Moran Development Corporation Ltd v Akida Investments Ltd [2003] PGNC 68; N2458 (3 September 2003)

N2458

PAPUA NEW GUINEA

[IN THE NATIONAL COURT OF JUSTICE]

OS. NO. 367 OF 2003

MORAN DEVELOPMENT CORPORATION LIMITED
Plaintiff

AND:

AKIDA INVESTMENTS LIMITED
Defendant

WAIGANI: KANDAKASI, J.
2003: 22nd August
: 3rd September

PRACTICE & PROCEDURE - Application seeking to set aside statutory demand – Application filed within prescribed time limit – Whether it should be heard within the time limit – As long as application is filed and served within the time limit, the hearing of the application need not be within the time limit but at the earliest available opportunity – s. 338(1) Companies Act 1997.

COMPANIES – Statutory demand served on a company – Company seeking to set aside –No contest as to there being serious dispute on alleged debt – Only issue whether application served and made within time – Application found to have been filed, served and heard within the ambit of s.338(2) of the Companies Act – s. 335 to 338 of the Companies Act 1997.

STATUTORY INTERPRETATION – s. 338(2) Companies Act 1997 – Meaning of - Intent of legislation is to allow a company served with a statutory demand to apply to set aside if it seriously disputes the debt – Not just and proper that a party claiming a debt against a company should succeed merely by default of the company - Application must be filed and served within one month from the date of service of debtors summons – Actual hearing of the application can be made at the earliest available date – ss 335 to 338 of the Companies Act 1997.

WORDS & PHRASES – "application must be made and served" – means filed and served and not the actual hearing of the application – The hearing can be at the earliest available opportunity after the application has been filed and served – s. 338 (2) Companies Act 1997.

WORDS & PHRASES - "month" – means one calendar month – In considering what is the length of a month, it is sufficient when the months are broken, whatever the length of, either to go from one day in a month to the corresponding day in the other – s. 338(2) Companies Act 1997.

Papua New Guinean Cases Cited:
The State v. Independent Tribunal; Ex parte Sasakila [1976] PNGLR 49.
Constitutional Reference No 1 of 1977 [1977] PNGLR 362.
Canisius Karingu v. Papua New Guinea Law Society (9/11/10) SC674.

Overseas Cases Cited:
Camden London Borough Council v. ADC Estates (1990) 3 P.L.R. 121.
Brady v. Licensing Authority for North West Traffic Area [1981] Crim. L.R. 407.
Freeman v. Read L.J.M.C. at Law Journal New Series, Magistrates Cases 1831 – 1896.
Radcliffe v. Batholomew [1982] 1 Q.B. 161.

Counsel:
Mr. B. Frizzell for the Plaintiff.
Mr. D.S. Awaita for the Defendant.

3rd September 2003

KANDAKASI, J: The plaintiff is applying to set aside a statutory demand served on it by the defendant. The defendant opposes the application on the basis that, the application does not meet the requirements of s. 338(2) of the Companies Act 1997, in that it has not been served and heard within the one month stipulated in that provision. In response, the plaintiff argues that its application is within the ambit of s. 338 (2), because it has filed and served the application within the time period stipulated in that section. As for the hearing of its application, it argues that the hearing need not be made within that period.

From these arguments, clearly the issue is whether the plaintiff’s application is made within the ambit of s. 338 (2) of the Companies Act 1997? That issue is dependent on the interpretation to be given to the provision in question, which raises the question of, what is the meaning to be subscribed to the words employed in that provision?

The facts giving rise to this application and consequently, the arguments and the issues are straightforward. A De Kewanu, who is the secretary of the plaintiff company, says that on the 12th of June 2001, the defendant served on the plaintiff a statutory demand for a sum of K270,000.00, allegedly for a debt arising out of a subcontract agreement between the parties. A Mr. David Andiki, a director of the defendant company, signed the contract on behalf of the defendant. He is the person with whom the plaintiff had dealt with at all relevant times in respect of carrying out the terms of the contract. As far as the plaintiff was aware, Mr Andiki was the person who had the relevant and appropriate authority to represent the defendant.

The witness states further that, the plaintiff paid a total sum of K264,544.00 to the defendant through Mr. David Andiki, who gave receipts for the payments. After allowing for the payments, the plaintiff admits to owing to the defendant about K46, 656.00. It then made a payment into Court in the sum of K40,000.00 in total satisfaction of statutory demand. Subsequently, De Kewanu deposes to in another affidavit, that he made a mistake in saying the defendant was owed K46,656.00. This was due to an inadvertent error resulting in a failure to take into account further payments to the defendant reducing the amounts owing to K31, 600.00. On this basis, application was made and granted without much objection for a withdrawal from the monies brought into Court a sum of K8,400.00.

The evidence in rebuttal of what the plaintiff is saying is from a Agibe Pai. He claims to be the managing director of the defendant company. He claims the payments to Mr. David Andiki by the plaintiff were to Mr. David Andiki personally and not to the defendant company. He also speaks of having sent an invoice for an amount of K46, 656.00 to the plaintiff. He then says, the plaintiff has not paid for services rendered under the subcontract. He also claims that the plaintiff wrongly made cheques payable in cash to Mr. Andiki. He therefore, claims that the defendant correctly served on the plaintiff the statutory demand on the 12th of June 2003.

The plaintiff filed these proceedings on the 11th of July 2003. De Kewanu, in an affidavit he deposed to on the 20th of August 2003, states that he effected service of these proceedings on Mr. Agibe Pai, who is a director of the defendant company on the same day of filing. Consequential on that happening, he says Mr. Pai has been attending his office to negotiate the defendant’s position on this matter.

Given these facts, counsel for the defendant does not take issue with the plaintiff that there is a serious dispute as to the amounts the plaintiff allegedly owes the defendant. The only issue is in relation to the timing of this application. This argument is based on s. 388 (2) of the Companies Act 1997.

That provision reads:

"(2) The application shall be made, and served on the creditor, within one month of the date of service of the demand".

As already noted, the defendant’s argument is that, an application for a set aside must be filed, served and heard within one month from the date of service of a statutory demand. No authority is cited for that proposition. This argument however, relies on The Shorter Oxford English Dictionary’s definition of the word "make" in terms of "doing; action" and "causation uses – "to cause (something to happen): to bring about" or " to cause a person to do something: to have something done to a person or thing."

The plaintiff on the other hand relies on a definition of the phrase "Application ... is made" from Strouds Judicial Dictionary, 6th edition, p. 1518. The dictionary makes reference to two cases, Camden London Borough Council v. ADC Estates (1990) 3 P.L.R. 121 and Brady v. Licensing Authority for North West Traffic Area [1981] Crim.L.R. 407. These authorities speak in terms of an "application ... is made" when the application is communicated or served and not before then. Based on these, the plaintiff argues that s.338 (2) should be interpreted to mean that an application for a set aside of a statutory demand must be filed and served within one month from the date of the service of the demand. But it need not be heard within that period.

As for the meaning of the phrase "one month" counsel for the plaintiff refers to two cases. These are the cases of Freeman v. Read L.J.M.C. at Law Journal New Series, Magistrates Cases 1831 – 1896 and Radcliffe v. Batholomew [1982] 1 Q.B. 161. Reference is also made to s. 3 of the Interpretation Act in the absence of any definition of the word "month" in the Companies Act. Based on these authorities, it is argued for the plaintiff that it means a calendar month, which can commence on a particular day in a month and end on the corresponding day of the following month.

It is settled law that when a Court is faced with the task of interpreting and applying the provisions of any legislation, regard must always be had to the intent of the legislation in question. This necessarily requires an inquiry into what was the purpose of the legislation and or what harm or mischief the legislature has tried to safeguard against? There are numerous authorities for this proposition, but for examples, I refer to the judgements in The State v. Independent Tribunal; Ex parte Sasakila [1976] PNGLR 491 at 506, 507, per Kearney J; Constitutional Reference No 1 of 1977 [1977] PNGLR 362 at 373, 374, per Prentice DCJ (as he then was) and Canisius Karingu v. Papua New Guinea Law Society (9/11/10) SC674.

In the present case, the question then is, what is the intent of Parliament in enacting the provisions of s. 388 (2)? That has to be seen in the context of the right in a creditor to serve a statutory demand and the right in an alleged debtor, who is served with such a demand. The intent of Parliament, in my view, can be ascertained from the words Parliament has employed in the relevant provisions.

Division 5 of Part XVIII of the Companies Act deals with liquidation of companies. This division starts with s. 335 and ends with s.339. The right to serve a statutory demand is provided for by s. 337 in these terms:

"337. Statutory demand.

(1) A statutory demand is a demand by a creditor in respect of a debt owing by a company made in accordance with this section.

(2) A statutory demand shall—

(a) be in respect of a debt that is due and is not less than the prescribed amount; and

(b) be in the prescribed form; and

(c) be served on the company; and

(d) require the company to pay the debt, or enter into a compromise under Part XV, or otherwise compound with the creditor, or give a charge over its property to secure payment of the debt, to the reasonable satisfaction of the creditor, within one month of the date of service, or such longer period as the Court may order."

(Emphasis supplied)

This process is available to a creditor of a company that is indebted to the creditor. Its purpose is set out in subsection 2 (d), which is to get the debtor company to:

"enter into a compromise under Part XV, or otherwise compound with the creditor, or give a charge over its property to secure payment of the debt, to the reasonable satisfaction of the creditor, within one month of the date of service, or such longer period as the Court may order".

This is applicable where there is no dispute on the alleged debt. Where there is a dispute, the next provision provides that a statutory demand may be set aside. That provision is in these terms:

"338. Court may set aside statutory demand.

(1) The Court may, on the application of the company, set aside a statutory demand.

(2) The application shall be made, and served on the creditor, within one month of the date of service of the demand.

(3) No extension of time may be given for making or serving an application to have a statutory demand set aside, but at the hearing of the application, the Court may extend the time for compliance with the statutory demand.

(4) The Court may grant an application to set aside a statutory demand where it is satisfied that—

(a) there is a substantial dispute whether or not the debt is owing or is due; or

(b) the company appears to have a counterclaim set-off or cross-demand and the amount specified in the demand, less the amount of the counterclaim set-off or cross-demand is less than the prescribed amount; or

(c) the demand ought to be set aside on other grounds.

(5) A demand shall not be set aside by reason only of a defect or irregularity unless the Court considers that substantial injustice would be caused if it were not set aside.

(6) In Subsection (5), "defect" includes an immaterial misstatement of the amount due to the creditor and an immaterial misdescription of the debt referred to in the demand.

(7) An order under this section may be made subject to conditions."

(Emphasis supplied)

The most relevant part is subsection (4). This provision clearly provides for the set aside of a statutory demand where there is a substantial dispute as to whether or not there is a debt, or there is a good counter claim, or set-off, or the demand ought to be set aside for other reasons. This, in my view, gives the Court a wider discretion to order a set aside of a statutory demand.

The combined effect of ss. 337 (1) and 2(d) and 338 (4) in my view, is this. If a company which has been served with a statutory demand substantially disputes the debt, and or has a counter claim, or is able provide other good reasons for a set aside of such a demand, it should not be forced into meeting the demand, or be subjected to liquidation. Instead, it is entitled to a set aside of the demand.

Bearing this in mind, I note that subsections (1) and (2) of s.338 provides for the manner in which a company which has been served with a statutory demand and disputes it to ask for a set aside of such a demand. The first subsection provides that only the Court can order a set aside. The next subsection provides as to the time period within which an application for a set aside should be made.

A literal interpretation of the words "application shall be made, and served on the creditor, within one month of the date of service of the demand" could mean that the application for a set aside must be first made. Then after the application has been made, it should be served on the creditor. All of these must happen within one month from the date of service of the demand. This interpretation obviously offends against one of the cardinal principles in our justice system, the right to be heard in one’s defence, before a decision or judgement. Indeed, this is an important part of the principles of natural justice adopted by s. 59 of the Constitution, by reason of which the provision would run contrary to the Constitution.

As a consequence of the adoption and application of the principles of natural justice, it is a well entrenched practice in our jurisdiction for a party affected by any court process to be served first before any orders, decision or a judgement could be made and or arrived at. There are a few instances in which the need to serve the other side could be dispensed but these are limited and in any case, they have to be made out on a case by case basis.

So the interpretation asked for by the defendant, in my view, is thus untenable both constitutionally and the principles of natural justice when viewed in the light of the Constitution and the established practice. I would therefore reject the argument for this reason.

There is a further reason to reject the defendant’s arguments. If indeed it was intended that an application for a set aside ought to be made in terms of filing and serving and also having it heard by the Court all within the time period stipulated, it would be unreasonable. It would make it practically impossible for an alleged debtor to make its application. Given the limited time available for the courts to deal with matters presented before them, it would be too ambitious to assume that an application for a set aside of statutory demand will take place within one month.

The purpose and intent of the legislation as already noted is for a creditor to get a debtor which has no dispute over a debt that is owes to enter into arrangements to pay the debt in a number of ways. Even in that context, there is also discretion in the Court to extend time for the payment to take place. But where the alleged debt is disputed, the alleged debtor is entitled to apply for a set aside. Hence, it would run contrary to that intent to force an alleged debtor to pay up simply because of an onerous requirement to apply for a set aside in the way argued for by the defendant. In my view, it would be most unfair and totally unjust to force an alleged debtor to pay on a disputed claim merely on account of not coming with the time required in the way the defendant argues for.

In my view, a better compromise is the interpretation argued for by the plaintiff. That interpretation maintains the one month limitation but only in relation to the filing and serving of an application seeking to set aside a statutory demand. It is possible to file and serve such an application within such a period but it is not possible to have the application heard within the same period. There is no case law in the country on point that contradicts the authorities relied upon by the plaintiff. Also, I note that wording in the section is in terms of making the application and service and not a trial or hearing. Service should and does proceed hearing in most cases. All litigants in our country should now know that, it is practically impossible to get a hearing of a substantive matter, within one month of filing. Given these, I do not consider that the legislature made a mistake in providing for only these two aspects to the exclusion of the actual date for the hearing of the application.

In these circumstances, I accept the submission that the phrase "application shall be made" means the filing and serving of an application seeking to set aside a statutory demand and not necessarily its hearing. It follows therefore in my view that, the one month limit applies only to the period within which an application for a set aside of a statutory demand must be filed and served. The hearing can be at the earliest available date after service has been effected and the party served with the process has had sufficient opportunity to instruct its lawyer, prepare and participate fully at the hearing of the application. All of these can not and should not be rushed because there is no good reason for them to be rushed.

In arriving at the above view, I also had regard to the defendant’s argument that, if the intent behind s. 338 (2) was to prescribe the time limits for the filing and serving of an application seeking to set aside a statutory demand only, it could have used the word "file" or "lodge". The interpretation I have decided to accept renders it not necessary for the use of such words, as the words actually employed does make the intention clear.

In the end, I find that the application has been filed and served within the ambit of s. 338(2) of the Companies Act 1997. It has therefore properly come before me for hearing and I have given it a hearing. In the hearing, it has become clear that, there is no issue on the plaintiff’s argument that, there is a substantial dispute over the alleged debt. I am therefore satisfied that the application for a set aside of the statutory demand in this case has been made out under s. 338 (4). Accordingly, I order a set aside of the statutory demand. I further order that costs of these proceedings will follow that event against the defendant.
_________________________________________________________________________
Lawyers for the Plaintiff: Warner Shand Lawyers
Lawyers for the Defendants: Emilio & Associates Lawyers