] FJHC 395; HBF0013.2002L (24 March 2004)

IN THE HIGH COURT OF FIJI
AT LAUTOKA
CIVIL JURISDICTION

CIVIL ACTION NO. HBF0013 OF 2002L

BETWEEN:

INTERNATIONAL EMBROIDERY LIMITED
a limited liability company having its registered office at Nadi Airport, Nadi
Petitioner

AND:

PACIFIC EMBROIDERY (FIJI) LIMITED
a limited liability company having its registered office at 21 Tui Street, Marine Drive, Lautoka with postal address as P.O. Box 343, Lautoka
Respondent

Counsel for the Plaintiff: Mr. S. Maharaj
Counsel for the Defendant: Mr. Chen B. Young

Date of Hearing & Judgment: 24 March 2004

EXTEMPORE JUDGMENT

In this matter, the petitioning creditor on the 14th of February 2002 commenced these proceedings by the issuing of a notice pursuant to section 221 of the Companies Act. A petition was subsequently filed in this court on the 25th of April 2002 and the respondent filed a notice of opposition on the 13th of May 2002.

There are two issues for the consideration of the court. The first arises pursuant to section 221(c), that is, is the respondent company insolvent. The second issue for the consideration of the court is whether or not the debt is genuinely or substantially disputed.

The respondent submits that the company is and was at all material times able to pay its debts and in support of that submission, counsel for the respondent submits and it is supported by the affidavit evidence, that the amount demanded in the notice under section 221, that is, the sum of Nine Thousand, Seven Hundred and Twenty Five Dollars and Nine Four Cents ($9,725.94), was paid to the credit of counsel’s trust account on 17^th of April 2002 and it remains there.

I am unable to accept that the respondent company is unable to pay its debts as and when they full due when the amount required to satisfy the petitioning creditors debt is held on behalf of the respondent by the respondent’s counsel.

I now move to the second identified issue, that is, is the debt disputed. In November 2001, the petitioning creditor appears from the material in the affidavit to have been corresponding in an attempt to seek payment of monies allegedly owing by the respondent to it.

As early as the 23 of November 2001, by a letter of that date from the respondent’s counsel to the petitioning creditor’s counsel, it is clear that there was a dispute with respect to monies owing by the respondent to the petitioning creditor. The second paragraph of that letter says and I quote:-

“It is our client’s instructions that a large portion of the embroidery works undertaken by your client (which forms part of the same batch of embroidery works your client’s are presently demanding) had to be redone because of defects in the embroidery.”

Similarly, on the 28^th of November 2001, again a letter from the respondent’s counsel to the petitioning creditor’s counsel, it is stated in the last paragraph and I quote: -

“We have been instructed to put you on notice, which we hereby do, that if you or your client intends to file a Winding Up Petition despite the genuine dispute against the claim and the irregularity of the service...”

And then by letter dated 17 April 2002, again from the respondent’s counsel to the petitioning creditor’s counsel in paragraph numbered 2, the second sentence I quote: -

“Moreover, our client has always maintained that it disputes the debt.”

In paragraph number 4 of that same letter and I quote:-

“As we stated earlier on, numerous embroideries delivered by your client to our client were found to be defective and not acceptable to South Pacific Textiles.”

All of the correspondences to which I have referred predates the filing of the petition.

It is said that there is a general principle that a petition for winding up with the view to enforcing payment of a disputed debt is an abuse of the process of the court and should be dismissed with costs.

Counsel for the respondent refers the court to a number of authorities, one of which was Re Lympne Investments Limited [1972] 2 All ER 385. In that case, the Chancery Division held that, when a debt was disputed on substantial grounds, the petitioner was not a “creditor” within the meaning there of section 224 of the Act who had locus standi to present a petition even if the company were insolvent. The section referred to of course is the English equivalent of the section of Companies Act that is relevant in these proceedings.

The court has also been referred the decision of Mr. Justice Pathik in Estate Management Services Limited, Action No. 40 of 2002. On page 6 of that judgment, His Lordship said and I quote: -

“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).”

In support of there being a genuine and substantial dispute, it should be noted that the defendant has commenced proceedings HBC0162 of 2002 with respect to the dispute between the petitioning creditor and the respondent over the alleged defective workmanship that places the monies claimed in dispute.

The service of a notice pursuant to section 221 of the Companies Act and the issuing of a petition to wind up a company is not a means of debt recovery and certainly is not a forum in which to resolve or have the court resolve a disputed debt. There is, as the authorities clearly identified, no opportunity for the evidence to be tested and such is essential when there are factual disputes of the type identified in the correspondences to which I have referred in this matter.

The authorities also clearly indicated in such circumstances the appropriate cause is to dismiss the petition.

The Orders of the Court therefore are:

1. Petition is dismissed;
   
2. The petitioner to pay the respondent’s costs assessed in the sum of One Thousand and Five Hundred Dollars ($1,500.00)
   

JOHN CONNORS
JUDGE

AT LAUTOKA
24 March 2004