In re Vimal Investments (Fiji) Ltd [2010] FJHC 371; HBF20.2009 (1 September 2010)

IN THE HIGH COURT OF FIJI AT LAUTOKA
COMPANIES JURISDICTION

Winding Up Cause HBF 20 of 2009

IN THE MATTER of VIMAL INVESTMENTS (FIJI) LIMITED
a limited liability company having its registered office at 17, Namoli Avenue, Lautoka.

AND

IN THE MATTER of the Companies Act.

Before: Master Anare Tuilevuka

Counsels: Mr. S. Krishna on instructions from Carpenters Fiji Ltd’s in house Counsels.
: Mr. Faiz Khan of Faiz Khan Lawyers for the Defendants

Date of Ruling: 1st September, 2010

RULING

INTRODUCTION

[1]. On 18th of August, 2009, Carpenters Fiji Limited (“Carpenters”) filed a petition to wind up Vimal Investments (Fiji) Limited (“VIFL”). The petition alleges that VIFL owes Carpenters an undisputed debt of $20,742.50. The debt is alleged to be due and owing in respect of goods and services provided by Carpenters to VIFL. The affidavit verifying petition was filed together with the petition on the 18th of August 2009.

[2]. The petition was advertised in the Fiji Times on Saturday 14th September 2009 and in the Fiji Government Gazette on Friday 20th November 2009. The Memorandum of Due Compliance was filed on 08th December 2009.

[3]. A Notice of Intention to Appear on Petition as Supporting Creditor was filed by Krishna & Company for Sahay Brothers Limited on 19th of March 2010 on an alleged debt of $15,138.19.

[4]. The petition does not specify what goods and services alleged were, let alone when these were rendered by the petitioner to VIFL. However, that goods and services were in fact rendered appears to be not an issue between the parties, judging from the affidavit of Shirley Nair an Accounts Clerk at VIFL sworn on 25th February 2010 and filed in opposition to the petition and also from the affidavit of Mayur Singh, the Financial Controller of Carpenters Hardware, a trading division of Carpenters Fiji Limited filed in reply to Nair’s affidavit.

BACKGROUND

[5]. I gather from paragraphs 4(a) to 4(d) of the petition that VIFL is in the building and construction business. I gather from paragraphs 2(iii) to 2(vii) that VIFL carried out some work for Namuka Bay Lagoon Resort and Mana Island Resort.

1. Annexure “B” of Nair’s affidavit is a letter dated 24th February 2010 by one Mashuk Ali, Managing Director of Namuka Bay Lagoon Resort (“NBLR”). The letter confirms inter alia that VIFL supplied materials to NBLR between November 2008 to January 2009. The letter states as follows:
   

“Please note that we withheld $15,000 (Fifteen Thousand Dollars) payment to Vimals Investment Ltd for defective materials supplied to us by Carpenters Hardware. Payment were with held until rectification works were carried out by Vimals Investment at its cost.

The materials were supplied by Carpenters Hardware directly to our worksite at Namuka Bay Resort in the period November 2008 to January 2009. Rectification works took place thereafter”.

[6]. Annexure “D” of Nairs affidavit is a letter dated 25th February 2010 by one Shri Raj Singh, Director of Finance, Mana Island Resort which states as follows:

“This is to certify that we are holding retention payments to Vimal Investments Limited for defective timber material supplied to our resort. The retention amount is some $16,000-00 (sixteen thousand dollars). Our architect stated that defective flooring timber had been used and as a result cannot release retention amount unless made good within reasonable period of time. The rectification work are yet to be done”

[7]. Nairs affidavit then deposes that VIFL did try to resolve the matter amicably with the petitioner but to no avail as the latter just went ahead and advertised the petition in the newspaper and in the gazette.

[8]. According to Nair, VIFL is solvent and currently does work for the government in Rakiraki, Tavua, Ba and Lautoka and other major businesses such as Rooster Poultry and Mana Island. She further says as follows in paragraph 6:

“The debt is disputed, the Respondent Company’s claim against Carpenters is greater than Carpenter’s purported claim against the Respondent company and the Respondent Company is a solvent company”

[9]. Singh on the other hand replies that VIFL’s accounts have been arrears since 2007 and various notices have been sent over the years to recover the debt amount. He annexes 5 demand notices dated 31st March 2009; 02nd April 2009 (two separate notices annexed); 12th June 2007 and 11th July 2007.

[10]. Singh then deposes that VIFL has never ever notified Carpenters of any dispute in relation to its accounts let alone communicate its grievance about the alleged defective materials. Interestingly, at paragraph 11, Singh says as follows:

“..the company or its purported contractor(s) are yet to specify what items if any were defective. Furthermore the allegations as to defective materials is denied and the Company is put to strict proof of the same” (my emphasis).

[11]. It appears that by paragraph 11 of Singh’s affidavit, Carpenters is conceding that there is a bona fide dispute as to the debt and that a triable issue is raised. After all, “...strict proof of the same” must entail a trial proper and the calling of witnesses.

[12]. One would expect the petitioner to at least then insist that the issue be determined by way of viva voce evidence at the hearing of the petition, which would be perfectly in order in the circumstances (see Master Udit’s ruling on this in In re Comsol Fiji Ltd [2009] FJHC 77; HBE0048.2007L (25 March 2009)).

[13]. Mr. Krishna however appeared on the date of the hearing of the petition on instructions from Carpenters and advised the Court that:

“...we have agreed to file written submissions within 21 days and ruling on notice on submissions”.

[14]. Mr. Justice Gates (now the Honourable Chief Justice) in In Re Kim Industries Limited, Lautoka High Court Winding-Up Action No. HBF 0036 of 96L said as follows:

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

[15]. The course that the petitioner took is unfortunate. I am still wondering if the materials supplied by Carpenters were in fact of substandard quality.

THE LAW

[16]. A debt alleged in a winding-up petition is prima–facie proved when the Affidavit Verifying the Petition is filed. Upon filing of the Affidavit Verifying the Petition, it is then open to the respondent company (e.g. Vimal Investments Limited) to refute the debt alleged.

[17]. And if the respondent company does so dispute the debt, it must do so on substantial grounds (as opposed to a mere frivolous assertion) in order to dissuade the Courts from making an order to wind up the company (see Offshore Oil NL and Investment Corporation of Fiji Limited; Civil Appeal No: 29/84; cf. Avery v. Worldwide Testing Services Pty Ltd. (1990) 2 ACSR 844, at 841).

[18]. Having said that, the Courts also are ever so watchful that the winding up proceedings are not used by petitioners to enforce a debt which is being disputed on substantial grounds. Proceedings instituted in such circumstances amount to an abuse of process and will be struck out with costs to the respondent company (see Re Lympne Investments [1972] 2 All ER 385).

[19]. If the debt is being disputed on substantial grounds, the onus then shifts back to the petitioner to prove its debt. As highlighted above, this may in some situations, involve viva voce evidence.

[20]. In the case of Fiji Bandag v Vunimoli Sawmill Limited, Suva High Court Winding Up Action No. HBE 003/2002, His Lordship Mr. Justice Pathik:

In Palmer's Company Law Vol 3 15.214 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."

The Court has a discretion when seized of a winding-up petition. In Bateman Television (In Liquidation) and Another v Coleridge Finance Company Limited [1971] UKPC 8; [1971] NZLR 929 the Judicial Committee stated:

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".

All that is required for a Petition to be struck out is that there is a dispute on 'substantial grounds'. The question therefore is 'Is there a substantial dispute as to the debt upon which the petition is allegedly found?' [Herman J in Re a Company (No. 60 1946 of 1991) ex p Fin Soft Holding SA (1991) BILL 737 at 740].

[21]. In Ramans Emporium Ltd Suva High Court HBE No. 003/1994, Mr. Justice Scott citing Re Great Britain Mutual Life Assurance Society (1880) 26 Ch D 246 at 253) said that the burden is on the company to bring forward a prima facie case which satisfies the Court that there is something to be tried.

ANALYSIS

[22]. The debt is being disputed on substantial grounds. That much is clear from the following:

• (i) there are "independent third parties" (namely Namuka Bay Lagoon Resort and Mana Island Resort (Fiji) Limited) who appear to confirm the allegations that the goods supplied by Carpenters were of sub-standard quality.
  
• (ii) the petitioner itself appears to acknowledge by paragraph 11 of Singh's affidavit (see paragraph 11 above) that there is a bona fide dispute as to the debt.
  

[23]. I must say that I did find it curious at first that, some six (6) months after the presentation of the petition, the so called "independent third parties" would simultaneously be writing letters (on 24th and 25th February 2010 respectively) and annexed to an affidavit filed on the 25th of February 2010. Curiously also, the first letter was addressed to Faiz Khan Lawyers and the second was in the nature of a "To Whom It May Concern". The letters were obviously written for the purpose of the winding up proceedings.

[24]. To reiterate, the letters state that the materials supplied by Carpenters Hardware were "defective" and that the respective third parties were withholding payments until VIFL rectifies the related workmanship issues.

[25]. From the letters, I get the impression that there had been no written communication hitherto between VIFL and the third parties on the matter. Otherwise, no doubt Nair would without doubt, be annexing these written communications to her affidavit.

[26]. Admittedly, I had some misgivings about the letters and there is much speculation going on in my mind about what the truth might be. Those speculations however must remain up in the air for now as the affidavits are inadequate to assist me in determining whether or not the materials supplied by Carpenters were of substandard quality.

[27]. Suffice it to say this: assuming the letters are authentic, and that the defective materials which are the subject of the third parties' complaint were supplied by Carpenters, then the third parties are entitled to withhold payments to VIFL until rectification by VIFL. It follows that VIFL would have a very strong case if it were to then seek indemnification from Carpenters in a writ action.

CONCLUSION

[28]. There are triable issues involved. The affidavit material is not enough to deal with these. Had the counsels agreed to proceed by way of viva voce evidence, I would have been able to determine the issues conclusively. The parties may still have to resort to a writ process to resolve the issues between them. I dismiss the petition accordingly.

[29]. Costs against the petitioner in the sum of $500-00 (five hundred dollars) to be paid in 14 days.

Anare Tuilevuka
Master

At Lautoka
Dated 1st September, 2010