In the matter of ICT International Cotton and Textile Trading Company Limited and in the matter of the Companies Acts 1963 to 2001.
Company law - Petition for winding up - Company disputing indebtedness to petitioner - Whether Company's denial of indebtedness made in good faith and on substantial grounds - Whether appropriate to refuse winding up order on the evidence - Companies Act, 1963,(No.33), section 214
High Court; judgment delivered on March 31st, 2004.
A winding up petition is not a legitimate way of seeking to enforce the payment of a debt which is bona fide disputed. The court will not make an order for the winding up of the company if the company disputes liability for the debt in good faith and on substantial grounds. The onus of proof in relation to these matters is on the company.
Miss Justice Laffoy so held in refusing to make an order for the winding up of the company.
Colm Ó Hoisin, BL for the petitioner; Frank Callanan, SC and James O'Callaghan, BL for the company.
Miss Justice Laffoy stated that the petition in this matter was presented on March 28th, 2002, and it sought an order that ICT International Cotton and Textile Trading Company Limited (the Company) be wound up. The petitioner is XL Winterthur International Insurance Company Limited. The petition was founded on a demand pursuant to section 214 (a) of the Companies Act, 1963, as amended, wherein the petitioner sought the payment of the sum of US$332,376 alleged to be due by the company to it in respect of unpaid insurance premiums, and non-compliance with that demand. Miss Justice Laffoy said that the reason the petition had been before the court for over two years before it was heard is that it was adjourned from time to time pending the determination of proceedings in an Italian court, which, the company argued, had a bearing on whether it should be wound up. The company contended that it is not indebted to the petitioner and that it is not insolvent.
Miss Justice Laffoy noted that both parties agreed that the test to be applied by the court is that set out in the judgment of Buckley LJ in Stonegate Ltd v Gregory \\1 All ER 241 at page 243, which has been approved by the Supreme Court in Re Pageboy Couriers \\ILRM 510 and more recently in Re W.M.G. (Toughening) Ltd. [ 2003\]1 IR 389. The test was stated as follows by Buckley LJ: "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." Miss Justice Laffoy, applying this test, said that the issue for determination in this case is whether the company's contention that it is not indebted to the petitioner as alleged is made in good faith and on substantial grounds.
Miss Justice Laffoy set out the factual background to the matter as it unfolded on affidavit. In 1996 the company entered into a contract with a Swiss company, La Neuchateloise SA, for insurance of baled cotton during transportation and storage. In 1997, an Italian company, Winterthur Assicurazioni, SpA (the Italian company) acquired the assets of the Italian branch of la Neuchateloise SA, including the contract with the company. In January, 1999, fire destroyed goods of the company stored in a warehouse in Greece and the company claimed on the policy. A dispute arose as to whether the goods in question were on cover. That dispute led to proceedings in a court in Milan, Italy, which were commenced on December 20th, 1999. On July 3rd, 2003, judgment was given in the Italian court. The Italian company was ordered to pay the company US$1,187,599 plus continuing interest and costs. The Italian company has appealed against the judgment entered against it and that appeal is proceeding in Milan. The company is also appealing the quantum of the award.
Both sides agreed that the company was on cover with the Italian company up to February 12th, 1999. However, there was a dispute as to what happened thereafter. The petitioner's case as set out in the affidavit of Mr Declan Black, is that the petitioner, which was then incorporated under the name Winterthur International Insurance Company Limited and was an "affiliated company" of the Italian company, took over as insurer until the policy was cancelled on November 1st, 2000. The company denies that it ever had a contractual relationship with the petitioner. During the relevant period the company dealt with an insurance broker in Milan, Penta Insurance sas (Penta). Penta was associated in some way with the Italian company and Winterthur group of companies. It seemed to be accepted by the company that Penta was its agent.
Mr Black averred that it was agreed between the Italian company and Penta that the cover provided by the Italian Company would cease as of February 12th, 2002, but that replacement cover would be arranged with the petitioner. Mr Black further averred that the parties intended that the petitioner would operate the existing policy as the new contracting party and that the parties would negotiate with a view to agreeing terms of a new policy. However, such negotiations did not bear fruit and, accordingly, the petitioner operated the previously existing policy but as the new insurer. Mr Black exhibited a range of documents to establish that the company had acknowledged the change of insurer through the actions of its agent Penta and, also that the company had operated the policy with the petitioner, thereby incurring liability to pay premiums. In his affidavit Mr Black also exhibited a letter from the petitioner to the company asking for partial payment of premiums due to "Winterthur International" for the fiscal year 1999.
It was the company's case that if any monies were due and owing they are due to the Italian company. Mr Gaggini, on behalf of the company, averred that the proceedings initiated in Italy will resolve the issue as to whether payment is due to ICT from the Italian company and, ultimately, whether monies are owed by ICT to the Italian company or whether they could be set off against an award made in ICT's favour against the Italian company.
Miss Justice Laffoy, in giving her decision, stated that the basis on which the company disputes liability to the petitioner is that it does not owe the debt of insurance premiums to the petitioner. The issue for the court is whether the company is acting bona fide in advancing that defence and whether it is based on substantial grounds. In Miss Justice Laffoy's view the onus of proof in relation to these matters is on the company. Having considered the company's assertion that the issue of liability could only be resolved by plenary hearing, Miss Justice Laffoy concluded that the company's defence was supported by substantial grounds. The following reasons were given for this conclusion: (1) Miss Justice Laffoy identified the central issue as being what, if anything, was agreed between the company and the petitioner after February 12th, 1999, and, in particular, whether it was agreed that the petitioner would replace the Italian company as insurer. The company relied on the fact that invoices were issued by the Italian company to support its contention that it is not liable to the petitioner. The key player in the negotiations was Penta but there was no affidavit from any member or employee of Penta who could give first-hand evidence of the factual situation. Mr Newman, on behalf of the petitioner, had explained why the invoices were issued in the name of the Italian company and not the petitioner by ascribing error to Penta. Miss Justice Laffoy did not consider this to be a satisfactory way of dealing with the fundamental issue of the identity of the insurer. (2) Miss Justice Laffoysaid that the documentation before the court was produced by both parties on a piecemeal basis and represented only part of the relevant contemporaneous documentation. (3) Miss Justice Laffoy further called into question the assertions of both parties because of the conflicts of evidence and inconsistencies in the affidavits and documents. Miss Justice Laffoy said that if the evidence before the court was grounding an application for summary judgment on foot of a claim for the allege debt owed by the company to the petitioner in summary proceedings, judgment would not be granted and the matter would have to go to a plenary hearing. Accordingly, the evidence was not sufficient to establish that the company is unable to pay its debts so as to empower the court to wind it up.
Miss Justice Laffoy then addressed the issue of whether the company is acting in good faith. It had been averred to in an affidavit sworn on September 11th, 2002, on behalf of the company, that the proceedings in the Italian court would resolve whether monies are owed by the company to the Italian company and whether they can be set off against an award in favour of the company against the Italian company. However, following determination of the proceedings at first instance, a more recent affidavit sworn of behalf of the company suggested that the Italian company's claim is statute barred in Italian law. Miss Justice Laffoy said that this must give rise to a concern as to the bona fides of the company in relation to its dealings with the Italian company which may, or may not, be justified. Having said that, Miss Justice Laffoy stated that the company, on affidavit, has consistently denied any indebtedness to the petitioner. In the circumstances Miss Justice Laffoy found that on the evidence the company was not lacking good faith in defending the claim.
Accordingly, Miss Justice Laffoy considered that it would not be appropriate to make an order for the winding up of the company. However, the petition was not struck out. Miss Justice Laffoy invited submissions from counsel as to what would be the appropriate order to make on the basis of her conclusions.
Solicitors: Mason, Hayes and Curran (Dublin) for the petitioner; Actons (Dublin) for the company.
Ann Marie Courell, barrister