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Thunderstruck Ltd v Bonga Xploration Drilling Supplies Ltd [2021] FJHC 387; HBE45.2021 (10 December 2021)

IN THE HIGH COURT OF FIJI
AT SUVA
COMPANIES JURISDICTION


Miscellaneous Action No.: HBE 45 of 2021


IN THE MATTER THUNDERSTRUCK LIMITED

AND


IN THE MATTER of an application by the Plaintiff under section 516 and 517 of the Companies Act 2015 to set aside the Statutory Demand dated 01 March 2021 issued by BONG XPLORATION DRILLING SUPPLIES LTD against THUNDERSTRUCK LIMITED


BETWEEN: THUNDERSTRUCK LIMITED A duly registered limited liability company having its registered office at C/-Top Floor, HLB House, 3 Cruickshank Road, Nadi Airport, Nadi


PLAINTIFF


AND: BONGA XPLORATION DRILLING SUPPLIES LTD of 7388 Kingsway, Burnaby, British Columbia, V3N 0G9, Canada.


DEFENDANT


Counsel : Plaintiff: Ms. Prasad. L
: Defendant: Ms. Fa. F
Date of Hearing : 03.12.2021
Date of Judgment : 10.12.2021


Catch Words


Setting aside of Demand- Companies Act 2015 Sections 7,8,9, 516,517- Choice of Law- Proper Law of the Contract- relationship of companies-Parent Company’s Contract- Genuine dispute as to existence of debt- Lien- Machine Stand By Charges- Termination of Contract- Validity of termination- submission of jurisdiction in foreign court- forum non convenience.


JUDGMENT


INTRODUCTION


  1. This is an application by way of originating summons seeking setting aside of statutory demand of 9.9.2021 (The Demand) issued by Defendant. According to the Demand, alleged debt was pursuant to a ‘contract between the Company and Creditor dated 15.5.2020’. The demand was based on a clause of a contract that pre-determined ‘standby charges’ for plant and equipment to be utilized by Defendant. There was no contract dated 15.5.2020 between Plaintiff (the Company) and the alleged Creditor (Defendant). There was an agreement signed in Canada between Defendant and Thunderstruck Resources, which was the ‘parent company’ of Plaintiff, for “drilling and other services”. Defendant contends that in terms of Section 7 of Companies Act 2015, Plaintiff is not a ‘related entity’. Defendant relied only on the shareholding and this is not the only criterion to decide relationship between Plaintiff and Thunderstruck Resources. The Demand was based on “Standby Charges” for equipment held by Plaintiff, in terms of the agreement entered with Thunderstruck Resources. Defendant was unable to state how Plaintiff was obliged to make payments in terms of contract entered between Defendant Thunderstruck Resources. There were no invoices raised by Defendant and they were not submitted in terms of contract, as Defendants deny termination of said agreement by Thunderstruck Resources. Apart from this Thunderstruck Resources, had claimed a sum of ‘$ 196,423.47’ on 13.1.2021 from Defendant upon termination of the contract. Defendant on 24.2.2021 denied termination and stated that termination was illegal. If so payments were to be made through invoices submitted to Thunderstruck Resources, not to Plaintiff. Thunderstruck Resources, had instituted an action in Canada against Defendant for breach of contract and Defendant had added the Plaintiff to said action and had counterclaimed Plaintiff for ‘machine standby’. Defendant is estopped from denying express clauses as to choice of law and also submission to foreign jurisdiction for ‘machine standby’ charges in a civil suit. Hence, Defendant cannot proceed two actions in two jurisdictions, for standby charges specially when proper law of the contract is foreign law. The party who was obliged to pay in terms of contract dated 15.5.2020 was Thunderstruck Resources in terms of Section III clause M (2). Defendant had served a demand in terms of section 515 of Companies Act 2015. There was no existence of debt from ‘Standby’ charges in terms of the Demand. This is an abuse of process. The demand dated 9.9.2021 is struck off. Defendant is ordered to pay a cost of $2,500.

FACTS

  1. Respondent is a Canadian based company and it had entered in to a contract on 15.5.2020 with another Canadian company called Thunderstruck Resources a legal person. Said contract had ‘choice of law’ clause and accordingly the law governing the said contract was British Colombia, in Canada.

  1. The said contract was to do some drilling and mining operations by Defendant as the contractor to Thunderstruck Resources, a Canadian company, in Fiji.
  2. For the said operation some equipment for drilling was required and they were to be arranged or supplied by Defendant, and the contract dated 15.5.2020 also contained part III , Clause M that specified details of payment in terms of rates pre-determined contained in Appendix A.
  3. On 11.1.2021 Thunderstruck Resources, issued a notice of termination of contract dated 15.5.2020, to Respondent.
  4. Thunderstruck Resources by its solicitors in Fiji, on 13.1.2021 had reiterated termination of contract dated 15.5.2020 and had further claimed a sum of $196,423.47 from Respondent within seven days.
  5. The solicitors had informed that if that was not paid an appropriate legal action would be taken and will hold the ‘items in its possession’ as a lien.
  6. So Plaintiff’s solicitors had given notice to Defendant as to the existence of alleged lien and basis on which they refuse to release the equipment on the site.
  7. By a letter dated 20.1.2021 by solicitors for Mr. Lloyd Gale, the liaison officer of Defendant in Fiji, had disputed the sum of $196,423.47. This sum was not claimed from Mr Lloyd Gale personally, by Thunderstruck but from Respondent. So it is assumed that contrary to what was stated in said letter of solicitors, they were representing Defendant as ‘foreign investor’.
  8. Mr Lloyd Gale was not the investor but Defendant was the ‘investor’, and the claim of $196,423.47 was claimed from Defendant.
  9. On 25.1.2021 solicitors for Thunderstruck Resources replied to said letter of 21.1.2021, and requested more details as to how Defendant, had disputed the sum of $196,423.47.
  10. On 5.2.2021 a purported demand notice was issued for FJD 1,935,972.96 (first Demand) and interest of FJD 2,129,570.26. The particulars are given as
    1. Daily cost of Canadian Dollars 3,000 for all the equipment
    2. Daily cost of Canadian Dollars 1,500 for machine tooling
    1. Daily cost of Canadian Dollars 1,500
    1. Any damage or loss to any machine
    2. Use of machinery cost Canadian Dollars 1,500
  11. Again on 23.2.2021 another demand (Second Demand) was made for Canadian Dollars 140,300 for “Termination Standby” and “Machine Standby”.
  12. On 24.2.2021 solicitors for Defendant wrote a letter stating that the termination of agreement on 11.1.2021 was unlawful. This letter was copied to Thunderstruck Resources and to its solicitors.
  13. On 25.2.2021, solicitors for the Plaintiff had informed the purported demand notice which was not served to their clients and had stated said sum is disputed on following grounds
    1. The claim is not a liquidated sum, but based on damages.
    2. There is no ‘Termination standby’ upon termination of contract.
    1. The Contract was terminated on 11.1.2021 and a claim was made from Defendant for $196,423.47 and a lien was claimed for the items on site.
    1. The items were not rented by Plaintiff
    2. Termination of the Contract was lawful.
  14. Defendant had again issued a demand notice on 1.3.2021, for a sum of Canadian Dollars 208,600 and interest on that, for “Unlawful Detention” of drill, tools etc for the period of ‘18.1.2021 to 28.2.2021’ and also for “Termination Standby” and “Machine Standby” in terms of contract dated 15.5.2020 Later solicitors for Defendant requested by an email, to disregard Second Demand notice issued.
  15. There is a pending action seeking setting aside of demand in HBC 13 of 2021, and it was fixed for hearing on 7.5.2021 and the date was vacated due to restrictions on movements due to pandemic. This was subsequently heard when restrictions eased.
  16. During the time when hearing was vacated, Defendant again served the Demand (Forth Demand) on 9.9.2021 for ‘Machine Standby’. For the period of March-May 2021.
  17. It seemed that Defendant was serving a demand every three month time period for alleged ‘standby charges’ which was recurring fixed amount.

ANALYSIS

  1. The present action filed in terms of Section 516 of Companies Act 2015, and there is no dispute as to preliminary requirements as stated in the said provision for this action.
  2. Plaintiff had instituted this action by way of originating summons. Since the action is based on statutory provision which had not laid down a specific procedure, originating summons is proper course. There was no objection to this method of proceedings.
  3. The scope of such an action in terms of Section 516 of Companies Act 2015, seeking setting aside of statutory demand is found in Section 517 of Companies Act 2015 and it states

“Determination of application where there is a dispute or offsetting claim

517.—(1)This section applies where, on an application to set aside a Statutory Demand, the Court is satisfied of either or both of the following—

(a) that there is a ge dine dispute between the Company and the respondent about the existence or amount of a debt to which the demand relates;

(b);that the Company has an offsetting claim.

(2) T(2) The Court must calculate the substantiated amount of the demand.

(3) If the substantiated amount is less than the statutory minimum amount for a Statutory Demand, the Court must, by order, set aside the demand.

(4)If the substantiated amount is at least as great as the statutory minimum amount for a Statutory Demand, the Court may make an order—

(a)

(b) declaring the demand to have had effect, as so varied, as from when the demand was served on the Company.

(5)Thrt may also order that a de a demand be set aside if it is satisfied that—

(a) be of a defect in the dthe demand, substantial injustice will be caused unless the demand is set aside; or

(b) thereome other reason wson why tmand should be set aside.”(emphasis added)

    1. This action is filed on the basis that there dire did not ‘exist’ a debt at all as opposed to amount. So Section517 (2), (3), (4), (5) are irrelevant for this action.
    2. Forth Demand served to Plaintiff, for an alleged debt of Canadian Dollars 828,000 and interest was for ‘Drill NW 350/Tools and Drill NW500/Tools belonging to Creditor[1]for the period 01.03.21-31.08.21 particulars of which are known to the Company[2] and arises pursuant to the contract between the Company and Creditor dated 15.05.20.’(emphasis is mine)
    3. There was no contract between Plaintiff and Defendant .The contract dated 15.5.2020 was entered in Canada between Thunderstruck Resources and Defendant. Since Defendant deny that Thunderstruck Resources as ‘parent company’ of Plaintiff there cannot be any debt arising from the said contract against Plaintiff.
    4. Even if Plaintiff is having a relationship a contract of ‘parent company’ will not ipso facto create a debt to Plaintiff.
    5. Thunderstruck Resources is a separate legal entity hence there cannot be a payment due on that contract from Plaintiff. It is a local company incorporated in Fiji and not a party to the contract between Defendant and Thunderstruck Resources that was entered in Canada, which had no mention about Plaintiff.
    6. Plaintiff state that Thunderstruck was the ‘parent company’ but Defendant deny that and state that in terms of Section 7 of Companies Act 2015, Plaintiff was not a ‘related company’.
    7. Section 7 of Companies Act 2015 state,

    “7. A Company his section cion called the "first body") is a Subsidiary of another Company only if—


    (a) the other&#821>

    (i) controls or is in a position to control the compositiosition of the first body's board;

    to cast, or control the casting of, more than one-half of the the maximum number of votes that might be cast at a General Meeting of the first body; or


    (iii) holds more than one-half of the issued share capital of the first body, excluding any part of that issued share capital that carries no right to participate beyond a specified amount in a distribution of either profits or capital; or


    (b) the first body isbsidiasidiary of a Subsidiary of the other body.


    1. Defendant&;s contention that relationship between Plaintiff and ThundThunderstruck Resources can be determined from share registry is far-fetched, considering Section 7 read with Sections 8 and 9 of Companies Act 2015.
    2. Defendant had submitted the extracts of the Profile of the Company where it had indicated that all the shares issued in Plaintiff was owned by Bryce Bradly, as sole Director of the Plaintiff.
    3. There is nothing to reject that Plaintiff was not in a position to ‘control or is in position to control’ or was in actual control or position to control cannot be determined by, only looking at shareholding. These are subjective issues. The Plaintiff state Thunderstruck Resources as its ‘parent company’ I cannot reject that only looking at the shareholding considering Section 7, read with 8 and 9 of Companies Act 2015.
    4. Plaintiff had stated its parent company is Thunderstruck Resources. At this point this cannot be further investigated, but the contention of Defendant solely based on shareholding cannot be accepted. This is not the sole criterion for determination of relationship between companies in terms of Sections 7, 8 and 9 of Companies Act 2015.
    5. Section 9 of Companies Act 2015 states as follows;

    “Control


    9.

    (a) controls or is iosition to n to control the composition of the second entity's board;


    (b) is in a position to cast, or control the casting of, more than one-half of the maximum number of votes that might be cast at a General Meeting of the second entity; or


    (c) holds or Controls any entity which holds, more than one-half of the issued share capital of the second entity, excluding any part of that issued share capital that carries no rto participate beyond a specified amount in a distribution tion of either profits or capital.”


    1. Even if Plaintiff is a subsidiary (which is denied by Defendant) demand notice cannot be served to Plaintiff. I need not make a finding as to this issue but suffice to state that Thunderstruck Resources and Plaintiff had a relationship. If there was no relationship that would make Defendant’s case weaker and position taken by Defendant to issue a demand in terms of standby charges, without basis.
    2. Defendant had issued Notice for winding up in terms of Section 515 of Companies Act 2015. It reads,

    “515.Unless the contrary can be proven to the satisfaction of the Court, a Company must be deemed to be unable to pay its debts—


    (a) if a creditor, by assignor t or otherwise, to whom the Company is indebted in a sum exceeding $10,000 or such other Prescribed Amount then due, hrved on the Company, by leaving it at the Registered Office of the Company, a demand requirequiring the Company to pay the sum so due ("Statutory Demand") and the Company has, not paid the sum or secured or compounded for it to the reasonable satisfaction of the creditor within 3 weeks of the date of the notice; or.........”(emphasis is mine)


    1. Defendant cannot assume a debt, and proceed under above section to invoke legal fiction that Plaintiff is ‘deemed’ unable to pay the debt, as existence of debt is central to seek winding up.
    2. By the same token serving a notice for demand when there was no debt and or when there were serious dispute as to its existence as opposed to amount is nothing short of abuse of process of winding up.
    3. Defendant knew on 13.1.2021 that their machines were held on alleged possessory lien for a sum claimed by Thunderstruck Resources.
    4. So there was a serious issue as to existence of lien and application of it. The fact that Defendant did not agree with Plaintiff and or Thunderstruck Resources on this issue was a genuine dispute as to the existence of the debt.
    5. There is no clear determination on this issue due to proper law of contract being law in British Colombia, Canada. I was also told at hearing that lien in British Colombia was a statutory right as opposed to common law.
    6. Notice to wind up is the most serious threat, to a company hence should not be used, unless there is no issue as to existence of a debt.
    7. When there were serious issues and disputes, as to the existence of debt issuance of demand was futile exercise and waste of time and money for the parties. It should be borne in mind parties knew from the time of termination of contract dated 15.5.2020 that their respective claims are disputed on several grounds.
    8. In this action, Plaintiff had not entered in to a contract with Defendant hence how it should be liable for alleged debt is a sine qua non. Without that demand served on 9.9.2021 must be struck off in limene.
    9. There was no debt from Plaintiff in terms of agreement entered by Thunderstruck Resources and Defendant in Canada on 15.05.2020.
    10. That the Standby Charges which was the basis of alleged debt as stated in the Demand, was calculated pursuant to Part III clause M of the Agreement dated 15.05.2020.
    11. Section III M of the Agreement of 15.05.20 headed Standby Charges which reads as follows:

    "M. STAND-BY

    1. Stand-by periods requested by THE COMPANY will be charged at a NON-OPERATING FIELD COST rate as outlined in APPENDIX A: SCHEDULE OF RATES.
    2. During all delays caused directly or indirectly by THE COMPANY or its representatives, THE COMPANY agrees to pay THE CONTRACTOR the non-operating standby rate as outlined in APPENDIX A to a maximum of (8) hours per shift.
    3. THE COMPANY'S and THE CONTRACTOR'S representative on the job will determine mutually the extent to which compensation is due to THE CONTRACTOR; If this cannot be determined both parties will note their concerns on the daily drill sheet and compensation due will be determined by THE CONTRACTOR and THE COMPANY prior to payment of the invoice. (emphasis added)
    4. So, Thunderstruck Resources (which was referred to as the Company in the said agreement) was the party who was obliged, to pay the Defendant (as Contractor under the agreement). So there was no obligation to pay any standby charges in terms of the said contract of 15.2.2020.
    5. Hence, there was no existence of a debt to be claimed from Plaintiff, even on best case scenario for Defendant (i.e to assume that termination was unlawful).
    6. So legality of termination of contract dated 15.5.2020, is not determinative of this action and only a moot for this action.
    7. Irrespective of legality of termination there is no debt that can be claimed for standby charges as stated in the Demand.
    8. The contract entered between Defendant and Thunderstruck Resources in Canada stipulated payment procedure, other than ‘Standby charges’. Plaintiff was not obliged to pay any payment in terms of that.
    9. Payments were to be made by Thunderstruck Resources upon approval of an invoice raised by Defendant. This approval was through their representative.
    10. So, the involvement of Plaintiff in terms of the said contract was to provide approval for claims under the contract. That was if Plaintiff was the ‘representative’ of Thunderstruck Resources in terms of the said contract.
    11. The contract was allegedly terminated by Thunderstruck Resources on 11.1.2021. This termination rejected by Defendant on or around 24.2.2021.
    12. The alleged termination of contract happened on 11.01.2021 and possessory lien on equipment was claimed on an alleged debt of Defendant, on 13.01.2021.
    13. If the termination of contract was done in terms of law, Defendant cannot rely on the same contract for a debt that had accrued after termination unless such was stated therein. Plaintiff contend that there was no Termination Standby charges in terms of the contract of 15.5.2020. Stand by charges while the contract is in existence and any charges after termination are different situations and there is no agreement as to pay standby charges upon termination of contract. It would be illogical to interchange the two scenarios, and apply same charges.
    14. Validity of this termination is subject matter in Canadian Court. So I refrain from stating more on that.
    15. What is deduced from as early as 13.1.2021, Defendant was aware of the position relating equipment’s and they were informed and Defendant had also filed separate action to recover said equipment.
    16. Defendant’s own conduct in filing an action to recover its machines in Fiji estopped them from denying a genuine dispute as to refusal to release them and to claim a lien.
    17. The demand notice dated 9.9.2021 served in terms of Section 515 of Companies Act 2015 states Plaintiff was unable to pay, and ‘just and equitable’ to wind up Plaintiff.
    18. Section 515 of Companies Act 2015 does not allow a legal entity to be wound up on just and equitable ground.
    19. It was only on the creation of ‘legal fiction’ that a legal person is ‘deemed to be unable to pay debt’. There is no ‘just and equitable’ ground to be included in said legal fiction.
    20. So Defendant needs to establish a debt exceeding $10,000, due and payable to them from Plaintiff in terms of Section 515 of Companies Act 2015.
    21. Defendant contends that the termination clause is an essential term of the Agreement of 15.05.20. So the breach of this essential term, the Defendant is entitled to treat the Agreement as being on foot, allowing the Defendant to continue to charges.
    22. Even if that argument succeeds, the charges cannot be claimed from Plaintiff in terms of the contract for the reasons stated earlier. Defendant on its written submission had stated number of cases regarding termination of contracts, which is a moot point in this action.
    23. The Plaintiff also alleges a possessory lien over the Defendant's drilling equipment

    for an alleged debt in the sum of $196,423.47 (One Hundred Ninety-Six Thousand Four Hundred Twenty-Three Dollars and Forty-Seven Cents) owed by the Defendant to the Plaintiff.


    1. In terms of the contract entered between Defendant and Thunderstruck Resources, the choice of law by the parties is law in British Colombia in Canada. So any legal right arising from that needs to be considered in terms of British Colombia. The autonomy of the parties needs to be respected.
    2. I was told at hearing that law relating to lien is a statutory in British Colombia and this is again a matter to be determined in action filed in a Court in Canada where Defendant had counterclaimed and added Defendant. So I do not wish to state more on this issue.
    3. Plaintiff contends that appropriate forum for a dispute arising out of agreement was the Court in British Columbia as the Agreement of 15.05.20 is governed by the law of British Columbia.
    4. In Mount Albert Borough Council v Temperance and General Mutual Life Assurance Society (Privy Council) [1937] UKPC 86; [1937] 4 All ER 206(PC) held,

    “The proper law of the contract means that law which the English or other court is to apply in determining the obligations under the contract. English law, in deciding these matters, has refused to treat as conclusive rigid or arbitrary criteria, such as lex loci contractus or oci sonis, and, and has tres treated the matter as depending on the intention of the parties, to be ascertained in each case on a consideration of the termthe cct, ttuation of the parties, and generally olly on alln all the the surrounding facts. It may be that the parties have in terms in their agreement expressed what law they intend to govern, and in that case prima facie thntention will be effectuaectuated by the court. But in most cases they do not do so. The parties may not have thought of the matter at all. Then the court h impu intention, or to determine for the parties what what is this the proper law which, as just and reasonable persons, they ought to or would have intended if they had thought about the question when they made the contract. No doubt there are certain prima facie rules to which a court, in deciding on any particular contract, may turn for assistance, but they are not conclusive.”


    1. At this stage it is not proper for me go further than this, as these issues are to be fully ventilated in the action filed by Defendant seeking certain orders relating release of their equipment allegedly held by Plaintiff under a possessory lien.
    2. Proper Law of the contract and jurisdiction are not the same. This depends on the circumstances and application of the proper law of contract in determination of the debt.
    3. The scope of this action is limited and that is to set aside the Demand or to refuse it. For that there are more than one reason that there was a genuine dispute as to the existence of a debt due and payable from Plaintiff to Defendant.
    4. In terms of the Demand there was no debt due and payable from Plaintiff, this should not be mistaken as to availability of civil remedy against Plaintiff. This is not the scope of this action. So the issue of forum non convenience is not relevant to this action.

    CONCLUSION


    1. The Demand is based on “Machine Standby” charges for three months from March to June. This was based on Part III clause M of the Contract entered between Thunderstruck Resources and Defendant. There is nothing in the said contract that obliged Plaintiff to pay the Defendant. In contrary the obligation to pay machine standby charges was Thunderstruck Resources in terms of Part III clause M (2). Even other payments were to be made in in Canadian Dollars by Thunderstruck Resources. According to Clause B and C of the agreement, payments were to paid by Thunderstruck Resources upon receipt of ‘error free invoice’. So there was no obligation on the part of Plaintiff to make payments to Defendant. There was no existence of a debt in terms of the Demand. Even if I am wrong on that Plaintiff is claiming lien over the equipment for the claim submitted by its parent company. At the same time Defendant had submitted to the jurisdiction of Canadian by conduct and also proper law of the contract was Laws of British Colombia by mutual consent. Defendant had disputed the termination of the contract, too, so existence of debt is seriously disputed. Due to circumstances the alleged debt as stated in statutory demand of 9.9.2021 was not due and payable by Plaintiff. Contract between Defendant and Thunderstruck Resources was termination on 11.1.2021. These disputes had continued long before the Demand dated 9.9.2021. The Demand dated 9.9.2021 is set aside and considering the circumstances of the case Defendant is ordered to pay a cost of $2,500 as cost of this application within twenty one days.

    FINAL ORDERS

    1. Statutory demand dated 9.9.2021 is set aside.
    2. Cost of this application is summarily assessed at $2,500.

    Dated at Suva this 10th day of December, 2021.


    .....................................

    Justice Deepthi Amaratunga

    High Court, Suva

    [1] Defendant
    [2] Plaintiff

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