Havea, Re [2018] TOSC 37; CV 20 of 2018 (2 August 2018)

IN THE SUPREME COURT OF TONGA
CIVIL JURISDICTION
NUKU’ALOFA REGISTRY

CV 20 of 2018

IN THE MATTER OF The Companies Act 1995

AND

IN THE MATTER OF An application by NGALU HAVEA as creditor for an order for the appointment of a liquidator of PALU AVIATION SERVICES LIMITED pursuant to section 250(2)(c) of the Act.

BEFORE LORD CHIEF JUSTICE PAULSEN

Counsel: Mrs. D Stephenson for the Applicant
Mrs. P Tupou for the Respondent

Date of Hearing: 27 July 2018
Date of Ruling: 2 August 2018

JUDGMENT

The application

[1] This is an opposed application by Ngalu Havea (Mr. Havea) pursuant to s. 250(2)(c) of the Companies Act 1995 (the Act) that Palu Aviation Services Limited (Palu) be put into liquidation by the appointment of a liquidator.

[2] Mr. Havea alleges that Palu is insolvent and unable to pay its debts.

[3] Palu resists the application on the basis that it is not insolvent and that the debt claimed by Mr. Havea is subject to a genuine and substantial dispute.

The statutory provisions

[4] The Court’s power to appoint a liquidator arises under s. 250(1) of the Act. Under s. 250(2)(c) an application may be made by any creditor of the company.

[5] The grounds for the appointment of a liquidator by the Court are set out in s. 250(4) and relevantly provide:

The Court may appoint a liquidator if it is satisfied that –

(a) the company is unable to pay its debts..

[6] Mr. Havea says that he is a creditor of Palu. As proof that Palu cannot pay its debts, Mr. Havea relies upon the fact that Palu failed to comply (or apply to set aside under s. 299 of the Act) a statutory demand that his solicitor had served upon Palu demanding payment of a debt of TOP$18,040.

[7] Section s. 296(a) of the Act provides:

Unless the contrary is proved....a company is presumed to be unable to pay its debts if —

(a) the company has failed to comply with a statutory demand..

The facts

[8] Mr. Havea owns a property at Tofoa.

[9] Palu is a registered company that trades as Palu Development Services.

[10] Palu is one company in a group that includes Real Tonga Limited.

[11] In June 2014, Mr. Havea and Palu entered into a tenancy agreement in respect of the Tofoa property. The property was used to accommodate Palu’s employees. The term of the tenancy agreement was from 21 June 2014 to 21 June 2015. The rental was TOP$2,000 per month. The tenancy agreement stated that any renewal was not automatic and would occur only upon ‘the two parties reaching further agreement on the terms and conditions of the tenancy and signing a new tenancy agreement.’

[12] In April 2015, Mr. Havea entered into a new tenancy agreement in respect of the Tofoa property with Real Tonga Airlines. I understand that is the company Real Tonga Limited. The tenancy was for the period 11 April 2015 to 11 April 2016. It also contained terms that a renewal was not automatic and subject to the parties entering into a new tenancy agreement. There was no renewal of this tenancy agreement after it expired. It appears that the property continued to be occupied by employees of Real Tonga Limited and the rent was paid.

[13] Mr. Scott Kendall was employed by Real Tonga Limited for two years from September 2016 to September 2018. He considered the Tofoa property was suitable for him and his family. They became the sole occupants of the property. Under his terms of employment Mr. Kendall received an allowance from Real Tonga Limited for his accommodation but that was less than the monthly rental for the Tofoa property of TOP$2,000 per month.

[14] The debt that Mr. Havea claims is owed arose from the period of Mr. Kendall’s occupation of the Tofoa property. It is made up of three components namely:

(a) Shortfall of rental for the period November 2016 to January 2018 (TOP$11,600);

(b) Repair costs said to have been incurred when Mr. Kendall moved into the property (TOP$5,000); and

(c) Cost of changing locks upon Mr. Kendall leaving the property (TOP$1,440).

[15] The rental went into arrears from November 2016 when less than the full rental was paid each month. In one month no rental was paid at all.

[16] When the rental went into arrears there were attempts by Mr. Havea’s daughter to sort the matter out with Mr. Paula Fukofuka, the General Manager of Palu, but without success. She was also in contact by email with Mr. Sam Lala who is employed as a Human Resources Generalist by Real Tonga Limited.

[17] Disputes arose between Mr. Kendall and Real Tonga Limited. It appears that on 22 November 2017, Mr. Kendall, Mr. Paula Fukofuka and the CEO of Palu had a meeting to resolve the disputes concerning the Tofoa property. Mr. Lala emailed Mr. Kendall and Mr. Havea’s daughter the following day reporting on the meeting as follows:

Subject: re Tenancy Agreement and Related Quiries [sic] – Residential Property Owner: Dr. Nhalu [sic] Havea

Good people,

To let you know that a meeting happened yesterday, where items relating to above were discussed with Scott, CFO, Paula Fukofuka and CEO. My meeting with the CFO this morning clarified that all matters relating to the balance of rent payments and Scott’s reimbursements of expenses relative to the repairs of the property will be sorted and handled by Finance. Copies of Scott’s receipts are being handed to the CFO. Further communications can be directed to the Chief Financial Officer himself.

For the new Tenancy Agreement and further discussion on the same, this can now be discussed between the Tenant and the Landlord (Scott Kendal and Mele-Ane Havea)

This has taken sometime and I hope that this will shed some light forward.

Am glad to have provided some form of support to having this sorted.

Sam

I.S Lala

Human Resources Generalist

Palu Aviation Services Group of Companies

Fasi Business Centre. P.O. Box 1235

Tel: [phone]; Mobile [phone]

Email: [e-mail] : [e-mail]

Web: www.paluaviation .to, www.realtonga.to

[18] Mr. Kendall vacated the Tofoa property in February 2018 and left Tonga. He did not return the keys to the property. Mr. Havea incurred costs of TOP$1,440 to change the locks.

[19] On 26 March 2018, Mr. Havea served a statutory demand upon Palu demanding payment of the said sum of TOP$18,040. The demand was accompanied by a letter from Mrs. Stephenson. Palu’s liability was said to arise from its continued occupation of the Tofoa property after its tenancy agreement had expired. Palu did not apply to set the demand aside.

[20] On 12 April 2018, Mrs. Tupou, who had received instructions from Palu, wrote to Mrs. Stephenson disputing the demand and asking for a copy of the tenancy agreement upon which the demand was based. Mrs. Stephenson responded on 13 April 2018 that the tenancy agreement expired in June 2015 but that Palu had continued to occupy the property and had deposited rental payments to Mr. Havea’s account until January 2018.

[21] These proceedings were filed on 25 May 2018.

The law

[22] The Act is based very closely upon the Companies Act 1993 (NZ) and contains very similar provisions. New Zealand case law is therefore helpful in interpreting the provisions of the Act.

[23] Section 250 of the Act confers upon the Court a discretion as to whether it will make an order appointing a liquidator even if it is satisfied that one or more of the grounds for doing so have been established (Commissioner of Inland Revenue v Property Ventures Ltd (in rec) (2010) 24 NZTC 24,403 (HC) at [49] and Farrar and Watson ‘Company and Securities Law in New Zealand’, 2^nd Ed at 31.2).

[24] The Court will not generally order the liquidation of a company on the application of a ‘creditor’ when it is shown that the debt is the subject of a bona fide and substantial dispute.

[25] The reasons for this are two-fold. First, the fact of a dispute as to the existence of the debt casts doubt upon the status of the applicant as a creditor entitled to apply for an order of liquidation under s. 250(2)(c) of the Act. Secondly, liquidation proceedings are not ordinarily an appropriate method for resolution of a disputed debt and the making of such applications to put pressure on a company to pay may be an abuse of the Court’s processes (Anglian Sales Ltd v South Pacific Manufacturing Co Ltd (1984) 2 NZCLC 99,220 (CA)).

The submissions

[26] Mrs. Stephenson submitted that Mr. Havea was entitled to rely upon the statutory presumption of insolvency that applied due to Palu’s failure to challenge the statutory demand. Some late evidence had been filed for Palu that annexed a part of its financial accounts to 30 June 2017. Mrs. Stephenson argued that the information was inadequate and did not rebut the presumption.

[27] Subject to one matter, Mrs. Stephenson also argued that there was no genuine dispute as to Palu’s liability for the debt. She clarified that Mr. Havea’s case that Palu owed the debt was based entirely upon an acknowledgement of Palu’s liability in Mr. Lala’s email of 23 November 2017.

[28] Mrs. Stephenson conceded that on this basis Mr. Havea could not claim the TOP$1,440 for changing locks as that cost post-dated the email. She argued that this was not a substantial amount and did not invalidate the statutory demand.

[29] Finally, Mrs. Stephenson submitted that whilst a bond of TOP$2,000 had been paid to Mr. Havea that was paid by Real Tonga Limited and Palu could not claim any set-off against the debt in respect of it.

[30] Mrs. Tupou argued that there was evidence before the Court of Palu’s solvency. She also expressed surprise that Mr. Havea was relying only upon the email of 23 November 2017 which was contrary to her understanding of the case that had been presented. Mrs. Tupou said that there was clearly a substantial dispute as to the existence of the debt and that the application should be dismissed for that reason.

Discussion

[31] I accept Mrs. Tupou’s submission that there is a genuine and substantial dispute as to the existence of the debt and that this application must be dismissed in the exercise of my discretion.

[32] In relation to the three amounts that go to make up the alleged debt, Mrs. Stephenson acknowledges that the TOP$1,440 for changing locks should not have been included in the statutory demand. In addition, there is no evidence, such as invoices or proof of payment, to support the claim for TOP$5,000 for repairing damage to the property.

[33] But more importantly, I cannot see how it can be argued that the email of 23 November 2017 created Palu’s liability for the debt. Palu’s tenancy of the Tofoa property ended when Mr. Havea entered into a new tenancy agreement with Real Tonga Limited. During the period when rental was not paid the property was occupied by Mr. Kendall. It is not at all clear to me whether Real Tonga Limited or Mr. Kendall was liable for the rental during this period but, in either event, I can see no basis for any claim to be made against Palu.

[34] Mrs. Stephenson’s argument relying on the 23 November 2017 email faces insurmountable hurdles. First, the email records a meeting between Mr. Kendall and representatives of his employer (Real Tonga Limited). Neither Mr. Havea nor any representative on his behalf was present at the meeting. There cannot therefore have been any agreement reached at the meeting between Mr. Havea and Palu. Secondly, the email does not accept any liability for the debt on behalf of Palu or anyone else. It is no more than advice to ‘shed some light forward’. Clearly there were still issues to be resolved. Thirdly, even if the email was intended as an acknowledgment of the debt it is not clear whether such acknowledgment was on behalf of Real Tonga Limited, Palu or someone else. Fourthly, if the email contains a promise by Palu to pay the debt (and I do not think it does) I cannot see that there was any consideration for that promise provided by Mr. Havea.

[35] In addition, I was concerned that the affidavits filed by Mr. Havea and on his behalf were misleading. For instance, they did not refer to the tenancy agreement between Mr. Palu and Real Tonga Limited. I was very surprised, given the content of those affidavits, to learn of the tenancy agreement with Real Tonga Limited and the special reliance that was placed on the email of 23 November 2017. That reliance is not consistent with the affidavits nor the correspondence between the lawyers. Furthermore, the affidavit of Mr. Kendall appears to be incorrect in important respects, such as his evidence that he was employed by Palu when his contract was in fact with Real Tonga Limited.

[36] The claim that has been advanced by Mr. Havea is weak. Palu has satisfied me that there is substantial dispute whether Mr. Havea is a creditor. The dispute should be resolved in ordinary proceedings.

Result

[37] The application to appoint a liquidator of Palu is dismissed.

[38] I heard Counsel on costs. In my view costs should follow the event. Although Palu did not respond to the statutory demand Mr. Havea was aware that the debt was disputed prior to issuing this proceeding and it should not have been filed. I therefore make an order the Palu is entitled to its cost which are to be fixed by the Registrar if not agreed.

O.G. Paulsen
NUKU’ALOFA: 2 August 2018. LORD CHIEF JUSTICE