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Raj Krishna Construction Company Ltd v RC Manubhai and Company Ltd [2005] FJHC 680; HBC0301.2004L (12 January 2005)

IN THE HIGH COURT OF FIJI
AT LAUTOKA
CIVIL JURISDICTION

CIVIL ACTION NO. HBC0301 OF 2004L

BETWEEN:

RAJ KRISHNA CONSTRUCTION COMPANY LIMITED
Plaintiff

AND:

R.C. MANUBHAI & COMPANY LIMITED
Defendant

Counsel for the Plaintiff: Mr. T. Vakalalabure
Counsel for the Defendant: Mr. S.K. Ram

Date of Hearing & Judgment: 12 January 2005

EXTEMPORE JUDGMENT

This matter comes before the court by way of Notice of Motion filed on the 5^th October 2004 on behalf of the plaintiff wherein the plaintiff seeks an injunction restraining the defendant from advertising or taking out a winding up petition. In support of the Notice of Motion, the plaintiff relies upon an affidavit of Raj Krishna Mudaliar filed on the 5^th October 2004.

The application is opposed. The defendant relies upon an affidavit of Brijesh Vyas filed on the 28^th October 2004.

Background

The defendant served on the plaintiff a winding up notice dated 7^th April 2004. The notice relies upon a debt incurred as a result of trading between the plaintiff and the defendant whereby the plaintiff accepted goods provided by the defendant.

The plaintiff applied to the defendant for credit and a copy of that application is Annexure ‘A’ to the affidavit of Raj Krishna Mudaliar. That application is undated and there is no credit limit in it. The question is left blank.

The application is apparently supported by a guarantee which is Annexure ‘B’ to the affidavit of Raj Krishna Mudaliar. Credit appears to have been granted on the terms and conditions set out in the document headed “R.C. Manubhai & Co. Limited Terms and Conditions” dated the 23^rd November 2003 which document forms part of the Exhibit ‘B’ to the affidavit of Raj Krishna Mudaliar. The terms and conditions document does not contain any credit limit. The guarantee in Clause 1 limits the liability of the guarantors under that guarantee to an aggregate sum of $5,000.00 per month.

It appears from the material filed that the plaintiff acquired goods from the defendant the details of which are set forth in the copy tax invoices, which form part of Annexure ‘D’ to the affidavit of Raj Krishna Mudaliar.

It is submitted on behalf of the plaintiff and the deponent attests that it was a term of the trading agreement that goods would only be supplied on production of a signed order by the plaintiff to the defendant. The details of when and where, this aspect of the agreement was reached are not contained in the affidavit filed with the court and as I have said, they certainly do not form part of the terms and conditions document to which I have referred nor do they form part of the application for credit.

The plaintiff does not dispute that the goods were in fact received but does dispute the value of those goods, maintaining that it was overcharged by the defendant. In support of the contention that it was overcharged, there is annexed to the affidavit of Raj Krishna Mudaliar a table headed “Price Differences” (Annexure ‘D’). There is nothing however to support the figures contained in that document under the heading “V. Patel” which is understood stands for Vinod Patel.

There is also annexed to the same affidavit a document being Annexure ‘E’ headed “Price Differences in Timber”. In support of that document there is a quotation from KKK Logging however it is somewhat unintelligible.

The Law

Winding-up proceedings are taken pursuant to the Companies Act Cap. 270. Section 220 of that Act provides that the company may be wound up by the court if relevantly the company is unable to pay its debts and the court is of the opinion that it is just an equitable of the company be wound up.

Section 221 of the Act provides:

Where the 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. “

It is relevant that the section deems the company to be unable to pay its debts if it fails to comply with the provision of the section within the time specified.

It is a general principle that the petition for winding up, with the view to enforcing payment of a disputed debt, is an abuse of the process of the court.

The relevant passage from Palmer’s Company Law is cited in Vivras Development Limited & Ors v The Australian and New Zealand Banking Group Limited – Civil Action No. 290 of 2001 at page 7 where Mr. Justice Pathik quoted:

“To fall within the general principle the dispute must be bona fide in both a subjective and an objective sense. Thus the reason for not paying the debt must be honestly believed to exist and must be based on substantial or reasonable grounds. “Substantial” means having substance and not frivolous, which disputes the court should ignore. There must be so much doubt and question about the liability to pay the debt that the court sees that there is a question to be decided. The onus is on the company “to bring forward a prima facie case which satisfies the court that there is something which ought to be tried either before the court itself or in an action, or by some other proceedings.”

In that same decision, His Lordship also referred to Offshore Oil N.L. v Investment Corporation of Fiji Limited – Civil Appeal No. 29/84 FCA at page 15 where Barker JA said:

“The law is clear that there is a discretion in a court seized of a winding-up petition, to decline to hear the petition where the debt is contested on substantial grounds.”

The court has been referred to a decision in Mann & Another v Goldstein & Another [1968] 2 All ER 769. At page 774 it is said:

“In Niger Merchants Co. v Capper (1877) 18 Ch.D at p.558 Sir George Jessel MR said that Sir Richard Malins V.C. in Cadiz Waterworks Co. v Barnett (1874) L.R. 19 Eq at p. 196, granted an injunction to restrain winding-up proceedings “...on the ground that it is the object of the court to restrain the assertion of doubtful rights in a manner productive of irreparable damage...”

On the same page of the report the court further said:

“The strongest statement which I have seen in favour of the plaintiff’s contention is that of Kekewich J. in New Travellers’ Chambers, Ltd v Cheese and Green (1894), 70 L.T. 271 at p. 272:

Of course the question whether this is a debt or not may possibly be tried by a winding-up petition; but it has been said over and over again, that the presentation of a winding-up petition is not a convenient, and often not a proper method of trying a disputed debt. If there is any reasonable ground for disputing the existence of the debt – if the question is not a mere question of quantum, but whether there is in fact a debt or not – a petition ought not to be presented, and therefore the court ought to restrain the presentation of the petition.”

The question of there being a disputed debt or not was considered by the Fiji Court of Appeal in Export Freight Services (Fiji) Limited v John Beater Enterprises Pty Limited – Civil Appeal No. ABU005.2004S where Sheppard JA said at page 2:

“...It is clear law that the respondent to a winding-up petition cannot escape its consequences where there is genuine dispute only as to part of the petitioning creditor's debt.”

It is clear that the dispute in this matter as to the debt is a dispute as to the quantum of the debt and not as to the existence of the debt. It is acknowledged that the defendant supplied goods to the plaintiff and that the plaintiff received those goods.

The allegations by the plaintiff in the statement of claim are that the defendant failed to ensure strict adherence to the alleged agreement that is, it accepted verbal orders rather than insisting on properly executed purchase orders and further that it overcharged and that it exceeded the alleged agreed credit facility limit of $5,000.00 per month.

Conclusion

There is nothing in the documentation that refers to the $5,000.00 per month, credit limit apart from the reference contained in the guarantee. Clearly that is a reference limiting the liability of the guarantors only and cannot be read as limiting the credit.

The debt therefore being disputed in part only, in the light of the authorities to which I have referred above, does not create such a dispute as to be genuine dispute on substantial grounds. Even a genuine dispute only as to part of the debt is not sufficient to satisfy the test.

Whilst the Notice of Motion seeks relief by way of injunction and whilst the granting or refusing of that relief will require a consideration and principles of American Cyanamid v Ethicon [1975] UKHL 1; (1975) A.C. 396, I find that the alleged debt is not disputed on substantial grounds in accordance with the authorities, the question of the granting of the injunction does not arise.

Orders

1. The Notice of Motion is dismissed.

2. The plaintiff is to pay the defendant’s costs assessed in the sum of Seven Hundred and Fifty Dollars ($750.00).
   

JOHN CONNORS

JUDGE

At Lautoka

12 January 2005