Petition dismissed because petitioners failed to prove they were creditors with a certain debt and the company did not neglect payment.

[*127] 1980 July 8

(PIKIS, P.D.C. & CHRYSOSTOMIS, S.D.J.)

IN THE DISTRICT COURT OF LARNACA

In the matter of Brikent Estates Company Ltd.,

and

In the matter of the Companies Law, Cap.113,

(Companies Petition No.7/80).

Company- Winding up - Inability to pay debts - Failure of petitioners to establish that they are creditors of the Company - And failure to prove that company neglected to pay amount allegedly owing after service of the statutory notice - Petition dismissed - Dispute as to amount owing - Discretion of Court to stay proceedings pending quantification of the amount.

A, Andreou, for the Petitioners.

N. Cleanthous, for the Respondents.

JUDGMENT

The judgment of the Court was delivered by:-

PIKIS, P.D.C.: The petitioners are a firm of [*128] lawyers practising in Cyprus and the respondents a trading company having its registered office at Larnaca. In 1979 the respondents and another company, namely Island Beach Development Limited, hereafter referred to as the third party, sought legal advice from the petitioners and apparently engaged their services for the taking of certain steps on their behalf for the protection of their interests. A dispute arose between the petitioners, the respondents and the third party whereupon the petitioners terminated their relationship with the respondents and the third party for what Mr. L. Papaphilippou, the senior partner of the petitioning firm, described as a good cause. Thereafter he furnished the respondents with a bill for the services rendered, claiming an amount of C£791 including disbursements. The bill did not specify the sum claimed from each of the two companies nor have they so far specified the amount claimed from each of the two companies. The petitioners addressed a number of telexes to the respondents, exh.3, reminding them of their bill, threatening in. one of these telexes, notably the telex of 2nd January 1980, to institute “an action and injunction” and in the last telex of 19th March 1980 with the issue of notice of liquidation of both companies.

The respondents failed to satisfy the

claim of the petitioners whereupon, on 24th March 1980 the petitioners served the respondents with a statutory notice

pursuant to the provisions of s. 212(a) of the Companies Law Cap.113. Again the notice is addressed to both the respondents and the third party without any attempt being made to differentiate between the obligations of the two. It is indeed doubtful [*129] whether this is a valid notice bearing in mind the failure of the addressors to specify the sum due by the respondents. We need not examine this issue further for, as it will appear later, the petition is doomed to failure for other more substantive reasons. Before the expiration of the three weeks period set by the notice the respondents replied by letter dated 15th April 1980, disputing the sum claimed, offering at the same time to pay a sum of £350 in full settlement of the claim of the petitioners against both companies. Manifestly there was a dispute between the petitioners on the one hand and the respondents and the third party on the other as to the amount owing to the petitioners. Notwithstanding this dispute and the failure of the petitioners to specify the amount owing by the respondents and despite the absence of any suggestion that the respondents are insolvent the petitioners filed the present petition praying for an order for liquidation.

In the contention of the petitioners the absence of evidence as to the precise sum owing is no bar to the prosecution of the present petition. For the respondents it was submitted that the petition is ill founded In view of the genuine dispute as to the amount owing. The petitioners replied that the quantification of the amount owing is not a pre-requisite to the prosecution of a petition for the winding up of a company so long as it is admitted that a sum is owing although the Court may, in its discretion, stay the petition until the debt is quantified. In support of this submission reliance was placed on two English decisions, notably Re Tweeds Garages Ltd. (1962) 1 All E.R.121 [*130] and Holt Southey v. Catnic Components Ltd. (1966) 2 All E.R. 276. Also arguments were advanced as to the procedure applicable in companies petitions with particular reference to the rules governing the procedure in such petitions. (Some aspects of this question were discussed by the Full District Court of Larnaca in Karaoglanian & Sons Ltd. & Others v. Karaoglanian and Others (1976) 12 J.S.C. 1875).

We need not probe this question further as we are clearly of the view that the petition is doomed to failure for other substantive reasons. In our judgment the petition must be dismissed for two reasons, that is to say (a) failure on the part of the petitioners to establish that they are creditors of the respondents in the sense envisaged by the law in view of their dispute as to the amount owing and (b) failure to prove that the respondents neglected to pay the sum in question.

In Mann v. Goldstein (1968) 2 All E.R. 769 Ungoed-Thomas

J. re-affirmed a principle of long-standing that a petition for the winding up of a company is not the proper channel for the verification of the debt and went so far as to describe the invocation of the drastic measure for the winding up of a company as an abuse of the process of the Court. The learned Judge emphasized that it is an abuse of the process of the Court to prosecute a winding up petition for a non legitimate purpose. And the only legitimate purpose for which a petition for winding up can be prosecuted in inability on the part of the company to pay its debts. There is no derogation from this position in Holt (supra); [*131] on the contrary Goulding J. subscribed to the validity of the above proposition in no uncertain terms. What was; decided in Holt (supra) is that it is impermissible to restrain the filing of a petition by a prospective creditor and that in such circumstances the matter should best be left in the hands of the Companies Court that is competent to pronounce on the fate of a petition. The case does not decide that there is jurisdiction to entertain a petition for the winding up of the company in the fase of a genuine dispute as to the amount owing. On the contrary it appears to be settled law that a party claiming unliquidated damages, and an unspecified debt amounts to a claim for an unliquidated sum, cannot obtain a winding up order. (See Halsbury’

s Laws of England, 3rd edition, volume 6, p. 537 - para 1038.) And generally an order will not be made if there is a genuine

dispute as to the amount owing. It appears there is a residual discretion vested in a Court trying a companies petition, where the amount is disputed, to stay the proceedings pending the quantification the amount. In our judgment this discretion should only be exercised if there is evidence that the company is insolvent whereupon valid reasons may exist for the non abandonment of winding up proceedings. In the absence of such evidence to keep the petition in being would be tantamount to substituting a petition for the winding up of a company for an ordinary action, a course that is both contrary to law and oppressive in nature. The case of Re Tweeds (supra) does not establish that a petition may be sustained if the amount owing is at large but merely lays down that in the face of evidence that the respondents are indebted to the petitioners for a sum [*132] certain the :Court will not refrain from exercising its jurisdiction under the Companies Law if there is a dispute as to the amount owing above such certain figure. It is worth quoting a passage from the decision in Mann (supra) at p. 775 making it absolutely clear that one must be a creditor of the company for a sum certain before he acquires a locus standi to prosecute a petition for the winding up of a company:

“It is not its legitimate purpose to decide “whether a petitioner claiming to be a creditor is a “creditor, because s.224 makes it a pre-requisite “that he should be a creditor before he is even “entitled to present a petition at all and before “any consideration of the company’s insolvency can “become relevant.”

In our .judgment the petitioners have failed to establish that they are creditors of the respondents and therefore they have no legitimate interest to pursue a petition for the winding up of the respondents. Another reason for which the petition must be dismissed is to be found in the failure of the petitioners to prove that the respondents neglected to pay the amount allegedly owing after service of the statutory notice. Neglect in this context must be contrasted to a deliberate

decision not to pay therefore where a party refrains from making payment because of a dispute as to the amount of the debt they are not guilty of any neglgect to pay. Refusal to pay in exercise of one’s rights is a deliberate act in furtherance of one’s [*133] rights. In this case not only the respondents did not neglect to pay but on the contrary offered the amount of £350, an amount they regarded as reasonable for the settlement of the petitioners’ claim. In Halsbury’s Laws of England, 3rd edition volume 6, at p. 533 the proposition is adopted, based on authority, that omission of a company to pay a debt by reason of a bona fide dispute does not amount to neglect to comply with the statutory demand. The statement made in paragraph 7 of the petition that the respondents neglected to pay or that they failed to make any offer is incorrect and ill founded.

For the reasons above given the petition is dismissed with costs.

Petition dismissed with costs.