In re Aggressor Fiji Ltd [2005] FJHC 48; HBE0040.2004 (3 March 2005)

This is an application by the respondent company for costs. The original proceedings were filed by the petitioner on the 25th of February 2004. The petitioner with leave of the Court withdrew its petition on the 24th of September 2004. The Court reserved the issue of costs. The applicant respondent is seeking orders that:

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21st January, 2004	Petitioner issues Section 221 notice.
21st February, 2004	Petitioner files winding up petition.
5th March, 2004	Respondent company responds to the S.221 notice by letter.
16th March, 2004	Respondent’s solicitor responds to the Section 221 notice by letter.
5th May, 2004	Matter called before Deputy Registrar. Respondent’s solicitors given 21 days to file affidavit in opposition. Matter adjourned to 26th May, 2004 before D.R. for mention.
24th May, 2004	Respondent’s solicitors files affidavit in answer.
26th May, 2004	Petitioner’s solicitors given 14 days to file affidavit in reply. Matter adjourned to 9th June, 2004 before D.R. for mention.
4th June, 2004	Petitioner’s solicitors requests for further 14 days to file affidavit in reply. Further 14 days given to Petitioner’s solicitors to file affidavit in reply. Matter adjourned to 30th June, 2004 before D.R. for mention.
30th June, 2004	Petitioner’s solicitors requests for further 14 days to file their affidavit in reply. Another 14 days given to petitioner’s solicitors to file affidavit in reply. Matter adjourned to 14th July, 2004 before D.R. for mention.
14th July, 2004	Petitioner’s solicitors requests for further 14 days to file affidavit in reply. Matter adjourned to 28th July, 2004 to set a
26th July, 2004	Petitioner’s solicitors files their affidavit in answer.
28th July, 2004	Respondent’s solicitors given 14 days to reply to the Petitioner’s affidavit. Adjourned to 11th August, 2004 for mention before DR.
16th August, 2004	Respondent’s solicitors files their affidavit in reply.
18th August, 2004	Matter adjourned to 30th August, 2004 before Justice Winter at 9.30am for mention to fix hearing date.
30th August, 2004	Mr. Justice Winter notes that the Section 221 notice is defective and that the debt is genuinely disputed and asks the Petitioner’s solicitors to consider their clients position. Matter adjourned to 3rd September, 2004 at 11.00am for mention before Justice Winter.
3rd September, 2004	No appearance by petitioner’s counsel. Matter adjourned to 24th September, 2004 at 9.30am for mention before Justice Winter.
24th September, 2004	Petitioner’s counsel withdraws the winding up petition. Court reserves the issue of costs.
6th October, 2004	Respondent’s counsel writes to Petitioner’s solicitor on the issue of costs but does not receive any response.
29th October, 2004	Present application filed.

Its prime purpose is to act as a foundation for winding up a company’s affairs. It is in effect a summary process that must be treated with care. It is not a debt collection procedure. If the debt is doubtful the procedure should not be used, rather, the petitioner should first prove his debt by obtaining judgment then based on that court order present a statutory demand.

If a creditor is told by a company against which it has served statutory demand that the company disputes the demand then the petitioning creditor proceeds against that company at its peril.

There are numerous authorities which emphasize the principle that the issuing of a statutory demand is a serious step which imposes considerable strain on the recipient. The recipient of a statutory demand must act within a very short time frame if it is to avoid committing an act which gives rise to the power to have it placed in liquidation. It must also act quickly to protect its credit and reputation in the market. As a result courts have been prepared to make significant awards of costs against persons who invoke the procedure in inappropriate cases. See for example Eberk Construction Limited v Advanced Windows Limited, [2001] 14 PRNZ at 681 and Ordeal Enterprises Limited and Callan Healthcare Properties Limited, in an unreported decision of Associate Judge Lang in the High Court of New Zealand Auckland Registry M1552-IM02.

The petitioning creditor received a letter from the recipient company dated the 5th of March 2004 that disputed the validity of the issue of the statutory demand. The demand for payment was made to the wrong company. That letter indicates at the bottom of the first page that at the time of its preparation the recipient company had received a winding up notice from the petitioning creditor’s solicitors.

The affidavit of service indicates that the petition was served on the 2nd of March 2004.

A further letter was sent by the recipient company’s solicitors again explaining the simple fact that the demand was sent to the wrong company. It further invited the petitioner to prove its claim in court before proceeding further. Despite that correspondence the petitioning creditor elected to proceed with the petition throughout appearances in June, July, August, the 3rd of September and finally on the 24th of September where it only then elected to withdraw the petition.

In this case a large multi-national oil company of undoubted and significant resource was ignorant of the recipient’s rights. Despite being told that the demand notice was invalid the petitioning creditor elected to proceed. It only withdrew its petition some months later. In my view, the petitioning creditors use of the statutory demand procedure was inappropriate. The delay in the withdrawal of the petition significantly increased the recipient company’s costs of defence.

The Supreme Court of South Australia gave some guidelines for the consideration of indemnity costs in a decision of Taylor v Santos & Others, [1999] SASC 430. The relevant principles applicable to the exercise of the discretion to award indemnity costs set out at paragraph 9 of that judgment are:

“Solicitor and client costs may be awarded where a party should have known it had no chance of success ............ Such costs have been awarded in cases where the trial judge indicates that:

For the purposes of determination whether or not indemnity costs should be awarded when the statutory demand process has been wrongly evoked I would add a consideration of whether the petitioning creditor was careless in commencing or continuing with the petition.

I find that the use of the statutory demand process was misconceived. I find that the petitioning creditor was advised of the reasons for that misconception earlier on and yet elected to continue with petitioning for the recipient company to be wound up.

As I have earlier said in this judgment there are numerous authorities which emphasize the principle that the issuing of a statutory demand is a serious step which imposes considerable strain on the recipient. It follows that the recipient should not be left out of pocket if the petitioning process fails.

In my view there was no justification at all for BP (Southwest) Pacific Limited to proceed with the petition in the light of the information it was clearly provided by the recipient company. The situation was further aggravated by 4½ months of delay before the withdrawal of that petition. That delay undoubtedly added to the recipient company’s costs.

Notwithstanding that finding and not without some hesitation I have concluded that it would not be appropriate in the present circumstances to award indemnity costs. I am principally persuaded to this view because I accept the petitioning creditor counsel’s submissions that it initially thought when preparing the demand notice that it correctly identified the recipient company. Further, having been advised that the statutory demand was invalid there then is some understandable delay before the petition was withdrawn as BP (Southwest) Pacific Limited despite having a registered office in Suva apparently has to report to a parent company before being able to issue instructions. However, at the very most that process should have only created a delay of a week or more. In these circumstances I am satisfied though that this is an appropriate case for an award of increased costs in Aggressor Fiji Limited’s favour. In my view it would be appropriate for BP (Southwest) Pacific Limited to meet 75% of Aggressor (Fiji) Limited actual costs.

I therefore make an order that BP (Southwest) Pacific Limited pay the global sum of $1,860.00 towards Aggressor (Fiji) Limited for costs and disbursements in relation to the petition.

I further order that BP (Southwest) Pacific Limited pay the sum of $500.00 costs in relation to this application as a global sum to cover all costs and disbursements.

High Court of Fiji

In re Aggressor Fiji Ltd [2005] FJHC 48; HBE0040.2004 (3 March 2005)