International Shop Fittings (Fiji) Ltd, In re [2015] FJHC 894; HBC19.2014 (18 November 2015)

IN THE HIGH COURT OF FIJI
WESTERN DIVISION
AT LAUTOKA

COMPANIES JURISDICTION

Winding Up Cause No. HBC 19 of 2014

IN THE MATTER of
INTERNATIONAL SHOP FITTINGS (FIJI) LIMITED a limited liability company having its registered office at HLB Crosbie & Associates, Chartered Accountants, Top floor, HLB House, 3 Cruickshank Road, Nadi Airport.

AND

IN THE MATTER of the Companies Act

Mr. Ravikant Aman Singh for the Petitioning Creditor
Mr. Romanu Vananalagi for the Respondent Debtor

Date of Hearing: - 22ndJuly 2015
Date of Ruling : - 18th November 2015

RULING

(A) INTRODUCTION

The matter before me stems from an application by Counsel for the Respondent Debtor for costs on an indemnity basis.

(B) HISTORY
(1) The Petitioning Creditor, “Autocare Fiji Limited” (which for the sake of brevity, I shall hereafter refer to as “Petitioning Creditor”) filed a Petition on 20th June 2014 to Wind Up the Respondent Debtor, “International Shop Fittings (Fiji) Ltd” (which for the sake of brevity I shall hereafter refer to as “Respondent Debtor”) pursuant to Section 221 (a) of the Companies Act, 1983 for a debt of $4,688.70.

(2) The Court dismissed the Winding up Petition on 14th August 2014 on the basis that the demand Notice was not served on the Company’s registered office.

(3) Nearly one month later, the Petitioning Creditor instituted the second Winding up Petition to Wind up the Respondent Debtor pursuant to Section 221 (a) of the Companies Act, for the Debt of $4,688.70.

(4) The second Winding up Petition was set for hearing on 30th June 2015 and was withdrawn on the date of hearing by the Counsel for the Petitioning Creditor since the Counsel in carriage of the matter for the Petitioning Creditor was absent.

(5) Upon withdrawing the Winding up Petition by the Petitioning Creditor, the Counsel on behalf of the Respondent Debtor moved for costs on an indemnity basis.

(C) THE LAW

(1) Against this factual background, it is necessary to turn to the applicable law and the judicial thinking in relation to the principles governing “indemnity costs”.

(2) Order 62, rule 37 of the High Court Rules empower courts to award indemnity costs at its discretion.

For the sake of completeness, Order 62, rule 37 is reproduced below.

Amount of Indemnity costs (O.62, r.37)

37.- (1) The amount of costs to be allowed shall (subject to rule 18 and to any order of the Court) be in the discretion of the taxing officer.

(3) G.E. Dal Pont, in “Law of Costs”, Third Edition, writes at Page 533 and 534;

‘Indemnity’ Basis

“Other than in the High Court, Tasmania and Western Australia, statute or court rules make specific provision for taxation on an indemnity basis. Other than in the Family Law and Queensland rules – which define the ‘indemnity basis’ in terms akin to the traditional ‘solicitor and client basis’ – the ‘indemnity basis’ is defined in largely common terms to cover all costs incurred by the person in whose favour costs are ordered except to the extent that they are of general law concept of ‘indemnity costs’. The power to make such an order in the High Court and Tasmania stems from the general costs discretion vested in superior courts, and in Western Australia can arguably moreover be sourced from a specific statutory provision.

Although all costs ordered as between party and party are, pursuant to the ‘costs indemnity rule’, indemnity costs in one sense, an order for ‘indemnity costs’, or that costs be taxed on an ‘indemnity basis’, is intended to go further. Yet the object in ordering indemnity costs remains compensatory and not penal. References in judgments to a ‘punitive’ costs order in this context must be seen against the backdrop of the reprehensible conduct that often justifies an award of indemnity costs rather than impinging upon the compensatory aim. Accordingly, such an order does not enable a claimant to recover more costs than he or she has incurred.”

(4) Now let me consider what authority there is on this point.

The principles by which Courts are guided when considering whether or not to award indemnity costs are discussed by Hon. Madam Justice Scutt in “Prasad v Divisional Engineer Northern (No. 02)” (2008) FJHC 234.

As to the “General Principles”, Hon. Madam Justice Scutt said this;

• A court has ‘absolute and unfettered’ discretion vis-à-vis the award of costs but discretion ‘must be exercised judicially’: Trade Practices Commission v. Nicholas Enterprises (1979) 28 ALR 201, at 207
  
• The question is always ‘whether the facts and circumstances of the case in question warrant making an order for payment of costs other than by reference to party and party’: Colgate-Palmolive Company v. Cussons Pty Ltd [1993] FCA 536; (1993) 46 FCR 225, at 234, per Sheppard, J.
  
• A party against whom indemnity costs are sought ‘is entitled to notice of the order sought’: Huntsman Chemical Company Australia Limited v. International Cools Australia Ltd (1995) NSWLR 242
  
• That such notice is required is ‘a principle of elementary justice’ applying to both civil and criminal cases: SayedMukhtar Shah v. Elizabeth Rice and Ors(Crim Appeal No. AAU0007 of 1997S, High Court Crim Action No. HAA002 of 1997, 12 November 1999), at 5, per Sir MotiTikaram, P. Casey and Barker, JJA
  
• ‘... neither considerations of hardship to the successful party nor the over-optimism of an unsuccessful opponent would by themselves justify an award beyond party and party costs. But additional costs may be called for if there has been reprehensible conduct by the party liable’: State v. The Police Service Commission; Ex parte BeniaminoNaviveli(Judicial Review 29/94; CA Appeal No. 52/95, 19 August 1996), at 6
  
• Usually, party/party costs are awarded, with indemnity costs awarded only ‘where there are exceptional reasons for doing so’: Colgate-Palmolive Co. v. Cussons Pty Ltd at 232-34; Bowen Jones v. Bowen Jones [1986] 3 All ER 163; Re Malley SM; Ex parte Gardner []2001] WASCA 83; SDS Corporation Ltd v. Pasonnay Pty Ltd &Anor [2004] WASC 26 (S2) (23 July 2004), at 16, per Roberts-Smith, J.
  
• Costs are generally ordered on a party/party basis, but solicitor/client costs can be awarded where ‘there is some special or unusual feature of the case to justify’ a court’s ‘exercising its discretion in that way’: Preston v. Preston [1982] 1 All ER 41, at 58
  
• Indemnity costs can be ordered as and when the justice of the case so requires: Lee v. Mavaddat [2005] WASC 68 (25 April 2005), per Roberts-Smith, J.
  
• For indemnity costs to be awarded there must be ‘some form of delinquency in the conduct of the proceedings’: Harrison v. Schipp [2001] NSWCA 13, at paras[1], [153]
  
• Circumstances in which indemnity costs are ordered must be such as to ‘take a case out of the "ordinary" or "usual" category ...":MGICA (1992) Ltd v. Kenny & Good Pty Ltd (No. 2) [1996] FCA 862; (1996) 140 ALR 707, at 711, per Lindgren J.
  
• ‘... it has been suggested that the order of costs on a solicitor and client basis should be reserved to a case where the conduct of a party or its representatives is so unsatisfactory as to call out for a special order. Thus, if it represents an abuse of process of the Court the conduct may attract such an order’: Dillon and Ors v. Baltic Shipping Co. (‘The Mikhail Lermontov’) (1991) 2 Lloyds Rep 155, at 176, per Kirby, P.
  
• Solicitor/client or indemnity costs can be considered appropriately ‘whenever it appears that an action has been commenced or continued in circumstances where the applicant, properly advised, should have known ... he had no chance of success’: Fountain Selected Meats (Sales) Pty Ltd v. International Produce Merchants Ltd &Ors [1988] FCA 202; (1998) 81 ALR 397, at 401, per Woodward, J.
  
• Albeit rare, where action appears to have commenced/continued when ‘applicant ... should have known ... he had no chance of success’, the presumption is that it ‘commenced or continued for some ulterior motive or ... [in] wilful disregard of the known facts or ... clearly established law’ and the court needs ‘to consider how it should exercise its unfettered discretion’: Fountain Selected Meats, at 401, per Woodward, J.
  
• Where action taken or threatened by a defendant ‘constituted, or would have constituted, an abuse of the process of the court’, indemnity costs are appropriate: Baillieu Knight Frank (NSW) Pty Ltd v. Ted Manny Real Estate Pty Ltd (1992) 30 NSWLR 359, at 362. per Power, J.
  
• Similarly where the defendant’s actions in conducting any defence to the proceedings have involved an abuse of process of the court whereby the court’s time and litigant’s money has ‘been wasted on totally frivolous and thoroughly unjustified defences’: Baillieu Knight Frank, at 362, per Power, J.
  
• Indemnity costs awarded where ‘the defendant had prima facie misused the process of the court by putting forward a defence which from the outset it knew was unsustainable ... such conduct by a defendant could amount to a misuse of the process of the court’: Willis v. Redbridge Health Authority (1960) 1 WLR 1228, at 1232, per Beldam, LJ
  
• ‘Abuse of process and unmeritorious behaviour by a losing litigant has always been sanctionable by way of an indemnity costs order inter partes. A party cannot be penalised [for] exercising its right to dispute matters but in very special cases where a party is found to have behaved disgracefully or where such behaviour is deserving of moral condemnation, then indemnity costs may be awarded as between the losing and winning parties’: RanjayShandil v. Public Service Commission (Civil Jurisdiction Judicial Review No. 004 of 1996, 16 May 1997), at 5, per Pathik, J. (quoting Jane Weakley, ‘Do costs really follow the event?’ (1996) NLJ 710 (May 1996))
  
• ‘It is sufficient ... to enliven the discretion to award [indemnity] costs that, for whatever reasons, a party persists in what should on proper consideration be seen to be a hopeless case’: J-Corp Pty Ltd v. Australian Builders Labourers Federation Union of Workers (WA Branch)(No. 2) [1993] FCA 70; (1993) 46 IR 301, at 303, per French, J.
  
• ‘... where a party has by its conduct unnecessarily increased the cost of litigation, it is appropriate that the party so acting should bear that increased cost. Persisting in a case which can only be characterised as "hopeless" ... may lead the court to [determine] that the party whose conduct gave rise to the costs should bear them in full’: Quancorp Pty Ltd &Anor v. MacDonald &Ors [1999] WASC 101, at paras[6]-[7], per Wheeler, J.
  
• However, a case should not be characterised as ‘hopeless’ too readily so as to support an award of indemnity costs, bearing in mind that a party ‘should not be discouraged, by the prospect of an unusual costs order, from persisting in an action where its success is not certain’ for ‘uncertainty is inherent in many areas of law’ and the law changes ‘with changing circumstances’: Quancorp Pty Ltd &Anor v. MacDonald &Ors [1999] WASC 101, at paras[6]-[7], per Wheeler, J.
  
• The law reports are replete with cases which were thought to be hopeless before investigation but were decided the other way after the court allowed the matter to be tried: Medcalf v. Weatherill and Anor [2002] UKHL 27 (27 June 2002), at 11, per Lord Steyn
  
• Purpose of indemnity costs is not penal but compensatory so awarded ‘where one party causes another to incur legal costs by misusing the process to delay or to defer the trial and payment of sums properly due’; the court ‘ought to ensure so far as it can that the sums eventually recovered by a plaintiff are not depleted by irrecoverable legal costs’: Willis v. Redbridge Health Authority, at 1232, per Beldam, LJ
  
• Actions of a Defendant in defending an action, albeit being determined by the trial judge as ‘wrong and without any legal justification, the result of its own careless actions’, do ‘not approach the degree of impropriety that needs to be established to justify indemnity costs ... [R]egardless of how sloppy the [Defendant] might well have been in lending as much as $70,000 to [a Plaintiff], they had every justification for defending this action ... The judge was wrong to award [indemnity costs] in these circumstances. He should have awarded costs on the ordinary party and party scale’: Credit Corporation (Fiji) Limited v. Wasal Khan and MohdNasir Khan (Civil Appeal No. ABU0040 of 2006S; High Court Civil Action No. HBC0344 of 1998, 8 July 2008), per Pathik, Khan and Bruce, JJA, at 11
  

Defining ‘Improper’, ‘Unreasonable’ or ‘Negligent’ Conduct in Legal Proceedings as Guide to Indemnity Costs Awards: Cases where ‘wasted costs’ rules or ‘useless costs’ principles have been applied against solicitors where their conduct in proceedings has led to delay and/or abuse of process can provide some assistance in determining whether conduct in proceedings generally may be such as to warrant the award of indemnity costs. These cases specifically relate to solicitors’ conduct rather than directly touching upon the indemnity costs question; nonetheless the analysis or findings as to what constitutes conduct warranting an award of costs can be helpful. See for example:

• Ridehalgh v. Horsefield and Anor [1994] Ch 205
  
• Medcalf v. Weatherill and Anor [2002] UKHL 27 (27 June 2002)
  
• Harley v. McDonald [2001] UKPC 18; [2001] 2 AC 678
  
• Kemajuan Flora SDN Bh v. Public Bank BHD &Anor(High Court Malaya, Melaka, Civil Suit No. 22-81-2001, 25 January 2006)
  
• Ma So So Josephine v. Chin Yuk Lun Francis and Chan Mee Yee (FACV No. 15 of 2003, Court of Final Appeal Hong Kong Special Administrative Region, Final Appeal No. 15 of 2003 (Civil)(On Appeal from CACV No. 382 of 2002, 16 September 2004)
  
• SZABF v. Minister for Immigration (No. 2) [2003] FMCA 178
  
• Heffernan v. Byrne [2008] FJCA 7; ABU0027.2008 (29 May 2008)
  

Some of the matters referred to include:

• At the hearing stage, the making of or persisting in allegations made by one party against another, unsupported by admissible evidence ‘since if there is not admissible evidence to support the allegation the court cannot be invited to find that it has been proved, and if the court cannot be invited to find that the allegation ahs been proved the allegation should not be made or should be withdrawn: Medcalf v. Weatherill and Anor, at 8, per Lord Bingham
  
• At the preparatory stage, in relation to such allegations – not necessarily having admissible evidence but there should be ‘material of such a character as to lead responsible counsel to conclude that serious allegations could properly be based upon it: Medcalf v. Weatherill and Anor, at 8, per Lord Bingham
  
• Failures to appear, conduct which leads to an otherwise avoidable step in the proceedings or the prolongation of a hearing by gross repetition or extreme slowness in the presentation of evidence or argument are typical examples of wasting the time of the court or an abuse of its processes resulting in excessive or unnecessary costs to litigants: Harley v. McDonald, at 703, para[50] (English Privy Council)
  
• Starting an action knowing it to be false is an abuse of process and may also involve knowingly attempting to mislead the court: Ma So So Josephine v. Chin Yuk Lun Francis and Chan Mee Yee (FACV No. 15 of 2003, Court of Final Appeal Hong Kong Special Administrative Region, Final Appeal No. 15 of 2003 (Civil)(On Appeal from CACV No. 382 of 2002, 16 September 2004), at para[43], per Ribeiro, PJ (Li, CJ, Bokhary and Chan, PJ and Richardson, NPJ concurring)
  
• Lending assistance to proceedings which are an abuse of the process of the court – using litigious procedures for purposes for which they were not intended, ‘as by issuing or pursuing proceedings for reasons unconnected with success in the litigation or pursuing a case known to be dishonest’ or evading rules intended to safeguard the interests of justice ‘as by knowingly failing to make full disclosure on ex parte application[s] or knowingly conniving at incomplete disclose rue of documents’: Ridehalgh v. Horsefield [1994] Ch 205, at 234, per Bingham, MR
  
• Initiating or continuing multiple proceedings which amount to abuse of process: Heffernan v. Byrne [2008] FJCA 7; ABU0027.2008 (29 May 2008), per Hickie, J.
  

Specific Circumstances of Grant/Denial Indemnity Costs:Specific instances supporting or denying the award of indemnity costs include:

• Indemnity costs follow per a ‘Calderbankoffer’, that is, where a party makes an offer or offers prior to trial, which is/are refused, and that party succeeds at trial on a basis which is better than the prior offer: Calderbank v. Calderbank [1975] 3 WLR 586
  
• However, no indemnity costs awarded where Calderbankletter contains no element of compromise, making it not unreasonable for the party not to accept the offer. The question is ‘... whether the offeree’s failure to accept the offer, in all the circumstances, warrants departure from the ordinary rule as to costs ...’: SMEC Testing Services Pty Ltd v. Campbelltown City Council [2000] NSWCA 323, at para[37], per Giles, JA Hence, if the offer is not a genuine offer of compromise and/or there is no appropriate opportunity provided to consider and deal with it, then no indemnity costs follow: Richard Shorten v. David Hurst Constructions P/L; D. Hurst Constructions v. RW Shorten [2008] AdjLR 06/17 (17 June 2008), per Einstein, J. (NSW Supreme Court, Equity Division T&C List); Leichhardt Municipal Council v. Green [2004] NSWCA 341, at paras[21]-24], [36], per Santow, JA, Stein, JA (concurring); Herning v. GWS Machinery Pty Ltd (No. 2) [2005] NSWCA 375, at paras[4]-[5], per Handley, Beazley and Basten, JJA; Elite Protective Personnel v. Salmon [2007] NSWCA 322, at para[99]; Donnelly v. Edelsten [1994] FCA 992; [1994] 49 FCR 384, at 396
  
• Indemnity costs awarded:
  
  • upon a winding-up petition’s being presented on a debt known to the petitioner to be genuinely disputed on substantial grounds;
    
  • the clearly established law being that a winding up order will not be granted in such circumstances, meaning that the petitioner ‘had no chance of successfully obtaining a winding up order’;
    
  • where in these circumstances the filing of the petition ‘constituted a deliberate tactical manipulation of the winding up process by the [petitioner, the State Government Insurance Commission ‘SGIC’] for the purposes of bringing very substantial pressure to bear’ on Bond Corp Holdings ‘BCH’;
    
  • this in the circumstances meant that the ‘filing of the petition was an abuse of process of the court in the true sense of that expression’;
    
  • the discretion to stay the petition should not be exercised because this would ‘cause BCH serious harm’ meaning it would be ‘extremely difficult for BCH to be able to conduct its business normally if the petition [were] not dismissed’: citing Re Lympne Investments [1972] 1 WLR 523, at 527, per Megarry, J.; also Re Glenbawn Park Pty Ltd [1977] 2 ACLR 288, at 294, per Yeldham, J.
    
  • an abuse of process ‘having been established in the circumstances outlined, justice requires the award of solicitor and client, or, rather, "indemnity" costs’ so that ‘the SGIC should be ordered to pay all the costs incurred by BCH except insofar as they are of an unreasonable amount or have been unreasonably incurred, so that, subject to [these] exceptions, BCH be completely indemnified by the SGIC for its costs’, citing Foundation Selected Meats (Sales) Pty Ltd v. International Produce Merchants [1988] FCA 202; (1988) 81 ALR 397, at 410, per Woodward J.: Re Bond Corp Holdings Ltd (1990) 1 ACSER 350, at 13, per Ipp, J.
    
• Indemnity costs are appropriate where an applicant (in an unfair dismissal):
  
  • 'insists' over a respondents' objections that an application should proceed to trial rather than await the outcome of other possible litigation (including a police investigation);
    
  • fails repeatedly, despite allowances, to meet deadlines for lodgment of a witness statement;
    
  • fails to advise her lawyers of her whereabouts so denying them of the ability to inform the court of reasons for seeking an unqualified adjournment less than a week prior to trial;
    
  • fails to comply with directions to provide a current address, consult a medical specialist and obtain a report of fitness to attend the trial;
    
  • fails to appear at the final hearing when on notice that the application will be dismissed in event of such failure: Nicole Pender v. Specialist Solutions Pty Ltd (No. B599 of 2004. 17 May 2005), per Bloomfield, Commissioner
    
• Indemnity costs denied as against a Plaintiff who discontinued a claim for a permanent injunction to restrain a Defendant's industrial action, where the Defendant had filed a chamber summons seeking to have the Plaintiff's claim struck out as an abuse of process: Cooperative Bulk Handling Ltd v. Australian Manufacturing Workers Union (WA Branch)(Unreported, WASC, Lib. No. 970190, 30 April 1997), per Wheeler, J.
  
• Indemnity costs cannot be awarded in a criminal appeal, albeit 'in criminal appeals, as in civil cases, unreasonable conduct by the unsuccessful party might increase a usual award': SayedMukhtar Shah v. Elizabeth Rice and Ors(Crim Appeal No. AAU0007 of 1997S, High Ct Crim Action No. HAA02 of 1997, 12 November 1999), at 4, per Sir MotiTikaram, P., Casey and Barker, JJA
  
• Indemnity costs awarded then reversed on appeal where solicitor held liable for costs (under a 'wasted costs' order) in initiating action for clients where solicitor taken to have known that the basis of the clients' action was wholly false"
  

(D) ANALYSIS

(1) Before passing to the substance of the application, let me record that the Petitioning Creditor and the Respondent Debtor in their written submissions have done a fairly exhaustive study of the judicial decisions and other authorities which they considered to be applicable.

I interpose to mention that I have given my mind to the oral submissions made by the Counsel as well as to the written submissions and the judicial authorities referred to therein.

(2) If, as I apprehend, now comes a most material and crucial fact.

I ask myself, what is the question in these proceedings?

The Respondent Debtor is seeking costs on an indemnity basis.

Therefore, the only question I am called upon to determine, in the present proceedings, is, whether or not the Respondent Debtor, ought to be an Order on an "indemnity basis".

(3) What is the basis upon which the Respondent Debtor seeks indemnity costs?

The Respondent Debtor seeks "indemnity costs" on the following grounds; [Counsel in his submissions writes ...]

Para 3.6 The Petitioner failed to take heed of this warning and failed to accept the offer put forward by the Company.

3.7 Not only did the Petitioner failed to take heed of the warning, its own conduct was littered with errors and non-compliance starting with the failure to serve the first demand notice on the registered office of Company, filing the Affidavit verifying petition out of the time period of 4 days allowed under Rule 25 of the Company rules, late filing of the Affidavit in Reply early this year, late payment of costs, adjournment of hearing on 9th March 2015 and withdrawing the petition on the hearing day.

3.8 It only the Company that suffered during this proceeding. Its own banks had enquired about the status of the proceeding. The Company's counsel was required to given an undertaking to the bank. See the attached letters marked "R-4".

3.11 We humbly submit for this Court to put its foot down and send out a warning of would be Petitioners abusing the process of the court with frivolous petitions including withdrawing petitions and refilling whenever they feel like it.

(4) In adverso, the Counsel for the Petitioning Creditor submitted;

[Counsel in his submission writes...]

"The respondent claims that the petitioner's case is an abuse of process. There is no evidence to support the respondent's assertion. The debt has been disputed by the respondent however this was done only after the initial winding up process had been instituted. If there was a genuine dispute of the debt, the respondents should have brought this to the attention of the petitioner at the first available opportunity that is, immediately after the statutory demand (S.221) was issued. Instead, the respondent chose to wait until the winding up process was already on foot. This can only be the logical conclusion that the dispute was not genuine."

(5) Let me now proceed to examine the first and third ground adduced by the Respondent Debtor. I have heard no word said on behalf of the Petitioning Creditor as against this first and third ground adduced by the Respondent Debtor.

I propose to consider the first and third ground jointly.

Is it a correct exercise of the Court's discretion to direct the Petitioning Creditor to pay costs on an indemnity basis to the Respondent Debtor because the Petitioning Creditor has refused to accept the "Calderbank Offer" put forward by the Respondent Debtor?

Furthermore, is it a correct exercise of the Court's discretion to direct the Petitioning Creditor to pay costs on an indemnity basis to the Respondent Debtor because the Responded Debtor had undergone hardships during the winding up proceedings? (The Respondent Debtor says that its own bank had inquired about the status of the proceedings and it was required to give an undertaking to the bank).

The answer to the aforesaid two questions is in the negative which I base on the following judicial decisions;

❖ Public Service CommissionvNaiveli

Fiji Court of Appeal decision, No: ABU 0052 11/955, (1996) FJCA 3

❖ Thomson v Swan Hunter and Wigham Richardson Ltd, (1954),( 2) AER 859

❖ Bowen Jones v Bowen Jones (1986) 3 AER 163

In "Public Service Commission v Naiveli";(supra),The Fiji Court of Appeal held;

"However, neither considerations of hardship to the successful party nor the over optimism of an unsuccessful opponent would by themselves justify an award beyond party and party costs. But additional costs may be called for if there has been reprehensible conduct by the party liable – see the examples discussed in Thomson v. Swan Hunter and Wigham Richardson Ltd [1954] 2 All ER 859 and Bowen-Jones v. Bowen Jones [1986] 3 All ER 163."

On the strength of the authority in the aforementioned three (03) cases, I venture to say beyond a peradventure that neither considerations of hardship to the Respondent Debtor nor the over optimism of the unsuccessful Petitioning Creditor would by themselves justify an award beyond party and party costs.

In the result, I am constrained to hold that the first and third ground adduced by the Respondent Debtor do not warrant me to depart from the normal rule and invoke my discretion to award indemnity costs.

(6) Let me pass to the second and fourth ground adduced by the Respondent Debtor. I propose to consider the second and fourth ground jointly.

The issue for the Court's determination is whether the Petitioning Creditor had prima facie "abused the process" of the Court by presenting a Winding up Petition against the Respondent Debtor?

What is meant by the phrase "abuse of process"...

In Halsbury's Laws of England Vol 37 page 322thephrase "abuse of process" is described as follows:

"An abuse of process of the court arises where its process is used, not in good faith and for proper purposes, but as a means of vexation or oppression or for ulterior purposes, or, more simply, where the process is misused. In such a case, even if the pleading or endorsement does not offend any of the other specified grounds for striking out, the facts may show it constitutes an abuse of the process of the court, and on this ground the court may be justified in striking out the whole pleading or endorsement or any offending part of it. Even where a party strictly complies with the literal terms of the rules of court, yet if he acts with an ulterior motive to the prejudice of the opposite party, he may be guilty of an abuse of process, and where subsequent events render what was originally a maintainable action one which becomes inevitably doomed to failure, the action may be dismissed as an abuse of the process of the court."

The phrase "abuse of process" is summarized in Walton v Gardiner (1993) 177 CLR 378 as follows:

"Abuse of process includes instituting or maintaining proceedings that will clearly fail proceedings unjustifiably oppressive or vexatious in relation to the defendant, and generally any process that gives rise to unfairness."

In Stephenson –v- Garret [1898] UKLawRpKQB 22; [1898] 1 Q.B. 677 it was held:

"It is an abuse of process of law for a suitor to litigate again over an identical question which has already been decided against him even though the matter is not strictly res judicata"

Domer –v- Gulg Oil (Great Britain) (1975) 119 S.J 392

"Where proceedings which were viable when instituted have by reason of subsequent events become inescapably doomed to failure, they may be dismissed as being an abuse of the process of the court"

Steamship Mutual Association Ltd –v- Trollope and Colls (city) Ltd (1986) 33 Build L.R 77, C.A

"The issue of a writ making a claim which is groundless and unfounded in the sense that the plaintiff does not know of any facts to support it is an abuse of process of the Court and will be struck out"

Returning back to the instant case, what are the circumstances that gave rise to the first and second winding up petition?

To give the whole picture of the circumstances, I can do no better than set out hereunder, the averments of the Affidavit in Opposition filed by the Respondent Debtor (so far as relevant);

Para 3. On or about 8th June 2012 the Company was awarded a prestigious Quarter Million dollars Contract to Design & Build the Gold Card Office of the Fiji Inland Revenue and Customs Authority (hereinafter referred to as "FRCA") as the Principle Contractor at Building 3 Level 1 FRCA complex Nasese. I attach herewith a letter of engagement indicating the above marked as annexure "AC-3".

4. The work commenced on about 2nd July, 2012.

5. The Company sub-contracted with the Petitioner Autocare (Fiji) Ltd (hereinafter referred to as "Autocare") to provide executive office chairs for the Gold Card office in the sum of $3,500.00.

6. The work was completed on or about 24th November 2012.

7. Within a month or so after completion of the work, I was contacted by the Project Manager from FRCA advising that there were defects in the chair. Approximately 70% of the chairs were defective at the time and eventually all the chairs were having defects.

8. FRCA requested for a credit in the sum of $6,000.00 and asked the Company to take the chair away which I had to give in order to protect my reputation and credibility with the client.

9. I contacted Autocare's director Mr. Kalpesh Patel and informed him of the defects. I requested and offered an opportunity for a replacement of a better quality chair. Mr Patel refused to replace the defective chairs. Subsequent to this I requested to return the chairs and provide credit as the goods were not of merchantable quality. I attach herewith an email sent to Mr Patel and the series of correspondences between me and the FRCA staffs marked as annexure "AC-4".

10. I am disputing the debt as the chairs were defective and not of merchantable quality. The chairs had to be removed from premises by us due to the defects.

(Emphasis Added)

If, as I understand, the Respondent Debtor is disputing the Debt as chairs were not of merchantable quality. The Respondent Debtor asserts that approximately 70% of the chairs were defective at the time and eventually all the chairs were having defects.

I traversed the e-mail marked as annexure "AC-4" to the Respondent Debtor's Affidavit in Opposition. This e-mail has been sent to the Petitioning Creditor by the Respondent Debtor about 16 months prior to the institution of the first Winding up petition.

In the said e-mail, the Respondent Debtor has set out in detail explanation the basis for the Respondent Debtor Company's dispute of the debt alleged by the Petitioning Creditor. I do not propose to re-iterate those details here.

As against this e-mail, I have heard no word said on behalf of the Petitioning Creditor.

It is quite evident from the e-mail marked as annexure AC-4 that;

❖ There is a bona fide dispute as to whether there is any debt at all and that this dispute is not trivial or insubstantial but is based on solid grounds.

❖ The relevant matter in dispute seems to be a matter which ought to be resolved in an action with pleadings.

❖ About 16 months prior to the institution of the first Winding Up Petition, the Respondent Debtor had clearly informed the Petitioning Creditor in detail explanation the basis for the Respondent Debtor Company's dispute of the debt alleged by the Petitioning Creditor.

Despite all this, after lapse of 16 months from the date of e-mail correspondence, the Petitioning Creditor instituted the first Winding up proceedings to wind up the Respondent Debtor in relation to the said debt. [I do not propose to discuss the matter in any detail; indeed, it is better that should say no more than is necessary to dispose of this application for indemnity costs.]

To make matters worse;

❖ The demand Notice was not served on the Respondent Debtor's registered office.

❖ The Winding up Petition was dismissed by the Court for non-compliance with the Winding up rules.

Nearly one month later, the Petitioning Creditor instituted the second Winding up Petition to Wind up the Respondent Debtor pursuant to Section 221 (a) of the Companies Act, 1983 for the Debt of $4,688.70.

To make matters worse;

❖ The Affidavit verifying Winding up Petition was filed out of time.

❖ The Petitioning Creditor's Counsel in carriage of the matter was not available on the date of hearing and as a result, the Winding up Petition was withdrawn by the Petitioning Creditor.(The Court did not grant an adjournment of hearing. It is a matter for the Court's discretion unless it can be shown that the refusal would result in substantial injustice to any party.)

I need only say that on the evidence before me, it seems quite plain that there is a bona fide dispute whether there is any debt at all and the dispute is not trivial or insubstantial but is based on solid grounds.

In "Mann v Goldstein" (1968) 1 W.A.R. 1091, cited with approval in the New Zealand Court of Appeal in "Bateman Television Ltd v Coleridge Finance Co. Ltd", (1969) NZLR 794, provides authority for saying that when a Winding up Petition is based on a debt which is disputed on substantial grounds, the Petitioner is not a creditor within the meaning of Companies Act.

Having said that, I wish to emphasise that under the Company's Act, a Petition for Winding up cannot be presented by someone in the guise of a Creditor if his status as a creditor depends upon a debt which is disputed on substantial grounds.

Returning back to the instant case, in the circumstances, it was unreasonable for the Petitioning Creditor and its Practitioner to institute Winding up proceedings against the Respondent Debtor. Any Practitioner in the field should have known of the clear state of the law on the relevant point. The Petitioning Creditor and its practitioner must have known that they had no possibility of success against the Respondent Debtor in the Winding up proceedings. I find that the institution of Winding up proceedings is completely unwarranted. In the circumstances, I get the distinct impression that the Petitioning Creditor commenced and continued Winding up proceedings for the purpose of causing trouble or annoyance to the Respondent Debtor. There has been reprehensible conduct by the Petitioning Creditor.

It is quite evident on the material before me, that this attempt to Wind up the Respondent Debtor is a clear abuse of the Winding up provisions of the Act. If the Petitioning Creditor wishes to pursue the claim, it should initiate it by way of a High Court Writ of Summons as it is seriously and evidentially contentious.

There are certain principles governing the granting of a Winding up Order. There is a general principle that a petition for Winding Up with a view to enforcing payment of a disputed debt is an abuse of the process of the Court and should be dismissed with costs. (Palmer's Company Law Vol 3, 15.214 and cases cited therein).

In Palmers(ibid) is set out the principles involved in considering dispute 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. A 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."

Returning to the instant case, I wish to emphasise that Petitioning Creditors resort to the threat of presentation of Winding up proceedings against the Respondent Debtor in the case where the alleged debt is disputed on substantial grounds is a high risk strategy, the penalty for which, in my view should be an Order for costs on indemnity basis.

That this is a view which is not a purely idiosyncratic one is, I suggest, indicated by the judgment in the High Court of Justice in England in Re A Company (No 0012209 of 1991) ([1992] 1 WLR 351; [1992] 2 All ER 797), a judgment of Hoffmann J sitting in the Chancery Division (Companies Court). The headnote [of the All ER version], which accurately records the views expressed by his Lordship in his judgment is, as follows:

"It is an abuse of process to present winding-up petition against a solvent company as a means of putting pressure on it to pay money which is bona fide disputed, instead of applying for summary judgment under RSC Ord 14, and the Court will in those circumstances issue an injunction restraining presentation of the petition and may penalize the petitioner in costs."

On the whole of the material disclosed in this case, I am satisfied that there is reprehensible, oppressive and vexatious conduct by the Petitioning Creditor, the penalty for which, in my view, should be an order for costs on indemnity basis.

In the result, I certainly agree with the sentiments which are expressed inferentially in the Respondent Debtor's submission in relation to second and fourth grounds. I must confess that I am not in the least impressed by the objections raised by the Petitioning Creditor. I disallow the objections.

(E) CONCLUDING REMARKS

(1) Having had the benefit of written and oral submissions for which I am most grateful and after having perused the Affidavits and the pleadings, doing the best that I can on the material that is available to me, I have no doubt personally and I am clearly of the opinion that the justice of the case requires for me to depart from the normal rule and make my discretion to award indemnity costs. The Petitioning Creditor is guilty of conduct deserving of condemnation as disgraceful and as an abuse of the process of the Court and ought to be penalized by having to pay indemnity costs.

(2) I venture to say beyond a per adventure that this is an appropriate case for the Court to reflect, in its Orders for costs, its disapproval of attempts made to abuse the process of the Court by the Petitioning Creditor.

(3) I could see nothing to change my opinion even on the basis of exhaustive work contained in "Law of Costs", G.E. Dal Pont, Third Edition and "Company Law", Palmers.

(4) Having said that, I wish to emphasise that the Company's Court must not be used as a debt collecting agency or as a means of bringing improper pressure to bear on a Company. The effects on a Company of the presentation of Winding Up petitions against it are such that it would be wrong to allow the machinery designed for such Petitions to be used as a means of resolving disputes which ought to be settled in ordinary litigation or to be kept in suspense over the Company's head while that litigation is sought out.

(F) FINAL ORDERS

(1) The Respondent Debtor's application for indemnity costs is allowed.

(2) The Respondent Debtor is directed to file and serve its detailed costs for the assessment of the indemnity costs within 14 days from the date hereof.

Jude Nanayakkara
Acting Master of the High Court

At Lautoka
18th November 2015