IN THE HIGH COURT OF FIJI
AT LAUTOKA
CIVIL JURISDICTION

Civil Action No. 70 of 2010

BETWEEN:

HERBERT CONSTRUCTION COMPANY (FIJI) LIMITED a limited liability company having its registered office at Messrs Koyas, Suite 12, First Floor, Nadi Town Council Arcade, Main Street, Nadi, Fiji.
APPLICANT

AND:

PIONEER SUPPLIES LIMITED a limited liability company having its registered office at the office of Messrs Maharaj Chandra & Associates, Barristers & Solicitors, 63 Marks Street, Suva.
RESPONDENT

Before: Master Anare Tuilevuka

Solicitors: Koyas, Suite 12, 1st Floor, Nadi Town Council Arcade, Main Street, Nadi for the Applicant.
Rams Law, Barristers and Solicitors, Suite 1, First Floor, Manji Jadavji Bldg, Nadi for the Respondent

Date of Ruling: 11th of May 2011

RULING

INTRODUCTION

[1].	Following various requests for payment of an alleged debt which were all ignored, PSL has served upon HCCFL a statutory demand pursuant to section 221 of the Companies Act (Cap 247) for the sum of $34,952.75. 

[2].	Before me is a Motion by Koyas filed on 13th April 2010 seeking the following orders:

(i)	that the statutory demand by the defendant dated 18th March 2010 be set aside.

(ii)	that the defendant be restrained from bringing a winding up notice in respect of the disputed debt without first obtaining a judgement from the Court in the usual way.

(iii)	the costs of this application be costs in the cause.

[3].	The application mistakenly cites Order 24 of the High Court Rules 1988 (which deals with discovery and inspection of documents) as the authority for its application. 

[4].	In any event, the affidavit of Malcolm Andrew Herbert sworn on the 1st day of April 2010 is filed in support of the application. Herbert is a director of Herbert Construction Company (Fiji) Limited (“HCCFL”). Pioneer Supplies Limited’s (“PSL”) opposes the application vide the affidavit of its managing director, Mahesh Chandra.

BACKGROUND

[5].	HCCFL was the main contractor engaged by Natadola Bay Resort Limited (“NBRL”) to carry out various work in the construction of the Natadola Bay Resort. As is usually the case in a large project of the NBR scale, HCCFL saw fit to sub-contract various “jobs” to a number of sub-contractors. 

[6].	PSL was subcontracted by HCCFL specifically to provide and install fire protection facilities at the Natadola Bay Golf Clubhouse (“clubhouse”). 

[7].	Whether or not the PSL-subcontract was reduced in writing is not clear. Herbert’s affidavit does not exhibit any such document. Nor does his affidavit say that such a document exists.

[8].	It is common ground that, pursuant to the subcontract, PSL did provide and install some fire protection facilities at the clubhouse. 

[9].	According to Chandra, every work that PSL carried out was completed in accordance with all drawings and specifications stipulated by HCCFL. 

[10].	A letter dated 1st June 2009 from PSL to HCCFL advising that PSL had completed all works according to plan and specifications is exhibited in Chandra’s affidavit. Also exhibited is an e-mail dated 28th May 2009 by one Bal Krishna Goundar, who Chandra says is HCCFL’s Project Administrator. This e-mail was circulated to all HCCFL-subcontractors including PSL at a point in time when HCCFL was expected to be wrapping things up at the project. The e-mail required all documentation regarding work completed and related clearance and costings to be submitted to HCCFL. These were then compiled together by HCCFL and submitted to NBRL as part of the stipulated “Practical Completion” process. It was to be followed by a process of verification.

[11].	PSL obliged to the above request. 

[12].	However, some further “variation work” had to be carried out by PSL on HCCFL’s direction. That additional work cost PSL a further $910-00 (VEP). On completion of that additional work, HCCFL then gave appropriate certification and approval. I say that based on documentation exhibited in Chandra’s affidavit which appear to confirm that PSL’s work was certified and accepted by Edison Consultant Ltd who were HCCFL’s consultants. Amongst the exhibits is a certificate by the National Fire Authority verifying that it too had checked and approved PSL’s work at the clubhouse. 

THE CLAIM

[13].	Following clearance from HCCFL and the National Fire Authority, PSL then presented its final claim dated 29th September 2009 to HCCFL. The total sum claimed is $34,952.75. This sum accounted for all work carried out by PSL up to 30th June 2009. 

[14].	HCCFL has not settled PSL’s claim of $34,952.75. And, as stated, HCCFL’s lack of response led to the issuing of a section 221 notice against it.

WHY HCCFL IS NOT SETTLING THE CLAIM?

[15].	Herbert deposes as follows in paragraphs 9 to 15 of his affidavit:

9. The applicant (i.e. HCCFL) cannot pay Pioneer (i.e. PSL) until the work has been certified by Natadola Bay Resort Limited (i.e. NBRL).

10.	The parties agreed that the respondent would only be paid when the work was certified by Natadola Bay Resort Limited and the applicant was paid by Natadola Bay Resort Limited.

Debt collecting device

The respondent is wrongly using the statutory demand process as a debt collecting device.

11.	The debt is disputed by the applicant. The respondent is well aware that there is a genuine dispute.

Solvency

12.	Herbert Construction is a leading construction company in Fiji.

13.	Herbert Construction is solvent and meets the solvency tests under the Companies Act.

14.	The company’s financial statements are confidential. I have provided a copy of the financial statements to Koyas for the purpose of making them available to the Court on a confidential basis, if required.

[16].	I gather from documentation in Herbert’s affidavit in reply that NBRL is refusing to pay HCCFL because of various breaches of the contract alleged against the latter. 

[17].	The breaches alleged are mostly in the nature of below-requirement-workmanship and/or incomplete workmanship in the project as a whole, including an allegation of breaches vis a vis the construction of the clubhouse. 

[18].	The ensuing dispute saw the appointment of an arbitrator in New Zealand. At some stage, NBRL purportedly rescinded the contract with HCCFL. On the basis that the contract was rescinded, NBRL reasoned that there was no point in arbitration. Whether or not the arbitration clause applies nonetheless notwithstanding the purported rescission of the contract surfaced as an issue for a little while but may or may not be pursued. 

ADVERTISMENT

[19].	NBRL has since placed an advertisement in the Fiji newspapers calling for expressions of interest for the completion of works at Natadola. Amongst the works to be completed is the construction of the clubhouse. A copy of this advertisement is exhibited in Herbert’s affidavit. 

[20].	The advertisement also calls for expressions of interest for the installation of mechanical and electrical services, final installation, commissioning and sign off including Fire Monitoring and Alarm Systems etc at the clubhouse. This was precisely what PSL had been subcontracted to do.

HCCFL’S CASE

[21].	HCCFL’s case appears to be premised on two grounds: first - that HCCFL cannot pay PSL until PSL’s work has been certified by NBRL and second – that PSL’s work was incomplete or below standard as evidenced by the calling of expressions of interest by NBRL for the completion of inter alia work for which PSL was subcontracted by HCCFL.

[22].	On the first point above, Herbert’s affidavit does not exhibit any formal written subcontract/agreement (see paragraph 7 above). Nor does his affidavit mention anything about the existence of such a document.

[23].	The affidavit does not say either that the subcontracting arrangement was only done orally.

[24].	It is not disputed though that there was a subcontracting arrangement pursuant to which PSL carried out work which was verified by both HCCFL and the National Fire Authority.

[25].	On the second point, as I have said above (see paragraph 18), the breaches alleged against HCCFL are mostly to do with below-requirement and/or incomplete workmanship. And yet, nowhere in Herbert’s affidavit does he allege any below-requirement-workmanship against PSL. All he seems to say is – “if NBRL is not happy, then no pay for PSL”.

[26].	In the absence of any clear evidence from HCCFL that the parties did in fact agree to the above arrangement, it is hard to accept that PSL should be denied any payment for work done.

[27].	Furthermore, considering that PSL was only subcontracted to install fire protection facilities at the clubhouse, and given that completion of the construction of the clubhouse is still on the drawing board so to speak, and given that both HCCFL and the National Fire Authority had given clearance for the fire protection facilities that PSL had put up at the clubhouse – one wonders whether the “extra” work that NBRL is requiring (by its advertisement) is meant to be remedial to previous PSL work, or, whether the “extra” work is simply incidental to the additional construction to be carried out on/at the clubhouse. On this point, without pretending to make any finding to resolve the issue, I will simply venture to say that the evidence before me all lean towards the latter position – which of course favours PSL.

INJUNCTION

[28].	That an injunction may be ordered to restrain the presentation of a petition premised on a genuinely disputed debt is trite. 

[29].	In Aleems Investments Ltd v Khan Buses Ltd [2011] FJCA 4; ABU0036.2009 (24 January 2011), the Fiji Court of Appeal cited the following passage from Halsbury Laws 4th Edition, 1988 Reissue, Volume 7(2) Companies at paragraph 1451 (page 1101 and 1102) as providing an accurate summary of the case law:

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.

(my emphasis)

[30].	In BW Holdings Limited v Sinclair Knight Merz Fiji Limited [2008] FJCA, the Fiji Court of Appeal said as follows:

11 In the Court of Appeal, Counsel for the Appellant in his written and oral submissions contended that the crucial issue on appeal was whether the balance of convenience favoured the Appellant so that the injunction should be continued. This characterization of the issues is plainly correct. In this regard, both parties recognize that the principles governing the imposition of an injunction of this type are governed by the leading case of American Cyanamid Company v Ethicon Ltd [1975] AC 396. Very properly, counsel for the Appellant has also drawn the attention of the Court to Bryanston Finance v De Vires (No 2) [1976] 2 WLR 41, 52 where it was held that the granting of an injunction restraining the presentation or prosecution of a winding up petition is exercised under the inherent jurisdiction of the court to prevent an abuse of its process. As a matter of principle, interference in the ordinary rights of a person conferred by statute should not be the subject of injunctive relief unless an abuse of process is established. In this regard, clear and persuasive grounds must be established before an injunction may be imposed (my emphasis). In the course of argument, counsel for the Appellant suggested that bad publicity against the party the subject of a winding up order which would ordinarily follow by reason of the fact that there are requirements for publication of aspects of the winding up process could and should be a basis for injunctive relief which interferes with the exercise of ordinary statute-based rights of the party seeking the winding up order. In our view, publicity following a winding up order is an incident of such an order being made. It would seem to follow that, generally speaking, it is difficult to see how possible bad publicity to the company which is the subject of the winding up order could ordinarily be a proper basis for saying that the presentation or prosecution of a winding up order following the failure to pay a statutory demand under section 221 of the Companies Act is an abuse of the process of the court (my emphasis). The judge did not expressly refer to this matter, but had he done so it may well have added weight to the bases upon which he ordered that the injunction be dissolved.

[31].	With respect to injunctions to restrain the presentation of a winding up petition, I reiterate the following basic principles from the above cases. Firstly – a creditor has a statutory right to present a petition to wind up a debtor company (as per section 221 of the Companies Act (Cap 247). Secondly – because, prima facie, an injunction to restrain the presentation of a winding up petition would therefore be intrusive against that right, the onus is on the company to justify the granting of an injunction. Thirdly – the company may justify an injunction either by showing that it (the company) genuinely disputes the debt alleged in the winding up notice and/or that the presentation of a petition would be an abuse of process. "In this regard, clear and persuasive grounds must be established before an injunction may be imposed" (see BW Holdings Limited v Sinclair Knight Merz). 

[32].	At the end of the day, the question will eventually turn on whether the balance of convenience favours the granting of the injunction or not (as per American Cyanamid case).

[33].	The immediate question that arises is whether or not it would be an abuse of process for PSL to present a winding up petition in relation to the alleged debt and/or whether HCFFL is disputing the debt on genuine grounds. 

[34].	The evidence in Chandra's affidavit is strong that PSL's workmanship was up to standard. HCCFL had never disputed the debt prior to it instituting the current proceedings. Indeed, it was HCCFL and not NBRL that had engaged PSL to carry out the work at Natadola Bay Resort.

[35].	As I have stated above, there is no clear evidence that HCCFL and PSL did ever agree that payment was to be subject to NBRL clearance. Merely stating that the parties had so agreed is not enough. I am not at all convinced that HCCFL genuinely disputes the debt. Nor has HCCFL convinced me that the presentation of a petition would be an abuse of process. It has simply failed to establish any clear and persuasive ground on these points. I am also not convinced that the balance of convenience favours the granting of an injunction. 

15.	In reaching this conclusion, I have considered also the fact that there are other pending winding up proceedings against HCCFL in Lautoka and Suva namely HBE 09 of 2009 (now consolidated with Civil Action 69 of 2010); HBF 42 of 2010; HBE 47 of 2010; HBF 069 of 2010). HBF 42 of 2010 was in fact just recently advertised in the Fiji Times and HBE 132 of 2010. In some of these petitions, supporting creditors have filed a Notice of Intention to Appear on Petition ("NIAP").

16.	Notably, in most of these other cases, HCCFL appears to be proffering the same argument that it makes in its application before me. I suspect the same argument will emerge once the affidavits are filed in the other cases. 

17.	PSL could very well file a NIAP in all of these other pending cases pursuant to Rule 29 of the Companies (Winding Up Rules). If PSL were to do so, naturally, the right to apply to be substituted as petitioner would accrue to it should any of the situations set out in Rule 32 occur. And supposing PSL was to be so substituted – there would be no need for it to re-serve a section 221(a) Notice or file a fresh petition. All it would have to do then is amend the petition and re-serve it on HCCFL (see President Hotel Ltd v Lami Town Council [1990] FJCA 22; [1990] 36 FLR 162 (30 October 1990)). 

18.	Against that reality – and in light of the pendency of all these other petitions, the granting of an injunction to restrain the presentation of a petition in this case may lack force and pragmatism. I say that because an injunction cannot yet be granted to restrain PSL from filing a NIAP or from being substituted as petitioner eventually in any of the other pending proceedings.

19.	I say that also because, from a more substantive point of view, the cumulative effect of the pendency of all these other cases, of which I take judicial notice, tends to provoke yet an inchoate feeling that HCCFL may indeed be commercially insolvent.

20.	For these reasons – I dismiss the application and order costs in favour of the respondent which I summarily assess at $500-00 (five hundred dollars). 

21.	Finally, as a matter of policy and of practice and procedure, I would urge the respondent to file a Notice of Intention to Appear on Petition in all or any of the petitions pending in court against HCCL –rather than file a new petition altogether. 

22.	As Pennycuick J said in In re Bostels Ltd (1968) Ch. 346 at 353 (cited in In the Matter of Chaz Lumber Limited, Supreme Court of Fiji, 1985 Volume 31 FLR at page 55, the rule allowing substitution operates to reduce costs and to conserve the assets of the Company, as the remedy of winding up:

enures for the benefit of the creditors as a whole and the costs of the petition fall upon the assets available for distribution amongst the creditors as a whole

23.	In In the Matter of Chaz, the Cullinan J said as follows:

Ultimately therefore, rule 32 operates not so much for the convenience of a supporting creditor as in the interests of all creditors as a whole.

ORDER

1.	The application is dismissed with costs to the respondent in the sum of $500-00.

Anare Tuilevuka
Master

At Lautoka 
11th of May 2011.