IN THE HIGH COURT OF FIJI
AT SUVA
CIVIL JURISDICTION 

            Companies Action No 20 of 2021 

IN THE MATTER of a Statutory Demand dated 9th March 2021 taken out by AJYNK ELECTRICAL PTE LTD ("the Respondent") against SAMBHU LAL CONSTRUCTION (FIJI) LIMITED ("the Applicant") and served on the Applicant on 26th March 2021

AND

IN THE MATTER of an application by the Applicant for an order setting aside the Statutory Demand pursuant to Section 516 of the Companies Act 2015.

BETWEEN:		SAMBHU LAL CONSTRUCTION (FIJI) LIMITED a limited liability
company having its registered Office at Tavulomo, Savusavu in the Republic of Fiji.

Applicant

AND:	AJYNK ELECTRICAL PTE LTD a company incorporated in Fiji and having its registered office at Lot 5 Natabua Industrial Subdivision, Lautoka ("the Company")
        Respondent

Counsel	     	:   Applicant:    Mr Singh A.K
                                    :   Respondent: Ms Lal. P
Date of Hearing         :   09.12.2021
Date of Judgment	:   08.02.2022

Catch words
Sections 515,516,  517(2), 517(5)(a) and (b)  of Companies Act 2015- Companies (Winding up) Rules 2015 , Rule 5- Defects – substantial injustice- service – registered post- no specific mode- directions of court- approval of method used- affidavit – no requirement for approval- attestation- Order 41 rule 12 of High Court Rules 1988- Existence of Statutory Demand- Section 5 Arbitration Act 1956 – calculation of substantial amount of debt- waiver of jurisdiction by contract to binding mandatory arbitration- failure to arbitration- prospective civil action- unsubstantiated debt.

JUDGMENT
INTRODUCTION

1.	This is an originating summons filed in terms of Section 516 of Companies Act 2015 to set aside Statutory Demand for winding up of Applicant. Defendant had taken preliminary objection as to the mode of service of statutory demand and also to affidavit in support. Respondent had served the statutory notice by way of registered post.  Applicant had failed to state any ‘injustice caused’ as required by Section 517(5)(a) of Companies Act 2015 . Preliminary objections are overruled. Plaintiff and Defendant had entered in to a subcontract (the Subcontract) for the Work identified in Article 2. Payment terms were also included in the same Article under, ‘Terms and Conditions’. The Subcontract stated that time as the essence of the contract. Respondent could not complete the project on time. Applicant and Respondent were at variance for reasons for the delay. Article 5 of the Subcontract stipulate the manner of termination. Statutory Demand was based on an assessment of work for payment to Applicant. Payments and claims of Respondent were in terms of the Subcontract. Hence there was ‘genuine dispute’ as to amount stated in demand. Article 13 of the Subcontract allows ‘any disputes or claims arising out’ of it be resolved by arbitration. Parties have agreed that ‘the award of the arbitrator shall be final and binding upon them as though rendered by a court of law’. As such any dispute as to claims needs to be submitted to arbitration as agreed between parties. So parties had waived their right to resort to issue a Statutory Demand, without resorting to arbitration, based on a claim in terms of the Subcontract. So the statutory demand is set aside. Even if I am wrong on above, on the merits of the Statutory Demand failed to establish a undisputed debt in terms of the Subcontract.

FACTS
 
2.	On 17.8.2018, Applicant entered a general building contract with Fiji National University (Owner) to construct three Story Building at Nasese, Suva. 

3.	On 17.8.2018, Applicant and Respondent entered the Subcontract. The Subcontract indicated who was the Owner of the project and Architects of the project.

4.	So Applicant and Respondent were in agreement as to whom the project belonged and that time was the essence of the Subcontract.

5.	Owner, Architect were named in the Subcontract and Respondent was obliged to comply with the requirements of such third party directions.

6.	Article 1 of the Subcontract states,
“CONTRACT PAYMENT. The Contractor agrees to pay Subcontractor for satisfactory performance of Subcontractor's Work the sum of Nine Hundred Thousand Dollars only ($900,000.00) (VEP) Progress payment less 10% retention sum to be paid to the Subcontractor by the Principle contractor on monthly basis.
50% of retention sub to be released upon practical completion. The remind 50% to be paid upon completion of defect liability period.”
7.	The Scope of Work is stated in Article 2 of the Subcontract and it states
“a. subcontractor shall furnish necessary labour, materials services, tools , equipment and other things necessary to fully perform and complete the Work in cooperation with the other trades in good and workmanlike manner to the satisfaction and acceptance of Contractor and Owner and perform all the Work as set forth therein…….
‘We are open to any negotiation for options that may suit developer or the client.
We are confident that we have the ability and experience and resources to deliver this project within the required delivery time line, budget and regulatory standards.
We are confident that we have the ability and experience and resources to deliver this project within the required delivery time line, budget and regulatory standards.
……
2. Terms and condition:
Payment Terms: 20th of the month following the invoice date. Based on Monthly progressive claims.
…….”
8.	Article 3 of the Subcontract states Work and also that time is of essence 
“SCHEDULE OF WORK.
  (a)  Subcontractor hereby acknowledges that time is of the essence with respect to the Contractor's completing the Project pursuant to the General Contract and that such completion is substantially dependent upon Subcontractor's performance of this Subcontract on or before the dates set forth in the Progress Schedule and/or Progress Meetings. Time, therefore, is of the essence in this Subcontract.” (emphasis added)

9.	The Appendix enclosed with the subcontract had the Tender price breakdown. The total sum of $981,000.00 (nine hundred and eighty-one dollars) (VIP) included supply all materials and installation of the said materials.

10.	In terms of Article 3 (a) Respondent acknowledged that time was of essence with respect of General Contract and Respondent‘s performance on time depends on it. So Defendant had agreed to comply with Progress Meetings and Progress Schedules hence time was of the essence of the Subcontract.

11.	On 14.3. 2019, the Respondent was paid the sum of $30,000.00 by cheque no 15767 and on 17.3. 2019, the Respondent was again paid the sum of $50,000.00 by cheque no 16222 and 20 .5.2019, the Respondent was again paid the sum of $30,000.00 by cheque no 16223 and on 19.6.2019, the Respondent was paid $4086.70 for msb Power Change at FNU/FMA site by cheque no 016240. On 11.7.2019, the Respondent was paid the sum of $15206.71 by cheque no 016248 and was received by the Respondent's agent or servants.

12.	On 11/12/19 Respondent was handed dated cheque for 13.12.2019 in the sum of $25000.00 as part payment for claim No 3. On 3.2.2020 Respondent was paid the sum of $8487.76 as full payment for claim No. 3.

13.	That on 4.2. 2020, the Respondent was paid the sum of $19956.97 vide cheque No 17086 as progress claim No 18.

14.	On 10.9. 2019, the Applicant send a notice to the Respondent for delay pursuant to article 15 of the subcontract.

15.	On 18.9.2019, the Applicant send a defect notice to the Respondent and was informed that 20% of the overall sum will be held until defects are rectified.

16.	On 30.6. 2020, Applicant issued default notice to the Respondent. This was replied by an email on 1.7.2020

17.	On 9 .9. 2020, Applicant terminated the sub-contract and put it on notice for damages due to delay and defective works.

ANALYSIS

Preliminary Objections

18.	Applicant’s preliminary objections can be dismissed without considering merits as none of the objections raised, fulfilled requirements terms of Section 517(5)(a) of Companies Act 2015. Defects in Demand, in terms of said provision can include service of that. 

19.	If the applicant is seeking setting aside of Statutory Demand on a ‘defect’, it should also establish that due to such defect, ‘substantially injustice’ will be caused to Applicant.

20.	There was no evidence of such injustice to Applicant upon the evidence contained in affidavit in support.

21.	Applicant had not addressed any ‘substantial injustice’ due to the alleged defect of service so preliminary objection on service of Statutory Demand can be dismissed in limine. 

22.	A defect ipso facto will not ‘substantial injustice’ and facts of such injustice needs to be addressed in the affidavit in support. Neither affidavit nor submissions addressed this element hence preliminary object is overruled. 

23.	Without prejudice to above, I have considered preliminary objection raised below.

a.	 Service of Demand by Registered Post

i.	Companies Act 2015 is silent on the mode of service. Section 515(a) of Companies Act 2015   state ‘Statutory Demand’ has to be served by ‘leaving it at Registered Office’. The literal meaning has no ambiguity as what was required under Section 515(a) of Companies Act 2015 that was to leave a Statutory Demand at its Registered Office. 

ii.	The mode of leaving a Statutory Demand, was not stated as leaving it at premises can be done by a bailiff or courier service or registered post, or any other method acceptable to court. 

iii.	All those methods can be satisfactorily and efficiently employed to leave Statutory Demand at the Registered Office. Companies Act 2015 had no exclusive method of delivery of Statutory Demand. 

iv.	Applicant’s restrictive interpretation is not acceptable considering Companies Act 2015 and Companies (Winding Up) Rules 2015. Rule 5 of Companies (Winding Up) Rules 2015 allow a court to give directions as to proper procedure on an ex parte application. The court can also make a determination that ‘adopted procedure’ was the proper procedure.

v.	It is clear from Companies Winding Up Rules 2015, that intention of the legislature was to prevent inordinate delay. A court can give direction, where no express provision found in the Companies Act 2015 or Companies (Winding up) Rules 2015. The court can direct a party on ex parte application or to sanction what was already done by a party as proper procedure.

vi.	Applicant could not show that they were in any way affected by serving Statutory Demand by way of registered post. If they were prejudiced by adopted method there may be room for setting aside, but there was no such evidence.

vii.	Applicant’s submission contained two High Court decisions and one was under repealed Companies Act (Cap 247) which went through a complete overhaul and present provisions were not discussed. The other judgment had not consider Rule 5 of Companies (Winding Up) Rules 2015. So both can be distinguished as they had not considered relevant provisions of law before considering the issue relating to service of Statutory Demand. Both these decisions are persuasive authorities, hence not binding on this court.

viii.	Considering circumstances of this case the service of ‘Statutory Demand’ by way of registered post was proper. In terms of Rule 5 of Companies (Winding Up) Rules 2015, the service can be declared as proper service by court.

ix.	 The issue of service of Statutory Demand by registered post was the proof of service with date and time and method of service. There was no dispute as to date of service or not leaving the Demand at Registered Office. These issues had not arisen in this case as Applicant had come to court seeking setting aside of it within time. If there was an issue of service as to date or time an affidavit of service from the person who left the Statutory Demand may be required. 

x.	There was no prohibition to serve ‘Statutory Demand’ by registered post as the mode of service was silent in Companies Act 2015. The court has power to direct a procedure when it is silent or decide that the ‘adopted procedure’ was correct. This depend on circumstances of the case and in my mind there is no need to give a restrictive interpretation as contended by Applicant.

xi.	Apart from above reason, it is futile to reject this Statutory Demand  on preliminary issue as that will only add cost and waste of time for parties. This is the rationale behind Rule 5 of Companies (Winding Up) Rules 2015. Apart from that such a ‘defect’ cannot be a reason to set aside Statutory Demand without proof of ‘substantial injustice’.

a.	Affidavit

i.	Applicant contends that affidavit in opposition was attested by a Solicitor instead of Notary Public. Order 41 rule 12 of High Court Rules 1988 states,

“Affidavit taken in Commonwealth country admissible without proof of seal, etc. 
“12. A document purporting to have affixed or impressed thereon or subscribed thereto the seal or signature of a court, judge, notary public or person having authority to administer oaths in a part of the Commonwealth outside Fiji in testimony of an affidavit being taken before it or him in that part shall be admitted in evidence without proof of the seal or signature being the seal or signature of that court, judge, notary public or person” (emphasis added)

xii.	In this case affidavit of the Respondent was attested by ‘Barrister and Solicitor’ in New Zealand and in terms of New Zealand High Court Rules such a person can attest an affidavit. This affidavit was attested in New Zealand, I take judicial notice that New Zealand is a commonwealth country. So Applicant’s objection that affidavit in reply filed by Respondent, was not properly attested in terms of High Court Rules 1988, is overruled.

xiii.	Next objection to the affidavit was that deponent of the affidavit was not authorized. I was not shown, that there was such a requirement in any law. I could not find any provision in Companies Act 2015 that required a person swearing on behalf of a company is required to annex written authority to an affidavit filed under said Act. 

xiv.	Respondent was a legal entity, and it was represented by a legal practitioner.   So the affidavit filed by said legal practitioner should prima facie be accepted as person who was having an authority by the legal person represented by lawyer.  There was no additional requirement for Respondent to fulfill authorizing a person to swear an affidavit to court, unless such a requirement was specifically stated, in any law or where court required such authorization due to special circumstances.

xv.	The affidavit was sworn by a person who had personal experience of the facts and a solicitor was appearing for Respondent. So there was no additional requirement to specifically give authority to swear an affidavit.

xvi.	Applicant had raised an issue as to non-compliance of Order 41 rule 9(2) of High Court Rules 1988. This is an objection that is often raised to dispose a matter without considering merits. Considering circumstances of this case I grant leave for the affidavit in reply filed by Respondent.

Merits of the Application

24.	Having dismissed the preliminary objections the merits of the application is considered below.

25.	On 14.4.2021, Applicant  filed Originating Summons and seeking for following orders:
“(i)  An Order that the Respondent be restrained, whether by itself, or its directors or its servants or agents or otherwise from presenting and/or advertising Winding Up Petitions against the Applicant Company based on the Statutory Demands dated 9th March 2021 served on the Applicant company on 26th March 2021 pending the hearing and determination of this action.

(ii) An Order that the Statutory Demand Notice issued by the Respondent Company is wholly set aside.”
	
26.	Applicant had instituted this action by way of originating summons. Since the action is based on statutory provision which had not laid down a specific procedure, originating summons is proper course. There was no objection to this method of proceedings.

27.	The scope of such an action in terms of Section 516 of Companies Act 2015, seeking setting aside of statutory demand is found in Section  517 of Companies Act 2015 and  states
	“Determination of application where there is a dispute or offsetting claim
517.—(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 foa    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.
(5) The Court may also order that a demand be set aside if it is satisfied that—
(a) because of a defect in the demand, substantial injustice will be caused unless the demand is set aside; or
(b) there is some other reason why the demand should be set aside.”(emphasis added)
28.	Considering above provision there are statutory grounds for setting aside of Demand, but what are   ‘other reason’ can depend on circumstances of the case. 

29.	So, a setting aside of Statutory Demand is not confined only to statutory grounds, but can also depend on as ‘other reasons’.  This granted some flexibility to the provision of law for situations not addressed in the said provision.

30.	This ‘other reason’  can consist a broad spectrum of reasons and one evident reason is legal impediment for winding up such as express exclusion of winding up action by contract between the parties. It may also result in ‘arbitration’ or ‘mediation’ clauses in a contract depending on the way such clauses are drafted and circumstances.

Statutory Reasons for setting aside
 
31.	Accordingly, the Applicant in this action , can either establish ‘genuine dispute’ as to 
a.	  Amount , or 
b.	  Existence 

  Of ‘Statutory Demand. Or that there is ‘offsetting claim’.

32.	According to affidavit in support setting aside of Statutory Demand was sought on following statutory grounds for ‘genuine dispute’
a.	Existence of Statutory Demand
b.	Amount of Statutory Demand
c.	Offsetting claim for liquidated damage.

33.	If the ‘genuine dispute’ relate to ‘offsetting claim’, then Section 517(2) of Companies Act 2015 applies. So, the court is required to calculate such ‘offsetting claim’ in order to ascertain what is the ‘substantial amount of the Demand’. 

Existence of Statutory Demand - 

34.	If the Statutory Demand is dismissed in limine, that can be considered as genuine dispute as to existence of Statutory Demand. 

35.	Respondent had issued demand notice in terms of Section 515 of Companies Act 2015 for a sum of $138,437.57 (VIP) as ‘being part of the sum owing for providing electrical services the specific details of which are well known’ to Applicant.

36.	Applicant states that Respondent owes them a sum of money. This was due to delay in performance of contract and their claim for liquidated damage.

37.	Applicant had filed a copy of writ of summons yet to be issued by court, and also statement of claim. Said claim was based on alleged liquidated damages but I could not find such liquidated damages clause contained in the Subcontract. Applicant had failed to state any such clause in the Subcontract.

38.	There was a legal issue as to availability of method of alleged mode of demand of the debt from Applicant. This was due to contractual waiver of disputes relating to claims and payments between Applicant and Respondent.

39.	The Subcontract contained an ‘Arbitration Clause’. Article 13 of the Subcontract states

‘Article 13

ARBITRATION. Any and all disputes or claims between the Contractor/Engineer/Designer and the Subcontractor arising out of this Subcontract shall be resolved by submission of the same to the FIJI COURT, for resolution by binding arbitration according to FIJI COURT's Rules of Arbitration.

In so agreeing the parties expressly waive their right to a jury trial, if any, on these issues and further agree that the award of the arbitrator shall be final and binding upon them as though rendered by a Court of Law and shall be enforceable in any Court having jurisdiction over the same.’(emphasis is mine)

40.	Parties to the Subcontract had agreed that any dispute or claims among them or others such as ‘engineers, designers’ must be dealt through ‘Arbitration’. The issue of payment was a dispute specifically covered under Article 13, which required mandatory binding arbitration.

41.	Section 5 of Arbitration Act 1965 states,
 
‘Power to stay proceedings where there is a submission

5. If any party to a submission, or any person claiming through or under him, commences any legal proceedings in any court against any other party to the submission, or any other person claiming through or under him, in respect of any matter agreed to be referred, any party to such legal proceedings may, at any time after appearance and before delivering any pleadings or taking any other steps in the proceedings, apply to the court to stay the proceedings, and that court, if satisfied that there is no sufficient reason why the matter should not be referred in accordance with the submission and that the applicant was at the time when the proceedings were commenced and still remains ready and willing to do all things necessary to the proper conduct of the arbitration, may make an order staying the proceedings.’(emphasis added)

42.	The word ‘submission’ is interpreted exclusively in following manner in Section 2 of Arbitration Act 1965

"submission" means a written agreement to submit present or future differences to arbitration whether an arbitrator-is named therein or not.
43.	According to above provision a stay of proceedings can be made when there is an arbitration clause. This is a discretionary power under Arbitration Act 1965. 

44.	The above provisions, read in conjunction with Section 517 (2) of Companies Act 2015 obliged the court to calculate substantial amount stated in Statutory Demand. This cannot be done, when both parties had submitted to binding mandatory arbitration in terms of Article 13 of Subcontract, for dispute relating to claims and payments.

45.	So Article 13 of the Subcontract, ousted jurisdiction to seek winding up, as there cannot be ‘calculation of substantial’ amount on demand by court in terms of Section 517(2) of Companies Act 2015.

46.	Even if I am wrong on above, parties to the Subcontract can exercise their right to determination of ‘any payment or claim’ between them by arbitration. This was based on the principle of party autonomy in issues relating to   contractual obligations.

47.	Having agreed to resolve any dispute as to payment and claims through arbitration, Respondent had issued ‘Statutory Demand’ based on an assessment of project manager.

48.	In my mind parties have accepted the efficiency and suitability to resolve disputes relating to claims and payments to arbitrator. Hence Respondent cannot unilaterally  issue ‘Statutory Demand’ without resorting to arbitration in terms of Article 13 of the Subcontract, 

49.	Article 13 of the Subcontract specifically deals with the claims and any dispute as to claims and or payments must be referred to arbitration which is binding on them. Applicant as well as Respondent had preferred their disputes to be dealt by arbitration. So the circumstances of this case that involve disputed facts is required to be assessed by arbitrator before any debt to be materialized. This was the choice of parties to the Subcontract.

50.	Section 517(2) of Companies Act 2015 required that ‘The Court must calculate the substantial amount of the demand’. This can be done only when the claims are based on undisputed facts. When the facts are disputed as in this instance, the court cannot calculate substantial amount of the demand. This is another reason to set aside Statutory Demand.

51.	Such a mandatory duty cast on the court, to calculate a ‘substantial amount’ will be hindrance to arbitration and also conflicts with principle of party autonomy. So this is another reason to consider that Article 13 of the Subcontract had ousted jurisdiction to seek winding up without resorting to arbitration.

52.	For the reasons given above, the ‘Statutory Demand’ is null and void ab initio and struck off. 

Genuine Dispute on Amount 

53.	Without prejudice to what was stated above I consider facts contained in the affidavits to consider whether there was a genuine dispute regarding the ‘Statutory Demand’ served by Respondent. This was a sum they allege owed by Applicant. 

54.	I could not find a claim and or claims to justify that there was an undisputed debt in favour of Respondent. There were no claims produced to court,   but payments for the claims were submitted by Applicant. 

55.	In terms of the Subcontract payments are ‘Based on Monthly progressive claims’. Where were such claims? Whether such claims were being made or not? What were the ‘invoice dates’ of such claims?

56.	In the circumstances, I do not know how much of such claims were allowed or how much was paid and to do mandatory calculation of ‘substantial amount’ as required by Section 517(2) of Companies Act 2015.

57.	I was not informed either at hearing or in affidavits as to the method of payment adopted such as approvals and or assessment, of work in terms of the Subcontract. In the written submissions of Respondent, it is stated that amount stated in Statutory Demand (i.e $138,437.57 was the difference of assessment of Work on Electrical Services by project manager and total payments they received from Applicant.

58.	Respondent had relied on a report submitted by project manager to the Owner of the project, but there was no evidence that payments and or claims needs to be based on such an assessment, when express provisions as to progressive payments contained in the Subcontract.

59.	How an undisputed debt would accrue based on an assessment of project manager regarding claims of Applicant to the Owner, was not explained in the submissions. 

60.	Such an assessment may be helpful to assess the work done by subcontractors including Respondent in an Arbitration, for proof of their work. But this was legally wrong contention on the part of Respondent to claim undisputed debt on such an assessment for ‘Statutory Demand’. The assessment which they relied was the basis for payment to Applicant by Owner. There was no evidence such amount was paid or not. Applicant’s payments to Respondent cannot be total amount it received from owner. The payment to Respondent based on the Subcontract.

61.	Statutory Demand should comply with the Subcontract. This was an essential part of the Demand.
62.	The work of Respondent needs to be compared with the work assigned by subcontract. Counsel for Respondent did not do that at hearing or in written submission. These were factual issues that cannot be decided summarily.

63.	There was no undisputed debt based on assessment of electrical work, for payment by Owner of the project to Applicant. This is not the basis of payment agreed between Applicant and Respondent for its work.

Offsetting Claim

64.	Applicant had also claimed from Respondent for liquidated damages. 

65.	Respondent in their email of 13.7.2019 annexe to their affidavit had informed that they were aware of ‘liquidated damages’ for non-compliance but disputed that they would be subjected to that for reason given in this email( see Annexed E email of 13.7.2019)

66.	Plaintiff’s written submission had not stated such a clause in the Subcontract in order to claim liquidated damages. Filing of a civil action against a company that had already served statutory demand should be looked closely. Filing a civil action against a company where there is no genuine dispute should not be ground to set aside statutory demand as that will not itself a reason to consider that there was a genuine dispute. This may be one of the factors to consider existence of genuine dispute but not the conclusive fact as to existence of genuine dispute.

67.	Any person having an undisputed debt can also institute a civil action though it may be struck off or dismissed at the end. Hence the prospective civil action of Applicant against Respondent, must be considered with other facts and circumstances surround it. 

68.	There is no rule as to such an action ipso facto stay a winding up action or set aside statutory demand. If so this will be the preferred method to prevent winding up action even for undisputed debt, as striking out of a civil action will invariably take more time than winding up action. So filing a civil action by an Applicant to setting aside should not be considered as a complete bar to a winding up action or a reason for setting aside Statutory Demand. If not institution of civil action may be resorted to abuse the process than on genuine claim.

69.	Respondent contend that alleged liquidated damage claim of Applicant, has to be separated from their claim. This is another issue that needs to be considered in terms of the Subcontract, as payments for work done needs to be based on progressive manner.

70.	Applicant in numerous occasions informed Respondent regarding the delay while the Respondent was working on the project in terms of the Subcontract. The Subcontract stated that time is the essence, hence parties were aware of completion of the project on time, but each one accuse the other for delay. These were disputed facts that cannot be decided from documents submitted at this hearing.

Stop Payment of Cheque for $100,000

71.	Applicant had on 16.7.2019 issued a cheque for $100,000 for ‘Generator’ directly this cheque was issued after issuance of a cheque to equal amount for the same purpose but was not utilized for that. 

72.	Applicant had informed that cheque No 16263 issued to Respondent was under “stop payment” due to the conduct of Respondent in not settling the payment for generator on time. Later, Applicant had directly paid the same amount to supplier of generator.

73.	According to the Subcontract such payments were due from Respondent but the parties were given flexibility to deviate from that.

74.	The explanation given by Applicant for advising the bank to stop the payment was that Respondent had not utilized said sum to pay for generator and sellers wanted that to be removed from site for non-payment. According to Applicant it had paid it directly. These facts were informed by letter of 16.7.2019 (Annexed as SDS 8 to affidavit in support).

75.	The content of Annexed SDS 8 were self-explanatory and despite parties having some issues regarding delay in payments and progress of work a payment was made on 13.8.2019 for $66,315 for progressive claims 3 and 4. There was no evidence as to what these Claims 3 and 4 were and whether they were in terms of the Subcontract.

76.	Another part payment of claim 3 was made on 11.12.2019 for $25,000.Full payment for claim 3 of Respondent was made on 3.2.2020 for $8,487.76.

77.	Respondent had admitted receipt of the payments from Applicant stated above, but stated in their affidavit in reply that such payments were accepted on ‘without prejudice’ basis and they were not satisfied with the payments.

78.	There were no communications filed regarding this acceptance on ‘without prejudice’ basis and or disputing part payment of their claims by Applicant.

79.	Applicant had issued notice of default on 30.6.2020 to Respondent regarding delay relying on Article 5 of the Subcontract. Respondent had replied to this default notice on 1.7.2020 by informing that the delay was due to samples not being approved by client , and requesting Applicant to arrange ‘sample approval’ without delay if they want to expedite the procurement.

80.	Respondent in their affidavit in reply had stated that some of the material needed for the work under the Subcontract were purchased by Applicant due to deviation from payments in terms of the Subcontract. What were those deviations were not stated. These were disputed facts that cannot be determined summary manner, through an issuance of Statutory Demand and winding up action.

81.	Respondent also stated that there was a delay in obtaining this material which were to be paid by Applicant, but due to delay in the payment by Applicant for such items they were not received on time.

82.	This shows that there were some reasons beyond the control of Respondent, for delay in procurement of electrical items. This would invariably delay performance of completion of Subcontract on time, but how much was attributable to Respondent and how much was due to Applicant cannot be decided in summary manner, in this action.

83.	On 9.9.2020 Respondent had terminated the Subcontract between parties for alleged ‘defects and substantial departure’ and had told that they will be claiming damages from Respondent.

84.	There was no reply filed by Respondent for the said termination.

85.	Neither Applicant nor Respondent dealt with mandatory requirements contained in Article 5 of the Sub Contract before termination of the Subcontract.

86.	Article 5 of the Subcontract deals with the failure to perform  Work assigned and it states:

FAILURE OF PERFORMANCE.
(a) Should Subcontractor at any time fail to prosecute and complete the Work in accordance with the Progress Schedule or as herein provided or fail to diligently and continuously perform his Work, or if in the opinion of Contractor the Work of Subcontractor cannot be completed in the time period set forth, or if Contractor is notified or Subcontractor's failure to pay for any material or labour used on the Project, or in the event of a strike or stoppage or Work resulting from a dispute involving or affecting the labour employed by Subcontractor or his Subcontractors, or if Subcontractor fails to perform any of the requirements herein, then such event shall be deemed a default and Contractor shall notify Subcontractor to correct such default and shall specify in such notice the action to be taken and a reasonable date by which the default shall be corrected.

(b)  If a default occurs and is not corrected on or before the date specified in the notice to Subcontractor, Contractor shall be entitled to exercise either or both of the following remedies as well as any other remedies available, including but not limited to binding and consolidated arbitration in accordance with the terms of the General Contract or through litigation in a court of law.

(1)  Contractor may immediately take any action necessary to correct such default, including specifically the right to provide labour, overtime labour and materials and may deduct the cost of correcting such default from payment due, or that may become due to Subcontractor.

(2)Contractor may terminate this Subcontract and the employment of Subcontractor, take possession of Subcontractor's materials, tools and equipment used in performing such Work, and employ another Subcontractor or use the employees of Contractor to finish the remaining Work to be performed hereunder. Contractor may deduct the costs of completing the remaining work from the unpaid contract price, and if the cost of completing the remaining Work exceeds the unpaid Contract amount, Subcontractor shall pay to Contractor such excess costs, including but not limited to overhead and attorney's fees.

Contractor, in any such event may also refrain from making any further payments under this Subcontract to Subcontractor until the entire project shall be fully finished and accepted by Owner, at which time, if the unpaid balance of the amount to be paid under this Subcontract shall exceed the expense incurred by Contractor to Subcontractor, but if such expenses and damages shall exceed such unpaid balance Subcontractor shall promptly pay the difference to Contractor if Contractor does not terminate the right of Subcontractor to proceed, Subcontractor shall continue with the balance of the Work. If Owner is damaged by reason of any breach by Subcontractor of this Subcontract the Subcontractor shall, subject to any defenses and offsets to which Subcontractor may be entitled under this Subcontract, pay Owner such damages. (emphases added)

87.	Accordingly, if there was a default that needs to be notified with reasonable time to correct it. Applicant had not produced such notice.

88.	Respondent had neither protested for termination on the ground that it was not in terms of the Subcontract.

89.	In terms of Article 5 of Subcontract only when there is ‘deemed a default’ that Applicant can terminate the Subcontract. There were no evidence produced at this action to justify termination, but at the same time there was no protest or objection by Respondent for the alleged termination of the Subcontract.

90.	According to respondent statutory demand they have served was based on an independent project manager’s report to the ‘Owner’ of the project. This assessment was done on Work done project as at 24.6.2020. 

91.	As regards to Work on said Annexed H to affidavit of Respondent under Electrical Services was not a report on assessment done under the Subcontract for payment or claims under that for Respondent. This was an assessment of work under main contract between Owner and Applicant for payment under that. So how that proves undisputed debt under the Subcontract needs to be established by Respondent. 

92.	In the submission in paragraph 6 on page 10 of the submission Respondent had deducted the payments made by Applicant from the assessment under Electrical Services payments due to Applicant from Owner. This cannot be the basis of payment under the Subcontract, though it can prove that such work was completed.

93.	This report is annexed as ‘H’ to the affidavit of Respondent. For this Applicant state,

a.	This was ‘account basis only’ hence ‘can be withdrawn via bond or renttion at any time’ and payment to Respondent was based on the Subcontract
b.	Payments were not made due to numerous defects reports by engineer ‘Owner’.
c.	This included some work done by ‘main contractor’ due to incomplete work of Respondent.
d.	Some producments such as ‘Lps, gpo’ were purchased by ‘main contractor’.
e.	Article 5 of the Subcontract allows retention of payment 

94.	Respondent had claimed for defective works of Applicant which were denied by them. Hence, due to one or above reasons, Respondent’s amount was ‘genuinely disputed’ by Applicant.

95.	In my mind there was a genuine dispute as to the demand sum and I am unable to assess any undisputed sum in terms of Section 515(2) of Companies Act 2015 in summary manner in this application due to complexity and circumstances of this case. In any event such calculation in this application will violate mandatory arbitration contained in Article 13 of the Subcontract.

Other reasons for setting aside of Statutory Demand

96.	As I have discussed earlier in this judgment in detail, Article 13 of the Subcontract contained mandatory binding arbitration clause before resorting to legal action in court. This arbitration clause precludes a party to seek winding up action without resorting to arbitration. 

97.	So issuance of Statutory Demand without obtaining an award through arbitration was not allowed in terms of the Subcontract. So the Statutory Demand needs to be set aside in limine.

CONCLUSION

98.	Respondent had served statutory demand in terms of Section 515 of Companies Act 2015 regarding alleged payments due to them in terms of the Subcontract. The payments under the Subcontract upon ‘satisfactory performance’ and this was to be through ‘Monthly progressing claims’.  The exact mechanism of payment, was not stated by either party.  According to the Subcontract, any dispute as to payments and claims must be referred to arbitration. So without arbitration issuance of ‘Statutory Demand’ was legally untenable hence there was legal impediment to proceed with winding up action. This was a ‘genuine dispute’ as to existence of debt, based on law. Even if I am wrong on that, dispute as to the amount stated in ‘Statutory Demand’ was not based on the Subcontract, as it was based on an assessment by third party for payment to Applicant by the Owner of the project. According to Respondent they needed to be paid on assessment of work by project manager. This assessment of work was for payment to Applicant by owner on the basis of contract between them.  But the Subcontract states payments on satisfactory performance of Respondent’s work and in case of failure to perform Applicant ‘may also refrain from making further payments’ in terms of the Subcontract. There were genuine dispute as to Statutory Demand. When parties had agreed to arbitration and specifically waived the right to litigation party autonomy should be honoured. So it will be in conflict with Section 517(2) for the court to assess ‘substantiated amount’ in summary manner. This was an additional ground to set aside statutory demand. Considering circumstances of this case and legal importance of the issues, I refrain from ordering a cost.

FINAL ORDERS

a.	Statutory demand served on Applicant, dated 9.3.2021 is set aside.
b.	No order as to cost.

Dated at Suva this 8th day of February, 2022.

							……………………………….
							Justice Deepthi Amaratunga
							High Court, Suva