In re Comfort Home Furnishing Ltd [2013] FJHC 69; HBC64.2012 (22 February 2013)

IN THE HIGH COURT OF FIJI
AT SUVA
CIVIL JURISDICTION

Winding Up Action No. 64 of 2012

IN THE MATTER of
COMFORT HOME FURNISHING LIMITED

AND

IN THE MATTER of the
COMPANIES ACT 1983, SECTION 221

BEFORE : Justice Deepthi Amaratunga
COUNSELS : Mr. S. Sharma for the Petitioner
Mr. D. Prasad for the Respondent

Date of Hearing : 8th February, 2013
Date of Judgment : 22nd February, 2013

JUDGMENT

1. INTRODUCTION
   

1. The Petitioner filed this action for winding up of the Respondent for a debt incurring through supply of household electrical items. The Petitioner is a well known importer and distributer of electrical items and the Defendant is also a company that sells household goods, having several branches throughout Fiji. The dispute arose as to the quality of the goods, when consumers made complains to the Consumer Council of Fiji, which stated 'Simmons' brand is a 'concocted brand (brand without a factory)' and the Respondent Company would be held responsible for the 'poor quality' of the said brand as they have sold the defective 'poor quality' items to the consumers who have made complaints. The debt was initially disputed, at least 3-4 months prior to this petition for winding up was filed. When the Petition was filed on 25th September, 2012 the Respondent Company, admitted the debt subject to variation of amounts which they have submitted, and also sought time to pay, but now again tries to dispute harping on the poor quality of the goods, for which the Petitioner had offered to indemnify any claim. The Respondent Company informed that they were holding the sum due to 'poor quality of the items' that belonged to a 'concocted brand'. The numerous correspondence between the parties indicate that debt was disputed initially but later, the solicitors were involved and the Petitioner has explicitly given undertaking as to indemnify, to any claim arising from their products (Simmons or otherwise) on 30th August, 2012 and on 25th September, 2012 the solicitors of the Company has accepted the debt subject to variation suggested in that letter and asked 'time to pay the outstanding amount' (i.e. as per annexed to that letter marked K to the affidavit in opposition). No amount was paid and now the company's alleged dispute is not a bona fide one.
   

2. FACTS
   

2. According to the affidavit in opposition the Respondent Company (hereinafter referred to as The Company) entered into a commercial deal with the Petitioner and its other subsidiaries D. Gokals & Sons Ltd, Bob Gokal & Sons Ltd (supporting creditors claiming $54,624 and $1,794 respectively) to supply consumer electrical items and they included refrigerators and freezers and these items were sold in the Company's shops located all over Fiji.
   
3. The Company alleges that when they purchased these goods and the Petitioner made representation that brand 'Simmons' was a household name in Fiji and of good quality . The Petitioner also granted 3 year warranty on compressors of the refrigerators and 1 year warranty on all other electrical appliances of the said brand 'Simmons'. The Petitioner admits the said position but also state that they have also supplied another brand namely, the renown international brand Philips as well.
   
4. From between January, 2011 to April, 2012 the Petitioner had sold consumer items to the Company and outstanding debt according to the Petitioner is $105,665.40. The Company admits the debt and in paragraph 8 of the affidavit in opposition states as follows:
   

'That further to my email(marked B) I advised the Petitioner that my company owes $97,165.95 and the reason that the payment is with held is to protect my Company in the event Consumer Council of Fiji recalls the Simmons product off market which will mean that my Company have to refund all the customers their money.'

100. ANALYSIS
     

5. Though there is a discrepancy as to the actual debt, the Company admits the debt of $97,165.95 and this is above the threshold value to file an action for winding up of the Company. The dispute as to the precise amount due is not a sufficient answer to the petition as Held in Re Tweeds Garages Ltd [1962] Ch 406, [1962] 1 All ER 121; Re RA Foulds Ltd [1985] UKHL 11; (1986) 2 BCC 99, 269; Re a Company (No 008122 of 1989), ex p Trans Continental Insurance Services Ltd [1990] BCLC 697. (Halsbury's Laws of England (2011) 5th Edi, Vol 17, Paras 630-1370/8 -Winding Up by the Court)
   
6. From the outset it is evident the dispute is not to the precise amount, but as to the quality of goods and the fear that the Consumer Council of Fiji would recall the 'Simmons' brand, this is expressly stated in the paragraph 8 of the affidavit in opposition.
   
7. At the hearing the counsel for the Company was unable to show any evidence to arrive at such a fear. In an email to the Petitioner dated 30th July, 2012 where the Company had indicated its fear of product recall by the Consumer Council of Fiji and stated as follows
   

'Consumer Council is holding us responsible for the poor quality of Simmons product and defects as the retailer being the point of exchange of money between the consumer and retailer. This is major concern to us and the consumer. Our company name and reputation is also at steak (sic) here. We have purchased 208 pcs of Simmons fridges from you since January, 2011, worth $125,656.97 which had 1 year warranty on electrical components and 3 year warranty on compressors. We have not allowed for any miscellaneous cost which may arise due to the above issue We owe the following to you

Homelco Ltd 97,165.95

...

We have no choice but to hold your payments, against any return issues we will have to fact by consumer council. They are even talking of a total brand recall. This is a worry for us as a retailer, one our name being tarnished by your product and two that we might have to refund all our customers purchase in this related issue. We will release your payments once the three year warranty period is covered or utilize the money to refund the consumers should consumer council of Fiji makes a recall statement on Simmons brand.'

8. The only communication from the Consumer Council of Fiji, that was presented to me was marked as 'A' to the affidavit in opposition, which is a reply to a letter written by the Company. The reasons best known to the Company their letter to the Consumer Council of Fiji was not annexed when a vital evidence is suppressed or not made available in a trial or hearing the presumption is that the party who is having the custody of the material is doing so as it is disadvantages for them, but since this a winding up I do not presume so, and do not wish to apply that rule of evidence.
   
9. The letter marked 'A' is not any independent communication form the Consumer Council, generated at the instigation of the complaints by the consumers, but a reply to a letter of the Company which is not produced by the Company. I cannot speculate as to the content of that letter of the Company to the Consumer Council of Fiji, but it can be safely assumed that it was regarding two models of 'Simmons' brand from the heading of the annexed A to the affidavit in opposition.
   
10. From the contents of the said annexed marked 'A', it is clear that consumer council had received complains of two brands of Simmons models (BCD 186 & BCD 188) and state that those two brands are of poor quality and further state as follows
    

'we understand Simmons is a concocted brand (brand without a factory) where the manufacturer has produced the products on good faith (for the local company) without taking any responsibility for the product.

From consumer perspective, we will hold your company responsible because that's the point where money was exchanged between the retailer and the consumer. However, you can hold your supplier responsible for poor quality products and the supplier can hold the manufacturer responsible.' (emphasis is mine)

11. So at least by 30th July, 2012 the Petitioner was aware of the dispute as to the alleged debt and the reason why the Company was refusing to pay the debt. The Respondent Company 'feared' any total product recall since the Consumer Council of Fiji has stated that brand 'Simmons' is a 'concocted brand' which is an allegation, which will invariably have an impact on the retailer (i.e. the Company) who sold the 'concocted brand' to the consumer. Whether the 'fear' of recall of the products by Consumer Council of Fiji was real or genuine or done in bad faith to create a dispute to delay the payment, cannot be considered in this winding up hearing, but this 'fear' would have completely eliminated when the Petitioner indicated its willingness to take any liability and has communicated, this fact to the Company by letter of Petitioner's solicitor marked 'G' to the affidavit in opposition which stated
    

'4.Our client have repeatedly made it plain to your client that any alleged issue of complaint with Consumer Council of Fiji is a separate and distinct matter and that our client as the supplier and distributor will stand by its products including any claims that may arise in relating to those products. There are no pending claims made known to our client and in respect of which there is an issue of potential liability.

5. In short, your client can expect to be indemnified as regards any of these alleged claims should they eventuate. Our clients firmly believe that your clients are simply seeking to avoid paying its legitimate debts and which it notes is rightly payable to our clients at the present time.'

12. In the abovementioned letter the solicitors for the Petitioner insists that the said letter annexed G, be disclosed to court (which the Company quite rightly had done) in any application before the court, indicating their commitment to the indemnity as to any claim by any dissatisfied customer. This insistence of disclosure is understandable since the Petitioner had given widest possible undertaking as to its products which were already sold as it stated 'that our client as the supplier and distributor will stand by its products including any claims that may arise in relating to those products' to alleviate any bona fide fear of loss to the Company due to defective products already sold.
    
13. The same sentiments to indemnify was given by the letter marked 'J' to the affidavit in opposition where it stated
    

'As far as your clients concerns regarding the warranty and or indemnity is concerned, we are instructed to reiterate that our client will standby its "Simmons" brand product as the supplier and will honour the warranties given in respect of those products.

Additionally, if any claim arises in relation to the warranty on the "Simmons" brand refrigerators and there is any liability attaching to your client, our client will hold your client indemnified in respect of such claim.'

14. After such an assurance is given the Company cannot have any genuine and or bon fide fear hence the 'fear' reiterated in paragraph 8 of the affidavit in opposition is totally unfounded. This is clear from the letter of the solicitor of the Respondent Company dated 25th September, 2012 which admitted the debt, subject to variation suggested by them and also sought time to pay.(annexed K to affidavit in opposition)
    
15. What is fatal to the Company's contention of any bona fide dispute is the said letter which had explicitly eliminated any fear it had prior to the explicit indemnity given by the Petitioner in the widest possible manner regarding its products already sold by the Company. The said letter is annexed as 'K' to the affidavit in opposition and states as follows
    

'1.Our client agrees to have a Memorandum of Understanding on the issue of warranty and indemnity to be exercised by both parties.

2. The account needs to be re-checked as there are some variance and we enclose herein the calculation from our client which is self explanatory.

3. If 2 above is rectified and agreed to between (sic) parties our client request time to pay of the outstanding amount.'(emphasis is mine)

16. With that letter of 25th September, 2012 there is no substantial dispute as to the amount that was withheld due to a 'fear' and paragraph 8 of the affidavit in opposition cannot be accepted. It was held Re Tweeds Garages Ltd - [1962] 1 All ER 121 at 122
    

'......that I am satisfied that there is no agreement between the parties which precludes the petitioners from launching a winding-up petition based on the debt owing to them at the date of the presentation of the petition.'(emphasis is mine)

Similarly, the letter annexed marked 'K' to the affidavit in opposition, the Company had not only admitted the debt but also sought time to pay it, and had further submitted a corrected figure of the debt and the Petitioner presented the petition on the same day of the said letter of the Company which admitted the debt. On the date of presentation of the petition there was no dispute as to the debt.

17. In Re a company (No 0012209 of 1991) [1992] 2 All ER 797 HOFFMANN J at p 800 held.
    

'It does seem to me that a tendency has developed, possibly since the decision in Cornhill Insurance plc v Improvement Services Ltd [1986] BCLC 26, [1986] 1 WLR 114, to present petitions against solvent companies as a way of putting pressure upon them to make payments of money which is bona fide disputed rather than to invoke the procedures which the rules provide for summary judgment. I do not for a moment wish to detract from anything which was said in the Cornhill Insurance case, which indeed followed earlier authority, to the effect that a refusal to pay an indisputable debt is evidence from which the inference may be drawn that the debtor is unable to pay. It was, however, a somewhat unusual case in which it was quite clear that the company in question had no grounds at all for its refusal. Equally it seems to me that if the court comes to the conclusion that a solvent company is not putting forward any defence in good faith and is merely seeking to take for itself credit which it is not allowed under the contract, then the court would not be inclined to re-strain presentation of the petition. But, if, as in this case, it appears that the defence has a prospect of success and the company is solvent, then I think that the court should give the company the benefit of the doubt and not do anything which would encourage the use of the Companies Court as an alternative to the RSC Ord 14 procedure. (emphasis added)

18. In the said case it was stated that where a party is disputing a debt merely to obtain the advantage of credit in such circumstances the court would not prevent winding up against such party. The Respondent Company, after admitting the debt according to their records which was annexed to letter of 25th September, 2012, had sought time to pay it, but without paying now seeking to dispute on debt on a 'fear' it had had earlier indicated in this issue, but cannot any longer have it after the undertaking of the Petitioner subsequently given and accepted also by the Company in the said letter of 25th September, 2012 marked as 'K' to the affidavit in opposition filed by the company. If there was any 'fear' why did it sought time to pay the debt on 25th September, 2012?
    
19. In the case of Stonegate Securities Ltd v Gregory - [1980] 1 All ER 241 England Court of Appeal held (BUCKLEY, GOFF LJJ AND SIR DAVID CAIRNS) [1980] 1 All ER 241 at 244 (Judgment of BUCKLEY LJ) held,
    

"Ungoed-Thomas J put the matter thus in Mann v Goldstein ([1968] 2 All ER 769 at 775, [1968] 1 WLR 1091 at 1098-1099):

'For my part, I would prefer to rest the jurisdiction directly on the comparatively simple propositions that a creditor's petition can only be presented by a creditor, that the winding-up jurisdiction is not for the purpose of deciding a disputed debt (that is, disputed on substantial and not in substantial grounds) since, until a creditor is established as a creditor he is not entitled to present the petition and has no locus standi in the companies court; and that, therefore, to invoke the winding-up jurisdiction when the debt is disputed (that is, on substantial grounds) or after it has become clear that it is so disputed is an abuse of the process of

I gratefully adopt the whole of that statement, although I think it could equally well have ended at the reference to want of locus standi."

20. There is no substantial grounds for disputing the debt and the Company's fear as stated in the paragraph 8 of the affidavit in opposition is not a bona fide fear since they have on 25th September, 2012 through their solicitor admitted the debt and also sought time to pay it. This is clear indication of elimination of any 'fear' the Company had.
    
21. Halsbury's Laws of England/COMPANY AND PARTNERSHIP INSOLVENCY (VOLUME 16 (2011) 5TH EDITION, PARAS 1-629; VOLUME 17 (2011) 5TH EDITION, PARAS 630-1370)/8. WINDING UP BY THE COURT/(3) PETITION/(i) Petitioners; Effect of Petitioning/401. Who may not petition.
    

A winding-up order may not be made on a debt which is disputed in good faith by the company Re Gold Hill Mines [1883] UKLawRpCh 22; (1883) 23 ChD 210, CA; Re Brighton Club and Norfolk Hotel Co Ltd [1865] EngR 454; (1865) 35 Beav 204; Re London Wharfing and Warehousing Co Ltd [1865] EngR 747; (1865) 35 Beav 37; Re Lympne Investments Ltd [1972] 2 All ER 385, [1972] 1 WLR 523; Re a Company [1984] 3 All ER 78, [1984] 1 WLR 1090; Re a Company [1985] BCLC 37; cf Re Russian and English Bank [1932] 1 Ch 663. See also Re a Company (No 001946 of 1991), ex p Fin Soft Holding SA [1991] BCLC 737 (where Harman J stated that the essence of the test was whether the dispute was substantial, the good or bad faith of the company in putting forward the defence being irrelevant). It is insufficient for a 'defence' to be honestly put forward if in fact there is no substance in it: Taylors Industrial Flooring Ltd v M & H Plant Hire (Manchester) Ltd [1990] BCLC 216, sub nom Re Taylor's Industrial Flooring Ltd [1990] BCC 44, CA.; the court must see that the dispute is based on a substantial ground Re King's Cross Industrial Dwellings Co [1870] UKLawRpEq 234; (1870) LR 11 Eq 149; Re Imperial Hydropathic Hotel Co, Blackpool Ltd (1882) 49 LT 147, CA; Re Great Britain Mutual Life Assurance Society [1880] UKLawRpCh 276; (1880) 16 ChD 246, CA; Re a Company (No 006685 of 1996) [1997] 1 BCLC 639, [1997] BCC 830, ChD. The fact that unconditional leave to defend the claim relating to the debt has been given is not conclusive: Re Welsh Brick Industries Ltd [1946] 2 All ER 197, CA. It is normally insufficient for a company attempting to restrain advertisement of a petition to show that further investigations might reveal a bona fide and substantial dispute, but the position may be different where a reinsurance company has been refused its contractual entitlement to inspect the reinsured's records: Re a Company (No 008725 of 1991 and No 008727 of 1991) [1992] BCLC 633.

A dispute as to the precise amount due is not a sufficient answer to the petition Re Tweeds Garages Ltd [1962] Ch 406, [1962] 1 All ER 121; Re RA Foulds Ltd [1985] UKHL 11; (1986) 2 BCC 99, 269; Re a Company (No 008122 of 1989), ex p Trans Continental Insurance Services Ltd [1990] BCLC 697.

If there is a genuine dispute, the petition may be dismissed or stayed Re Gold Hill Mines [1883] UKLawRpCh 22; (1883) 23 ChD 210, CA; Re Compagnie Générale des Asphaltes de Paris, ex p Neuchatel Asphalte Co [1883] WN 17; Re Rhodesian Properties Ltd (1901) 45 Sol Jo 580. Cf Re Douglas Griggs Engineering Ltd [1963] Ch 19, [1962] 1 All ER 498 (no answer for company to allege disputed claim against petitioning judgment creditor)."(emphasis added)

22. What the court has to determine is whether there was a dispute as to the debt and whether it was substantial. The Company state that they feared any total recall of all products under brand name 'Simmons' and they have indicated this 'fear' in their email of 30th July, 2012 and this being the same date of annexed A where the Consumer Council of Fiji stated the brand 'Simmons' as a 'concocted brand', but later when the solicitors were involved numerous communications were being exchanged and the Petitioner gave an assurance to the Company in the widest possible indemnity covering all claims for their products already sold by the Company. The evidence produced by in the affidavit in opposition alone is sufficient for me to come to a conclusion as to the bona fides of the Company, which had admitted the debt and also sought time to pay it on 25th September, 2011.
    
23. In Re Tweeds Garages Ltd - [1962] 1 All ER 121 at 122
    

I must now consider in what sense the alleged debt is disputed. What is said in substance is that by reason of a number of claims which the company has against the petitioners, there are deductions which fall to be made from the sum claimed by the petitioners to be due to them; that these are bona fide claims of the company, and that the amount of the petitioners' debt is, therefore, bona fide disputed. It is not, as I understand it, suggested that at any material time the amount of the company's claims was in excess of the petitioners' claim so as to leave a credit balance in favour of the company. If any such suggestion had been made, then on the evidence I should have had no hesitation in rejecting it because I am satisfied that at all material times the company was very heavily indebted to the petitioners on the balance of account. What is said is that although there is no dispute that the petitioners were at all material times creditors, there is a dispute as to the amount of their debt and that such a dispute is within the rule that the court will not make a winding-up order on a disputed debt. That rule is referred to in Buckley On The Companies Acts (13th Edn), p 451, where it is said:

"A winding-up petition is not a legitimate means of seeking to enforce payment of a debt which is bona fide disputed by the company ... But, of course, if the debt is not disputed on some substantial ground, the court may decide it on the petition and make the order ... Great damage might obviously be done to a solvent company by a winding-up petition presented by an unreasonable creditor, whose debt the company are able and willing to pay if established, but to whom they bona fide believe they are not indebted." (emphasis is mine)

24. The Petitioner has assured to fully indemnify any claim arising from their items sold by the Company, and it is given by the Petitioner which is contained in annexed 'H' and 'J' to the affidavit in opposition. Since all the documents referred in this judgment are annexed in the affidavit in opposition these are admitted facts by both parties without any dispute, and I need not venture further as the Company had admitted the debt and also sought time to pay it by the letter of the Company's solicitor marked as 'K' to the affidavit in opposition. There is no genuine dispute as to the debt as per annexed 'K' and there is no substantial dispute.
    
25. At the outset of this hearing the counsel for the Company objected to hearing of the winding stating that he had filed a motion on 30th January, 2013, 6 days prior to hearing, which got postponed on 6th February, due to Tsunami warning, which was also not issued by the court, to stay of the proceeding in terms of Section 224(a) (b) (sic), Of the Companies Act, it may be Section 224(a) or (b). The Section 224 of the Companies Act State as follows.
    

'224. At any time after the presentation of a winding-up petition, and before a winding-up order has been made, the company, or any creditor or contributory, may-

(a) where any suit or proceeding against the company is pending in the Supreme Court or the Court of Appeal, apply to the court in which the suit or proceeding is pending for a stay of proceedings therein; and

(b) where any other suit or proceeding is pending against the company, apply to the court having jurisdiction to wind up the company to restrain further proceedings in the suit or proceeding,

and the court to which application is so made may, as the case may be, stay or restrain the proceedings accordingly on such terms as it thinks fit.

Avoidance of dispositions of property, etc. after commencement of winding-up. (emphasis is mine)

26. In terms of the Section 224 of Companies Act, what is paramount is another pending suit or proceeding and application of (a) or (b) depends on the court in which the other suit or proceeding is pending. In this case one of the dissatisfied customer has filed a writ of summons claiming damages in High Court and the application for stay in terms of 224 (a) has to be made in the said proceedings or suit and not in the winding up proceeding. Section 224(b) does not apply as it applies to suits or proceedings pending in another court and then only an application to stay can be brought, in terms of the said provision, in the winding up proceedings. This may be the reason for the Company to vaguely mention Section 224(a) (b) in its motion, which is misleading, to say the least. The Company cannot file a motion under Section 224 (a) in winding up proceedings, but can seek stay of the said pending suit or proceedings and present summons is clearly an abuse of process and any application to postpone based on such an abuse invariably has to be rejected by the court. The counsel for the Company also said that the said motion was being allocated to a brother Judge, but later I learned that this far from the truth. In any event on the day of the hearing by making an application discreetly indicating the 'Section 224 (a) (b) of the Companies Act' in the motion cannot be a reason to postpone a genuine winding up petition where the same solicitor had admitted the debt and sought time to settle the debt. The company cannot seek a postponement or stay of hearing as the said motion is an abuse of process, so I decided to proceed with the hearing and stated that I will give my reasons in the final determination.
    

4. CONCLUSION
   

27. The Company by its letter dated 25th September, 2012 admitted the debt and sought time to pay it. There is no dispute at the time of presentation of the petition to the court and affidavit in opposition state that there is a fear of product recall by Consumer Council, but there is no such evidence of total product recall. In any event the indemnity granted by the Petitioner as regards to their products was accepted by the Company by its letter dated 25th September, 2012 and also sought time to pay it. Any subsequent action filed by one dissatisfied consumer cannot be a reason to withhold the sum due to all the products sold. If such a practice is encouraged the commercial transactions will be severely affected, as any action by a dissatisfied customer would stall payments for all the goods! Which will have devastating effect of functions of commerce.
    

5. FINAL ORDERS
   

1. The Orders in terms of the winding up Petition.
2. The Petitioner is granted a cost of $1,000 assessed summarily.
   

Dated at Suva this 22nd day of February, 2013.

.................................................
Justice Deepthi Amaratunga
High Court, Suva