In re Comsol Fiji Ltd [2009] FJHC 77; HBE0048.2007L (25 March 2009)

IN THE HIGH COURT OF FIJI
AT LAUTOKA
CIVIL JURISDICTION

Winding up Action No. HBE 0048 of 2007L

Re: COMSOL FIJI LIMITED

Before: Master Udit

Counsel: Dr. M. S. Sahu Khan for the Petitioner
Mr. N. Shivam and Mr. A. Pal for the Company

Date of Judgment: 25th March, 2009

JUDGMENT
(Winding-up)

Introduction

[1] On 3rd August, 2007, Nair’s DVD World, a subsidiary of Latchmi and Brothers Company of 22 Elbama Street, Clinton, NSW Australia, and (“the Petitioner”) filed a petition to wind-up Comsol Fiji Ltd (“Comsol”) on the basis that it owes to the former an undisputed debt of $75,040.20. The debt is alleged to be due and owing since 23rd May, 2007.

[2] On the other hand Comsol vigorously disputes the debt on various grounds.

[3] The respective parties have filed affidavits and submissions in support of their own and/or challenging the opposition’s contentions.

[4] At this juncture, I will note that on 19th October, 2007, Her Honour Madam Justice Phillips delivered an interlocutory ruling in this proceeding. In addition, I also made an order on an interlocutory application on 20th March, 2008 for leave to call viva voce evidence. In order to expedite the hearing of the petition, I granted the orders only and informed counsel that full reasons for the order will form part of the final judgment. Thus in the first part of this judgment I will state the reasons for the orders granted before deliberating on the Petition.

Viva Voce Evidence

[5] The Petitioner sought to call oral evidence in support of the Petition and to rebut matters of dispute raised by Comsol. It was opposed by the Comsol. Arising from said objection an issue arose as to whether “for the hearing of a Petition a party may adduce viva voce evidence as of right or only with prior leave of the Court.” Dr. Sahu Khan submitted that leave of the Court is not mandatory. Ms. Devan who appeared for Comsol held a contrary opinion.

[6] For most part Ms. Devan submitted that a winding-up proceeding is a summary proceeding. Therefore a real dispute which is largely based on disputed facts requiring viva voce evidence is incompatible to be decided on a Petition. She referred to and relied on a judgment of His Lordship Mr. Justice Pathik in Dee Cees Bus Service Ltd v. Drive Train Engineering Ltd (2002) FJHC 256. His Lordship at page 258 said:

“A real dispute turning on disputed questions of facts which requires viva voce evidence cannot properly be decided on a petition. It was held In Re Company No.212 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 that 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 petition to wind up a company which was his adversary (In re Amadeus Trading Ltd, The Times Law report 1/4/97, P36).

His Lordship further cited from In re Lympe Investment Ltd [1972] 1 WLR 523 in which Megarry J at page 527 of the report said:

“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 ...

The New Zealand Court of Appeal decision in Bateman television Limited v Coleridge Finance Co. Ltd [1969] NZLR 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, who has the locus standii requisite for the presentation of the petition, even if the company is in fact insolvent ...”

(emphasis added)

[7] Dr. Sahu Khan did not question the general principle of law as submitted by Ms. Devan. However, he stressed that there is no prohibition on the admission of viva voce evidence at the hearing of the Petition under the Companies Act and Winding-up Rules. He referred to a very clear authority of In Re Kim Industries Limited, Lautoka High Court Winding-up Action No. HBF 0036 of 96L.

[8] In that case, an issue arose as to whether viva voce evidence was admissible from supporting creditors. His Lordship Mr. Justice Gates (now the Honourable Chief Justice) comprehensively dealt with the issue of the admissibility of viva voce generally. After stating the issue, His Lordship noted:-

“Is viva voce evidence admissible from the supporting creditors at the hearing of the Petition?

At the hearing of the petition any admissible evidence can be adduced so long as it is relevant to the pleadings of the petition. The hearing is the hearing of the allegations contained in the Petitioner’s Petition. It is not a hearing of the Supporting Creditor’s Petition. But evidence of non-payment of other debts such as those due to the Supporting Creditors as they became due, is admissible as evidence of insolvency on the present Petitioner’s Petition. Creditors in support can through their counsel address the Court on whether the Court’s discretion should be exercised to make a Winding Up order. Additionally creditors may be called themselves by the Petitioner as witnesses or they may call viva voce evidence themselves in support. It may be that, apart from the statutory demand, there was not at the time of the presentation of the Petition, an inability on the part of the Respondent to pay its debts. However, it is open to a Court to consider other evidence subsequent to such presentation see Syd Mannix Pty. Ltd. V. Leserv Constructions Pty Ltd. [1971] 1 NSWLR 788”.

[9] At page 8 of the judgment His Lordship held:-

“Although winding up proceedings often proceed on Affidavit evidence alone, viva voce evidence is admissible”.

[10] Since the onus is upon the Petitioner to prove the allegations in a Petition, His Lordship at page 9 of the judgment said:-

“Once it is clear the winding up petition is opposed, it is for the Petitioner to marshall its evidence for the open Court hearing. If the Respondent claims the debt is disputed on substantial grounds, the Petitioner will have to satisfy the Court that there is no bonafide dispute in law of that order. In effect, the Court can only act on what is proved before it (Fildes Bros).”

For the aforementioned purpose, His Lordship aptly stated:-

“Where the issue is whether or not the debt is disputed on substantial grounds (Stonegate Securities Ltd. v. Gregory [1980] 1 ALL ER 241) witnesses may need be examined and cross-examined. The Court chose to receive extensive viva voce evidence in the Bateman and Fildes Bros Cases (supra).

(emphasis added).

[11] Also on this issue of admissibility of viva voce evidence in Re Travel and Holdings Clubs Ltd [1967] 2 ALLER 602, Pennycuick J held that:

“The Court may not in the exercise of jurisdiction, be satisfied with prima facie evidence but would require the Petitioner to substantiate his case more fully, then in such cases it would require where practicable, the evidence of witnesses with direct knowledge of matters on which they were testifying, and on which they could be cross-examined, and which conformed to the ordinary rules of evidence..”

(emphasis added)

[12] Similarly, the right to cross-examine witnesses in winding-up proceedings is permissible; ABC Couple and Engineering Co. Ltd [1862] 2 ALLER 68. However, ordinarily the statutory affidavits ought to be sufficient for the purposes of the summary procedure of claiming an undisputed debt; In Re S. A. Hawken Ltd [1950] 2 ALLER 408. As a general procedural requirement, the statutory affidavit is always necessary but the converse is that it may not always be sufficient evidence depending on the nature and facts of a particular case; In re St. David’s Gold Mining Co. Ltd [1886] 14 LT 539.

[13] But undoubtedly the general rule is that allegations contained in a Petition must be proved by appropriate evidence in accordance with the ordinary rules of admissibility of evidence in civil litigation and not by hearsay ; In re Kos Cot Interplanetary (UK) Ltd [1972] 3 ALL ER 829. The statutory affidavit verifying Petition is an exception to the rule against hearsay because it is filed as a statutory pre-requisite. Despite the exception, ultimately it is open to the Court, in appropriate cases to decline, to make an order based solely on the statutory affidavit ; In re Davis Investment (East Ham) Ltd [1961 1 WLR 1396, at page 1399, Danckwert LJ speaking on evidence in a winding – up proceeding had this to say :-

“Therefore, it may well be necessary that the petitioner should supplement the ordinary statutory affidavit by an affidavit putting in evidence and proving the facts which justify and require an order by the court, and in some cases that may obviously, as has been pointed out in the books, involve exhibiting documents on which the matter depends..”

(emphasis added)

[14] Since the onus is upon the Petitioner, the “marshalling of evidence is his/her responsibility”; In Re Kim Industries Ltd (supra) per Gates J.

[15] In my view, in so allowing viva voce evidence it is important to limit the boundaries of it to ensure the objective of the expeditious procedure intended by the Legislature is not eroded. The Sri Lankan Court of Appeal in Colombo Engineering Enterprises (Pvt) Ltd and Others –v- Hattos National Bank Ltd (1999) 1 Sri LR 72 on the winding up procedure in considering viva voce evidence stated the following:-

“Whilst expeditious procedure was no doubt intended by the legislature, courts must also be conscious that the winding-up of a company is a drastic remedy which may have far-reaching consequences, financial, and commercial and also consequences not only affecting the company but also those concerned with it, and the courts should act only after having a careful consideration of the statuting affidavits and where they are insufficient material matters allows viva voce evidence.”

(emphasis added).

[16] Therefore to conclude on this point, as a matter of general principle viva voce evidence is permissible in a Winding-up proceeding. However, such evidence must be within the parameters of the facts contained in the affidavits and Petition. Under the circumstances such evidence should largely be for the purposes of clarifying facts which I may add are unnecessarily disputed. At the end, the documents required to be filed under the Winding up Rules should ordinarily be sufficient. The petitioner is entitled to call viva voce evidence. In that regard the Court has an absolute discretion. However the court may consider the evidence during the hearing of the petition obviating the need for a prior formal application.

[17] The Company is opposing the debt on a number of grounds. They emanate from various correspondences and the affidavits placed before me. Having considered the submission and the contested evidence, I allowed a limited degree of viva voce evidence. The order granted was as follows:-

(a) Leave is granted to the Petitioner to call viva voce evidence as prayed for in the summons and submission.

(b) Viva voce evidence is limited to the following matters:-

• (i) That there was no agreement that the payments were to be made by the Respondent to the Petitioner after all the DVDs sold to the Respondent were sold to the Respondent were sold by it through its outlet.
  
• (ii) That the DVDs sold to the Respondent were not counterfeit.
  
• (iii) Umendra Nair never admitted (i) or (ii) above.
  
• (iv) That the Custom Officers seized the DVDs not because there were not originals but for some other reason.
  
• (v) In any event the Petitioner verily believes that the DVDs seized by the Fiji Islands Customs Services on January, 11th 2007 were not the DVDs of the Petitioner.
  
• (vi) That the Respondent company has been duplicating DVDs that had been supplied to it by the Petitioner and not that the Petitioner supplied duplicate copies.
  

(c) Petitioner’s counsel in calling the viva voce evidence must ensure that it does not turn out to be a trial to litigate the allegedly disputed debt or a debt recovery action contrary to the purpose and objective of the summary procedure provided for winding-up of companies.

[18] Thereafter, I gave time to the parties to file all the necessary documents and submissions and assigned a hearing date

Hearing

[19] At the hearing of the Petition, the Petitioner called 2 instead of 3 witnesses as earlier contemplated. They were:

(i) Mohammed Ajaz, a Customs Officer based at Nadi Customs Office.

(ii) Umendra Nair

Comsol chose not to call any viva – voce evidence on the basis that it honestly believed that the debt is substantially disputed.

[20] Apart from the viva - voce evidence the parties filed affidavits with relevant exhibits.

Law

[21] Counsel for both the parties filed very helpful submissions. Essentially, there is no disagreement as to the general principles. Only disagreement is as to the application of the same to the facts of this case.

[22] A Winding up proceeding is commenced on the issuance of a Notice under S.221 of the Companies Act. S.221 states:-

“221. A company shall be deemed to be unable to pay its debts-

(a) if a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding $100 then due has served on the company, by leaving it at the registered office of the company, a demand under his hand requiring the company to pay the sum so due and the company has, for 3 weeks thereafter; neglected to pay the sum or to secure or compound for it to the reasonable satisfaction of the creditor; or

(b) if execution or other process issued on a judgment, decree or order of any court in favour of a creditor of the company is returned unsatisfied in whole or in part; or

(c) if it is proved to the satisfaction of the court that the company is unable to pay its debts, and, in determining whether a company is unable to pay its debts, the court shall take into account the contingent and prospective liabilities of the company.”

[23] It is a deeming provision. That is if a company owes debt of at least $100, and a demand is made but the company neglects to pay the same within 3 weeks of the date of demand, a presumption of inability to pay arises. But it is a presumption which can be rebutted.

[24] Hence, when a demand is made the company must act swiftly to dispute the debt or pay the same in order to negate the imposition of the said presumption. Furthermore, if the company opts to dispute the debt it must do so on substantial grounds. The test for a disputed debt was aptly stated in Palmers Company Law Vol.13 as follows:-

“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 paring 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.”

(emphasis added)

[25] Certainly, grounds which are ‘frivolous or without substance’ are inadequate; Mann v. Goldstein [1968] 2 ALL ER 769 and 773. Conversely the legitimate right of a Petitioning creditor to resort to a winding-up proceeding is not displaced merely by showing that the debt is disputed or that the claim be made subject of some other litigation; Re Douglas Griggs Engineering Ltd [1963] CL. 19 at 23 per Pennycuick J.

[26] However, the starting point is still for the Petitioner to prove the debt on evidence admissible in accordance with the rules of evidence and the Winding-up Rules.

Facts

[27] The Petitioner carries on a business of selling movies in Digital Versatile / Video Discs (DVDs). It is based in Sydney, Australia. On the other hand the Company carries on a retail business of amongst other things, selling and hiring of DVDs from various outlets all over Fiji to the general public.

[28] In or around October 2006, Umendra Nair and Gyan Singh, representing the Petitioner and Comsol respectively met in Sydney to discuss the sale and supply of DVDs to Comsol. On reaching a consensus the Petitioner on 7th October 2006 dispatched to Gyan Singh the first lot of DVDs. Umendra Nair, in his testimony stated that 11,490 DVD’s were delivered to and taken by the said Gyan Singh.

[29] No written agreement was entered between the parties although both were and are still actively engaged in business. From the inception of the agreement it ought to have been apparent to them that the magnitude of the transactions in future was bound to be in thousands of dollars. Despite that no written agreement was entered between the parties. The lack of any documentary evidence raises the question of credibility of witnesses in order to ascertain the exact terms of the allegedly short term credit contract for supply of DVDs. Morse, because of fundamental differences between the parties over some of the primary ingredients of the agreement.

[30] The Petitioner claims that Comsol is indebted to it in the sum of AUD $75,040.00. Succinct details are not provided to establish the constitution of $75,040.00. I have before me, a letter dated 11th September, 2007, in which the plaintiff claims the aforesaid sum. No invoices or delivery dockets were contemporaneously issued at the time of the dispatch or delivery of the DVDs. At least there is no evidence to that effect.

[31] The Petitioner tendered a record (hand written notes in an exercise book) kept by Umendra Nair of the names of the movies and number of DVD’s supplied. However, the private record kept by the Petitioner does not disclose the value of all the DVDs supplied. Only monetary value noted in the said record is“$19,533.00 – 11,490 pieces”. (see page 5 of Exhibit 7).

[32] From the evidence tendered on behalf of the Petitioner only, it is difficult to ascertain the total number of DVDs supplied to Comsol. Since the S. 221 notice is not exhibited to the Court, it makes it even more difficult to deduce the same. Whilst on the subject of S221 notice, generally I have noted that in the statutory notice the nature of debt is not particularised. Commonly, most notices contain a statement that “the company is aware of the particulars of the debt”. Admittedly, there are no standard notices prescribed by the Act. Since the notice is a pivotal document, in my view all necessary details must be contained in and/or attached to the notice. This in turn will provoke a substantive response from the Company instead of getting engrossed in to several follow – up correspondences to and fro seeking details.

[33] Returning to the issue, Comsol tendered an “Invoice” dated 23rd April, 2007 (Exhibit DW 1A). At least the invoice contains a summary of the claim by the Petitioner. Apart from this singular document, there is no other evidence of the claim of $75,040.00. At least none was tendered by the Petitioner with whom the onus rests with. But the said invoice itself is questionable. It is issued by “Umendra Nair” and not “Nair’s DVD World”, the latter of which is the Petitioner. In any event, it is not signed by any person. Although it may have been e-mailed, the original copy duly executed by the author ought to have been delivered to the Company. Further it is dated 23rd April, 2007, whereas the actual transaction took place in between 18th October to 16th November, 2006. According to the invoice the price was unilaterally varied to $75,040.00. It states; “As per our deal you have broken it, hence I have charged DVDs as per market price which I sell in Sydney”. Obviously this unilateral act markedly increased the price. For instance, for the initial 11,490 DVDs the original price was only $19, 533.00 but the variation inflated it to $32,172.00.

[34] There was no agreement in place for the imposition of any variation in price in the event of default by Comsol. Umendra Nair in his testimony admitted that the price was unilaterally varied by him. Incontrovertibly this brings in to dispute one of the primary terms and conditions (price) of the alleged contract. What was the agreed price? This issue on its own is sufficient to decline an order for specific performance of the contract.

[35] The invoice summarises is the number of DVD’s supplied. When tallied (which was not done by the Petitioner), the total number of DVDs according to the invoice supplied were 33,061 pieces. Although the price for DVDs is noted in the invoice, the Company disputes that that was the price at which the DVD’s were initially agreed to be supplied. Since the price was unilaterally increased, it would have been helpful for the purpose of comparing the agreed and subsequent inflated prices of the DVDs. At least, it would have helped in establishing a quantum of debt for which a winding – up order possibly could have been granted leaving aside the balance of the disputed amount.

[36] This in my view constitutes a substantial dispute as to price which issue directly impacts upon the actual quantum of debt. In other words the total debt becomes disputed.

[37] Dr. Sahu Khan submitted that any dispute as to quantum should not be a bar to the reliefs sought. A petition according to him may only be dismissed if liability becomes a substantial dispute. I am in agreement with the general principle as submitted by him. However, the principle does not infer or imply that the Petitioner does not have to establish at least a quantum of debt which is not or capable of being disputed. A debt signifies an amount. Still the onus is on the Petitioner to prove an amount. In this case if the original price was adduced, at least the Court would have the benefit of the lower figure. In the absence of it, taken together with the admission of the Petitioner that price was increased, the actual debt is not proved on balance of probabilities. It transcends in to a significant dispute. Incontestably, the price is a fundamental element of the contract. Without that being proved by some cogent evidence on requisite standard, the total debt becomes the subject of a real dispute.

Number of DVD’s supplied

[38] Apart from the price, the Petitioner does not anywhere in the affidavit or viva voce evidence state the actual number of DVD’s sold. S. 221 Notice was not tendered in Court, nor exhibited to the affidavit. The details of the DVDs conveyed to Comsol are not contained in the affidavit. In cross-examination Umendra Nair said that “approximately 30,000 pieces” were supplied.

[39] Be that as it may, certainly these matters must be succinctly and chronologically set out in the body of the affidavit with necessary references to exhibits annexed to it. The responsibility for this lay with the Petitioner. Since, the Petitioner gave oral evidence, it still had an opportunity to tender documentary evidence of the actual number of DVDs supplied. The record tendered which was contained in an exercise book obviously is insufficient. Delivery dockets or notes with pages numbered in chronological order would have been the primary source of evidence. In saying so, it is important to emphasise that this is a winding-up proceeding, which is inapt to resolve such controversial facts. Since the DVDs were imported, certainly Boarder Control documents from the Ports of exit and entry would have been of great assistance in deciding the Petition by this summary procedure.

Demand Notice

[40] Dr. Sahu Khan addressed this point at length in the submissions. Together, he delved at length the bona-fides of the issues of dispute raised by the Petitioner.

[41] Dr. Sahu Khan submitted that under S. 221(a), the failure on the part of Comsol to dispute or pay the debt should be deemed as Comsol’s inability to pay the debt. After receiving the demand notice, Comsol’s solicitors wrote to the Petitioner’s Solicitors stating “Our client is unaware of this claim and requests full particulars of the claim against it.”

[42] Dr. Sahu Khan took exception to this aforesaid statement. He referred the court to paragraphs 6 and 12 of the affidavit of Samsher Razak filed on behalf of Comsol. In paragraph 6, Razak deposed that Mr. Nair requested that the balance of payment be made to him. However, any balance payment was to be made after the DVD’s were sold. In paragraph 12 apparently Razak admitted the details provided was contained in the records of the Company.

[43] What Dr. Sahu Khan urged me to conclude that the request for particulars which “was already in the Company’s” possession was designed to merely delay the payment. Be that as it may, it also cannot be overlooked that in the letter of 25th May, 2007 the solicitors expressly noted that, “In the meantime our client denies owing the claimed sum to your client”.

[44] In my view by requesting the particulars of the debt, the Company was at least at the preliminary stages not admitting the debt. However, Dr. Sahu Khan’s point is well made that after the details were provided, it was obligatory on the part of the Company to respond to the details rather than to remain indolent and mute. The whole purpose of the details sought was to ascertain whether it was a legitimate debt or not. When the Company or its solicitors remained silent, it was reasonable for the Petitioner to file this action.

[45] Subsequently, on 14th August 2007 the solicitors rather belatedly responded (see annexure B of Sanjeshni’s Affidavit) to the Notice to Wind-up Comsol published in the Fiji Sun Newspaper on 9th August, 2007.

[46] In that letter the solicitors stated:-

“We had requested you by letter dated 25th May 2007 for full particulars of the debt. Your office provided us with the documents that are not sufficient.

We require the following:-

1. Copies of orders made

2. Copies of the delivery docket

3. Copies of the receipt

4. Other specific detail “

Why these details were not specifically sought in the first instance?

[47] Although not a specific statutory requirement, as a general practice when a debtor company is served with a S. 221 Notice, it must state cogent grounds for disputing a debt. At least from the very beginning the Creditor will be put to notice and be able to assess the viability of a Winding-up or other proceedings.

[48] Dr Sahu Khan submitted that the aforesaid conduct of the Company and/or its solicitors be inferred as Comsol’s inability to pay the debt. The short answer to the submission is found in the judgement of His Lordship Mr Justice Fatiaki in In re IHJ Advertising (Fiji) Ltd [1991] FJHC 40 at 43, where His Lordship stated:-

“To begin with it must be noted that Section 221 is drafted as a "deeming" provision. Of such a provision Lord Radcliffe said in St. Aubyn v. A-G [1951] UKHL 3; (1952) A.C. 15 at p. 53:

"The word 'deemed' is used a great deal in modern legislation. Sometimes it is used to impose for the purposes of a statute an artificial construction of a word or phrase that would not otherwise prevail. Sometimes it is used to put beyond doubt a particular construction that might otherwise be uncertain. Sometimes it is used to give a comprehensive description that includes what is obvious, what is uncertain and what is, in the ordinary sense, impossible."

For my part having carefully considered the terms of paragraph (a) and mindful of the disjunctive co-existence of paragraphs (b) and (c) in Section 221 I am driven to the conclusion that paragraph (a) is an illustration of the first sense of the use of the word "deemed" identified in the above passage in so far as it imposes for the purposes of Section 220(e) of the Act an artificial construction of the phrase "unable to pay its debts" that would not otherwise prevail.

It is patently clear to this court that the mere failure to pay a demand does not inexorably lead one to the inevitable conclusion that the company which so failed to pay the demand is therefore "unable to pay its debts", a fortiori where the very existence of the debt is bona fide disputed on substantial grounds”.

(emphasis added)

[49] Having considered the submissions of Counsel and the totality of the evidence, I find that inadequate and lack of timely response to the demand notice was merely a delaying tactic. However, it cannot inexorably lead to the conclusion that the debt is not bona-fide disputed or Comsol be deemed unable to pay the debt. It is Comsol’s inherent right to genuinely dispute a debt. Where the debt is legitimately disputed, the petitioner is not a creditor under the Act thus lacks the locus standi to commence winding up proceeding. His Lordship Mr Justice Fatiaki in In re IHJ Advertising (Fiji) Ltd [1991] FJHC 40 at 43 in so holding said:-

“Be that as it may the first 'element' in the paragraph which falls to be examined begins:

"(a) If a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding one hundred dollars then due has served on the company ........ a demand under his hand requiring the company to pay the sum due ......."

In my view a 'creditor' within the contemplation of the paragraph must be a person to whom the company 'is (presently) indebted' in respect of a liquidated sum which exceeds the statutory minimum amount and the debt is 'then due' at the time when demand for payment was made on the company.”

(emphasis added)

Naturally, if the debt does not fall in the above category, it is likely to attract a meritorious opposition.

[50] For the foregoing reasons, I reject the Petitioner’s submission that Comsol be deemed unable to pay the disputed debt claimed in this petition on the basis that it failed to adequately and timely respond to a S211 notice.

Seizure by Customs

[51] Comsol alleged that DVDs supplied by the Petitioner were seized by Fiji Islands Revenue and Customs Authority (FIRCA) since they were not original but pirated copies. The petitioner vehemently denies that FIRCA seized the petitioner’s DVDs at all or on (if any) for the foregoing reason.

[52] Mohammed Ajaz of FIRCA office in Nadi testified in court. He admitted that FIRCA raided Comsol’s shop and seized approximately 3,500 DVD’s. However, none were seized for the reason that they were not original. The solitary purpose for which the DVDs were seized was that they were “uncustomed goods”. “Under S.2 of Customs Act “uncustomed goods”, “Includes dutiable goods on which the full duties have not been paid, and any goods, whether dutiable or not, which are imported or exported or in any dealt with contrary to the provisions of the customs law.”

[53] In view of Ajaz’s uncontroverted evidence this objection is devoid of any merits as such is rejected.

Text Message by Gyan Singh

[54] On 30th January, 2007 at 3.04pm, Gyan Singh sent a text message to Umendra Nair in Australia. It reads as follows:

“Babu, we have a meeting with customs tomorrow morning regarding the movies taken by them. As you know Sumit and Kamlesh owe over 10k to me and have told Ashish that he has spoken to you and will pay the outstanding amount to you and not us. He also staid that he is selling all your movies over the last 2 months and you have been saying that you have no contact with them. I will only settle your account once I receive the money from Sumit.”

[55] Umendra Nair saved the message in the mobile phone. A copy of the text was subsequently printed and tendered in court marked as “exhibit 8.” Relying on message, Dr. Sahu Khan submitted that it is clear evidence of “immediate liability to pay”.

[56] In rebuttal, Mr. Shivam submitted that the SMS does not state the amount that was allegedly due and owing but merely informs the Petitioner that a certain amount will be settled once payment from one Summit is received.

[57] There is an admission to pay a sum of $10,000.00. But the text message also implies some dispute between the Company, Summit and the Petitioner. Apparent from the e-mail is that Summit is selling movies supplied by the Petitioner to him. This fact was concealed from Gyan Singh by Umendra Nair. Relevantly the text states “He also said that he is selling all your movies over the last 2 months and you have been saying that you have no contact with them.” It is at that point in time Gyan Singh emphatically stated that “I will only settle your account once I receive the money from Summit”.

[58] In addition Summit was to pay the money it owes to the Company to the Petitioner directly. Has he paid the same? Or has he paid the same to the Company? There is no evidence of the same.

[59] In my view Dr. Sahu Khan rightly made the point that there is an admission of at least $10,000.00 which was to be paid by Summit. He claims that at least the sum still remains due and owing. Although that sum is admitted it must be considered in light of the totally of the evidence and issues raised and discussed in this judgment. It is unsafe to order a Company be wound-up on a singular piece of evidence when there is overwhelming contradictory evidence coupled with some serious questions of law to be considered.

Originality of DVD’s

[60] On behalf of Comsol it is submitted that the Petitioner contrary to the agreement supplied the Company with DVDs which were not original but pirated copies. By pirated copies, he was referring to the DVDs, the copies of which have been re-produced and sold without the approval of authorised owner or assignees of the Copyright. Under S12 of the Copyright Act 1999 such copies are referred to as “infringing copies”. Infringing copies is defined under the Act as:-

“12.-(1) In this Act, the term "infringing copy", in relation to a copyright work, is to be construed in accordance with this section.

(2) An object is an infringing copy if its making constitutes an infringement of the copyright in the work in question.

(3) An object that a person imports, or proposes to import, into the Fiji Islands is a infringing copy of a work if-

(a) the making of the object in the Fiji Islands by that person would have infringed the copyright in the work;

(b) the making of the object in the Fiji Islands by the copyright owner would have constituted a breach of an exclusive licence relating to the work; or

(c) the making of the object, by whomever and wherever it was made, constituted an infringement of the copyright in the work.

(4) If in any proceedings the question arises whether an object is an infringing copy, and it is shown-

(a) that the object is a copy of the work in question; and

(b) that copyright exists in the work or has existed at any time, it is presumed until the contrary is proved that the object was made at a time when copyright existed in the work”

(emphasis added).

[61] On behalf of Comsol it is submitted that the supplying of allegedly infringing copies is a fundamental breach of the terms of agreement. Mr Shivam submitted that the agreement was to supply original DVDs only. This was not specifically rebutted save for a submission that Gyan Singh had viewed some of the DVDs prior to delivery. Comsol further claims that the purported breach affected the “sale and reputation of the Company”.

[62] Mr. Shivam submitted that “by supplying the company with pirated DVDs the Petitioner has also acted in contravention of the Copyright Act 1999 and therefore has carried out an illegal act as such the company is not bound to pay for any DVD that has been illegally supplied. Any such payment would make the company party to a criminal offence”.

[63] In rebuttal Dr. Sahu Khan submitted that the submission of the company on originality is “an absurdity”. According to Dr Sahu Khan the issue of original DVDs was never raised nor was there any such agreement. Dr. Sahu Khan vehemently objects to this ground seeking its dismissal on the basis that it is wholly unmeritorious.

[64] The uncontroverted evidence adduced before the court is that there were DVDs supplied which were not original. In cross-examination Umendra Nair conceded by saying that “I supplied non original copies to Comsol, which Mr Gyan is aware of”. He further said that “I informed Comsol of the 90% quality of the movies”. He said, “90% print is not original print”. In addition to the testimony, in an e-mail dated 14th November, 2006 Umendra Nair stated:-

“Please follow the list, the one which is marked red is first print. Other should be 100% original”.

First prints two according to Umendra Nair were “not original”.

[65] In addition, he admitted having no licence from the Copyright proprietors or licensed distributors to supply non-original or for that matter the original copies of DVDs. I hold that the issue of the supply of original copies of movies becomes the most critical issue in this Petition. I say this because once the issue of illegality is raised, leaving aside any infringement leading to the commission of an alleged offence, (as in the present case), it directly impinges on the enforcement of a contract. This is because it affects the value or price of DVDs. It calls into question the agreement between the parties. Since there is no written agreement, a full inquiry with cross-examination is necessary to ascertain the exact terms and consideration of the oral agreement. Most importantly, the admission of supplying non-original copies to Comsol, whether with or without the knowledge of Comsol, has serious implication under the Copyright Act.

[66] True it is, as submitted by Mr. Shivam that selling or procuring to sell pirated copies of protected copyright works of the authors or performers is an offence under the S121(1) of the Act. It states:-

121.-(1) A person who, other than pursuant to a copyright licence-

(a) makes for sale or hire;

(b) imports into the Fiji Islands otherwise than for that person's private and domestic use;

(c) possesses in the course of a business with a view to committing any act infringing the copyright;

(d) in the course of a business-

(i) offers or exposes for sale or hire;

(ii) exhibits in public; or

(iii) distributes;

(e) in the course of a business or otherwise, sells or lets for hire; or

(f) distributes otherwise than in the course of a business to such an extent as to affect prejudicially the copyright owner,

an object that is, and that the person knows or ought reasonably to know is, an infringing copy of a copyright work, commits an offence.

(emphasis added)

[67] Any offence under the Act carries with it the following penalties: -

S 121 (5) A person who commits an offence under this section is liable on conviction-

(a) in the case of an offence against subsection (1), to a fine of $5,000 for every infringing copy to which the offence relates, but not exceeding $50,000 in respect of the same transaction, and to imprisonment for 12 months;

(b) in the case of an offence against subsection (2) or (3) to a fine of $50,000 and to imprisonment for 12 months,

(c) in the case of a second or subsequent offence against subsection (2) or (3), to a fine of $100,000 and to imprisonment for 2 years

(emphasis added)

[68] For the purposes of the petition the onus rests with the Petitioner to prove that the DVDs supplied were not infringing copies. However, Umendra Nair conceded that some of the DVDs were in fact infringing copies. In spite of the concession, Umendra Nair did not state the actual number of original and pirated copies of DVDs supplied. Equally important, such a distinction ought to have transcended in to dollar value to put beyond any ensuing disputes.

[69] Furthermore, the ascertainment of the number of original and pirated copies of DVD’s calls for technical evidence and perhaps evidence (oral or affidavit) of the authors, performers, producers or authorised distributors. Certainly, the magnitude of such an inquiry is beyond the scope of a winding-up Petition. In the words of Walker J where “There was a complex rift of disputed facts and allegations on both sides which calls out for cross-examinations, it was inappropriate for a claimant to resort to a petition to wind up a company”; Re Amadeus Trading Ltd [1997] TLR 36.

[70] Additionally, the issue of whether the petitioner was an authorised dealer of the copyrighted material could have been prove by way of an affidavit, which now is duly authorised under the Copyright Act 1999 contrary to the earlier requirement under the now repealed Copyright Act 1979 and in Crystal Clear Video Ltd V Commissioner Of Police And Attorney-General [1988] S.P.L.R. 130 where it was said obiter “Needless to say, evidence of copyright owners would have to be obtained and these are most likely to involve persons outside Fiji” (per Fatiaki J). Emphasis is mine. For this mode of adducing evidence, S 126 of the Act provides:-

“Affidavit evidence of subsistence and ownership of copyright

126.-(1) At the trial of a cause, being-

(a) an action brought under of this Part; or

(b) a prosecution for an offence against this Act, proof of-

(i) the subsistence, at a particular time, of copyright in the work or other subject-matter to which the action or prosecution relates; or

(ii) the ownership, at a particular time, of the copyright in that work or other subject-matter,

may, subject to subsection (2), be given by affidavit.”

(emphasis added)

Therefore, the Petitioner could have adduced evidence to prove that the DVDs, which it claimed were original, were in fact original as soon as the issue of originality was raised. For reasons best known to the Petitioner, it chose not to adduce such evidence despite the robust contention by Comsol.

[71] Emanating from this issue alone, the fundamental question is ‘whether the court should grant any relief to a party who is seeking to enforce a contract which will result in ordering performance of a contract in breach of the National Laws of the country?’ Furthermore the alleged breach results in commission of an offence. The general rule is that a contract is illegal if legislation prohibits the making of such a contract. In St John Shipping Corporation v Joseph Rank Ltd [1957] 1 QB 267, 283, Devlin J said the : “.. principle is that the court will not enforce a contract which is expressly or impliedly prohibited by statute. If the contract is of this class it does not matter what the intent of the parties is; if the statute prohibits the contract, it is unenforceable whether the parties meant to break the law or not’. Likewise contracts which although not illegal by it being made but may become illegal by performance. Where the actual performance may result in violation of any statutory provisions with penal sanctions the question of enforceability of such contracts becomes the core issue. The law on the enforceability of an illegal contract was aptly summarised by His Lordship Mr Justice Fatiaki in Kikuo Sakashita v Concave Investment Limited [1999] 45 FLR 13 as follows :-

“Returning then to the deposit and mindful of the Court’s construction of Section 6(1) of the Act, I am constrained to hold that the Agreement is a contract implicitly prohibited by the Act and is rendered illegal in its making.

In such a case the learned authors of Cheshire and Fifoot’s Law of Contract (9th edn.) write at p.323:

‘(the contract) is void ab initio. It is a complete nullity under which neither party can acquire rights whether there is an intention to breach the law or not.’

As to the consequences of such a contract the learned authors say at p.345:

‘The general principle, founded on public policy, is that any transaction that is tainted by illegality in which both parties are equally involved is beyond the pale of the law. No person can claim any right or remedy whatsoever under an illegal transaction in which he has participated. Ex turpi causa non oritur actio.’”

(emphaisis added)

[72] I entirely agree with the views expressed my His Lordship. I will add to it that who seeks equity must come with clean hands. Since some of the DVDs sold were admittedly infringing copies, I am constrained to hold that the transaction is tainted with illegality to some extent.

[73] The Supreme Court in Gonzalez –v- Akhtar [2004] Civil Appeal No: CBV 00011.2002S expressly held that “If making or performing a particular contract is expressly prohibited by statute, the contract is illegal unless the statute itself indicates that a prohibited contract shall nevertheless be enforceable. In the absence of any such indication, a contract the formation or performance of which is expressly prohibited by statute is illegal." (emphasis is mine). In this case, the Copyright Act provides for the seizure and destruction (S 125) of the infringing copies and not enforcement of a contract violating the Act. S112 (1) of the Act explicitly provides:-

Right to seize infringing copies

112.-(1)An infringing copy of a work which is found exposed or otherwise immediately available for sale or hire, and in respect of which the copyright owner would be entitled to apply for an order under section 111, may be seized and detained by the copyright owner or a person authorised by the copyright owner.”

(emphasis added)

[74] Likewise in Daydream Island Ltd v Vuki [2007] FJHC 14; HBC284.2005 (18 May 2007), Her Honour Madam Justice Philips in considering a case of occupation of land without the requisite consent of the NLTB as required by S12 of the Native Lands Act held :-

[24] The making or performing of the agreement is expressly prohibited by the Act. It is illegal because it purports to give Daydream rights contrary to the Act. And as stated in Gonzalez the contract is illegal unless the statute itself indicates that a prohibited contract shall nevertheless be enforceable. In the absence of any such indication a contract, the formation or performance of which is expressly prohibited by statute is illegal. There are no provisions indicating the contrary in the Native Land Trust Act. The agreement is therefore illegal, void and unenforceable".

(emphasis added)

Her Honour further held that; "[26] In any event, in this case the formation and performance of the agreement is illegal. In these circumstances equity cannot lend its aid to Daydream..."

[75] Certainly the facts of this case are such that equity will not even lend any support. The agreement (if any) between the parties directly impinge on a third party. It is loss of income from intellectual property or rights vested to a legitimate third party who is the proprietor of the copyright or a licensed distributor of all the copyrighted DVDs supplied by the Petitioner to Comsol. The loss to the third party is the income derived by the parties to this action from the unlawful reproduction and sale of DVDs. In other words both the parties have colluded to undertake the reproduction and selling of infringing copies of DVDs to the detriment of the lawful proprietors of the copyright. The detrimental effect to the third party outweighs any relief that may be given to both the parties to the agreement. Certainly, this includes any relief which Comsol may seek for the refund of the monies already paid to the Petitioner. The primary intent of the Copyright Act 1999 is to accord protection to intellectual property. Reproduction of unlawful copies of DVDS for sale to the public is an intrusion in to ownership rights. Public policy dictates that such contracts ought not to be allowed to be enforced.

[76] In addition, Fiji Islands is a signatory to a number of treaties and conventions relating to intellectual property. By virtue of these treaties and conventions a number of Nations have collectively agreed to enforce the copyright laws in their respective countries. In view of our international commitment, certainly any contract which has the effect of infringing the Copyright Act is void thus unenforceable.

[77] This issue forms a cardinal reason for the inevitable conclusion that that the petition ought to be dismissed. The Petitioner must pursue a civil suit to prove its claim. In civil suit, it will have the opportunity to call expert witnesses to establish the originality of all, if not, some of the DVDs supplied. Further it will be accorded a chance to adduce evidence of being an authorised distributor or supplier of the DVDs. Certainly once the Petitioner establishes these two elements, it may have an enforceable contract without infringing the Copyright Act 1999. But for now the ground of dispute is substantial.

Interest

[78] The Petitioner claims interest in the sum of 10%. The unchallenged evidence is that there was no agreement as to interest on late payment or in the event of default. Umendra Nair in cross-examination admitted as follows:-

Q: Was there any agreement to charge interest?

A: No Sir.

[79] In rebuttal, Dr. Sahu Khan submitted that "the purported issue is Red Herring designed to find the last straw to further cloud the issue." I disagree with his views. A winding up proceeding is not a civil trial. It is a summary procedure for recovering liquidated debt of a limited liability company: In IHJ Advertising (Fiji) Ltd (supra). This requires evidence. Certainly there must be an agreement, the terms and conditions of which is written or at least not disputed to ascertain the liquidated debt where it is not crystallised into exact dollars or cents.

[80] A winding-up proceeding is not designed to supplement the omissions in an agreement. The issues not agreed upon or seriously disputed ought to be thrashed out in a civil proceeding where there is provision for discoveries, interrogations etc. Parties will be given ample opportunity to tender evidence of the pre-contractual negotiations.

[81] In any event interest is a discretionary matter for the court under S.3 of Law Reform (Miscellaneous Provisions) (Death and Interest) Act (cap 27). Where there is no agreement as to interest, the court can still award interest on any judgment sum. In this instance, I cannot exercise the discretion because there is no judgment sum as such held in this proceeding. Accordingly the claim for interest is dismissed, but the Petitioner may seek interest if it pursues a civil claim. This judgment does not bar the claim for interest in any subsequent proceeding.

Inability to Pay

[82] The final point is the issue of inability to pay. To begin with, in view of the conclusion to which I have reached on other issues, especially the price and the self admission of the breach of Copyright Act, I do not see it desirable to deal with this issue. Since, counsel made some substantial submissions as such I will without prejudice to the conclusion already reached discuss this issue.

[83] An important point raised by Dr. Sahu Khan was that once a company withholds payment by giving different reasons for doing so, it erodes even the bona-fide grounds of dispute. Under such circumstance, a creditor is entitled to proceed with a winding up proceeding. He referred to and relied on the decision of Re Imperial Hydropathic Hotel Co. Ltd (supra). At page 149 of the report Jessel MR appositely discussed this point.

[84] In essence the general rule is that where a company genuinely disputes the debt it must set out the details from the outset and not change, vary or add to the disputes every time the demand for payment is sought. Such conduct would result in an unreasonable of withholding of payment. Under S. 221, it can possibly to be deemed unable to pay its debt Subjected to the totality of the evidence.

[85] In the present case although many grounds were raised at the hearing of the petition, the two primary contentions remained disputed all through out. They were the price and originality of the DVDs. With originality the issue of quality of the DVDs were also raised. The issue of quality was raised as early as 27th November, 2006. In an email to the Petitioner, Gyan Singh wrote, "Attached is a list of movies that we are getting complaints on."

[86] The issue of quality was conceded by the Petitioner in an email dated 14th November, 2006. Umendra Nair wrote; "Also note Naksha 2 in 1 are 90% ............movies should be okay but tell the customers to avoid argument. Same print I have sold in Australia, but we tell customers about it".

[87] Under the circumstances, it was reasonable for the Company to withhold payment until the issue of the price and originality of the DVDs is resolved judicially or otherwise. Consequently, the company has not neglected to pay the money. "Neglected to pay" for the purposes of a disputed debt was appropriately described by Megarry J in In re Lympne Investments Ltd [1972] 1 WLR 523 at 527 and 528 as follows:-

"In the context of a notice requiring a person to do some act, I do not see how it can be said that the person ‘neglects’ to do that act if the reason for not doing it is a genuine and strenuous contention, based on substantial grounds, that the person is not liable to do the act at all. If there is liability, a failure to discharge that liability may well be ‘neglect’ whether it is due to inadvertence of obstinacy or dilatoriness: but a challenge to liability is a challenge to the foundation upon which any contention of ‘neglect’ in relation to an obligation must rest."

[88] When all the contentious issues are considered it directly impacts on the liability. Accordingly, I hold the company has not neglected to pay the debt.

Conclusion

[89] Having considered the circumstances of this case, I conclude that the Petition raises complex and substantial issues of disputed facts beyond the scope of a winding-up proceedings. To do justice to the respective parties a civil trial is necessary for which appropriate pleadings must be filed. In addition, there is also legal impediment for the enforceability of the agreement. In summary the substantive issues of contentions are:-

(a) terms of conditions of the oral agreement for the sale and purchase of DVDs.

(b) the price of DVDs contested was there an "agreed price" or the "market price" as claimed by the Petitioner.

(c) whether the agreement was to supply original or pirated copies of DVD.

(d) how many original and pirated copies of DVDs were sold?

(e) whether the agreement is vitiated by illegality for breach of Copyright Act? If so, is the Petitioner entitled to seek performance or enforcement of contract which infringes an Act of Parliament?

(f) whether DVDs sold were all of merchantable quality?

(g) what were the terms and conditions of supply of DVDs on credit? Was it to be paid within 7 days as asserted by the Petitioner or after the sale of DVDs as claimed by Comsol?

(h) whether interest is payable or not, in view of there being no agreement on the subject.

[90] I hold that these issues are incapable of being resolved in a winding-up proceeding. The granting of relief sought on a petition is a discretionary matter; Bateman Television Ltd v. Coleridge Finance Co. Ltd [1971] UKPC 8; [1971] NZLR 929 at 932. Having reviewed the entire evidence and submissions put before me, I hold that the question of whether or not the debt exists be determined in other form proceedings; Re Q.B Pty Ltd [1967] QdR 218 at 225.

[91] For the reasons discussed above the Petition is dismissed with costs summarily assessed in the sum of $500 to the Company.

Accordingly, so ordered.

J. J. Udit
Master of High Court

25th March, 2009