S. Chandra for the Petitioner
M. Raza for the Respondent
Date of Hearing: 23rd July 1998
Date of Judgment: 12th November 1998
JUDGMENT
If the facts of this case were used as a question in an examination paper on company law and I were the examiner I would award equal
marks to those students who recommended the winding-up of the Respondent and those who considered that there was a middle course
available to the Court namely that although a winding-up order should be made its execution should be stayed for a period of time
pending further consideration of their positions by the parties. For reasons which will shortly appear I propose to take the latter
course.
The facts are not in dispute and are similar in many respects to those of other cases which have come before the Courts over the years.
I refer to only five of these as being the most recent of which I am aware namely Cornhill Insurance PLC v. Improvement Services Limited (1986) 1 WLR 114 in which reference is made to an earlier case of Mann v. Goldstein (1968) 1 WLR 1091, 1096; a decision by Pathik J. of the 11th of November 1994 (unreported) in Civil Action No. HBE0020 of 1994 Arjun & Sons Timber Mills Ltd. v. Babasiga Timber Town Ltd.; Bateman Television Ltd. v. Coleridge Finance Co. Ltd. [1971] UKPC 8; (1971) NZLR 929 and Brinds Ltd. v. Offshore Oil N.L. (1985) 60 ALJR 185.
The Petitioner by its Petition dated 29th of August 1997 seeks winding-up of the Respondent because of the Respondent's failure to
pay the Petitioner the sum of $35,863.63 being the amount due and owing to it for the purchase of spare parts by the Respondent during
the period October 1996 to February 1997. The Respondent does not dispute the amount of this debt in that it makes no allegation
that any of the parts which the Petitioner supplied were in any way defective.
However the Respondent claims that it is not liable to pay this amount because in turn the Petitioner owes it a sum in excess of $42,000.00
for which it has issued a Writ in this Court claiming damages.
The Statement of Claim annexed to the Writ, to which so far no Defence has yet been delivered, alleges that in 1996 the Respondent
ordered a Leyland Bus for its bus services from the Petitioner and the same was delivered early in October 1996, the agreed price
being $65,000.00 which the Respondent paid.
At this time and subsequently the Respondent was buying and continued to buy spare parts for its buses including the bus then purchased
from the Petitioner.
The Respondent alleges that shortly after it took delivery of the bus it developed various mechanical problems which are set out in
the Statement of Claim and in an affidavit by Ram Kishore a diesel mechanic and bus driver employed by the Respondent and sworn on
the 20th of July 1998. It is unnecessary for the purposes of this judgment to refer in any detail to the alleged defects, it being
sufficient to state that according to the Respondent they were of such a nature that they caused the Respondent to lose income from
its inability to use the bus in its services.
The Petitioner admits that it sold the bus to the Respondent but says in affidavits which have been filed in support of its Petition
that no guarantee or warranty was given by it to the Respondent in respect of the bus.
The Respondent alleges that the Petition is an abuse of the process of the court in that it seeks to enforce payment of a disputed
debt. There is a large body of case law on this subject which is referred to for example in Palmer's Company Law 24th Edition at
paragraph 88-06.
Again in Palmer's Company Precedents (17th Edition) page 27 dealing with what constitutes a disputed debt the author says:
"The mere omission of a company to comply with a notice requiring payment of a debt, served pursuant to the above para (a) (this
is the equivalent of Fiji Companies Act S.221(a)) is not "neglect within the meaning of that paragraph if there is reasonable cause for the omission, and the fact that
the debt in question is bona fide disputed is a reasonable cause"."
A little later Palmer continues:
"It is now well settled that a petition for winding up with a view to enforcing payment of a disputed debt is an abuse of process
of the court and should be dismissed with costs."
The Respondent then refers to the subject of Set-Off and Counter-Claim referred to in Halsbury's Laws of England, 4th Edition, Volume
42 paragraphs 401 and 402. Paragraph 401 so far as relevant states:
"This title is concerned with the situation where A has a legal complaint against B and B has a legal cross-complaint against
A. It deals with following situations:
...(2) B's right to raise legitimately and successfully such a cross-complaint in a claim brought by A so as to reduce or extinguish
A's claim and to establish any right to B to an excess over A's claim... Whilst much of the jurisprudence applicable to this title
appears to bear a procedural hallmark, the substantial advantage which B derives from the relevant doctrines is that he may defer
meeting A's claim, wholly or in part until a court has adjudicated on his own cross-complaint."
In paragraph 402 Halsbury's deals with summary judgment and says:
"Where A seeks summary judgment and B demonstrates a triable cross-complaint by way of abatement or set-off, the court may give
B leave to defend, wholly or in part. Similarly if B demonstrates a counter-claim the court may make the same order or give judgment
on the claim, with a stay of execution pending trial of the counter-claim. In neither case does B have to make payment to A until
his cross-complaint is resolved."
The Respondent says that here the Petitioner is seeking to obtain a summary judgment on a disputed debt.
I cannot accept that submission for the simple reason that the Respondent does not dispute its debt to the Petitioner but says that
there should be a Set-Off against that debt in the amount of its claim for damages in respect of the Leyland Bus. In my judgment
that cannot be right. The cause of action in respect of the bus is totally distinct from that alleged in the Petition.
In Cornhill Insurance v. Improvement Services (supra) the relevant part of the headnote reads:
"Held, refusing the application, that where a company was under an undisputed obligation to pay a specific sum and failed to do so, it
could be inferred that it was unable to do so; that, accordingly, the defendants could properly swear to their belief in the plaintiff
company's insolvency and present a petition for its winding up (post, pp. 115F-G, 117F-H, 118B-D, G-H)."
In the course of his judgment Harman J. quoted with approval the remarks of Ungoed-Thomas J. in Mann v. Goldstein (supra) where he said:
"When the creditor's debt is clearly established it seems to me to follow that this court would not, in general at any rate,
interfere even though the company would appear to be solvent, for the creditor would as such be entitled to present a petition and
the debtor would have his own remedy in paying the undisputed debt which he should pay. So, to persist in non-payment of the debt
in such circumstances would itself either suggest inability to pay or that the application was an application that the court should
give the debtor relief which it itself could provide, but would not provide, by paying the debt."
Pathik J. in his judgment in Arjun & Sons Timber Mills Ltd. v. Babasiga Timber Town Ltd. quoted both these passages with approval when ordering the winding-up of a company in circumstances not dissimilar to those of the
instant case and he concluded as did Harman J. with whom again he agreed when Harman J. said at p.118:
"In my view in such circumstances the creditor was entitled to (a) threaten to and (b) in fact if it chose to present a winding
up petition,..."
In Brinds Ltd. v. Offshore Oil (supra) at p.188 of its judgment the Privy Council agreed with the following observations of Gibbs J. (as he then was) in Re Q.B.S. Pty Ltd (1967) Qd.R. 218 at 225:
"It seems to me that in every case it becomes necessary for the court to exercise its discretion as to how far it will allow
the question whether or not the dispute is bona fide to be explored. In some cases it may be very easy to decide this question on
the petition and affidavits in reply. In other cases however it may be difficult to determine whether or not the dispute is bona
fide without determining the merits of the dispute itself. In some cases convenience may require that the court decide the question
whether or not a debt exists, but in other such cases it may appear better to allow that question to be determined in other proceedings
before the petition for winding up is heard."
Later on the same page the Board referred to the same line of reasoning in the later New Zealand case Bateman Television Ltd. v. Coleridge Finance Co. Ltd. (supra) 929 at 932 where the Court of Appeal said:
"....the general rule is, no doubt, that no order will be made on a petition founded on such debts. But each case must depend
upon its own circumstances and it is a question for the discretion of the Judge; a discretion to be exercised judicially, which is
not open to review unless it is shown to be exercised on some wrong principle, or that the Judge relied on some fact irrelevant for
the purpose, or omitted consideration of a relevant fact or finally that he was wholly wrong. As their Lordships have already pointed
out, the disputed questions of indebtedness were fully investigated in a lengthy hearing before the learned Judge with oral and documentary
evidence and he held that both the appellant companies were insolvent. Their Lordships add the very important fact that from start
to finish neither side ever suggested to Macarthur J. that the petitions should be dismissed or even stayed on the ground of debts
pending the bringing of appropriate proceedings at law to determine these matters."
Basing myself on these authorities I consider that the Petitioner is entitled to have a winding-up order made against the Respondent
but the question I ask myself is whether in all the circumstances it is at present just an equitable to do so. At the beginning of
this judgment I referred to the middle course which I considered open to me and which I proposed to take which is to order that a
winding-up order be made against the Respondent but that execution of that order be stayed for two months in which time I hope that
some common sense will be brought to bear on the matters in issue between the parties with a view to their resolution.
Obviously it was open to the Petitioner to issue a Writ claiming the amount due to it for goods sold and delivered at the Respondent's
request. It has chosen not to follow that procedure but rather to avail itself of the procedure provided in Sections 221 and 222
of the Companies Act Cap. 247 which it was clearly entitled to do in this case. Nevertheless I hope as I have just said that the delay in enforcing the
winding-up order will cause the parties to make a realistic appraisal of their positions. In the circumstances I shall make no order
for costs at this stage.
JOHN E. BYRNE
JUDGE
Legislation and authorities referred to in judgment:
Companies Act Cap. 247.
Halsbury's Laws of England, 4th Edition, Volume 42.
Arjun & Sons Timber Mills Ltd. v. Babasiga Timber Town Ltd. HBE0020 of 1994 - unreported judgment of Pathik J. dated 11th November 1994.
Bateman Television Ltd. v. Coleridge Finance Co. Ltd. [1971] UKPC 8; (1971) NZLR 929.
Brinds Ltd. v. Offshore Oil N.L. (1985) 60 ALJR 185.
Cornhill Insurance PLC v. Improvement Services Limited (1986) 1 WLR 114.
Mann v. Goldstein (1968) 1 WLR 1091.
Palmer's Company Law 24th Edition.
Palmer's Company Precedents 17th Edition.
The following additional cases were referred to in argument:
In the High Court of Fiji HBE No. 85/97 In the Matter of Architectural Aluminium Limited - unreported judgment of Scott J.
Fiji Court of Appeal Civil Appeal No. 29/84 Offshore Oil N.L. v. Investment Corporation of Fiji Limited - unreported judgment of Court of Appeal dated 25th July 1994.
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