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Court of Appeal of Fiji |
IN THE COURT OF APPEAL, FIJI ISLANDS
CIVIL APPEAL NO.ABU0036 OF 2009
BETWEEN:
ALEEMS INVESTMENTS LIMITED
Appellant
AND:
KHAN BUSES LIMITED
Respondent
Coram: Hon. Justice William Marshall, Justice of Appeal
Hon. Justice William Calanchini, Justice of Appeal
Hon. Madam Justice Anjala Wati, Justice of Appeal
Date of Hearing: Tuesday, 2 November 2010
Counsel: Dr M S Sahu Khan for the Appellant
Ms N Khan for the Respondent
Date of Judgment: Monday, 24 January 2011
JUDGMENT
William Marshall, JA
"The Orders are therefore as follows ...
The relevant facts
3. On 19th February 2009 the following letter was faxed and received by the Secretary and Directors of Khan Buses Limited.
"The Secretary and the Directors
Khan Buses Limited
Navutu Industrial Subdivision
Kings Highway
P.O.Box 6549
LAUTOKA
FAX NO: 6667181
Dear Sirs,
Re: KHAN BUSES LIMITED
We have been instructed by ALEEM INVESTMENTS LTD of Nadi to address this letter.
At the request of Khan Buses Ltd our client had paid the sum of $408.862.63 to Habib Bank Limited on the 28th day of January, 2005 such payment avoided drastic actions by the Bank on Khan Buses Limited. Inspite of various promises this sum has not been repaid to our client.
Accordingly, we have been instructed to demand and which we hereby do that Khan Buses Ltd pay this said sum of $408,862.63 together with interest thereon at the rate of 10% per annum which computed from 28th January, 2005 to 19th February, 2009 comes to $166,233.46.
PLEASE TAKE NOTICE that if the said sum namely $575,096.09 is not paid to us for our client within 21 days from the date hereof then our client shall have no option but to commence Winding up proceeding against Khan Buses Ltd under the Companies Act.
Accordingly, we do trust that by prompt attention to this matter you will obviate embarrassment for all concerned.
Yours faithfully
SAHU KHAN and SAHU KHAN"
4. There being no letter responding from Khan Buses Limited, Aleem Investments Limited instructed their solicitor to write again to the Secretary and the Directors, Khan Buses Limited and the following fax was sent and received on 8th June 2009.
"The Secretary and the Directors
Khans Buses Limited
Navutu Industrial Subdivision
Kings Highway
P.O.Box 6549
LAUTOKA
FAX NO: 6667181
Dear Sirs,
Re: KHAN BUSES LIMITED
We have been instructed by ALEEM INVESTMENT LIMITED of Nadi to address this letter.
We refer to the telephone conversation between your Mr. Mohammed Naveed Khan and our Dr. M. S. Sahu Khan today. We rang to you to give a friendly reminder regarding the Winding Up Notice as we have firm instructions from Mr. Aleem Khan to proceed with the Winding Up Proceedings. Your Mr. Naveed Khan had said that the matter was taken up with Mr. Aleem Khan and there was some discussions as to settlement in the matter.
However, our instructions are very firm in the matter to proceed with the Winding Up Proceedings. We have prepared the necessary documents. However, we will wait until Friday the 12th day of June, 2009. If we do not hear from Mr. Aleem Khan otherwise we will have no option but to proceed with the Winding Up Petition pursuant to the Notice given to you on 19th day of February, 2009.
However, absolutely on without prejudice basis we are prepared to advise our client on any proposal to be made by you for payment by instalments.
We do trust, however, that by prompt attention to this matter you will obviate embarrassment for all concerned.
Yours faithfully
SAHU KHAN and SAHU KHAN."
5. There being no letter of response from Khan Buses Limited, Aleem Investments Limited filed their Petition on 9th July 2009 and on the same day Mohammed Aleem Khan Managing Director of Aleem Investment Limited (the Petitioner) swore an affidavit on behalf of the Petitioner verifying the Petition.
6. Paragraphs 4 – 12 of the Petition said:
"4. THAT the Company (also called "The Respondent" herein) is indebted to your Petitioner in the sum of [$575,096.09] as at 19th day of February, 2009.
5. THE Company has been unable to pay the said debt since January 2006 inspite of repeated demands made.
6. THE Company at all relevant times owed Habib Bank Limited ("The Bank") the sum of $406,862.63 ("The Said Sum") and was unable to pay the said sum to the Bank.
7. THE Bank in 2005 demanded the Company to pay the Said Sum but the Company was unable to do so.
8. AT the Request of Khan Buses limited the Petitioner had paid the sum of $408.862.63 to Habib Bank Limited on the 28th day of January, 2005 and such payment avoided drastic actions by the bank on Khan Buses Limited.
9. INSPITE of various promises by the Company this sum has not been repaid to the Petition.
10. ON 19th day of February, 2009 the Petitioner's Solicitor served on the Company a Notice under Section 221 of the Companies Act for the Company to pay the Said Sum within 21 days but the Company has neglected to pay the same.
11. A further reminder was served on the Company on 8th day of June, 2009 but yet the Said Sum has not been paid by the Company.
12. ACCORDINGLY the Respondent is unable to pay its debt of $575,096.09 to the Petitioner."
7. On 17th July 2009, through S B Patel, Solicitors and Barristers, Khan Buses for the first time responds to the Petition.
8. There is an affidavit from Mr Mohammed Nasir Khan sworn on 15th July 2009. He is the founding father of Khan Buses and retired from the Board and active service on 13th February 2008.
9. His affidavit states the facts of commercial agreements in or about March 2000. His evidence is that Mr. Mohammed Aleem Khan who is the principal Director of Aleems Investment Limited, the Petitioner herein, approached him stating that he desperately needed to complete a land deal at Lomolomo but required a loan to do so. Mr Nasir Khan agreed with the consent of Habib Bank that since there were unused overdraft and loan facilities to Khan Buses, Mohammed Aleem Khan or his company or a company partly connected with him could use it. It had to be repaid by the party using it to Khan Buses Limited. Then Khan Buses limited would pay off to Habib Bank the loan plus interest and charges. What would happen if the borrower introduced by Mr Aleem Khan was insolvent when due to repay? Unfortunately for Khan Buses Limited and Mr. Nasir Khan, there seems to have been no collateral agreement that Mr Aleem Khan or his company Aleems Investment Limited as facilitator of the loan to the borrower would step in and assume responsibility for the loan.
10. The evidence continues:
"13. I verily believe that on the 7th day of March, 2000 the sum of $200,000 was deposited into the account of ASHLEEM INVESTMENT LIMITED a company with whom I now believe Aleem had an interest and/or dealing and/or connection. I caused my Solicitors Messrs S B Patel & Co to carry out a search at the Companies Register but I am informed by Manoj Rai the clerk in the employment of Messrs S B Patel & Co and verily believe my Solicitor's agent has not been successful in carrying out a search as the Companies Office records do not list Ashleem Investments Limited in its Computer or its Register.
14. Aleem did not repay the Bank the moneys advanced by the Bank to him and/or ASHLEEM INVESTMENT LIMITED within the agreed period of 90 days."
It seems that the only inference from this is that Ashleem Investments Limited were the borrowers from Khan Buses Limited and not either Mr. Mohammed Aleem Khan or his company Aleem Investment Limited. Mr. Mohammed Aleem Khan was therefore a facilitator without legal liability if things went wrong. Although the evidence of the senior Mr Khan at paragraph 14 states that "Aleem did not repay the bank", there is no evidence of Mr Aleem or his principal company having any legal obligation to do so.
11. His evidence further continues that Habib Bank applied for a winding up order against Khan Buses Limited on 23rd May 2003 and that eventually Aleems Investment Limited paid Habib Bank $406862.63 on 28th January 2005 in full settlement of the debt on which the Bank's winding up proceedings against Khan Buses Limited had been based. Mr M. Nasir Khan's claims that the overdraft and debt to Habib Bank was not a debt of Khan Buses Limited to the bank although even on his account of events this cannot be so. He also expresses a belief that although in March 2000 the money was paid out of Khan Buses Limited's account with Habib Bank to Ashleem Investment Limited, it was not an advance to that company. What it was says M Nasir Khan, was on advance to either Mr Mohammed Aleem Khan or to Aleem Holdings Limited. Again this cannot be so.
12. Also on 15th July 2009 there is an affidavit sworn by Mr M Nasir Khan's son. Mr Mohammed Naved Yakub Khan who is, since 28th February 2009, the current Managing Director of Khan Buses Limited.
13. The position of Mr Mohammed Naved Yakub Khan, echoing his father is that Khan Buses Limited never owed Habib Bank $406862.63 which resulted in winding up proceedings until it was settled by the intervention of Aleems Investment Limited paying the money to Habib Bank in the sum of $406862.63 on 28th February 2005.
14. However Mohammed Naved Yakub Khan goes on to produce a compact disc mostly in Hindi of a meeting between three persons which he claims took place on 19th February 2009 in the evening at the home of Mr Mohammed Aleem Khan. When the transcript of this is read carefully it is wholly consistent with Aleems Investment Limited intervening in a dispute between Khan Buses Limited and Habib Bank by paying Habib Bank $408,862.63 on 28th February 2005. It is also wholly consistent with the original payment by Habib Bank in the sum of $200,000 from the account of Khan Buses Limited with Habib Bank to a corporate entity called Ashleem Investment Limited. It is also to be noted that if Mohammed Naved Yakub Khan had not been privy to the detail of events before 2008, his understanding of what was said and actually meant by Mohammed Aleem Khan on the evening of 19th February would be substantially incomplete. The 19th February 2009 was the same day that his principal place of business had received the fax consisting the Notice to pay or else face a winding up petition and he would not have had time to seriously receive detailed instructions from his father before the meeting. More mundane objections fatal to the reliability of this tape arise from the incompleteness of what was said due to inaudibility and the fact that there is no certification by a qualified translator.
15. The factual picture which the whole of the evidence presents is of a group of businessmen with similar family origins who deal amongst themselves and Indian Banks mostly through corporate entities with different shareholders. It seems clear that it is common ground that Ashleem Investments Limited is a separate corporate entity from Aleem Investments Limited and is different also from Mr. Mohammed Aleem Khan in person. Since some of these deals are based on mutual trust and not written up by lawyers or by legally knowledgeable business persons there is ample opportunity for business debt mayhem to arise in the event of wilful default or business failure on the part of a company involved in a network of dealings mostly with companies owned and controlled in whole or in part by erstwhile friends.
16. On 7th July 2009 Khan Buses Limited represented by Mr. Anu Patel of S B Patel and Company applied for an order that the Petitioner be restrained from taking any further proceedings on the Petition whether by advertising the same or otherwise and/or be struck out. On 17th July 2009 the following orders were made ex parte.
"IT IS ORDERED AND DIRECTED THAT
(i) Aleem's Investment Limited the Petitioner named in the Petition herein be restrained from taking any further proceedings upon the Petition whether by advertising or further advertising the same or otherwise until further Order of this Honourable Court;
(ii) All documents to be served on the Petitioner by 4pm on the 17th day of July, 2009."
17. Between the 17th July 2009 and the hearing date of the petition which was 16th September 2009, the statutory, Notice of proceedings was not advertised as is required by the rules. There were no further orders save that on 30th July 2009, there was an order allowing by consent:-
" COURT: 1) 14 days for the Petitioner to file Affidavit in Reply.
2) 7 days for Respondent to respond if required.
3) Submissions 7 days thereafter.
4) Hearing 28 August 2009 at 11.30am."
Then there were mentions prior to the hearing on 28th August 2009 and on 4th September 2009. In these there was no progress. There is some evidence that Dr. Sahu Khan representing Aleems Investment Limited informed Mr. Anu Patel that that company, as Petitioner would not be filing evidence in reply to the Respondent's evidence of 17th July 2009.
18. At the hearing on 16th September 2009, Dr. Sahu Khan applied to withdraw the Petition at the outset in the proceedings. The learned judge refused his consent. The invitation to withdraw the petition will usually within the statutory framework result in an order dismissing the petition. In passing I must note that this was a proper application by Dr Sahu Khan. It certainly was not an application for an adjournment and should not have been treated as such.
19. Before the Judgment (which falls to be set out below) and the orders (which are set out at paragraph 2 above) are examined, the written submission of Mr. Anu Patel should be considered.
20. As relevant, the written submission of Mr. Anu Patel dated 4th September 2009 states:
"By an Ex Parte Notice of Motion dated the 17th July, 2009 the Respondent Company sought the following Orders:-
(i) that Aleem's Investment Limited the Petitioner named in the Petition herein which was preferred unto this Honourable Court on 9th day of July, 2009 be restrained from taking any further proceedings upon the Petition whether by advertising or further advertising the same or otherwise and/or be struck out;
(ii) that it disclose no reasonable cause of action;
(iii) that it is scandalous, frivolous and vexatious;
(iv) that the Petition be removed from the file of proceeding; and
(v) that the Petitioner do pay costs of this Summons on the solicitor/client indemnity basis.
On the 17th July 2009 this Honourable Court granted the first of the Orders sought by the Respondent Company.
The Petitioner has failed to file and serve its answering Affidavit. The uncontroverted facts of this matter are as pleaded in the affidavits of Mohammed Naved Yakub Khan and Mohammed Nasir Khan both sworn and filed in the action herein on the 17th July, 2009. The chronology of events pertaining to the alleged debt upon which the Petitioner brought its Petition are detailed in paragraphs 4 to 26 of the Affidavit of Mohammed Nasir Khan. The uncontroverted contents of this affidavit established the following pertinent facts.
The Affidavit of Mohammed Naved Yakub Khan established the following uncontroverted facts:-
2.1 The Petitioner admits alleged debt was not owed by the Respondent Company to the Petitioner.
2.2 The Petitioner had commenced the Winding Up proceedings herein for an ulterior purpose of joining Dr Sahu Khan and/or Ashleem Investments Limited in the action to recover from either or both the sum of the alleged debt.
The Law
In re Comsol Fiji Limited [2009] FJHC; HBE 0048. 2007L the Learned Master Udit succinctly dealt with matters of evidence onus of proof in regards to proof of debt and dispute of debt. (see pars 5 to 15). The Learned Master supported his analysis with authorities. With respect the Respondent Company relies upon the Learned Masters Judgment to show the uncontraverted affidavits filed in support of Respondent Company's Motion no debt exists upon which Petition for Winding Up may be grounded.
The Respondent further relies upon William & Ors v Spautz [1992] HCA 34; (1992) 174 CLR 509; [1002] HCA 34 and Australian Beverage Distributors Pty Ltd v Evans & Tate Premium Wines Pty Ltd & Anor [2007] for the proposition the Petition herein be dismissed and the Petitioner be permanently restrained from presenting any further application for the Winding Up of the Respondent Company based upon the alleged debt on which the within Winding Up proceedings are brought. In short the Respondent Company respectively submits the Petitioner is guilty of abusing the process of this Honourable Court in presenting the within Petition.
Pertinently uncontroverted evidence before this Honourable Court is the Petitioner admits the alleged debt is not owed by the Respondent Company and its motive in commencing the proceedings was for the ulterior purpose having the Respondent Company join Dr Sahu Khan and/or Ashleem Investments Limited as a third party. In other words the Petitioner's motive was not to wind up the Respondent Company.
Costs
In view of the Petitioner's admission that no debt exist upon which the Winding Up Proceedings are brought and his attempts to course the Respondent Company into joining third party the Respondent Company is entitled to costs on the solicitor/client basis to be taxed in default of agreement."
21. The judgment of the Mr. Justice Inoke was handed down on 25th September 2009. There is a long quotation in the middle of it from Australian Beverage Distributors Pty Ltd v. Evans and Tate Premium Wines Pty Ltd and Anr [2007] NSWCA 57; [2007] 69 NSWLR 374. The passage quoted is at 385 to 387 of the report and embraces inclusively paragraph 47 to 57. This extract is not quoted here. It will be discussed below as relevant to the present facts.
22. The same applies to a long quotation in the judgment of Mr Justice Inoke from Williams v. Spautz [1992] HCA 34; (1991-1992) 174 C.L.R. 509. From the majority judgment there is one paragraph from page 522 of the law report which is in the middle of that page; and there is one paragraph in the middle of page 528. From the opinion of the Justice Brennan who agreed with the conclusion of the majority but for different reasons, Mr Justice Inoke quoted seven consecutive paragraphs which commence with the second paragraph on page 534 to page 537 down to and including the second paragraph on that page.
23. Leaving out these quotations what Inoke J said in his judgment was:
"INTRODUCTION
[1] This is an application by the Petitioner, Aleems Investment Limited, to wind up the Respondent, Khan Buses Limited, based on alleged debt owed by Khan Buses.
[2] The petition was filed on 9 July 2009. On 17 July I granted an order on an ex parte application by Khan Buses restraining Aleems Investment from taking any further proceedings upon the Petition until further order. I was satisfied that there was urgency in the application, there was likelihood of irreparable harm or serious mischief being caused to Khan Buses if the winding up proceedings were advertised and damages was not an appropriate or adequate remedy.
THE BACKGROUND
[3] The Petition eventually came for hearing on 16 September 2009. On the morning of the hearing, Dr Sahu Khan, Counsel for Aleems Investment, sought leave to withdraw the Petition on the grounds that Khan Buses had shown in its affidavits that the debt was disputed. I was minded to grant leave but Mr Anu Patel, Counsel for Khan Buses, objected very strongly. He had strict instructions to pursue the hearing of the application and had informed Dr Sahu Khan of his instructions when the latter advised him of the proposed withdrawal of the Petition. He submitted that it was not just as simple as giving leave on request.
[4] My attention was caught by Mr Patel's submission that I could and should refuse leave to withdraw, hear the Petition and order that not only the Petition itself, but all other actions based on the facts of this case be permanently stayed. I was attracted by the novelty of this argument so I heard both Counsel and now deliver my judgment.
[5] I was not prepared to adjourn the application as it had been set down for hearing despite Dr Sahu Khan's application to withdraw. I drew his attention to the Court of Appeal decision in Krishna Brothers v Post and Telecommunications Ltd [2005] FJCA 36; ABU0028.2004S (29 July 2005) which said:
"It is improper conduct by counsel to appear on a date set for hearing with sufficient instructions only to seek an adjournment. If he cannot be ready to conduct the case on a date he knows is already fixed for hearing, he should not accept instructions."
[6] Dr Sahu Khan argued that he was not seeking an adjournment but I saw no difference in his application to withdraw a petition and an application for adjournment because the end resut is the same – the hearing does not take place.
[7] The Petition was supported by an affidavit sworn by Mohammed Aleem Khan (Aleem), the Managing Director of Aleems Investment. Two affidavits in opposition were filed on behalf of Khan Buses; the first is by Mohammed Nasir Khan (Nasir), the original founder of the company, and the second by his son Mohammed Naved Yakub Khan, who is now the Managing Director. Despite being given leave to file a further affidavit in response, none was filed by Aleem. I do not think that it would have made any difference to the outcome of this application.
[8] I have closely examined the affidavits and find the following facts established. Sometime in early March 2000, Aleem approached Nasir requesting a loan. Aleem told Nasir that he was aware that Khans Buses had an overdraft facility with the Habib Bank that was not being used at that moment and that a manager, one Asad Khan (Asad), at the Bank could arrange for Aleems Investment to use that unused facility. Nasir told Aleem that he would agree to that proposal if the facility was restored within 90 days and Khan Buses would not in anyway be liable for repayment. On 7 March 2000 Aleem drove them to Bank's Suva office and they met with Asad and the Bank's accountant. Nasir repeated what he had told Aleem that he was agreeable to the proposal so long as Khans Buses would not be liable for repayment of the facility, interest or charges. The unused overdraft facility was for $200,000. It was accepted and at the request of Asad, Nasir wrote a cash cheque for $200,000 to be drawn out of the facility account. That cheque was deposited into an account in the name of "ASHLEEM INVESTMENT LIMITED" on 7 March 2000. The records of that company are not available at the Companies Office but Nasir believes that Aleem is connected with it. The facility was not repaid by Aleem or Ashleem Investment Limited. Despite the arrangements agreed to in Suva on 7 March 2000 the Bank pursued Khan Buses for repayment of the facility. Several attempts to resolve the matter failed but it appears, as deposed by Aleem in his affidavit, that Aleems Investment paid back the facility to the Bank on 28 January 2005. Aleems Investment now issues this winding up petition in an attempt to recover that payment to the Bank.
CONSIDERATION OF THE PETITION
[9] I find these facts extraordinary. I also find the filing of this Petition equally as astounding because Nasir's affidavit revealed that Dr Sahu Khan was told in February 2001 of the arrangements with the Bank. I give him the benefit of doubt that his memory might have faded until he was reminded of it when the affidavit was served at his office after the Petition was filed.
[10] I say extraordinary because this is a petition based on a debt that is the Petitioner's own. The only connection between the Petitioner and the Respondent is that the $200.000 was drawn out of the Respondent's account.
The money was not for the benefit of or used by the Respondent. The Bank has been paid back so, even if it had a claim against Khan Buses that is now extinguished. I cannot see any basis at law whatsoever for Aleems Investment to recover from Khan Buses the money it had paid to the Bank.
[11] It is trite law that a person does not have to pay a debt that is not his. Similarly, it is trite law that a s 221 Companies Act demand and winding up petition cannot be issued for a debt that is not the respondent company's or, worse still, the petitioner's own debt owed to someone else. On these principles alone, the Petition as well as any court action against Khan Buses based on these facts, whether by writ or otherwise, should be permanently stayed. If the money has been used by Ashleem Investment Limited or some other person then those are the proper parties to pursue. Not Khan Buses. If the issue of these proceedings or subsequent proceedings is to facilitate joinder of some other parties, when Aleem knows full well the circumstances behind the dealings with the Bank, no clearer case of abuse of process or of a frivolous and vexatious action can be found. He can sue those persons independently of Khan Buses.
[12] As I said earlier, I was attracted by the apparent novelty of Mr Patel's submission but it was the extraordinary facts and circumstances of this case, which did not surface until I heard Counsel and examined the affidavits, which made this case so unusual. In any event, the conclusions that I have reached are supported by two Australian cases of very high authority cited by Mr Patel: Williams v. Spautz [1992] HCA 34; (1992) 174 CLR 509 (27 July 1992) and Australian Beverage Distributors Pty Ltd v. Evans & Tate Premium Wines Pty Ltd & Anor [2007] NSWCA 57 (22 March 2007).
[13] The use of the Companies Act statutory demand as a means of embarrassing alleged debtors to pay up disputed debts in Fiji is notorious. I think I would be failing in my duty if i did not fully consider the law on abuse of process which is squarely raised in this Petition. These are cases of very high authority and in the absence of such cases in Fiji comprehensively dealing with the law in this area I would respectfully adopt them here as our law.
[14] In Australian Beverage Distributors Pty Ltd v. Evans & Tate Premium Wines Pty Ltd & Anor [2007] NSWCA 57 (22 March 2007), Beazley JA, with whom Hodgson and Santow JJA agreed, delivering the judgment of the NSW Court of Appeal stated the principles of abuse of process as they applied to winding up proceedings as follows ...
[15] ...
[16] ...
[17] It is obvious that once there is a finding that the petition in this case was doomed to fail and that Aleem knew as well as his solicitors that Khan Buses did not owe any money to his company then such a substantial intention as mentioned by Brennan J exists and the further prosecution of this Petition or any proceedings based on these facts will constitute an abuse of process.
COSTS
[18] There remains the issue at costs. Having come to the view that I have taken of this Petition that there is no clearer case of abuse of process, an award of costs on an indemnity basis is justified: see Khan v Carpenters Fiji Ltd [2009] FJHC 149; HBC132.2003 (23 July 2009).
[19] Two substantial affidavits have been filed by Khan Buses together with an affidavit of service. I have heard an ex parte application with no award of costs. This application took about an hour or more and numerous cases have been cited and copies supplied to the Court by Mr Patel. In the circumstances, I think an award of $5,000 is justified and I so order.
ORDERS
[20] The Orders are therefore as follows:
1. The Petition filed herein on 9 July 2009 is permanently stayed.
2. Any further proceedings, howsoever commenced, in respect of the arrangements entered into between the parties and Habib Bank on 7 March 2000 and the said Petition, other than an appeal in respect of this Judgment, are also stayed and the court registries are directed not to accept or issue any such proceedings.
3. The Petitioner shall pay the Respondent's costs of $5,000 within 14 days."
The Legal Framework
24. In Fiji, the Companies Act Chapter 247 [1985] Revision, which is in pari materia with the United Kingdom Companies Acts going back to 1862, provides in Section 219, jurisdiction in the High Court to wind up companies. Section 220 provides eight situations in which the jurisdiction is to be exercised including the usual "just and equitable" ground. The one ground which is by far the most frequently employed is at sub paragraph (e) of Section 220 and it says:
"the company is unable to pay its debts."
That is the only ground on which the Petition was bought in the present case.
25. Section 221 is headed "Definitions of Inability to pay debts" and says:
"A company shall be deemed to be unable to pay its debts –
(a) If a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding $100 then due has served on the company, by leaving it at the registered office of the company, a demand under his hand requiring the company to pay the sum so due and the company has, for 3 weeks thereafter, neglected to pay the sum or to secure or compound for it to the reasonable satisfaction of the creditor; or
(b) If execution or other process issued on a judgment, decree or order of any court in favour of a creditor of the company is returned unsatisfied in whole or in part; or
(c) If it is proved to the satisfaction of the court that the company is unable to pay its debts, and, in determining whether a company is unable to pay its debts, at the court shall take into account the contingent and prospective liabilities of the company."
26. There is a problem in Fiji in leaving a Notice, or other legal document, at the registered office of the company, or by leaving it at the registered postal address. In B W Holdings v. Graham Eden and Associates [2000] FJHC 3, Mr Justice Scott held that service to a post box was in the circumstances proper service under Section 391(1) of the Companies Act and that B W Holdings was entitled to Judgment in Default of Appearance or Defence, Mr Justice Scott said:
"In Fiji's circumstances where there is a notoriously high failure to comply with a detailed requirements of the Companies Act and where prosecutions for such failures are virtually unknown, I am firmly of the opinion that these provisions of the Companies Act should be read permissively. The purpose of these provisions is to provide the way in which service should ordinarily be effected on companies. Where, as here, the Company has not fully complied with Section 110(1) the fundamental question is whether the service, as in fact effected, will have reached the Company's Management."
27. The Court of Appeal approved this approach on appeal:
"[Mr Justice Scott] held that the Resident Magistrate was correct in concluding that the appellant was properly served with the writ. We do not consider that the High Court made any error of law in coming to this conclusion."
28. In this case I find that the Notice served by fax on 19th February 2009 under Section 221 of the Companies Act to the Secretary and the Directors, Khan Buses Limited Navutu Industrial Subdivision, Kings Highway, P O Box 6549, Lautoka was good service although not left at the Khan Buses Limited's registered office. Out of caution the letter should also be left at the registered office. However if the document in all the circumstances relating to the company to be served was likely to be immediately received by the Secretary and Directors of the company as was the case here, then the rule can be read permissively and service of the Notice accepted as lawful. In my judgment the fact that the letter was immediately received tends to prove that the method chosen was in all the circumstances likely to be successful.
29. In passing it should be noted that the creditor can also rely on sub rule (c) of section 221 which says:
"If it is proved to the satisfaction of the court that the company is unable to pay its debts..."
But if the company proves its solvency this is always an answer for companies faced with a petition.
30. Section 223 deals with the powers of the High Court on hearing the petition. Subsection (1) is relevant and says:
"223 – (1) On hearing a winding up petition, the court may dismiss it, adjourn the hearing conditionally or unconditionally or make an interim order or any other order that it thinks fit..."
31. Since there may be other creditors unknown to the Petitioner who may wish to support it or to oppose it, Rule 23 of the Companies (Winding Up Rules) provides for advertisement of the Petition. Rule 23 as relevant states:
"Every petition shall be advertised for at least 7 days before the hearing as follows –
(a) Once in the Gazette, and once at least in 1 newspaper published in Fiji and circulating in the district where the registered office, or principal or last know principal place of business, as the case may be, of the company is or was situate."
The Rule goes on to specify the contents of such advertisement which must inform potential supporters or opponents what they must do if they wish to appear.
32. Once the advertisement has been placed Rule 30 requires the serving of a list by the Petitioner on the court of those intending to appear. If there are none then a written statement must be served that the list is negative.
The case law arising from the statutory framework – a summary
33. The most common question arising in the course of presenting a petition is that the company claims that the debt relied upon the Notice is disputed. Halsbury Laws 4th Edition, 1988 Reissue, Volume 7(2) Companies at paragraph 1451 (page 1101 and 1102) provides an accurate summary of the case law in the following passage:
"A winding up order will not be made on a debt which is disputed in good faith by the company; the court must see that the dispute is based on a substantial ground. A dispute as to the precise amount due is not a sufficient answer to the petition. If there is a genuine dispute, the petition may be dismissed or stayed, and an injunction may be granted restraining the advertisement or publicizing of the petition. Where a petition has not been presented but is threatened in respect of a disputed debt, an injunction may be granted restraining the presentation. If the debt is not genuinely disputed on some substantial ground, the court may decide this question on the petition, but it will usually dismiss a petition founded on a disputed debt and leave the dispute to be decided in an action. The court may order the amount of the alleged debt to be paid into court. Where the judgment for the debt on which the petition is presented is reversed before the hearing, the petition will be dismissed. It is an abuse of the process for a petition to be presented on the basis of an unascertained debt which has never been demanded and for which no opportunity to repay has been given. If the company has a genuine cross-claim against the petitioner which it has not reasonably been able to litigate and which, if established, would exceed the petitioner's debt, the court will dismiss the petition."
34. So far as an unascertained debt which has never been demanded the authority cited is Re a Company 1983 BCLC 492. That situation in which abuse of process is germane does not apply in the present case. I shall return to abuse of process below.
35. In respect of Section 223 – (1) of the Fiji Act, it is clear that "any other order" confers a limited jurisdiction. In the Queens Benefit Building Society (1870-71) 6 L.R. Ch. App. at 815 the power was used on appeal to amend the status of the Petitioner in the petition from creditor to that of a member having advanced monies to the company. The appeal was then dismissed. The other cases cited in Halsbury at para 1476 note 2 suggest this power's use for similar limited purposes arising out of shifts in evidence since the presentation of the petition. In my judgment the phrase "any other order" does not give jurisdiction to make any of the orders made in this case. However there is the statutory legal framework but, as the citation from Halsbury in para 33 above shows, it is supplemented by a further legal framework with regard to abuse of process in respect of winding up proceedings. This supplementary legal framework provides additional rules and remedies. To this I now turn.
Abuse of process in statutory winding up petitions
36. The earliest reported case in which abuse of process in this context occurs seems to be In re a Company [1894] UKLawRpCh 61; [1894] 2 Ch 349. The Petitioner had not subscribed originally and was not the holder of shares that had been registered for six months. Thus under Section 40 of the Companies Act 1867, he was not capable of presenting a petition. Nonetheless he did so as a contributory on the basis that it would be just and equitable to wind up the company because he was not happy with the way in which it was being managed. After the petition had been presented but before it had been advertised the company moved ex-parte for an interim injunction to restrain the Petitioner from advertising the petition. The company proved that the petitioner had only been a shareholder for four weeks before he presented the petition and then only by transfer from another person.
37. On behalf of the company it was urged that there was jurisdiction under Section 85 of the Companies Act 1862 to make the injunction sought in the winding up proceedings. Mr Justice Vaughan Williams at page 350 said:
"That seems to relate only to restraining proceedings other than those taken with a view to obtaining a winding-up order. But the Court has an inherent jurisdiction to stay proceedings where they amount to an abuse of its process. That is a well-recognised principle. You may take an interim order, extending over the next petition day, which will be the first petition day in next sittings, restraining the advertisement of the petition, with liberty to the Petitioner to apply, and if necessary to the Vacation Judge, to discharge the order."
Four weeks later the company sought an inter partes injunction restraining the Petitioner from advertising the petition and restraining all further proceedings on the petition. After hearing both sides Vaughan Williams J gave the following opinion and orders:
"In my judgment, if I am satisfied that a petition is not presented in good faith and for the legitimate purpose of obtaining a winding-up order, but for other purposes, such as putting pressure on the company, I ought to stop it if its continuance is likely to cause damage to the company. I think those reasons apply in the present case, and that the injunction ought to be granted. I make the order asked for, restraining the advertisement of the petition, and staying all further proceedings upon it, and the Petitioner must pay the company's costs."
38. As a development from 1894 relating to abuse of process in the context of winding up petitions, there is the 1968 case of two suburban London owners of hair salons which is Mann v. Goldstein [1968] 1 WLR 1091. Both Mr Mann and Mr Goldstein had a 50% cross shareholding in each other's hairdressing companies. They fell out. Mr. Goldstein applied for a winding up order of the company managed by Mr Mann on the ground of established debt and insolvency. An alleged creditor of the company managed by Mr Goldstein applied for a winding up order in respect of that company for established debt. Mr Mann applied in a separate action for injunctions to restrain the Defendants until trial or further order from advertising or taking further steps in the prosecution of their winding up petitions. Mr Justice Ungoed Thomas explained the law in respect of disputed debts that cannot be easily substantiated and that the Companies Court in modern practice simply dismisses the petition in such cases. In effect with reference to all relevant authority, Mr Justice Ungoed Thomas explained the law as set out in the passage from Halsbury cited above.
39. Mr Justice Ungoed Thomas at page 1093 then explained the law on abuse of process in respect of winding up petition. What he said refers to powers in the winding up court itself or in separate proceedings. At pages 1093 and 1094:
"It is well established that this court has jurisdiction to restrain the presentation or advertising of a winding-up petition and restrain all further proceedings on it. That jurisdiction is a facet of the court's inherent jurisdiction to prevent an abuse of the process of the court. It will be exercised where a winding-up application is presented or prosecuted otherwise than in accordance with the legitimate purpose of such process. (See, for example, In re A Company) [1894] UKLawRpCh 61; [1894] 2 Ch 349)."
40. Referring to the deadlock between the parties and the hostility between Mr Mann and Mr Goldstein and allegations of lack of bona fides, Mr Justice Ungoed Thomas at page 1095 said:
"I come now to the allegation of lack of bona fides and to abuse of process. It seems to me that to pursue a substantial claim in accordance with the procedure provided and in the normal manner, even though with personal hostility or even venom, and from some ulterior motive, such as the hope of compromise or some indirect advantage, is not an abuse of the process of the court or acting mala fide but acting bona fide in accordance with the process. And certainly no authority suggesting otherwise has been brought to my attention."
This citation, supported as it is by five further relevant authorities cited below, is a sufficient answer to any claim, such as is made by Mr Anu Patel that Aleems Investment's petition was an abuse of process because of ulterior or improper motive or purpose.
41. In the end Mr Justice Ungoed Thomas granted the injunctions on the basis that in a creditor's application if there was no debt, the purported creditor was not entitled to bring the petition which was therefore an abuse of process. But before so ordering, he examined the affidavits and concluded in respect of the debts claimed to support the petitions at page 1101:
"there is in my view, a substantial defence to the whole of Mr Goldstein's claim."
and at page 1103;
"As in Mr Goldstein's alleged debt against Joanita, I am not satisfied that any of the debt on which Wallands found its petition is owing ..."
42. In 1976 the Court of Appeal further considered the availability of abuse of process on which to found on order restraining the presentation of a winding up petition. This was in Bryanston Finance Ltd v. De Vries (No.2) [1976] Ch 63. A minority shareholder was prevented at first instance from bringing a petition on the "just and equitable ground" by the grant of injunctive relief. The oppressing company claimed that this minority shareholder should be restrained. Said Lord Justice Buckley, with whom Lord Justice Stephenson and Sir John Pennycuik agreed, at page 78:
"Counsel for the plaintiff company says that Mr de Vries's object is simply to wreck the plaintiff company, and that his only motive is enmity against Mr Smith. The learned judge, rightly in my opinion, thought that a petition could not be an abuse simply because the petitioner was actuated by malice. If a petitioner has a sufficient ground for petitioning, the fact that his motive for presenting a petition, or one of his motives, may be antagonism to some person or persons cannot, it seems to me, render that ground less sufficient. If, on the other hand, he has no sufficient ground, his petition will be an abuse, whether he be actuated by malice or not. I personally feel no doubt that Mr de Vries (whether rightly or wrongly) is genuinely of the opinion that Mr Smith is conducting the affairs of the plaintiff company and of the group for his own personal advantage and in a manner oppressive to the other shareholders. If Mr de Vries were able to make this good, he would be very likely to succeed in obtaining a winding-up order. The fact that his belief was coupled with, or even fed or generated by, personal animosity against Mr Smith would not, I think, disentitle him to such an order."
43. Around the same time as Bryanston Finance was being tried Re Euro Hotel (Belgravia) Ltd (1975) 3 AER 1075 was decided by Mr Justice Megarry. A financial institution Kleenwort Benson Ltd was petitioning on a debt of £63000 owed by the company. The company's defence was a cross claim covering the whole of the debt. But on analysis the cross claim must inevitably fail. The company had applied in separate proceedings for an order restraining or further publishing its petition. Refusing the injunction Mr Justice Megarry at page 1086 concluded:
"The court is rightly concerned to prevent any abuse of the process of presenting a winding-up petition; the process must not be used as a means of putting improper pressure on a solvent company. But I do not think that this concern should be extended to halting the proceedings on perfectly proper winding-up petition founded on an unquestioned debt merely because the company, being insolvent, can produce an argument of law, wearing a mask of complexity, which tends to support a cross-claim. The case before me is certainly not one in which it can be said that the company is ready and able to pay the debt to the petitioning creditor if it is established, and I am very far from being satisfied that the company bona fide believes itself not to be indebted to the petitioning creditor."
44. A further English case of the same period is Holt Southey Ltd v. Catnic Components Ltd [1978] 1 WLR 630. After Catnic served the usual statutory demand for £39063.15 for goods sold and delivered. Holt Southey in separate proceedings moved for an injunction restraining Catnic from presenting its petition. There was an immediate debt and a contingent debt. Goulding J allowed the Companies Court to proceed with its jurisdiction in respect of both. With respect to abuse of process jurisdiction relating to the winding up of companies, he said at page 634:
"I am very loath to extend the scope of proceedings of this kind, where the High Court seeks to control proceedings in the Companies Court, and I am particularly influenced in this respect by a passage in Mann v. Goldstein, at p.1095: So if a person is entitled to present a petition, then the company's inability to pay its debts is the very matter which it is appropriate for the Companies Court to inquire into and decide in the exercise of its jurisdiction to make a winding up order.
I also remember what Buckley L.J. said in the Bryanston Finance case, [1976] Ch. 63, 78:
In my judgment, the fact that the second action is an action designed to prevent the commencement of proceedings in limine is such a special factor. In such a case the court should not, in my judgment, interfere with what would otherwise be a legitimate approach to the seat of justice unless the evidence is sufficient to establish prima facie that the plaintiffs will succeed in establishing that the proceedings sought to be restrained would constitute an abuse of process.
Thus it seems to me that the point taken by Mr. Potts is a good one and that at least I ought not to prevent the presentation of a petition based on a prospective debt."
45. There seems no doubt that the abuse of process issues may be raised in the petition proceedings themselves. That is clear from Re a Company [1894] UKLawRpCh 61; [1894] 2 Ch 349 which is the starting point of this discussion. But whether in a separate action for an injunction or on the petition itself the rules and principles with regard to abuse of process in this context are exactly the same. The power to issue injunctions or stays, if that is the appropriate course, arises from the inherent jurisdiction of the Court to restrain abuse of process in the use of the statutory companies winding up framework. This is so whether the forum is separate proceedings or the statutory petition itself.
46. When in either forum the court is considering an abuse of process motion it is not a quia timet interlocutory injunction that is being sought and the discretionary principles associated with American Cyanamid v. Ethicon Ltd [1975] UKHL 1; [1975] AC 396 are not applicable. The authority for this is Bryanston Finance (supra) per Buckley LJ at page 76, per Stepherson CJ at page 80 and per Sir John Pennycuick at page 81. If abuse of the statutory process is made out then usually an injunction will follow. But as the above cases demonstrate it will be extremely rare for the very limited abuse of process doctrine in this statutory context to be applicable. There have been millions of cases since 1862 and as stated in paragraph 1 above there is only a handful of cases in mainstream jurisdictions where injunctions issue.
47. In a very few cases, it may be proper by inter partes summons to raise the question of the statutory advertisement with the winding up High Court judge in an abuse of process application. If the High Court judge is sure on the evidence that the debt is disputed on substantial grounds then the hearing of the petition should be brought forward and the petition should be withdrawn and dismissed or simply dismissed. Alternatively, there may be an undertaking by the petitioner not to advertise or an injunction and such should only apply until the hearing of the petition. It has to be remembered however, that the advertisement procedure must be gone through before a winding up order can be made.
48. If however the High Court judge is not satisfied that the debt is disputed on substantial grounds, the statutory advertisement should not be restrained. This is because in that situation there is no abuse of process. Allowing other creditors to join the petition is an integral part of the winding up process. Limited liability makes allowing debts of companies to remain unpaid a very risky strategy. So the long established statutory framework offsets the advantages of trading with limited liability with the balancing factor of a relatively immediate sanction should the company not pay off its debts when they become due.
49. In many cases there will be no abuse of process summons re advertisements. The policy of the law reflected in the cases is that a solvent company should be able to dispute a debt where there is a substantial dispute. This is achieved by withdrawal and dismissal or simply dismissal of the petition which then requires the petitioner to take civil proceedings to try to establish the debt. The former practice of staying the petition while the debt is adjudicated upon in other proceedings is no longer favoured and should be avoided.
50. While the cases allow the court hearing the petition to decide whether the debt is owed, this should only be used on the analogy of Order 14 and summary judgment. If the court hearing the petition decides that if it were summary judgment it would grant unconditional leave to defend then it should dismiss the petition. But if the court were to decide that under Order 14 it would order summary judgment it should after giving reasons move on to consider whether to make the winding up order. If the company raises the issue that it is solvent and the court so finds after examination there will be no winding up order.
The Australian Cases
51. Dr. Sahu Khan for the Petitioner Aleem Investments Limited cites a New South Wales decision of 1980 in support of his argument that on the facts and the law, Mr Justice Inoke had no alternative but to accede to his application that the petition be withdrawn and dismissed on account of the concession on the part of the Petitioner that the debt was disputed by Khan Buses Limited on substantial grounds. The case is Re Jeff Reid Pty Ltd 5 ACLR 28. In that case there was found by McLelland J that the respondent company, Jeff Reid Pty Ltd, had a defence of a substantial nature by way of equitable set off and also had counterclaims in relation to other plant hire contracts. Nor was it at all clear that Jeff Reid was insolvent. McLelland J found that the petitioner might after enquiry in separate proceedings still be found to be a creditor who could petition. But he found that the combination of equitable set-off and counterclaim may justify the dismissal of a winding up petition on discretionary grounds or displace an inference of insolvency under Section 222 (2) (a). McLelland J also held that omission to pay a debt on demand does not of itself constitute "neglect" to do so within the meaning of Section 222 (2) (a) of the relevant Companies Act; therefore the existence of a counterclaim based on substantial grounds for an amount equal to or exceeding the debt will generally provide reasonable cause for omitting to pay the debt as demanded and thus prevent the statutory presumption from arising. In this, he followed the much quoted early decision of Sir George Jessel, M.R. In re London and Paris Banking Corporation (1874-75) 19 L.R. Eq. at page 444. Because Jeff Reed Pty Ltd was an inactive company McLelland J did not dismiss the petition but stayed all proceedings upon it until further order with liberty to either party to restore if the disputes between the parties were resolved. In my view Re Jeff Reid Pte Ltd is wholly within the principles and legal framework explained above. Re Jeff Reid Pte Ltd does not at any point raise issues of abuse of process. That is not surprising because it is only the very occasional case that abuse of process is raised let alone established; all other cases are resolved within the legal framework.
52. An example of the occasional raising of abuse of process in petition cases or separate proceedings concerning them is Australian Beverage Distributors Pty Ltd v. Evans and Tate Premium Wines Pty Ltd and Another [2007] NSWCA 57; [2007] 69 NSWLR 374. At first instance Mr. Justice White granted a number of orders of summary dismissal and related matters on a petition and stayed a number of proceedings in a separate action. Mr Justice White based his orders upon abuse of process.
53. The New South Wales Court of Appeal dismissed the many findings of Mr. Justice White which all except one had been negative to Australian Beverage Distributors Pty Ltd. The leading judgment is that of Beasley JA with whom Hodgson JA and Santow JA agreed. Stating that nothing was added by Williams v. Spautz [1992] HCA 34; (1992) 174 CLR 509 to the cases to which I have referred to above which are all abuse of process cases within the winding up legal framework, Beazley JA dismissed all Justice White's orders based on abuse of process except one. The one upheld by the Court of Appeal involves not the statutory advertisement but the Petitioner sending a press release which was published in the media publicising the fact of a petition, and that it was needed because the debtor company (itself a listed company) was hopelessly bankrupt.
54. The "in house" Counsel for Australian Beverage Producers, one Brooks, had issued the following as part of a press release prior to the statutory advertisement at page 394:
"Australian Beverage Distributors Pty Ltd expresses the opinion that the value of the shares in the Evans & Tate group is worthless as evidenced by the financial accounts. It believes that action should be taken now to prevent the further dissipation in the value of assets available to unsecured creditors. Creditors of the Evans & Tate group and note holders are encouraged to appear at the proceedings before the New South Wales Supreme Court of Sydney when they are next returnable on 1 June 2006."
55. In England in 1982 there had been prior publication in the case of Re Sign land (1982) 2 AER 609. The usual statutory advertisement had taken place two days before the petition had been served. Said Mr Justice Slade at page 609:
"As I understand it, the principal reasons why the rules have directed that advertisement shall take place not less than seven clear days after service on the company are (1) to give a company served with a winding-up petition the opportunity to discharge the debt in question, if it is undisputed, before advertisement takes place, with all the necessarily potentially damaging consequences to the company, and (2) to enable the company, if it wishes to dispute the debt, to apply to the court to restrain advertisement. As a matter of indulgence, however, it has been my practice during this term to accept premature advertisement where it has taken place less than seven clear days after service on the company and the company has not appeared to take the point.
In the present case, I understand, not only was there a failure to allow the company seven clear days after service of the petition before advertisement took place, but the advertisement in fact took place two days before the petition was served. Furthermore the company has appeared to take the point. While I am quite content to accept the assurance of counsel appearing on behalf of the petitioner to the effect that this breach of the rules was not deliberate, it seems to me to have been a flagrant and serious breach and one of a type which the court must take every step to discourage."
Justice Slade regarded this as "serious abuse of the whole process of advertisement". However he allowed the Inland Revenue Commissioners who were on the list as supporting creditors to be substituted. Later the court was informed that both IRC and Billings and Sons Ltd (the original petitioner) had been paid in full by the company and the petition was dismissed.
56. The breach by Mr Brooks of Australian Beverage Distributors was egregious compared with the petitioner in Sign land. Beazley JA found that it was abuse of process and at page 399 said:
"But in any event, I am of the opinion that it would be sufficient if the press release caused harm, or if the reasonable inference open to the Court was that it must have caused harm, for the Court to exercise its discretion to dismiss the application for breach of the publication rule."
The cases of Williams v. Spautz [1992] HCA 34; (1992) 174 CLR 509 and Goldsmiths v. Sperrings Ltd [1977] 1 WLR 473
57. Goldsmith was a case of libel proceedings against distributors of "Private Eye". In England the Court of Appeal in Goldsmith, despite Lord Denning M.R's views, decided per Scarman LJ and Bridge LJ, that:
"(1) the plaintiff in an action for libel had a cause of action against any distributor of the alleged libel, and it would be a denial of justice to stay such an action at an interlocutory stage, unless there was strong evidence to show that the plaintiff's purpose in bringing such actions was not the legitimate purpose of protecting and vindicating his reputation but the collateral purpose of destroying the paper by cutting off its commercial outlets; that such a collateral purpose would be an abuse of the process of the court; but that the evidence, particularly that relating to the terms on which the plaintiff had offered to settle all disputes with the principals, made clear that his purpose in all the litigation, including the actions begun against the secondary distributors, was to vindicate his reputation and prevent further anticipated attacks upon it; and such a purpose could not be an abuse of the court's process.
(2) that the plaintiff was equally entitled to settle a libel action on the best terms he could secure, so long as no improper pressure was used; and though the 16 settlements, by securing undertakings not to distribute the paper again, gave the plaintiff more than he could have got from the court in an action for libel, and went further than was necessary for his protection, they did not constitute a collateral advantage to the plaintiff which made them unlawful agreements or an abuse of the process of the court such as to taint the actions being continued against the 17 distributors."
The appeal committee of the House of Lords dismissed a petition by the distributors for leave to appeal.
58. Mr Spautz was a University lecturer dismissed as a result of issues with a colleague. In a private prosecution he prosecuted Mr Williams and Committee members for criminal libel. In Williams v. Spautz per the head note at pages 509 and 510 despite the dissent of Justices Deane and Gaudron, the High Court of Australia on appeal from the Supreme Court of New South Wales which it overruled held.
"...by Mason C.J., Brennan, Dawson, Toohey and McHugh JJ., Deane and Gaudron JJ. Dissenting, that the prosections were an abuse of process and were properly stayed.
Per Mason C.J., Dawson, Toohey, Gaudron and McHugh JJ. (1) The power to stay proceedings extends to the prevention of an abuse of process resulting in oppression even if the moving party has or must be assumed to have a prima facie case.
Goldsmith v. Sperrings Ltd., [1977] W.L.R 478; [1977] 2 All E.R. 566, applied.
(2) Proceedings are brought for an improper purpose, and thus constitute an abuse of process, where the purpose of bringing them is not to prosecute them to a conclusion but to use them as a means of obtaining some advantage for which they are not designed or some collateral advantage beyond what the law offers. An improper act by the party instituting the proceedings is not an essential ingredient in the concept of abuse of process.
In re Majory, [1955] Ch. 600, at pp 623-624 and Goldsmith v.Sperrings Ltd., [1977] 1 W.L.R., at pp,. 498-499; [1977] 2 All E.R., at pp.581-582, applied.
Per Mason C.J., Dawson, Toohey and McHugh JJ. (1) Where a stay is sought to stop a prosecution which has been instituted and maintained for an improper purpose, it is not necessary for the court to satisfy itself that an unfair trial will ensue unless the prosecution is stopped. A stay may be granted where, even if the trial is fair, the proceedings have been brought for an improper purpose and hence are an abuse of process.
Jago v.District Court (N.S.W) [1989] HCA 46; (1989), 168 C.L.R. 23, distinguished.
(2) The improper purpose need not be the sole purpose of the moving party, so long as it is his predominant purpose.
Goldsmith v. Sperrings Ltd., [1977] 1 W.L.R., at p.496; [1977] 2 All E.R., at p.579, and Metall & Rohstoff v. Donaldson Inc., [1990] 1 Q.B. 391, at p.469, applied.
Per Brennan J. An abuse of process occurs when the only substantial intention of a plaintiff or informant is to obtain an advantage or other benefit, to impose a burden or to create a situation that is not reasonably related to a verdict that might be returned or an order that might be made in the proceeding."
59. The English courts are clearly reluctant at an interlocutory stage to deny access to justice if there is both a possible proper motive as well as an impermissible one. The Australian courts on the other hand seem prepared to deny access to justice so long as a collateral or impermissible purpose is the litigant's predominant purpose.
60. No doubt this debate will continue in the common law world. However, the unanimous view of the Supreme Court of New South Wales in Australian Beverage Distributors was that in the cases discussed by them. (which were winding up cases) any reference to Williams v. Spautz is merely a reference to uncontroversial general principles. At page 387 Beazley JA said:
"The reference by Brownie J in Pacific Communication Rentals to Williams v Spautz is authority that the Court has an inherent jurisdiction to prevent an abuse of process. The circumstances in which he found abuse of process clearly indicate that he was applying the long standing principles that govern the Court's exercise of discretion when dealing with a winding-up application."
61. Then in Australian Beverage Distributors there is a passage in the reasons causing the Court of Appeal to disagree with Justice White's finding in the court below that two introductory paragraphs in a Australian Beverage Distributors press release were abuse of process. At page 389 Beazley JA said:
"Such positioning is neither a novel nor surprising scenario and is frequently encountered in litigation, particularly commercial litigation. It may not necessarily lead to an amicable resolution of disputes to approach a matter in such a way, but that is not the Court's concern. Nor is the Court necessarily concerned with the tactical positioning of parties to litigation. The Court's concern is with resolving legal disputes according to law. As part of that process, it will not permit its processes to be used for an improper purpose in the way that has been discussed above. The fact that opposing parties each take steps in legal proceedings to out-manoeuvre the other and/or to place itself in a more advantageous position than the other party does not, without more, constitute an abuse of process. It follows, in my opinion, that his Honour's conclusion as stated (at 342 [47], 348 [73] is not supported by the first two paragraphs of the terms of the press release to which his Honour referred. Rather, it was a statement as to the current litigious position between the parties."
62. This position of the Court of Appeal of the New South Wales Court in Australian Beverage Distributors is not new; it is a less forcefully stated image of what Ungoed Thomas J said in Mann v. Goldstein at [1965] 1 WLR 1095 which is cited and set out above in paragraph 40.
63. Moving forward out of time, this is a convenient point to discuss Inoke J's reliance on Williams v. Spautz and Australian Beverage Distributors in his judgment in the court below. The question is whether any of the company winding up cases in respect of abuse of process apply to the facts of the petition brought by Aleems Investment Limited. There is certainly no breach of the prior publication rule on the present facts, yet that is the abuse of process situation discussed in the portion of the judgment in Australian Beverage Distributors cited by Inoke J in the court below. One accepts the company winding up abuse of process framework as discussed in the cases cited above including Australian Beverage Distributors, but none of that authority has any relevance to the present facts.
64. So far as citing Williams v. Spautz is concerned, as we have seen from the discussion of Australian Beverage Distributors above the authoritative view and in my opinion the correct rule is that Williams v. Spautz adds nothing to the well developed common law process in respect of abuse of process in the context of winding up proceedings and the statutory and common law legal framework that has governed winding up petitions since 1862.
What should have happened in this litigation?
65. It is clear that the Petitioner Aleems Investment Limited was owed a very large debt by Khan Buses Limited as a result of saving Khan Buses Limited from liquidation on the petition of Habib Bank. The amount paid to Habib Bank on 28th January 2005 was $408862.63 and by the time of sending the statutory letter of demand on 19th February 2009 the interest on the debt had increased it in total to $575096.09
66. Within the legal framework of winding up proceedings the duty of Khans Buses Limited through their legal adviser Mr Anu Patel was to prove facts that Khan Buses Limited disputed the debt on substantial grounds. This should have been done by answering the letter of 19th February 2009 setting out the factual basis on which Khan Buses Limited had loaned borrowed money to Ashleem Investment Limited in March 2000. If in March 2000 Aleems Investment Limited had not contracted in a legally binding way to be responsible for repayment in full of the debt of Ashleem Investment Limited to Khan's Buses Limited, then, regardless of the business ethics of the situation, Khan's Buses Limited were faced with a big problem. The only plausible inference is that when in the period 2003 to 2005 Habib Bank took winding up proceeding against them, Khan's Buses Limited appealed to Mr Aleem Khan to save them from winding up on the Petition of Habib Bank. If so their leverage was that Aleem Khan had facilitated even if he and/or his principal company had not indemnified Khan Buses Limited with regard to possible default on the part of Ashleem Investment Limited. But as he was legally entitled to do Mr Aleem Khan insisted in 2005 that Khan Buses must owe the money if paid to Habib Bank by Aleem Investments Limited to Aleem Investments with an interest rate of 10% running from 28th January 2005. From Mr Aleem Khan's affidavit it seems that demands and reminders of their debt were sent.
67. At the outset Mr Nasir Khan signs a cash cheque to be given to Ashleem Investments Limited for $200,000. If at that time Mr Aleem or his principal company had in a legally binding way indemnified Khan Buses with regard to possible default by Ashleem Investments Limited, such fact would have been used to terminate this dispute as soon as it arose. In addition, it would have conclusively proved that when Mr Aleem agreed to bail out Khans Buses in the period 2003 to 2005, his company was doing so because it was legally obliged to. Thereafter Khans Buses would not owe Mr Aleem or his principal company anything on this matter. Further if such a legal obligation had been created, it would have been the complete answer to the two default notices served in 2009. There is no excuse or reasonable explanation for S B Patel's failure to answer these. The likely conclusion is that Mr Anu Patel knew that the evidence and documents from Khan Buses tended to prove the debt rather than disprove it and decided to run a case on abuse of process instead. Given the law explained above and the facts as set out in paragraphs 3 through 15 above, Mr Anu Patel must have known that abuse of process had no chance of success. It is puzzling as to why he embarked on this strategy. It is even more puzzling as to why it succeeded in the court below.
68. The real dispute between Mr Aleem Khan and the Khans of the bus company as stated above is not about legal debt but about business ethics. There was no profit in it for Khan Buses. Mr Khan senior in March 2000 trusted that if at Aleem Khan's urgent request money was lent to Ashleem Investment Limited or any other enterprise with which Mr Aleem Khan was in some degree connected, Mr Aleem Khan would regardless of legal niceties ensure that it would be repaid. For Mr Aleem Khan the business ethics were different. For him if a company with which he had some connection borrowed money from the Khans that company was legally liable to repay. So if Ashleem did not repay the loan and the expenses of it, Khans Buses should sue them. If Khans Buses failed to recover because of Ashleem's insolvency in Aleem's mind it was fair and proper that Khans Buses should take the loss. All business deals involve risk and when risk materialises someone loses. In Mr Aleem's mind there is some ethical obligation in the situation. That is why he was willing to replace Habib Bank as the creditor. As a result Khan's Buses acquired a new creditor likely to be more reasonable about things such as time to pay and payment by instalments.
69. Company winding up is a matter of applying the correct law to the facts. Issues of business ethics and the protagonists different views thereon have no part to play.
The application for an ex parte injunction
70. At this point I should observe that I proceed by way of rehearing. It is not in the interests of justice that this matter be sent back to be decided once more at first instance. There was no oral evidence. This court is equally well placed when it comes to drawing inferences from affidavits and documents.
71. The facts of the relief prayed for in Mr Anu Patel's ex parte submissions and the orders made by Mr Justice Inoke are set out at paragraph 16 above.
72. In my judgment this should not have been decided ex parte. In all the separate action cases mentioned above in respect of abuse of process the matter is decided inter partes. The only case above where abuse was raised in the winding up proceedings is In re a Company [1894] UKLawRpCh 61; (1894) 2 Ch 349. In that case there was advertisement restraint ex parte. Then, inter partes, there was a hearing about whether because it was not really a winding up petition but intended to put pressure on the company. The inter partes order was one of restraining the advertisement of the Petition and staying all further proceedings upon it.
73. The facts there are different. In the present case it was a creditor's petition on the basis of insolvency. In my view, whatever its merits, any abuse of process injunction had to be made inter partes. Should the Petitioner after receiving the summons advertise or try to advertise before the inter partes hearing, that will be manifest abuse of process. Then the petition will be dismissed. Alternative process would be on an ex parte holding injunction followed very shortly thereafter, with time abridged if necessary, by an inter partes hearing. Bear in mind that advertisement is a necessary requirement before a winding up order can be granted. Therefore any hearing of the substantive petition cannot take place until there has been advertisement and other steps as set out in the statutory procedure.
74. But the cases are very clear that there has to be abuse of process before there can be an injunction to restrain the advertisement. This requirement is a condition precedent to the granting of relief in ex parte or inter partes proceedings. Clearly the petition and affidavit together with the exhibits of the Petitioner established a prima facie case of debt. In reply there was an assertion that the debt to Habib Bank was never owed, in law, by Khans Buses together with an assertion that it was in fact owed by Mr Aleem or his principal company to Habib Bank. This is nothing but smoke and mirrors as the documents produced by Khan's Buses themselves showed. Then there were further assertions that Mr Aleem had somehow legally indemnified the possible default by Ashleem Investments Limited and that the rescue from winding up of Khan's Buses at the hands of Habib Bank by Aleems Investments Limited was done because Aleem Investments were legally obliged so to do; this resulting in the consequence that after Habib Bank was paid off, Khans Buses did not owe the debt to Aleems Investments Limited. All this amounts to more smoke and mirrors. If this were an Order 14 application for summary judgment on a debt no reasonable tribunal properly self directed would grant leave to defend conditionally or unconditionally.
75. Mr Anu Patel further suggested that these affidavits required an answer which had not been given. But the reality is that non probative affidavits have no impact on the shifting burden of evidential proof. A reply is not required by the facts as they stand or as a matter of law. The reasons set out in paragraph 67 above in my view are important in my conclusion that the Khans Buses affidavits tend to prove rather than disprove the debt.
76. If the statutory process is used to establish a debt and then there is no evidence from the company to prove that the debt is disputed on substantial grounds, there is no room for abuse of process. The advertisement process must be allowed to proceed because only after it has run its course can an order for winding up be granted. So the only result of the ex parte motion for an injunction dated 17th July 2009 upon advertising or further advertising the Petition or striking it out for abuse of process should have been its dismissal with costs.
77. That is what should have happened. Instead the ex parte injunction as prayed for was granted because by error the learned Judge found abuse of process where none existed. In as much as this lead to an opportunity for an inter partes hearing of the injunction issue, there was also no jurisdiction upon the facts for that to be entertained either. Nor was there any need for Dr Sahu Khan to file affidavits in reply. There was nothing after the affidavits on behalf of Khan Buses Limited were filed to rebut on the facts or the law. Where a judge had already made an irrational decision it would be difficult to reply to and there could be no expectation other than that the judge would continue his errors on an inter partes hearing.
78. This initial error lead to all the later errors in this process.
79. What should have been the position on the hearing of the petition on 16th September 2009 is that submissions should have been made on the issue of whether the debt was disputed on substantial grounds. If it was so found then the Petition should have been dismissed so that issues on the debt could be resolved in a separate action. On the evidence for the reasons stated above the only conclusion available was that there was no defence to the debt and the winding up order should have been made. But without the statutory advertisement and a negative or positive list of other creditors, no such order can be made. Dr Sahu Khan must have believed on the basis of the ex parte hearing and the irrational decision there, that it was pointless to argue that on the evidence there was no defence to the debt. He may have had other reasons. His decision was to end this petition by applying to withdraw it whereupon it would be dismissed.
80. This would allow Aleem Investments Limited to proceed by way of action on the debt. But the Court refused to dismiss the petition although that is exactly the position that the statutory framework and the common law upon it would require where there is a disputed debt on substantial grounds. Instead the Court went on to find that there never had been any debt upon which to petition and that the petition was a gross abuse of process.
81. Then things went from bad to worse. The Court should have on the evidence made a finding that the debt was established. Instead it resolved the issues in favour of the company contrary to the evidence. Then the Court found that the Petitioner had abused the statutory procedure by putting forward a debt which it knew was not owed by the Company. The Court then made orders.
82. Firstly it ordered that the Petition "is permanently stayed". But again if there was no abuse of process this order could not have been made within jurisdiction.
83. Secondly the Court ordered:
"Any further proceedings, howsoever commenced, in respect of the arrangements entered into between the parties and Habib Bank on 7 March 2000 and the said Petition, other than an appeal in respect of this Judgment, are also stayed and the court registries are directed not to accept or issue any such proceedings."
84. In this case for the reasons stated above on the evidence and the applicable law the learned judge could not have found any of the following:
85. On that basis alone the second order of the learned judge is in error and must be vacated.
86. However I again find for, reasons stated above that there never was an abuse of process justifying the learned judge's order. Given the legal statutory framework and particularly section 223(1) discussed in paragraphs 30 and 35 above the Court has in effect only the powers to grant or dismiss the petition to adjourn it or to make one of these orders after amending it. Therefore in the absence of abuse of process the learned judge in the Court below had no jurisdiction to make an order permanently restraining any further petitions and any actions in respect of this debt. For this reason also it is misconceived.
87. If there is abuse of the statutory process is it even possible to enjoin the petitioner from bringing a new petition or from taking an action against the company in debt? It is to be noted that in the prior publication cases cited above the sanction for abuse of process was dismissal of the petition before the winding up court. Clearly the debt remains capable of being the subject of a new petition or the subject of an action for debt.
88. I express, at least tentatively, the view of abuse of process in respect of the company winding up framework can lead to no more than an order, as in In re a Company [1894] UKLawRpCh 61; [1894] 2 Ch 349 (see paragraphs 36 and 37 above):- "staying all further proceedings upon it."
89. The learned judge should not have done other than dismiss the petition when Dr Sahu Khan moved to withdraw it. Enthused by Mr Anu Patel the learned judge embraced a wider model of abuse of process than has hitherto been perceived. Mr Anu Patel had a duty to put to the learned judge all relevant authorities. He did not put Australian Beverage Distributors [2007] NSWCA 57; (2007) 69 NSWLR 374 at page 389 (see paragraph 62 above) where Beazley JA discusses the irrelevance of tactical positioning and using proceedings to out maneuver the other side to a winding up motion by a creditor on the basis of established debt. Mr Patel also failed to cite passages to similar effect in Mann v. Goldstein (1968) 1WLR 109 per Ungoed Thomas J at page 1095, in Bryanston Finance v. De Vries (No.2) [1976] Ch 63 per Buckley L.J. at page 78, In re Euro Hotel Belgravia (Ltd) 1975 3AER 1075 per Megarry J at page 1086, and in Holt Southey Ltd v. Catric Components Ltd [1978] 1 WLR 630. All of these passages are cited above.
90. Dr Sahu Khan has put before us in this Court of Appeal a restrained submission which correctly points to the dominant legal framework issue that if a debt is disputed and cannot be quickly and easily resolved in the winding up court the Petition should be dismissed. In citing Jeff Reid Ltd (supra) and Australian Beverage Distributors Ltd (supra) he has correctly submitted that on the facts there never was abuse of process.
91. In this rehearing I find the facts as I have indicated above. I have considered whether Dr Sahu Khan should be held to his submission of withdrawal followed by dismissal of the Petition.
92. One consideration is that if an action for the debt is now commenced by the Petitioner the company will be able to join Ashleem Investment Limited or any other party as a third party if it wishes to do so. So although Dr Sahu Khan's decision to withdraw the petition in the Court below was under pressure I think it just to make an order in this Court that upon the Petitioner applying to withdraw the petition the petition be dismissed.
Costs
93. I have considered whether a wasted costs order requiring Mr Anu Patel to pay indemnity costs to the Petitioner is appropriate. However as Miss Natasha Khan stated while appearing for the company, the parties themselves often expect nothing less than extreme conduct with regard to their cases. I therefore propose that the Respondent Khan Buses Limited pay in total indemnity costs assessed at $10,000 to the petitioner in respect of hearings in this court and below.
94. Abuse of process has a very limited role to play within the statutory framework of creditors petition for winding up. The cases explained above illustrate that limited role. Neither the extremes of William v. Spautz (supra) and Goldsmith v. Sperring (supra) can be relevant to cases decided under this statutory winding up framework. Within strict limits abuse of process is a beneficial doctrine. But if the genie is allowed to escape from these strict limits, the consequences are serious. Access to the courts is taken away and the utility of important statutory frameworks is undermined. Access to the courts is an important part of the rule of law. Company liquidation represents an important balance between the advantages of limited liability and the mechanism to protect creditors. This mechanism has been developed by case law since 1862 and the proper use made of the statutory procedures for winding up are important parts of the commercial law of Fiji.
Calanchini, JA
95. I agree with the judgment and reasons of William Marshall JA.
Anjala Wati, JA
96. I also agree with the judgment and reasons of William Marshall JA.
The Orders of the Court
William Marshall, JA
97. The Orders of the Courts are:
(1) The appeal of Aleems Investment Limited, the Petitioner is allowed.
(2) The orders in the Court below are vacated.
(3) The Petitioner having applied to withdraw the petition, this Court consents and the Petition stands dismissed.
(4) The Respondent do pay to the Appellant (the Petitioner) indemnity costs in respect of the hearings in this Court and in the Court below in total at $10,000.
Hon. Justice William Marshall
Justice of Appeal
Hon. Justice William Calanchini
Justice of Appeal
Hon. Madam Justice Anjala Wati
Justice of Appeal
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