In re Denarau International Ltd [2011] FJHC 682; HBE19.2010 (26 September 2011)

IN THE HIGH COURT OF FIJI ISLANDS
AT SUVA
CIVIL JURISDICTION

Winding Up Case No: HBE 19 of 2010

BETWEEN:

IN THE MATTER OF DENARAU INTERNATIONAL LIMITED (in receivership)
Petitioner

AND:

IN THE MATTER OF THE COMPANIES ACT (CAP 247)
Appellant/Respondent

Counsel: Ms. P. Salele for the Petitioner
Mr. J. Udit & Mr. V. Prasad for the Appellant/Respondent

Date of Judgment: 26th September, 2011

RULING ON APPLICATION FOR LEAVE TO APPEAL

1. By the summons issued on 2.10.2007, the respondent applicant (hereinafter referred as the applicant company) seeks the following orders:

1. Leave be granted to the respondent/applicant to appeal the interlocutory ruling of the High Court to the Court of Appeal.
   
2. A stay of the Winding-up proceedings in the High Court pending the outcome of the application.
   

Background of the case

2. There was a Winding-up petition filed by the petitioning creditor against the applicant company. The applicant company took up a legal objection with regard to the procedure stating that the petitioner had failed to comply with Section 221 of the Companies Winding-up Rules.
   
3. The objections taken up by the applicant company in the Winding Up application are as follows:
   
   1. The Memorandum of Due Compliance was not endorsed by the Registrar.
      
   2. There was no evidence of the service of section 221 of Notice.
      
   3. The affidavit verifying petition was sworn on 22.02.2010, same day the petition was filed in Fiji.
      
4. However, those objections were disallowed by court on 15.04.2011. On 15.04.2011, court delivered its ruling disallowing the applicant's objections. It is against that ruling the applicant company has filed summons seeking leave to appeal.
   
5. The grounds on which the company relies on leave to appeal are set out in great detail in the applicant's proposed Notice of Appeal.
   
6. There are 9 grounds of appeal but, I do not propose to deal with each of those points individually, but wish to address main issues which are very much pertinent to the case.
   
7. In support of the summons, an affidavit was filed by Grant Robert Graham a joint receiver and manager of the applicant company.
   
8. In the affidavit in support, it is mainly deposed that the deponent would rely on the submissions tendered by the applicant's solicitors and oral submissions made thereafter.
   
9. The deponent states that the preliminary objections taken up by the company were not merely procedural issues but raised substantive issues relating to proving the debt. The main argument advanced by the applicant company is that the petitioner has not rectified the procedural errors and irregularities, and therefore, the continuance of the petition despite the irregularities would cause substantial prejudice to the company.
   
10. It is further deposed that although the company is in receivership, it is making an effort to find a solution for the benefit of the Villa owners as well as other stake holders, and if the company is wound up it will hamper the company's effort.
    
11. Opposing the applicant's affidavit, an affidavit was filed by a legal executive of the petitioners solicitors. In that affidavit, it is deposed that the winding up action began in 2010, but until today the current receivers have not attempted to settle the debts. It is further stated that the court did not err in law in its Ruling dated 15.04.2011, since Section 202 of the Companies Act gives the court jurisdiction to allow proceedings even with formal defects and irregularities.
    
12. Both parties have filed their written submissions and I carefully considered those submissions.
    
13. When the grounds of appeal are considered, it appears to this court that the applicant company mainly focused his arguments on the irregularity of the filing of the Memorandum of Due Compliance and also the petitioner's non-compliance with the section 25 of the Companies Act.
    

Law governing the granting of the leave to appeal

14. Section 12(2) of the Court of Appeal Act Cap 12 requires that leave be obtained from a judge of the High Court or of the Court of Appeal, if an appeal is going to be filed against any interlocutory order or judgment of the High Court except in certain circumstances.
    
15. It is settled law and practices that when an application for leave to appeal is made, the party so applying must show that the appeal has a good prospect of success, and if leave is not granted a substantial injustice and prejudice would cause to the appellant.
    
16. As a general rule there is a strong presumption against the granting leave to appeal from interlocutory orders which do not finally determine any substantive rights of either party.
    
17. In Ex parte Bucknell [1936] HCA 67; 56 CLR 221 at 224, the Court said:
    

'At the same time it must be remembered that the prima facie presumption is against appeals from interlocutory orders, and therefore, an application for leave to appeal under section 35(1)(a) should not be granted as of course without consideration of the nature and circumstances of the particular case. It would be unwise to attempt an exhaustive statements of the considerations which should be regarded as a justification for granting leave to appeal in the case of an interlocutory order, but it is desirable that, without doing this, an indication should be given of the matters which the court regards as relevant upon an application for leave to appeal from an interlocutory judgment.'

18. A useful summary of some of the matters that should be considered by a judge in an application of this nature could be seen in Niemann v. Electronic Industries Ltd [1978] V.R 441 as follows:
    
    1. Whether the issue raised is one of general importance or whether it simply depends upon the facts of the particular case;
       
    2. Whether there are involved in the case difficult questions of law, upon which different views have been expressed from time to time or as to which he has been "sorely troubled";
       
    3. Whether the order made has the effect of altering the substantive rights of the parties or either of them; and
       
    4. That as a general rule there is a strong presumption against granting leave to appeal from interlocutory orders or judgments which do not either directly or by their practical effect finally determine any substantive rights of either party.
       
19. It is with these legal principles in mind that I consider the applicant's leave to appeal application.
    

Non compliance with section 221 of the Companies Act

20. The applicant submits that the waiver of the requirement of the serving of section 221 notice itself creates a hurdle for the commencement of proceedings.
    
21. In my ruling, I came to a finding that the petition was presented on 02.02.2010. However, it is submitted that it was not the date of presentation of the petition but the date of filing the petition with the registry, whereas, the presentation of the petition was effected on 03.03.2010.
    
22. The other issue raised by the company is that the non-compliance with section 25 of the companies (Winding up) Rules is a substantial error which goes to the root of the case, and thereby cannot be cured under section 202 of the Companies Act.
    
23. It is further submitted that section 202 is designed to provide relief for irregularities which are formal in nature, but the omission of section 221 notices and deposing to a non-existing presented petition are non-curable defects and cannot be cured.
    
24. The petitioning creditors opposed the leave to appeal application. The petitioning creditor submits that the judge did not err in law and fact in the interlocutory ruling of 15.04.2011. It is further submitted that the application of the company to seek leave to appeal the said interlocutory ruling was an attempt to delay proceedings, it incurs unnecessary costs for the petitioner, the petitioners will be deprived of the payment of debt, and therefore, the petitioner would suffer substantial injustice.
    
25. In a Winding-up application the presenting of the petition and the affidavit verifying the petition can be considered as the foundation for the action. It is the affidavit verifying the petition which is considered as a prima facie evidence to show the company's inability to pay the debts.
    
26. In the Winding-up application before this court, the affidavit was sworn on the same day as the day on which the petition was filed. The applicant company argued that it was a fatal error and thereby affected the legality of the proceedings.
    
27. The most important issue to be determined here is, can the court act under section 202(1) of the Companies Winding-Up Rules and proceed with the winding up application despite the procedural irregularities found at the commencement of the winding up action by the petitioning creditor.
    
28. Moreover, court has to determine whether the non-compliance with section 25 of the Winding-up Rules by the petitioning creditor had caused substantial injustice and it could not be remedied by any order of that court.
    
29. In my ruling dated 15.04.2011, I concluded that the non-compliance with section 25 of the winding up rules can be cured under section 202 of the Companies (Winding up) Rules.
    
30. Section 202 (1) of the Companies (Winding-up) Rules reads:
    

No proceedings under the Act or these Rules be invalid by reason of any formal defect or any irregularity; unless the court before which any objection is made to the proceedings is of opinion that substantial injustice has been caused by the defect of irregularity and that the injustice cannot be remedied by any order of that court.

31. In light of the above section, the issue of paramount importance to be determined here is whether, the noncompliance with section 25 and 221 of the Companies Winding up Rules could be treated as a formal defect or irregularity, which can be dealt with under section 202, or would it cause any substantial injustice that could not be remedied by the court.
    
32. It is to be noted that neither the company nor the petitioner did tender any decided case on the above issue. Hence, it is my view that this is a fit and proper issue to be argued in the Court of Appeal so that any uncertainty of the above issues could be resolved. Further, it appears to me that the question of noncompliance with section 25 of the Companies (Winding up) Rules can be better dealt with at the appeal.
    
33. More importantly, if, at the end of the substantive matter, court decides that the company shall be wound up its legal existence will come to an end, and even if that order is revised subsequently by the Court of Appeal, it will be of no avail because by that time the company's whole structure will have been changed. I am also mindful of the time and resources, including financial, to be spent by the company in the event of the company being ordered to be wound up. The petitioning creditor, though submitted that substantial injustice would be caused to them it has not tendered any evidence to show as to how it will be prejudiced.
    
34. Although, I overruled the objections taken up by the company, in considering the nature of the company's leave to appeal application and the principles for granting leave and the arguments advanced by the company, I am of the view that there are reasonable prospects of success in the appeal against the interlocutory order.
    
35. Therefore, it is my considered view that the grounds of appeal raised by the applicant company are fundamental to the substantive matter and hence, it is prudent to allow the applicant company to proceed with the appeal in order to eliminate any uncertainty as to the procedure and its legality on the issue of the presenting the petition and the swearing of the affidavit verifying the petition.
    
36. In coming in to my conclusion in the present application as to the merits, prospects of success and justice, I have had regard to all the matters set out in the parties' affidavits, written submissions and authorities, the principles for granting leave, and all the facts referred to herein.
    
37. More importantly, an issue of this nature has not been deliberated or considered by the Fiji Court of Appeal to date, hence, the determination of this by the Court of Appeal would certainly contribute to develop the jurisprudence of the country.
    
38. Upon consideration of the above facts, I make following orders:
    
    1. Leave is granted to the respondent/applicant to appeal the interlocutory ruling of the High Court to the Court of Appeal.
       
    2. Winding-up proceedings in the High Court is stayed pending the outcome of the application in the Court of Appeal.
       
    100. Costs shall be in the cause.
         

Pradeep Hettiarachchi
JUDGE

At Suva
26th September, 2011