In re Dominion Insurance Ltd [2011] FJHC 294; HBF39.2008 (23 May 2011)

IN THE HIGH COURT OF FIJI
AT LAUTOKA
CIVIL JURISDICTION

Bankruptcy and Winding Up
Cause No. HBF 39 of 2008

IN THE MATTER OF DOMINION INSURANCE LIMITED
a limited liability company having its registered office at 1st Floor, 231 Waimanu Road, Suva

AND IN THE MATTER of the Companies Act.

Before : Master Anare Tuilevuka
Counsel : Mr. C.B Young for the Petitioner
Mr. A.K Narayan for the Respondent

Date of Ruling : 23 May 2011

RULING

ISSUES

[1]. An issue has arisen as to whether or not an insurer can be wound up in Fiji under the provisions of the Companies Act (Cap 247). The respondent company, Dominion Insurance Limited (“DIL”) is engaged in the business of providing general insurance in Fiji and is regulated under the Insurance Act 1998 and by the Reserve Bank of Fiji.

[2]. The debt alleged is a judgement sum of $46,754.32 plus $3,000 costs which Mr. Justice Finnigan had awarded on 15 December 2006 in civil action 274 of 2006 in favour of the petitioner Harmant Prasad (“Prasad”) against a certain Satendra Prasad Construction Limited (“SPCL”). In that case, Prasad had sued SPCL in his capacity as administrator of the estate of his late son, Avinesh Prasad (“Avinesh”) seeking damages under the Law Reform (Miscellaneous Provisions)(Death and Interest) Act (Cap 27) and under the Compensation to Relatives Act (Cap 29). Avinesh had worked as a mechanic for SPCL. He died in the course of employment on 14 February 2001 at an SPCL work site.

[3]. On the day in question, Avinesh was reversing a forklift when it lost balance on some swampy ground. Avinesh was thrown off the forklift and in the process, his head struck the forklift’s canopy. He died from severe head injuries.

[4]. Prasad is trying to enforce the judgement against DIL because SPCL had maintained an insurance policy with DIL to cover workmens’ compensation and common law claims by its employees. Also, SPCL is out of reach for enforcement purposes because it was wound up (on 30th November 2004), some two years before judgment was delivered.

[5]. Providing added thrust to Prasad’s campaign against DIL, is the fact that DIL did make an interim payment of $15,958.00 on 24th February 2004 pursuant to a court order. Furthermore, DIL itself had defended the subrogated trial of Civil Action No. 274 of 2006.

[6]. The winding up proceedings against DIL was commenced following DIL’s refusal to respond to a section 221 Notice that was served on it by Young & Associates based on the above judgement sum.

[7]. DIL’s refusal to pay the judgement sum is based on evidence that emerged during the trial of Civil Action No. 274 of 2006 that SPCL had allowed Avinesh the mechanic to operate the forklift on the day in question even though that was not his job and that he did not possess a class 9 license required under the Land Transport (Drivers) Regulations 2000 (see Regulations 4(1) and 5(3)) and under section 58(1) of the Health and Safety (General Work Place Conditions) Regulations.

[8]. This finding of fact led Finnigan J to conclude that SPCL had failed to take all reasonable precautions to prevent accidents, and also that it failed to comply with all statutory obligations relating to employee safety and occupational health.

[9]. It is the above findings of fact which DIL relies on to resist payment of the judgment sum. DIL ‘s argument is that SPCL did in fact breach certain of its obligation under its insurance policy with DIL. It follows that DIL cannot provide cover for the judgment sum awarded by Finnigan J vis a vis Avinesh’s death because of the alleged breach.

THE PETITION & APPLICATION TO STRIKE IT OUT

[10]. The winding up petition is grounded on the presumption under section 221 of the Companies Act (CAP 47) that DIL is insolvent and unable to pay its debts, having refused to settle the judgment sum.

[11]. On 5th of September 2008, DIL (vide its solicitors, A.K. Lawyers) filed a summons to dismiss or strike out the winding up petition on the ground that it is an abuse of process because:

• (i) there is a bona fide dispute on substantial grounds that there is no debt.
• (ii) viva voce evidence is required which cannot properly be decided on petition.
• (iii) DIL is a solvent and substantial insurance company with operations throughout the country and has the financial capabilities to pay its debts.
• (iv) notice under section 221 supporting the petition was defective.
  

AND FOR A FURTHER ORDER to restrain the plaintiff from advertising the said Winding Up Petition until the hearing and determination of this application and/or the petition.

[12]. The affidavit of Vikash Kumar, Manager Fiji Client Services at DIL sworn on 5th September 2008 is filed in support of the application.

[13]. Kumar says that the current winding up proceedings is a gross abuse of process as DIL is a substantial and solvent insurance company licensed by the Reserve Bank of Fiji under the Insurance Act and has substantial assets in Fiji exceeding $30 million and that Prasad’s proper course is to seek a declaratory judgment.

[14]. Kumar further says that even if the petitioner is entitled to a claim for indemnity or satisfaction of the judgment, DIL would still be entitled to raise the breach as a defence.

[15]. The affidavit of Naveen Krishna Naidu, Litigation Clerk at Young & Associates is filed herein on 2nd of October 2008 in opposition of the application.

WHETHER THE WINDING UP PROCEEDING IS APPROPRIATE?

[16]. In Fiji, the Insurance Act 1998 provides inter alia for the regulation of the business, the licensing and the supervision of insurers[1]. The Reserve Bank of Fiji is established as the supervising authority under the Act (see section 3).

[17]. A good part of the Act is concerned with the actual regulation of solvency amongst insurers (such as DIL) in Fiji. The need to regulate solvency no doubt is based on economic and public policy considerations. The aim of the relevant provisions of the Act is to put in place a regulatory mechanism to ensure that insurers are accountable in maintaining their solvency.

[18]. And when solvency is maintained, the consumers or policy holders are protected because the insurer is able to pay out their claims.

[19]. When Sir James Ah Koy introduced the Insurance Bill in Parliament on 13th August 1998, he began as follows:

Mr. Speaker Sir, this Insurance Bill is a result of a major review of the Insurance Act of 1976, by the Reserve Bank of Fiji. It attempts to modernize the legislation by strengthening the financial management and control provisions of the Insurance Act in lieu of the changing economic financial and legal environments of today.......The Government is convinced that an efficient and effective insurance sector should continue to complement socio-economic development and the potential regulation and supervision of insurance entities remains necessary to achieve it.

[20]. Hence, there is a strong element of public interest in regulating and maintaining insurer solvency.

[21]. In Fiji, the Act sets up various checks to ensure that solvency is maintained. Amongst these, is the requirement that every insurer pays and maintains a deposit in the prescribed form acceptable to the Reserve Bank of Fiji with a market value of not less than the surplus of assets over liabilities required under section 31 of the Act (section 20). This deposit exists solely for the benefit of policy holders and cannot be assigned, transferred or encumbered or even be liable to attachment in execution of any judgement in any other way save for the discharge of any liability arising out of a policy of insurance issued by the insurer (see section 21).

[22]. Section 25 of the Act sets out the conditions that an applicant must fulfill before a licence to begin or carry on an insurance business in Fiji can be issued. Included amongst these is the requirement that the applicant satisfies the Reserve Bank as to its margin of solvency. For a general insurer incorporated in Fiji such as DIL, the prescribed margin of solvency is set out in section 32(2)(c) of the Act. Generally – the requirement is that the insurer must have a surplus of assets over liabilities and should have books and actuarial accounts to prove this – annually - to the satisfaction of the Reserve Bank (see Part V of the Act).

[23]. Against that general background, it is easy to see that should any insurer fail to maintain the required margin of solvency, the Reserve Bank of Fiji would be amongst the first to know.

[24]. For the purpose of winding up of an insurer, section 104(2), provides that an insurer is only to be deemed to be unable to pay its debt if its net worth is below the stipulated standard.

Winding-up by court

104.—(1) ............. (irrelevant as it deals with the winding up of a licensed person).

(2) For the purposes of Part VI of the Companies Act, an insurer is deemed to be unable to pay its debts if at any time the margin of solvency specified in section 31 is not maintained.

(3) For the purposes of proceedings under the Companies Act for the winding-up of the affairs of an insurer, evidence that the insurer was insolvent at the close of the period to which the accounts and other statements last prepared under section 60(1) relate is evidence that the insurer continues to be unable to pay its debts, unless the contrary is proved.

[25]. Section 31(2)(c), sets out the margin of solvency for a general insurer such as DIL that is incorporated in Fiji:

Minimum capital and solvency requirements

31.—(2) An insurer licensed to carry on any class of general insurance business must maintain at all times-

(c) if the insurer is incorporated in the Fiji Islands, a surplus of assets over liabilities of

(i) $1,000,000;

(ii) 20% of net premium income derived during the last 12 months; or

(i) 15% of net claims outstanding provision, whichever is the greatest.

[26]. Section 60(1) of the Insurance Act 1998 states that:

60.—(1) an insurer must prepare, with reference to each calendar year, the prescribed statements of account and other prescribed statements and send them, duly audited in accordance with Division 1, to the Reserve Bank, within 3 months after each end of the year.

[27]. From these sections, and in particular, from the use of the words

“For the purposes of Part VI of the Companies Act....”

at the beginning of section 104(2), it appears that an insurer may still be wound up under the Companies Act (Cap 247). However, the insurer can only be deemed to be unable to pay its debt if evidence is adduced that it has failed to maintain the margin of solvency required under section 31(2).

[28]. Section 221of the Companies Act (CAP 47) states as follows:

Definition of inability to pay debts

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.

[29]. In contrast – section 104(2) of the Insurance Act 1998 sets out that an insurer can only be deemed to be unable to pay its debt if it is not able to maintain the requisite margin of solvency.

[30]. Clearly then, section 104(2) effectively revokes and rescinds the application of section 221 with regards to insurers in general.

[31]. Having said that, it must then follow that as a matter of law and procedure, a statutory demand notice issued under section 221(a) of the Companies Act would be totally redundant and ineffective as against an insurer, as is the case in this matter.

[32]. It must also mean that any subsequent winding up proceedings against an insurer premised on such a notice will be tainted with irregularity. I say that because – in my view – any such proceeding will be founded on a presumption of insolvency that does not apply to an insurer.

[33]. Having said all that, it appears that the only way by which an insurer can be wound up under the Companies Act, apart from a voluntary winding up, is through evidence that the insurer is not maintaining the requisite margin of solvency under section 31(2) of the Insurance Act 1998. The onus is on the petitioner to produce such evidence because the deeming effect of section 104(2) is triggered only “if at any time the margin of solvency specified in section 31 is not maintained” by the insurer. This view is further fortified by section 104(3) which states as follows:

104.— (3) For the purposes of proceedings under the Companies Act for the winding-up of the affairs of an insurer, evidence that the insurer was insolvent at the close of the period to which the accounts and other statements last prepared under section 60(1) relate is evidence that the insurer continues to be unable to pay its debts, unless the contrary is proved.

[34]. Hence, the insurers' audited annual statement(s) of account(s) and other prescribed statement that the insurer is required to file pursuant to section 60 (see above) is crucial. This evidence obviously is with the Reserve Bank of Fiji and the insurer.

[35]. No such evidence has been put before me, obviously, because the whole proceedings have been premised on the wrong section 221 presumption.

[36]. Just before I formally state the now-obvious conclusion, I note that the Insurance Act 1998 does not say that in any winding up proceeding of an insurer, the Reserve Bank of Fiji is to be served. The Act however, clearly requires the involvement of Reserve Bank of Fiji with regards to the winding up of a "licensed person", which I gather from the not-so-well drafted 1998 Act, is to be distinguished from an "insurer".

Reserve Bank to be heard

105. If a petition for the winding-up of a licensed person is presented by a person other than the Reserve Bank, a copy of the petition must be served on the Reserve Bank, which is entitled to be heard on the petition.

[37]. In my view, it would be desirable if the Act makes a clear distinction between a "licensed person" and an "insurer". The former is not clearly defined, though the various provisions of the Act appear to treat it as a totally different entity.

CONCLUSION

[38]. I conclude that an insurer such as DIL may be wound up under the provisions of the Companies Act (Cap 247) but the onus is heavily on the petitioner to establish that the insurer, at the current time, is not maintaining the margin of solvency specified in section 31 of the Insurance Act 1998. No such evidence has been placed before me in this case. I dismiss the petition accordingly. Having said that, I have clearly steered clear of making any observation on the arguments that counsel argued before me on other grounds. These must be left open for determination later should the petitioner decide to pursue his claim further against DIL vide other more appropriate originating processes. Costs to the defendant which I summarily assess at $600-00 (six hundred dollars).

.........................................
Anare Tuilevuka
Master

At Lautoka
23rd of May 2011.

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^[1] See Long Title to the Insurance Act 1998 (Act No. 6 of 1998).