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Treasure Island Ltd v Rups Industries Ltd [2001] FJLawRp 14; [2001] 1 FLR 64 (6 February 2001)

TREASURE ISLAND LIMITED v RUPS INDUSTRIES LIMITED

High Court Civil Jurisdiction

Injunction - whether Debtor can injunct creditor from exercising statutory right to issue winding up proceedings where cross claim – whether an abuse of process - Debtor seeks to restrain Creditor presenting petition or advertising petition – Debtor's admission of balance debt subject to counter-claim – no dispute as to existence of debt - locus standi -Companies Act s221(a); High Court Rules O.29 r.1 and O.3 r.4

The Plaintiff Debtor sought an injunction order to restrain the Defendant Creditor from presenting any petition to wind up the Plaintiff or advertising any petition which may already have been issued in respect of any debt alleged to be due to the creditor. The Creditor had served a notice to wind up the Plaintiff claiming $300,000.00 for the balance of renovations that the Defendant had undertaken. The debtor issued proceedings against the Creditor and claimed $524,999.00 by way of counterclaim. The Debtor subsequently brought this action to injunct the Creditor from proceeding with its Creditor's petition until determination of the substantive proceedings. The Debtor's counsel argued there was no debt owing, but the Debtor's own affidavit compromised it with an admission of debt subject to set off and counter-claim against the debt owed by the Creditor. The Court found the dispute was not as to the existence of a debt, but whether a Court could grant an injunction to restrain a party exercising its statutory right, where there is a cross-claim. Since the presentation and advertising of a Creditor's petition is one conferred by statutory fiat, the Debtor was seeking to injunct the exercise of a Creditor's statutory right. The Court concluded the existence of a cross-claim is relevant to a court's discretion on the hearing of a winding up petition, but does not afford a good reason why a Creditor should not be allowed to proceed where the Debtor had conceded it omitted to pay the demand within the time stipulated.

Held – The presentation of a petition to wind up a company based on an undisputed debt is not an abuse of the process of the court. The existence of a cross-claim does not afford a good reason for the company's failure to pay the demand within the time stipulated, and a court will not grant an injunction to prevent issuance of a petiton, or the advertising of a petition in these circumstances.

Anglian Sales Ltd v South Pacific Manufacturing Co. Ltd [1984] 2 NZLR 249 appl.

Injunction to prevent issuance of a petition, or the advertising of a petition refused with costs against the Plaintiff.

[note: the Plaintiff later filed a Reply to Defence and Defence to Counterclaim and this case continued to trial.]

Other cases referred to in Decision

Re Douglas Griggs Engineering Ltd [1963] C.L. 19

Re Julius Harper Ltd ex parte Winkler & Co. Hong Kong Ltd [1983] NZLR 215

Universal Chemicals Ltd v Havter [1980] 2 NZLR 737

Re a company (No. 006273 of 1992) [1993] BCLC 131

Anu S Patel for the Plaintiff
Chen B Young for the Defendant

Madraiwiwi, J

By summons dated 14 August 1998 the Plaintiff Treasure Island Limited seeks an injunctive order against the Defendant Rups Industries Limited. It is to be restrained until judgment in this action or further order of the court from presenting whether by itself or its servants or agents or otherwise howsoever any petition under the Companies Act Cap. 249 to wind up the Plaintiff or advertising any petition which may already have been issued in respect of any debt alleged to be due to the Defendant from the Plaintiff. The application is supported by an affidavit sworn by Mesake Talaboko on 12 August 1998 and made pursuant to Order 29 rule 1 and Order 3 rule 4 of the High Court Rules.

The parties rely on the following documents in this application:

1. Summons and Affidavit in support of Mesake Talaboko sworn 12 August 1998;
2. Supplementary Affidavit of John Douglas Ferguson sworn 13 August 1998;
3. Affidavit in reply of Gyaneshwar Sanehi Rup sworn 13 August 1998;
4. Supplementary affidavit of Gyaneshwar Sanehi Rup sworn 28 September 1998;
5. Further affidavit of John Douglas Ferguson sworn 16 November 1998;
6. Statement of Claim dated 31 July 1998;
7. Statement of Defence and Counterclaim dated 21 August 1998;
8. Reply to Defence dated 28 July 1999.
   

The court regrets the inordinate time it has taken to hear this application. Part of the explanation lies with the court's notes for 7 May 1999 when the matter was called in chambers. At the request of learned counsel for the Defendant, the application was adjourned sine die with the consent of learned counsel for the Plaintiff. Nevertheless the court accepts that it is in large part responsible for this state of affairs for which it apologises.

On 16 July 1998 the Defendant served notice on the Plaintiff under section 221 of the Companies Act Cap. 249 claiming $300,000.00 for the balance for the renovations the Defendant had undertaken. Section 221(a) of the Act provides:

"221. A 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 than 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 be reasonable satisfaction of the creditor; or ...."

On 31 July the Plaintiff issued proceedings against the Defendant and claimed from it the sum of $524,999.00 by way of counterclaim and set off. It subsequently brought this application to injunct the Defendant from proceeding with its creditor's petition until determination of the substantive proceedings.

The basis for this application appears at paragraph 27 of Mesake Talaboko's affidavit. It states:

"27. If a winding up petition is issued and advertised it will cause confusion as to the Plaintiff's creditworthiness and viability and needless to say will cause irreparable damage to the Plaintiff."

Learned counsel for the Plaintiff asserted there was no debt owed to the Defendant, the debt was disputed and the winding up proceedings was an abuse of process. The court does not, with respect, accept that contention. In paragraph 6 of the statement of claim the Plaintiff inter alia concedes "the balance sum of $292,252.00 is subject to a set off and counterclaim as hereinafter appears." Implicit in the passage cited is the acknowledgment that the Defendant is owed the monies. This is reinforced at paragraph 25 of Mesake Talaboko's affidavit where he deposed:

"I verily believe the Plaintiff has a genuine set off and counterclaim against the Defendant in respect of the Defendant's claim of $300,000 against the Plaintiff as is deposed to in the affidavit herein and as are particularised in the statement of claims herein and in annexure "G" hereto."

The dispute is therefore not as to the existence of the debt despite learned counsel for the Plaintiff's best efforts to persuade the court otherwise. The Plaintiff stands compromised by its admissions.

In Re Douglas Griggs Engineering Ltd [1963] CL 19, 23 Pennycrick J stated the Defendant's position in these terms:

"It seems to me that this prima facie right of the petitioning creditor to a winding up order is not displaced merely by showing that the company has a disputed claim against the petitioning creditor which is the subject of litigation in other proceedings."

With this approach Hardie-Boys J agreed in Re Julius Harper Ltd ex parte Winkler & Co (Hong Kong) Ltd [1983] NZLR 215 holding that the existence of a counterclaim by a debtor, even if bona fide and having substance, did not render the presentation of a winding up petition an abuse of process.

However in Universal Chemicals Ltd v Hayter [1980] 2 NZLR 737 Barker J. granted an injunction to restrain the presentation of the petition. The counterclaim exceeded the amount of the debt upon which it was sought to base a winding-up petition and his Lordship expressed the position thus at 740:

"I hold that, where there is a counter claim based on substantial grounds, which exceeds the amount of the debt owing by the company to the petitioner, the Court will usually, in the exercise of its discretion, refuse to make a winding up order provided the counterclaim is litigated promptly. It follows that the Court will restrain the presentation of a threatened winding up order petition for the same reason."

Were the court to accept the Plaintiff's submissions, it would grant the injunction as prayed.

The learned Court of Appeal of New Zealand considered these differing approaches in Anglian Sales Ltd v South Pacific Manufacturing Co. Ltd [1984] 2 NZLR 249. Their Lordships followed Re Douglas Griggs Engineering Ltd supra and overruled Universal Chemicals Ltd v Hayter supra holding that when a winding-up petition is founded on the inability of a company to pay its debts under the Act, and there is no dispute in that regard, the alleged existence of a bone fide counter claim for an amount equal or in excess of the debt did not justify a stay of petition on the ground of abuse of process. The petitioning creditor was entitled to assert its statutory rights and petition the court but the latter retained a discretion as to whether it made a winding-up order. The court is satisfied for the reasons expressed earlier that the debt was not disputed and that the Defendant was entitled to conclude the Plaintiff could not pay its debts, not having responded to the demand by the former.

The basis for their Lordship's decision is related to the presentation and advertising of a creditor's petition being one conferred by statutory fiat. It was expressed in these terms at 251, 252:

"But the right to have a winding up petition determined, being a right conferred by statute, ought not to be taken away except where the existence of that very statutory right itself is seriously challenged; that is, where the challenge can or appropriate grounds be made to the petitioning Creditor's status as such. If a challenge were allowed in circumstances short of this, the court would in effect be refusing to give effect to the very right which the statute has conferred upon a creditor to have the petition itself considered. In bringing his petition the creditor is doing no more than asserting creditor's right in this respect ought not to rest simply on the balance of convenience considerations which may be relevant to an interim injunction. Something more than that is required."

In commenting on the distinction between the different approaches Greig J.A. observed as follows in Anglian Sales Ltd supra at 255:

"Reference has been made in this and the other previous High Court decisions in New Zealand to a number of Australian decisions which display a conflict between the view that a substantial counterclaim raises a question of locus standi resulting in preference for an exercise of the inherent discretion against the petitioner and the view that, on the other hand, the existence of a counterclaim does not affect locus standi. I think that those who prefer the former view have failed to make the distinction between the inherent jurisdiction to prevent in special cases on abuse of the court's process and the exercise of the discretion on the hearing of the petition.

This is not a case in which the petitioner's debt is disputed or in which it can be said the petition must fail. The Respondent is a creditor in what is conceded to be a substantial amount. The Appellant has a cross claim sounding in unliquidated damages. That may leave it in doubt as to whether the Respondent or the hearing of the petitioner's bound to fail. The petitioner, the Respondent in this case, ought to be entitled to prosecute its petition."

The court respectfully adopts their Lordship's reasoning in Anglian Sales Ltd supra. It is also fortified in this conclusion by the headnote to Re a company (No. 006273 of 1992) [1993] BCLC 131 which states:

"Held - Injunction refused. The presentation of a petition to wind up a company based on an undisputed debt is not an abuse of the process of the court. Such a petition was not presented for an improper purpose, for example, to put pressure on the company to pay a debt which was disputed, but was for a purpose which was entirely proper which was to put pressure on the company to pay a debt which was not disputed. The existence of a cross-claim that the company may have was relevant to the exercise of the court's discretion on the hearing of the winding-up petition. Since the debt in this case was due and the existence of the cross-claim (which had not been established by litigation) did not afford a good reason for the company's failure to pay the demand that had been properly made the court would not grant the order sought."

The court must therefore conclude that what the Plaintiff seeks is to injunct the exercise of a statutory right by the Defendant in circumstances which do not amount to an abuse of process. The debt has been implicitly conceded by the Plaintiff's omission in meeting the demand for payment statutory deemed to be unable to pay its debt" within the time stipulated. The application is accordingly refused and costs summarily assessed against the Plaintiff for $1000.00.

Application refused.

Kamni Naidu and Marie Chan