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You are here: BAILII >> Databases >> High Court of Ireland Decisions >> Emerald Portable Building Systems Ltd. v. Companies Act [2005] IEHC 301 (3 August 2005)
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Cite as: [2005] IEHC 301
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Neutral Citation No: [2005] IEHC 301
CASE NO. 2005 147COS
Applicant
Respondent
JUDGMENT GIVEN BY MR. JUSTICE CLARKE ON WEDNESDAY, 3RD AUGUST 2005
In this case, the petitioner the MacAvoy Group Limited ("MacAvoy") seeks the winding up of EPBS, Emerald Portable Building Systems Limited ("EPBS") on the basis of its claim to be a creditor. On 21 December 2004 MacAvoy made formal demand under Section 214 of the Companies Act 1963 for the payment of a debt of €60,000 alleged to be due.
For various reasons, which I will analyse later in this judgment, EPBS opposes the petition on the basis that the debt is the subject matter of a bona fide dispute and that EPBS has a cross claim against MacAvoy for monies in excess of the amount claimed. In those circumstances, the test which I should apply is clear: In In Re: WMG (Toughening) Limited, 2003, 1 IR 389 McCracken J, giving the unanimous judgment of the Supreme Court, adopted the test as set out in the judgment of Buckley LJ in Stonegate Securities –v- Gregory, (1980) Ch 576 at page 579 to the following effect:
"If the company in good faith and on substantial grounds disputes any liability in respect of the alleged debt the petition will be dismissed or if the matter is brought before a Court before the petition is issued its presentation will, in normal circumstances, be restrained. That is because a winding up petition is not a legitimate means of seeking to enforce payment of a debt which is bona fide disputed."
As noted in the judgment, that test was already approved by the Supreme Court as the appropriate test for this jurisdiction in In Re: Pageboy Couriers Limited, (1983) IRLM 510. As to the nature of the dispute which will suffice McCracken J went on to say the following:
"It is also accepted by the parties that the subject matter of the bona fide dispute may in fact not be the debt itself but rather a cross claim by the company against the petitioner. The issue therefore is whether the company's claim in the present case is a claim made in good faith and on substantial grounds. It is clear that the issue is not whether the company will succeed in its claim but whether it is bona fide dispute which should be determined by the Court in the ordinary way without putting the company's existence at risk."
The position in respect of such cross claim cases was clearly set out by the United Kingdom Court of Appeal in In Re: Bayoil SA, (1991) 1 WLR 147. In the case, the debt itself was undisputed but the company asserted that it had a bona fide cross claim to a greater sum.
Norse LJ said the following at page 154:
"On the other side we have been referred to dicta in Common Wealth decisions which gives support to the existence of the practice in cross claim cases. Thus in the Privy Council Case of Malayan Plant Limited –v- Moscow Narodny Bank Limited (1980) MLJ 53, a disputed debt case, Lord Edmond Davies in delivering the judgment of the board said at page 55: "There is no distinction in principle between a cross claim of substance (such as in Woods case) and a serious dispute regarding the indebtedness imputing against a company which has long been held to constitute a proper ground on which to reject a winding up petition.""
As to the reasoning behind that position the judgment went on to say the following at page 155:
"The ability of a petitioning creditor to levy execution against a company does not entitle him to have it wound up. Moreover an order that a company be wound up, unlike a bankruptcy order, is often a death knell. Nor can it be certain that a liquidator, even with security behind him, will prosecute the company's claims with the diligence and efficiency of its directors. These I believe are considerations which go to justify the practice in cross claim cases. I emphasise that the cross claim must be genuine and serious or if you prefer one of substance, that it must be one which the company has been unable to litigate and it must be in an amount exceeding the amount of the petitioner's debt."
TO the like effect in the same case Mr. Justice Ward said the following on page 156:
"Thirdly, were the matter before me de novo I would arrive at the same conclusion. The practice in the disputed debt case is well established. I appreciate that in that case the petition is dismissed because the petitioner cannot properly claim to be a creditor. That said there seems to me to be little practical difference between the disputed debt and a cross claim which does not constitute a set off properly so called. In this regard, I am fortified by the opinion of Lord Edmond Davies in Malayan Plant Limited –v- Moscow Narodny Bank Limited."
It is clear, therefore, that a cross claim can afford a company an answer to a winding up petition even in circumstances where that cross claim would not amount to a set off in equity so as to afford a defence to a claim for a liquidated sum. It follows that there may be cases where a plaintiff creditor might be entitled to obtain judgment against a company but where the same debt might, by virtue of a substantial cross claim, be insufficient to lead to a winding up.
The facts of this case.
In this case, EPBS both disputes the debt and raises a cross claim. The specific debt relied on relates to a cheque in the sum of €60,000 which was given by EPBS to MacAvoy in July 2004. The cheque was apparently undated when handed over but was not presented until October of that year. By that time, EPBS has countermanded the cheque and it was dishonoured.
The background to the above stems from a course of dealing between the parties whereby MacAvoy supplied portable buildings to EPBS. Some of those units, 33 in number, were required to be modified so as to meet ESBI specifications so that they could in turn be supplied onwards by EPBS to two separate unconnected companies for placement on ESB substations where they would be fitted with sophisticated technology. It is alleged that those modified units were not in accordance with the agreed specifications, were defective and that loss flowed from same.
As the cheque referred to above was in part payment for portable buildings supplied it seems to me that the greater issue requiring determination in this petition is as to whether EPBS has a serious cross claim arising our of the alleged defects referred to earlier. If such an arguable cross claim is established then the petition should be dismissed, even if MacAvoy might, in summary proceedings, succeed in obtaining judgment. In such circumstances, it would be unnecessary to determine whether a bona fide dispute as to the debt itself has been raised.
In relation to the cross claim I should firstly note that there appears to be contemporary documentation, that is to say documentation from the spring of 2004, which seems to show that issues concerning the adequacy of the Portakabins concerned was raised at that time. EPBS has also put before the Court a report from a firm of forensic engineers which suggest that at least some 11 of the Portakabins concerned had significant problems with rust and with doors as of May of this year. The report also notes an alleged dissatisfaction by relevant ESB personnel with the Portakabins. It is further contended that the cost of repairing the alleged defects and miscellaneous expenses associated therewith come to almost €110,000 and that a detailed account setting out the calculation of that sum was given to MacAvoy personnel in August 2004. It should be noted that MacAvoy disputes any allegation of defects.
However, in the light of the above evidence, it would be easy to conclude that there was a bona fide cross claim of sufficient scale to justify dismissing the petition were it not for one significant complicating factor. As is clear from the passage from the judgment of Nourse LJ in Bayoil cited above, any cross claim relied on should be one which the company has been unable to litigate. It is clear that the claim in respect of defects had crystallised, at least to a significant extent, by the latter part of 2004. The absence of any proceedings in respect of such defects is, therefore, an issue that needs to be addressed.
In May 2005 solicitors for EPBS wrote to the solicitors for MacAvoy seeking an adjournment of the petition. In that letter noted that:
"This firm was originally consulted in January 2005, however the writer has only just come on board following dissolution of partnership."
In this context, it should also be noted that MacAvoy encountered significant difficulty in serving both the petition and the Section 214 notice, requiring court orders in that regard.
At its best, from the prospective of EPBS that difficulty stemmed from the fact that the company's registered office was left unoccupied for a significant period of time. It is most unfortunate that, through no fault of MacAvoy, neither was the Section 214 notice replied to or proceedings in respect of the defects commenced.
However, I do not feel that EPBS should be put into liquidation due to a failure on the part of its solicitors. I must, with some reluctance, come to the view that there is an acceptable explanation for the absence of proceedings.
In those circumstances, I have come to the view that there is a bona fide cross claim of sufficient substance to justify dismissing the petition. It is not, therefore, necessary to consider whether there is also a sufficient dispute as to the circumstances in which the relevant cheque was handed over to constitute a bona fide defence.
I should also note that there was conflicting accountancy views put by the parties before the Court. It is not possible to resolve such disputes without an oral hearing.
In view of the determination which I have reached above, it is unnecessary to resolve those conflicts.
COUNSEL FOR APPLICANT:
I would ask for my costs.
MS. JOHNSON:
In relation to the costs to the costs aspect, I first like to state the letter that was sent in November 2004 in relation to the cheque was never replied to. In addition the Section 214 notices were sent in both December and April. It was just the week before the petition was expected to be before the Court that we first heard from EPBS. In that, I would like to ask for my costs.
COUNSEL FOR APPLICANT:
My Lord, I say that my client has already borne the consequences of his failure to answer those letters in that the petition of this matter was advertised, my Lord. It was advertised prior to us having an opportunity to apply to the Court to restraint because we came on board late in the day, my Lord. My client has borne the consequences of that in terms of his reputation in the building trade because the petition was advertised, as is the normal course.
I should say, my Lord, in the course of these proceedings the petitioner contracted ACC Limited who had provided credit finance to seek copies of invoices which they themselves had supplied to us and presumably had undertaken copies of, my Lord. My client has, in the circumstances, had enough to bear and he shouldn't also have to bear the costs of these proceedings.
MS. JOHNSON:
My Lord, all these matters have been disputed and proceedings that were before you, we have been put at a disadvantage throughout all of this. Throughout the entire proceedings from November until May we were greeted with silence, there has been nothing else. Everything that was before you in the courts have been disputed.
MR. JUSTICE CLARKE:
It seems to me, firstly, that I should deal with the reserve costs of the order for substituted service of 18 March. In view of the fact that the difficulties in relation to service stemmed from the company leaving its registered office unoccupied, not changing it to a place where active business has been carried on, it seems to me that it was necessary, in any event, for EPBS –- for MacAvoy to seek that order from the Court and I would propose granting the costs reserved in respect of the order of 18 March to MacAvoy.
In relation to the costs of the substantive petition, it seems to me that strictly speaking the position would be that, in the absence of any appropriate response to the Section 214 letter, it was appropriate for MacAvoy to institute the petition and to proceed with it, at least up to the point when the replying affidavit of Mr. Costello was filed on the -- in June of this year. However equally, it has to be said that it seems to me that as soon as that affidavit was in the basis for the bona fide dispute, which I found exists, was before the Court and it would have been open at that stage to MacAvoy to discontinue the petition. If it had done so it seems to me that it would have been clearly entitled to its costs up to that point because it was not its fault that no adequate response had come from EPBS.
However, so far as the actual hearing itself is concerned it would seem to me that in the ordinary way the costs would follow the event. The only issue on the hearing of the petition was as to whether there was a bona fide dispute of sufficient substance and the company had succeeded in that.
In those circumstances, it seems to me that the two periods of cost roughly cancel each other out. While it might be in one sense, strictly speaking, more correct to award the costs of the first period to the petitioner and the costs of the second period to the company, it seems to me that the better course is to make no order as to the costs.
Therefore in summary, I will give the petitioner the reserved costs of the application on 18 March and make no other order as to costs in respect of the petition.
COUNSEL FOR APPLICANT:
May it please your Lordship.
THE JUDGMENT THEN CONCLUDED