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RSA v Tatiana Investments Co Ltd [2017] WSSC 158 (16 November 2017)

SUPREME COURT OF SAMOA
RSA v Tatiana Investments Company Limited [2017] WSSC 158

IN THE DISTRICT COURT OF SAMOA
HELD AT MULINUU

BETWEEN:

RETURNED SERVICES ASSOCIATION OF WESTERN SAMOA INCORPROATED Plaintiff

AND:

TATIANA INVESTMENTS COMPANY LIMITED a duly incorporated company having its registered office at Tanugamanono, Vaimauga Sisifo Samoa.
Defendants

Counsel:
T J Lamb for the Plaintiff
L R Schuster for the Respondent

JUDGMENT

1. The Plaintiff served a statutory demand on the Defendant pursuant to section 222 of the Companies Act 2001 on the 12^th August 2016.
2. On the 8^th September 2016, the Plaintiffs by Statement of Claim for Liquidation then applied for orders:
   1. that the defendant company be put into liquidation by the Court pursuant to the Companies Act 2001 by the appointment of the Official Assignee as liquidator.
   2. that costs of and incidental to this proceeding be awarded to the Plaintiff.
3. The grounds of the Plaintiff’s application can be summarised as follows:
   • (i) that the Plaintiff served on the defendant a statutory demand pursuant to section 22 of the Companies Act 2001 demanding payment of $83,600.00 within 15 working days of the service of the statutory demand;
   • (ii) the defendant has not paid the debt;
   • (iii) the defendant has not entered into a compromise under Part IX of the Companies Act 2001;
   • (iv) otherwise compounded with the Plaintiff; or
   • (v) given a charge over its property to secure payment of the debt to the reasonable satisfaction of the [plaintiff.
4. On the 14^th November 2016, the Defendant applied to set aside the statutory demand pursuant to section 222 of the Companies Act 2001 on the grounds that:
   • (i) the Applicant opposes the application on the basis that the Defendant does not owe any financial liability to the Plaintiff;
   • (ii) the Applicant has a counter-claim, set-off or cross-demand and the amount specified in demand less the amount counterclaim, set-off or cross-demand is less than the specified amount;
   • (iii) that the demand ought to be set aside on the grounds that it is frivolous, vexatious and an abuse of process given that it is the Respondent that actually owes the Applicant $234,576.13 which the Respondent deliberately omitted and there will be substantial injustice to the Applicant if it were not set aside.
5. The Defendant also filed a Statement of Defence and Counter-claim to the Statement of Claim for Liquidation.
6. On the 5^th December 2016, the Defendant filed a ‘Supplementary Application to Set Aside Statutory Demand’ which ostensibly included additional grounds to the application to set aside to include the following:
   • (i) there is no accompanying affidavit in support of the statutory demand;
   • (ii) the Plaintiff was well aware that the Applicant disputed its claim;
   • (iii) the issuing of a statutory demand by the Plaintiff was a gross abuse of process being aware that the Applicant will be placed into liquidation;
   • (iv) the issuing of the statutory demand was frivolous, vexatious and an abuse of process as a Statutory Demand can only be used to prove solvency but not as a means to collect disputed monies; and
   • (v) the Respondent and their counsel are acting in bad faith as their motive and real purpose is to terminate the lease agreement with the Defendant which the Defendant disputes.

Background:

7. According to the affidavit evidence, the Plaintiff and the Defendant entered into a written agreement dated 15 May 1991 for the Defendant to “Manage Club and Bar Business” of the Plaintiff (“the Agreement”). That Club and Bar business is located at the RSA Building at Matafele.
8. The term of the Agreement was 5 years with an option for the Manager to renew for a further term of 5 years (clause 7).
9. According to the President of the Plaintiff, on the 20^th August 2015, the Plaintiff resolved to terminate its relationship with the Defendant. On the 5^th of October 2015, the Plaintiff then served its Notice of Termination on the Defendant purportedly terminating the Agreement. The Notice of Termination gave the Defendant 60 days to end its management and operations in the Plaintiff’s premises.
10. On the 23^rd of November 2016, the Defendant through its Managing Director replied to the Notice of Termination apparently following a meeting with the President of the Plaintiff expressing his surprise, shock and disappointment at the termination. He stated in his letter “Tatiana Investments Co. Ltd is up to date with the rent payments to the RSA and the RSA still owed us more than $200,000.00 for the rebuilding of the RSA Building in accordance with the 1991 RSA Management Contract. Accordingly, Tatiana Investments Co. Ltd owned the buildings until the outstanding Account is fully paid by the RSA.”
11. On the 4^th December 2016, solicitors for the Defendant wrote to the Secretary of the Plaintiff disputing the Notice of Termination and claiming that the Plaintiff owed the Defendant $234,576.13. The Defendant in part relies on the Plaintiff’s Financial Statements and Audited Accounts purportedly prepared by Tom Overhoff in 2008 and 2009 to evidence the debt owing to the Defendant. Annexure “A” to the Affidavit of the Managing Director of the Defendant are the purported “Balance Sheet” for the Plaintiff as at 30 September 2008 and 30 September 2009. The 30 September 2009 Balance Sheet purports to show a debt owing to the Defendant in the sum of $259,376.00. The balance sheet and the purported debt owing to the Defendant is adjusted monthly to take into account rental payments and interest.
12. Annexed to the affidavit of the Managing Director of the Defendant is correspondence purported to have been sent to Mr Overhoff, formerly, President of the Plaintiff.
13. On the 26^th January 2016, solicitors for the Plaintiff wrote to solicitors for the Defendant. Amongst other matters, solicitor for the Plaintiff responds to the claim by the Defendant stating that “Our client disputes that it owes your client any money whatsoever. Moreover the true position of the parties is that your client owes our client a significant sum of money which is discussed further below.” The Defendant was then required to provide to the Plaintiff “copies of all tax invoices, receipts and documentation it has in its possession to substantiate its claim...”
14. According to solicitors for the Plaintiff, the true debt owing is from the Defendant to the Plaintiff in the sum of $145,573.87. The letter concluded that if the Defendant failed to pay the debt owing, the Plaintiff would take “all necessary legal action to recover this amount, including, if necessary, issuing liquidation proceedings against your client.”
    
15. The Statutory Demand was then issued followed by the Application to Liquidate the Defendant.

The Law:

16. The relevant provisions of the Companies Act 2001 provide as follows:

“218.Court may appoint liquidator – (1) A liquidator may be appointed by the Court on the application of:

...

(d) a creditor of the company (including any contingent or prospective creditor); or

...
(2) The Court may appoint a liquidator if it is satisfied that:

(a) the company is unable to pay its debts; or

...
220. Meaning of unable to pay its debts – Unless the contrary is proved, and subject to section 221, a company is presumed to be unable to pay its debts if:

(a) the company has failed to comply with a statutory demand; or

...

221.Evidence and other matters – (1) On an application to the Court for an order that a company be put into liquidation, evidence of failure to comply with a statutory demand is not admissible as evidence that a company is unable to pay its debts unless the application is made within 30 working days after the last date for compliance with the demand.
...

222.Statutory demand – (1) A statutory demand is a demand by a creditor in respect of a debt owing by a company made in accordance with this section.
(2) A statutory demand must:

(a) be in respect of a debt that is due and is not less than the prescribed amount; and

(b) be in writing; and

(c) be served on the company; and

(d) require the company to do any of the following things to the reasonable satisfaction of the creditor, within 15 working days of the date of service, or any longer period that the Court may order—

(i) pay the debt;

(ii) enter into a compromise under Division 2;

(iii) otherwise compound with the creditor;

(iv) give a charge over its property to secure payment of the debt.

223.Court may set aside statutory demand – (1) The Court may, on the application of the company, set aside a statutory demand.
(2) The application must be:

(a) made within 10 working days of the date of service of the demand; and

(b) served on the creditor within 10 working days of the date of service of the demand.
(3) No extension of time may be given for making or serving an application to have a statutory demand set aside, but, at the hearing of the application, the Court may extend the time for compliance with the statutory demand.
(4) The Court may grant an application to set aside a statutory demand if it is satisfied that:

(a) there is a substantial dispute whether or not the debt is owing or is due; or

(b) the company appears to have a counterclaim, set-off, or cross-demand and the amount specified in the demand less the amount of the counterclaim, set-off, or cross-demand is less than the prescribed amount; or

(c) the demand ought to be set aside on other grounds.
(5) A demand must not be set aside by reason only of a defect or irregularity unless the Court considers that substantial injustice would be caused if it were not set aside.
(6) In subsection (5), “defect” includes a material mis-statement of the amount due to the creditor and a material mis-description of the debt referred to in the demand.

224. Additional powers of Court on application to set aside statutory demand – (1) If, on the hearing of an application under section 223, the Court is satisfied that there is a debt due by the company to the creditor that is not the subject of a substantial dispute, or is not subject to a counterclaim, set-off, or cross-demand, the Court may, on the ground that the company is unable to pay its debts:

(a) order the company to pay the debt within a specified period and that, in default of payment, the creditor may make an application to put the company into liquidation; or

(b) dismiss the application and immediately make an order putting the company into liquidation.
(2) For the purposes of the hearing of an application to put the company into liquidation under an order made under subsection (1)(a), the company is presumed to be unable to pay its debts if it failed to pay the debt within the specified period under the order.”

17. There is no domestic case authority applying section 222 of the Companies Act 2001. The equivalent New Zealand provision dealing with the setting aside of a statutory demand is section 290 of the Companies Act 1993 which is materially identical to section 223 of the Samoa Companies Act 2001.
18. In Heath and Whale on Insolvency (online looseleaf edn, LexisNexis) at [20.4], the learned authors stated:

“There has been some confusion as to the purpose of a statutory demand and whether it should only be used as a precursor to an application for liquidation, or whether it can also be used as a mechanism for a creditor to obtain payment of a debt. In Pioneer Insurance Company Ltd v White Heron Motor Lodge Ltd, the Court of Appeal treated the purpose of a statutory demand as to obtain payment for a debt, with the secondary purpose being to provide a basis on which the debtor’s inability to pay its debts as they fall due may be proved in liquidation proceedings. Similarly, the approach of the Court of Appeal in Link Electrosystems Ltd v GPC Electronics (New Zealand) Ltd suggests that creditors should not be criticised for using a statutory demand to require payment unless to do so is “oppressive”. In this respect, the Court stated that, “the provision is not to be used oppressively as a debt collection device. The legislation is not to be utilised more widely than its clear purpose, which is to require the payment of a sum certain — or largely certain — in a context where there is no substantial dispute.”

19. The learned authors go on to state at 20.6:

“An application to set aside a statutory demand must be made and served on the creditor within 10 working days of the date of service of demand.

...

An application to set aside a statutory demand which is not served within the required ten working day period from the date of service of the demand is a nullity. Section 290(3) provides that the court has no jurisdiction to extend time for making or serving the application, but the court is empowered to extend time for compliance with the statutory demand.”

20. In Ingleburn Developments Ltd v BRC Ltd (2008) 10 NZCLC 264, Gendall AsJ also stated:

[13] There also appears little doubt that an application to set aside a statutory demand which is not served within the required 10 working day period from the date of service of the demand is a nullity – Hartner Trustee Ltd v Colin MacKenzie Plastering Ltd (2001) 15 PRNZ 318.

[14] And it is clear from s 290(3) Companies Act 1991 that the Court has no discretion to extend time for an application to set aside a statutory demand if it is filed out of time – Queen City Residential Ltd v Patterson CoPartners Architects Ltd (1995) 8 PRNZ 70, Arzan Investments v Beresford Apartments (2003) 16 PRNZ 825, and Livi Investments Ltd v Butler Gilpat Ltd.

...

[28] I conclude, therefore, that, in applying ss 289, 290, 387 and 392 of the Companies Act 1993 and the decisions noted above in Livi Investments Ltd and Hartner Trustee Ltd, I am satisfied that the present application to set aside the statutory demand is a nullity as first it was not properly served at the address given for service, and secondly, even if it may have been properly served, as it was served by way of facsimile this was deemed to occur on 11 March 2007, which was out of time.

21. It is to be noted that in these proceedings, the Court also stated:
    

“[38]Notwithstanding this, before me counsel for the respondent confirmed that, in the light of matters that have arisen, it is now accepted that the debt claimed in the statutory demand is a disputed debt and that no further steps to liquidate the applicant company based upon the statutory demand will be taken.”

22. In Balmoral Marketing Limited v Karapiro SPA Limited, HC Auck Civ 3 October 2006, AsJ Abbott there said that the Court may refuse to consider whether or not a debt is genuinely disputed if the company fails to apply to set aside a statutory demand for payment of the debt. He said:

“[46] In my view, the following principles emerge from these cases:

1. Each case must be considered on its particular facts;
2. A defendant which fails to apply to set aside a statutory demand on the ground that the debt is disputed will need to show some exceptional factor to justify the failure to apply; that factor is likely to reflect the existence of a genuine dispute;

100. The Court retains a discretion to consider a dispute where it is satisfied that there is a genuine basis for it;

4. A defence raised late may well count against the defendant in costs.”

23. In all, he confirmed that a company “is presumed to be insolvent having failed to comply with the statutory demand.”

Discussion:

24. The relevant Samoan provisions are identical to the New Zealand provisions with respect to applications to set aside statutory demands. An application to set aside a statutory demand out of time is a nullity. I adopt and apply the New Zealand approach to this application by the Defendant. Having failed to comply with or dispute the statutory demand on the grounds that the debt is disputed, the Respondent would need to show ‘some exceptional factor to justify the failure to apply; that factor is likely to reflect the existence of a genuine dispute.’
25. The Defendant was served with a statutory demand on the 12^th August 2016. Pursuant to section 223 of the Companies Act 2001, the Defendant had 10 working days to make and serve an application to set aside the statutory demand. The Defendant filed the application to set aside the statutory demand on the 14^th November 2016 and its Supplementary Application to Set Aside Statutory Demand on the 5^th December 2016. Both applications were well out of time.
26. The Application to Set Aside Statutory Demand and the Supplementary Application to Set Aside Statutory Demand are both a nullity. They are well out of time. Having failed to comply with or dispute the statutory demand on the grounds that the debt is disputed, the Respondent would need to show ‘some exceptional factor to justify the failure to apply; that factor is likely to reflect the existence of a genuine dispute.’ In this regard, the Respondent through Afoa Amituana’I Faleulu Mauli in his affidavit dated 10^th November 2016 and Supplementary Affidavit dated 5^th December 2016 refers to a genuine dispute as to the debt owing by referring to:
    • The RSA audited accounts 2009;
    • The Respondents owe the Applicants $234,576.13 as at 30 November 2015. There is no breakdown however of how this figure was arrived at.
27. As the Respondent failed to apply to have the statutory demand set aside, it is presumed to be insolvent. The question is whether there exists ‘some exceptional factor to justify the failure to apply; that factor is likely to reflect the existence of a genuine dispute.’ In these proceedings, the Respondents raise the RSA Balance Sheet as at 30 September 2009 as evidencing an alleged debt owed to the Respondent. Apart from the assertion that as at 30 November 2015, the amount of $234,576.13 was owing to the Respondent from the Plaintiff, no supporting material was provided to support this claim. The debt purportedly evidenced by the Balance Sheet of 30 November 2009 would on its face have become statute barred 6 years later. There is no evidence of any acknowledgement of any alleged debt after the date of the RSA Balance Sheet in 2009 raised in the material filed by the Respondent. Any debt would appear to be statute barred on the material before the Court.
28. In my respectful view, the Respondent has not made out ‘some exceptional factor to justify the failure to apply; that factor likely being the existence of a genuine debt.’ Section 223 expressly states that no extension of time for making or serving an application to have a statutory demand set aside may be given. The only power the Court has is to therefore extend the time for compliance.

Result:

29. Accordingly:

(i) the Application to Set Aside Statutory Demand and the Supplementary Statutory Demand are a nullity and are therefore dismissed;

(ii) the time frame for the Defendant to comply with the statutory demand is extended by 15 working days from today; and

(iii) as an extension for compliance has been granted, the Statement of Claim for Liquidation is struck out. The Plaintiff is at liberty to file a fresh Statement of Claim for liquidation at the end of the extension period if the Defendant fails to the satisfaction of the Plaintiff to comply with the Statutory Demand.

JUSTICE CLARKE