IN THE HIGH COURT OF FIJI
AT LABASA
CIVIL JURISDICTION
Civil Action No. HBC 9 of 2017

IN THE MATTER of an application by the Plaintiff under section 516 of the Companies Act.

BETWEEN	: 	JADURAM INDUSTRIES LIMITED
PLAINTIFF

AND	:	CRUZ HOLDINGS LIMITED
DEFENDANT

Appearances	:		Ms. N. Tikoisuva for the Plaintiff
Mr. R. Singh for the Defendant

Judgment	:	31 July 2017

JUDGMENT
1.	On 20 January 2017, the Defendant served on the Plaintiff a statutory demand under section 515 of the Companies Act 2015 (the Act), requiring it to pay an alleged debt in the sum of $153,884.48 as provided in invoices CHL0780 of 31 January 2016, and CHL0911 of 22 April 2016, within three weeks. 

2.	On 8 February 2017, and within the 21 day limit under section 516 (2) of the Act, the Plaintiff filed this originating summons together with an affidavit in support seeking the setting aside of the statutory demand served on it, and for costs of the application to be paid by the Defendants.

The law
3.	Under section 515 (a) of the Companies Act 2015, a company must be deemed unable to pay its debts 

(a)	if a creditor, by assignment or otherwise, to whom the Company is indebted in a sum exceeding $10,000 or such other Prescribed Amount then due, has served on the Company, by leaving it at the Registered Office of the Company, a demand requiring the Company to pay the sum so due ("Statutory Demand") and the Company has, not paid the sum or secured or compounded for it to the reasonable satisfaction of the creditor within 3 weeks of the date of the notice.

(b)	………………………..

i.	……………………
ii.	……………………

4.	It is common ground that the Defendant had served a statutory demand on the Plaintiff’s head office in Labasa for an alleged debt in the sum of $153,884.48, being the balance outstanding by the Plaintiff in respect of serviced provided to it by the Defendant Creditor as per invoices CHL0780 of 31 January 2016, and CHL0911 of 22 April 2016.  

5.	Section 515 being a deeming provision, the failure of the Plaintiff to pay, secure or compound the debt within 21 days of the notice deemed it unable to pay its debts.  

6.	Under section 514, a company is solvent if, and only if, it is able to pay all its debts as and when they become due and payable.  A company that is not solvent is therefore insolvent.

7.	An application under section 516 to set aside a statutory demand must be made on one or more of the following grounds:

i.	that there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates; (s. 517 (a))
ii.	that the company has an offsetting claim (s. 517 (b)
iii.	that because of a defect in the demand, substantial injustice will be caused unless the demand is set aside(s. 517 (5) (a), or;
iv.	there is some other reason why the demand should be set aside. (s. 517 (5) (b))

8.	An order setting aside the demand will render the demand of no effect.  (s. 518)

Analysis
9.	Plaintiff’s counsel makes a number of objections against the form and substance of the statutory demand, none of which, in my opinion, has merit.  Firstly, it is submitted that the statutory demand is defective in that it requires an initiating process in the Court system and therefore needs to be first filed in Court.   

10.	This submission is misconceived.  A statutory demand under s. 515 does not need to be filed in Court before service and nowhere in this provision nor in the Act does it say a demand notice needs to be filed in Court.  All that is required under s. 515 is that the creditor to whom the company is indebted in a sum in excess of $10,000, serves the demand on the registered office of the Company, requiring the latter to pay the sum due within 3 weeks of the date of the notice.  The significance of the demand is that the failure of the company to comply with it deems the company insolvent.  As far as insolvency is concerned, a statutory demand is nothing more than an indication to the company that it risks a winding up application if it does not pay, secure or compound the debt.    

11.	Counsel also objects to the demand notice on the basis that it does not sufficiently particularise the debt, and refers to an invoice (CHL0890) that was never sent to the Plaintiff.  It is also submitted that a typographical error in the invoice number on the demand, is fatal.  

12.	These objections can be dealt with quickly.  Section 517 (5) (a) deals specifically with defects in a statutory demand and makes it clear that the Court may set aside a demand only if it is satisfied that substantial injustice will be caused unless the demand is set aside.  Here, apart from saying the demand is defective, the Plaintiff has not pointed out any injustice, let alone a substantial injustice that will result to it if the demand is not set aside.  

13.	The primary argument for the Plaintiff in seeking to set aside the statutory demand is that there is a genuine dispute to the debt.  

14.	The threshold for establishing the existence of a genuine dispute is a low one.  In Fitness First Australia Pty Ltd v Dubow [2011] NSWSC 531, the Court dealt with an application under section 459G of the Corporations Act 2001 (Cth) which is identical in terms to section 516 of our Companies Act 2015.  Ward J stated at [6]:

…the court does not determine the merits of any dispute that may be found to exist, but simply whether these (sic) is such a dispute and the threshold for that is not high. In Edge Technology Pty Ltd v Lite-on Technology Corporation [2000] NSWSC 471; (2000) 34 ACSR 301, Barrett J said (at [45]): 

The threshold presented by the test to set aside a statutory demand does not however require of the plaintiff a rigorous and in-depth examination of the evidence relating to the plaintiff's claim, dispute or offsetting claim… Hayne J in Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] VicRp 61; [1994] 2 VR 290.

15.	In Eyota Pty Ltd v Hanave Pty Ltd(1994) 12 ACSR 785; ( 1994) 12 ACLC 669, McLelland CJ explained that “genuine dispute” means:
…a plausible contention requiring investigation, and raises much of the same sort of considerations as the "serious question to be tried" criterion which arises on an application for an introductory injunction or for the extension or removal of a caveat. This does not mean that the court must accept uncritically as giving rise to genuine dispute, every statement in an affidavit "however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself, it may be not having "sufficient prima facie plausibility to merit further investigation as to its [truth]" (cfEng Me Yong v Letchumanan[1980] AC 331 at 341), or "a patently feeble legal argument or an assertion of fact unsupported by evidence": cfSouth Australia v Wall (1980) 24 SASR 189 at 194. 
But it does mean that, except in such an extreme case [i.e. where evidence is so lacking in plausibility], a court required to determine whether there is a genuine dispute should not embark upon an enquiry as to the credit of a witness or a deponent whose evidence is relied on as giving rise to the dispute. There is a clear difference between, on the one hand, determining whether there is a genuine dispute and, on the other hand, determining the merits of, or resolving, such a dispute.... In Re Morris Catering Australia it was said the essential task is relatively simple - to identify the genuine level of a claim... 
16.	In Fitness First (supra) at 127, Ward J cited Panel Tech Industries (Australia) Pty Ltd v Australian Skyreach Equipment Pty Ltd (No 2)[2003] NSWSC 896 saying:
Barrett J noted that the task faced by a company challenging a statutory demand on genuine dispute grounds is by no means a difficult or demanding one - a company will fail in its task only if the contentions upon which (sic) seeks to rely in mounting the challenge are so devoid of substance that no further investigation is warranted. The court does not engage in any form of balancing exercise between the strengths of competing contention. If there is any factor that on reasonable grounds indicates an arguable case it must find a genuine dispute exists even where the case available to be argued against the company seems stronger.(Emphasis mine)
	
And later, at 132:
A genuine dispute is therefore one which is bona fide and truly exists in fact and is not spurious, hypothetical, illusory or misconceived. It exists where there is a plausible contention which places the debt in dispute and which requires further investigation. The debt in dispute must be in existence at the time at which the statutory demand is served on the debtor (Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd [1997] FCA 681; (1997) 76 FCR 452; Eyota). 

17.	In this case, the Defendant says that there was a contract between the parties for the Defendant to transport crushed metal for the Plaintiff at a charge of $32 per ton and the Defendant’s barge was hired on this basis.  An email from Selwyn Douglas (of the Defendant Company) dated 3 February 2016 made this clear.  Two invoices, CHL0879 in the sum of $285,993.72 and CHL0911 in the sum of $112,801.92 were sent to the Plaintiff on 31 January 2016, and on 22 April 2016.  The total amount due and payable by the Plaintiff was $398,795.64.  The Plaintiff made an initial deposit of $48,000 and additional 8 part payments totalling $244,911.06 up to 31 December 2016, leaving a balance of $153,884.48.  This is the amount in the statutory demand served on the Plaintiff on 19 January 2017.  The Plaintiff had not denied or disputed the debt at any time, and had made part payments after receiving the invoices.  In fact, it admitted the debt and even made a payment proposal for the payment of the amount in the winding up notice.  The first time it disputed the debt was after it was served with the demand for payment of its debt. 

18.	The Plaintiff argues that the rate agreed to in the original verbal agreement between the parties was $40 per cubic metre.  It paid a deposit of $48,000 under the contract. When the barge made its first trip, the contract between the parties was for $40 per cubic metre.  On 26 January 2016, a Sumeet Singh of the Defendant sent an email to the Plaintiffs saying that the Defendant would be invoicing on a voyage basis.  

19.	I have seen that email.  It requests the Plaintiff to “come to an agreement” to use the same conversion rate of aggregate from cubic to tons, and stating that he was going to invoice the Plaintiff in tonnage unless there was another agreement between the parties.

20.	The Plaintiff says it treated this email as an offer to vary the terms of the contract, an offer it refused since performance was nearing completion and because the Defendant had not offered any consideration for the proposed variation.  The unit of measure used in the civil engineering industry is cubic metres.  The crushed metal was purchased in cubic meters; the crushed metal was transported in dump trucks from Standard Industries Ltd. to the Natovi Jetty using the same unit of measure.  Measuring loads in tons creates difficulties as there are no weighbridges to weigh the aggregate at Natovi where the barge was loaded.  In addition, moisture and water in the aggregate posed a further problem.   The Plaintiff says it made part payments for its debt not in acknowledgment of the amounts on the invoices sent by the Defendant, but on the rates initially agreed to.  It did not agree to any variation to $32/ton by the Defendant.

21.	On the material before the Court, I am of the view that there is a genuine dispute between the parties.  I say this in light of the conflict over the terms of the agreement in respect of the rates at which the carting of crushed metal was to be charged, and the contents of Sumeet Singh’s email of 26 January 2016 (after the barge had already made 6 trips) saying “Can we please come to an agreement where we use the same conversion rate of aggregate from cubic to tons….Boss I work on tonnage with invoices unless uncle sel and you come to an agreement…” from which it can be inferred that either the rates up to that point had not been agreed, or that he was proposing a change.  It does not help that there is no written contract to say just what the parties had agreed to at the beginning. 

22.	That the Plaintiff had made part payments after receiving the invoices does not, in my opinion, lead inescapably to a conclusion that it had accepted $32/ton, as there are other reasonable inferences which can be drawn from the payments it made.  One of these is that put forward by the Plaintiff, namely, that the payments were made in accordance with the rates it had “initially” agreed to.  

23.	I bear in mind that I ought not to engage in any form of “balancing exercise between the strengths of competing contention” (Panel Tech (supra), or even to determine the merits of the dispute.  It is sufficient if I find there to exist a genuine dispute.

24.	In MNWA Pty Ltd v Deputy Commissioner of Taxation [2016] FCAFC 154, Rares J

The Commissioner has rights and duties in relation to the recovery of taxation liabilities of taxpayers, including those available under Pt 5.4 of the Corporations Act. But, that does not mean that he is free to resort to those despite having promised, or made representations to, or entered into an arrangement with, a taxpayer that he would proceed differently, as a result of which the taxpayer altered his, her or its position. The question of whether a contract or an arrangement was made and, if so, on what terms or whether the Commissioner, in fact, acted “in good faith” in accordance with cl 5.3 in the three deeds or for an improper purpose or unconscientiously, in my opinion, was one that, in the circumstances, could only be resolved in other substantive proceedings and not in the applications under s 459G.(Emphasis mine)

25.	At this point, I am satisfied that there is a plausible contention, a genuine dispute requiring investigation.  I do not think the Plaintiff’s disputations are “hypothetical, illusory or misconceived” (Panel Tech; Spencer Constructions (supra), or “so devoid of substance” as to be implausible. 

26.	The Defendant says that the Plaintiff’s claim of a genuine dispute is a “recent concoction” after it received the statutory demand.  It may well be so, but I do not think this issue has any bearing on the question as to whether a genuine dispute exists.  Rather, it goes instead to the merits of the dispute, which I ought not to delve into at this stage.  

27.	The Defendant finally submits that even if the Court finds there to be a genuine dispute, the Company should be still wound up since the Plaintiff has admitted owing $12,120 to the Defendant.  There is a problem with this submission.  These proceedings are about setting aside the statutory demand.  Whether the Company ought to be wound up or not is an issue to be decided in proceedings currently before the High Court in Suva.  

28.	Section 517 of the Act sets out the procedure in an application to set aside where there is a dispute or offsetting claim.  It states: 

(1)	This section applies where, on an application to set aside a Statutory Demand, the Court is satisfied of either or both of the following—

(a) that there is a genuine dispute between the Company and the respondent about the existence or amount of a debt to which the demand relates;
(b)	that the Company has an offsetting claim.

(2)	The Court must calculate the substantiated amount of the demand.

(3)	If the substantiated amount is less than the statutory minimum amount for a Statutory Demand, the Court must, by order, set aside the demand.

(4)	If the substantiated amount is at least as great as the statutory minimum amount for a Statutory Demand, the Court may make an order—

(a) varying the demand as specified in the order; and
(b) declaring the demand to have had effect, as so varied, as from when the demand was served on the Company.

29.	Paragraph 21 and 36 of the Plaintiff’s affidavit in support and paragraph 201 of its affidavit in reply admit that the Plaintiff owes $12,120.00 to the Defendant.  

30.	Section 517 (2) requires the Court to calculate the substantiated amount of the demand.  On the admissions of the Plaintiff, I find the substantiated amount of the debt to be $12,120.00, a sum more than the statutory minimum of $10,000 in s. 515 of the Act.   

31.	Pursuant to Section 517 (4) therefore of the Act, I vary the amount in the Defendant’s statutory demand served on the Plaintiff on 20 January 2017, so as to reflect a debt owing by the Plaintiff, in the substantiated sum of $12,120.   The demand is to have effect from when it was served on the Plaintiff.

32.	The Orders of the Court therefore are:

1.	The application to set aside the statutory demand is dismissed;
2.	The statutory demand in this matter is to be varied by deleting therefrom the words “$153,884.48 [One Hundred Fifty Three Thousand Eight Hundred Eighty Four Dollars and Forty Eight Cents] being the balance outstanding by the Debtor in respect of services provided to the Debtor by the Creditor as per invoice Nos. CHL0780 dated 31st January, 2016 and CHL0911 dated 22nd April, 2016” and inserting in their place, “12,120.00)”.  
3.	The demand as varied is to have effect from when it was served on the Plaintiff.
4.	Costs in favour of the Defendant in the sum of $800.

S.F. Bull
Acting Master