In re Dominion Transport Company Ltd [2012] FJHC 901; HBF32.2010 (29 February 2012)

IN THE HIGH COURT OF FIJI
AT LAUTOKA
COMPANIES JURISDICTION

Winding Up Action HBF 32 of 2010

IN THE MATTER of DOMINION TRANSPORT COMPANY LIMITED

AND

IN THE MATTER of the Companies Act 1983, Section 221.

Before: Master Anare Tuilevuka.
Appearances: Mr. Anu Patel on instructions from Messrs Jamnadas & Associates.
Mr. Suruj Sharma of SS Law for the Company.
Date of Ruling: Wednesday 29 February 2012.

RULING

INTRODUCTION

[1]. Before me is Fiji Bandag Limited’s (“FBL”) petition to wind up Dominion Transport Company Limited (“DTCL”). The petition was presented in this Court on 14 July 2010. It alleges that DTCL is indebted to FBL in the sum of $9,752.14 (Nine Thousand Seven Hundred Fifty Two Dollars and Fourteen Cents). FBL also seeks costs in the sum of $500 plus interest at 13.5% per annum in the petition. The Affidavit Verifying Petition sworn by Jag Prasad[1] was filed on 20 July 2010. No issue has been raised about the late filing of this document[2]. The following entities have filed a Notice of Intention to Appear and Support Petition:

Entity	Debt Alleged	Solicitor
Training & Productivity Authority of Fiji	$1,421.50	Neel Shivam Lawyers
P.A Lal Coachwork Ltd	$4,619.85	Messrs Jamnadas & Associates
Multispares Fiji Ltd	$34,070.58	Messrs Jamnadas & Associates

[2]. FBL did serve a Demand Notice to DTCL on 30 May 2010 giving the latter twenty one days to settle the debt. DTCL has not obliged. FBL pleads that DTCL is therefore insolvent and is unable to pay its debt.

THE ALLEGED DEBT

[3]. Paragraph 5 of the petition states that the debt is “owing for goods sold and delivered to [DTCL] at its request on account from July 2007 to December 2007”.

OPPOSITION

[4]. Satya Nadan[3] has sworn two affidavits opposing the petition. The first was sworn on 13 August 2010. The second was sworn on 08 October 2010. In both affidavits, Nadan denies that DTCL owes FBL any money.

[5]. According to Nadan, none of the invoices that FBL relies on was signed by any DTCL employee. He then explains that, as a matter of procedure, DTCL employees are under strict instruction to, always, sign every invoice from FBL as well as the delivery docket. Only after signing both documents, would a cheque then be prepared to pay for the deliveries.

[6]. Nadan then boldly asserts that the debt being claimed actually springs from bogus deliveries between July to December 2007. The account stated in the invoices have been fabricated by FBL. He adds that DTCL only started purchasing from FBL after December 2007.

[7]. Nadan then says that he has been requesting the invoices concerned from FBL but to no avail. All that FBL has shown him are some printouts from DTCL’s computer system. But these do not show any purchase order number – nor do they bear any signature so as to establish receipt of any delivery. The printouts merely record that the goods were (purportedly) sold by one Ashween Kumar.

[8]. In paragraph 12 of his first affidavit, Nadan deposes as follows:

...I verily believe and have been informed that the items listed in the invoices have been delivered to another person or body but charged to my account and the employee of the Company namely Ashween Kumar would have personally benefitted him.

[9]. Then in paragraph 14 of the same affidavit, Nadan deposes that:

..the sales person and the Manager mentioned in all the invoices are no longer employed by the Petitioning Company as they have migrated overseas and I have been verily informed that they used to sell the goods to other people and/or company and on/or before the day of stock takes of the Petitioning Company they used to debit other Companies account to show the Petitioning Company a balance stock sheets and accounts.

[10]. In his second affidavit, Nadan denies the debts claimed by the supporting creditors namely Multispares Fiji Limited which alleges a debt of $34,070.58 and P.A. Lal Coachwork Limited which alleges a debt of $4,619.85.

[11]. In paragraph 15 and paragraph 5 of the first and second affidavit – respectively, Nadan deposes as follows:

...the Company disputes the Petitioners claim and states that it is solvent and able to pay its debt. That I have shares in the Plaintiff Company is estimated at $1,200,000-00 (One Million Two Hundred Thousand Dollars), the Company has twenty six buses, one Toyota Prado and two Hilux vehicles valued at $2,000,000-00 (Two Million Dollars) and Land with 4 flats apartments situated at Malolo, Nadi on Plan SO 385 in the District of Nadi, Viti Levu, Crown Lease No. 9135 valued at $305,000-00 (Three Hundred and Five Thousand Dollars).

REPLY TO AFFIDAVIT SWORN IN OPPOSITION

[12]. The affidavit in reply of Lawrence Rakesh Robert[4] tabulates 14 invoices purportedly issued by FBL to DTCL between 15 April 2010 to 27 December 2010. These invoices add up to $9,752.14. According to Robert, the deliveries in question were based on trust and goodwill on DTCL’s request and promise to pay. The request was actually made verbally by Nadan’s father.

[13]. Robert adds that DTCL had admitted the debt and had sought time to pay the debt. But Robert’s affidavit does not exhibit any supportive documentation such as a letter to that effect from DTCL.

[14]. In response to the allegation by Nadan that the deliveries in question were actually made to a different person/body but fraudulently charged to DTCL, Robert simply asserts as follows:

....I deny the same and put the Company to strict proof.

[15]. On Nadan’s allegation that the sales person and the Manager mentioned in all the invoices were known for their deceitfulness in the way they handled and accounted for stock at FBL (see paragraph 9 above) and that these officers have since migrated overseas, and that Robert responds as follows:

....I deny paragraph 14 and put the Company to strict proof as the Company has internal and external auditing system.

[16]. Roberts also neither admits nor denies paragraph 15 of Nadan’s affidavit (see paragraph 11 above).

THE LAW

[17]. A company may be wound-up if it is unable to pay its debt (section 220 (e)) of the Companies Act 1983) and if the circumstances are such that it is just and equitable to wind-up the company.

[18]. A company is unable to pay its debt if:-

(a) it is indebted for a sum in excess of $100.00.

(b) s. 221 notice was duly served to the Company.

(c) within three weeks of the service of the said demand notice the company neglected to pay the debt.

[19]. A debt alleged in a Petition is prima–facie proved when the Affidavit Verifying the Petition is filed. It is then open to a Company to refute the debt alleged. And if the company disputes the debt, it must do so on substantial grounds as opposed to a mere frivolous assertion (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).

[20]. On the other hand, the Court will usually penalise in costs a creditor who uses winding up proceedings in an attempt to enforce a debt where the creditor knows or suspects that the debt is disputed and which has not been pursued through normal litigation channels (see Re Lympne Investments [1972] 2 All ER 385).

[21]. Once the Court finds that the company is disputing the debt on substantial grounds, (rather than putting forward a mere frivolous assertion) the onus then shifts back to the petitioning creditor to prove its debt.

[22]. In Re Tweeds Garages Limited [1962] I Ch 402 at 408, is often cited as authority for the proposition that a dispute must be as to the existence and not necessarily the quantum of debt. Authorities are abound that, as a matter of practice, the appropriate avenue to prove a debt that is disputed is through a Writ action rather than through the Winding Up proceedings.

[23]. In Parmalat Capital Finance Ltd v (1) Food Holdings Ltd (in liquidation) and (2) Dairy Holdings Ltd (in liquidation) [2008] UKPC 23 9th April 2008, the Privy Council expressed the view that, whilst it is normal practice for the Court to dismiss a winding up petition based on a disputed debt and require the creditor to first establish his claim, this was merely a rule of practice and not of law and the Court ultimately still has a discretion to make a Winding up Order regardless of whether the debt was disputed or not.

[24]. At first glance, the above statement, does appear to go against the grain of authorities on the point. However, on my reading of it, the case merely emphasizes that the granting of a winding up order is ultimately a matter of discretion – the exercise of which discretion is often but not necessarily dependant upon whether or not the debt is disputed or not.

[25]. After all, the effect of a winding up order only puts into effect a process of collective execution against the assets of the company for the benefit of all creditors. In the course of that process, the rights of creditors may have to be determined who, of course, will still have to prove their debt before the Official Receiver if the process was to proceed that far.

[26]. Obviously, the discretion given to the Court must be exercised within the confines of some limits - as is required in the exercise of every other judicial discretion granted in any given case.

[27]. The authorities all seem to suggest that the balancing exercise must account for, on the one hand, the need to see that the winding up procedure is not being abused in using the threat of a winding up as a means of forcing a company to pay a bona fide disputed debt and on the other, the need to assess whether there is a substantial ground (as opposed to a mere frivolous assertion) for disputing the debt.

CONCLUSION

[28]. The question that lingers on in my mind is whether or not the deliveries were ever made by FBL and received by DTCL. Nadan claims that the sales/deliveries in question were made to some third party (ies) by some deceitful staff of FBL who pocketed the proceeds and then – to avoid detection at stocktaking – debited these to a bogus account they created in the name of DTCL. FBL responds to these allegations by putting DTCL "to strict proof". Indeed, any person who alleges fraud is always put "to strict proof" of the allegation. The presumption omnia praesumuntur rite esse acta[5] throws the burden of proving fraud upon the party asserting it[6]. In this case, I am of the view that my discretion will be fairly exercised if I was to give DTCL the opportunity to prove its allegations of fraud. Accordingly, I dismiss the petition. FBL is encouraged to file a Writ action at the Magistrates Court in light of the amount involved. The parties are to bear their own costs.

Anare Tuilevuka
Master

At Lautoka.
29 February 2012.

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^[1] Credit Controller of Fiji Bandag Limited.
^[2] Rule 25 of the Companies (Winding Up) Rules stipulates that the Affidavit Verifying Petition shall be sworn and filed within 4 days after the petition is presented. See also Master Udit’s discussion of whether or not rule 25 is mandatory or merely directive in its terms in Re: Valebasoga Tropikboards Limited (in receivership) Winding Up Action No. HBE 55 of 2006.
^[3] Company Director of Dominion Transport Company Limited.
^[4] Group Manager, Finance & Administration for Fiji Bandag Limited.
^[5] All things are presumed to be done in due form.

^[6] See Lee v Johnstone (1869) L.R. 1 Sc. & Div. 426 (HL) cited in paragraph 4-26 of Phipson on Evidence, 13^th Edition 1982.