[2005] KEHC 2330 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA AT

MILIMANI COMMERCIAL COURTS, NAIROBI

Civil Case 678 of 2004

ALLIANCE MEDIA KENYA LTD…………………….................................................................……PLAINTIFF

V E R S U S

WORLD DUTY FREE COMPANY LTD t/a KENYA DUTY FREE COMPLEX………………………DEFENDANTS

R U L I N G

In this application, M/s Alliance Media Kenya Limited, hereinafter called “the applicant”seeks against World Duty Free Company Limited t/a Kenya Duty Free Company (hereinafter referred to as “the respondent” an injunction restraining the respondent, whether by itself, its agents or servants, from presenting to the court, advertising however in any way, filing or taking out winding up proceedings against the plaintiff in respect of a claim for US$308,500. 00 or in respect of any other claim the respondent may make against the applicant in any way whatsoever pending the hearing and determination of this suit. The application is brought by way of a chamber summons under O.XXXIX Rules 2, 3 and 9 of the Civil Procedure Rules, the Companies Act, and the inherent powers of the court.

The application is based on the ground that the respondent is threatening to file a winding up petition against the applicant in respect of a claim for US$308,500. 00, yet, the respondent is aware that the debt is bona fide disputed on substantial grounds and cannot therefore from the basis of winding up petition. It is the applicant’s position that the respondent is threatening to file a winding up petition against the applicant purely to threaten, harass and otherwise coerce the applicant to pay a bona fide disputed debt. It is also the applicant’s case that the respondent’s licence to advertise at the airport was terminated in 2003 and it therefore has no standing to demand payment from the applicant. The application is further supported by the annexed affidavit of SOPHIE KINYUA, the general manger of the applicant.

The respondent has filed grounds of opposition to the application. The most salient of these are that the suit filed herein together with the application is misconceived and bad in law in that the applicant is seeking to have final orders sought in the plaint by means of this chamber summons application. The applicant is further accused of coming to court with unclean hands for injunctive relief while it has withheld important material and facts from the court. The respondent also states that the applicant’s suit and application are both speculative, premature and based on abstract matters, and that the applicant has failed to follow the procedure prescribed by the Companies Act. Finally, the respondent contends that it is the duty of the winding up court to determine the veracity of the debt, the subject of the creditors’ notice, and not of this case, and that by its suit and application the applicant is attempting to shut out the respondent from having recourse to the courts which is its constitutional right. These grounds are further amplified in a replying affidavit of ARIF HAFIZ , a director of the respondent.

The application was canvassed orally before me by Mr. Gitau for the applicant and Mr. Kilonzo for the respondent. Mr. Gitau took the court through the agreement between the parties and submitted that the applicants were denied access to some areas of the airport contrary to the terms of the said agreement. This led to a reduction of the monthly fee payable. According to Mr. Gitau, this fee was revised downwards at least 3 times, down to the figure of US$7,500. 00 per month. He submitted there was a dispute as to how much was payable. Mr. Gitau then referred to exhibit “AH I” attached to Mr. Arif Hafiz’s affidavit, in which the applicant had written two letters dated 21st July, 2004 and 19th October, 2004, addressed to the respondents. He also referred to a letter dated 9th December, 2004, addressed to the applicant by the respondent’s lawyers in which the amount of the debt is said to be US$380,500. 00 whereas the respondent’s letter dated 13th August, 2004 spoke of US$308,500. 00 and submitted that there was some confusion as to amount. He also argued that the respondents were asking for interest which was not provided for anywhere, and submitted that there was a dispute on the actual figure.

Mr. Gitau then referred the court to RE GLOBAL TOURS AND TRAVELS LTD. [2001] E.A. 195 for the proposition that if there is no debt, then there is no creditor under s.220 of the Companies Act. He also cited RE THE STANDARD LTD.,[2002] 2 E.A. 617 as an authority for the proposition that where a winding up petition is intended to enforce payments of a disputed debt, it will be treated as an abuse of the process of the court and struck out. He observed, however, that there was a difference between this matter and the above cases in that in the said cases a winding up petition had been filed while in the present case the applicant seeks to pre-empt the filing of such a petition. He then referred to MATIC GENERAL CONTRACTORS LTD. v.KENYA POWER & LIGHTING CO. LTD. [2001]2 E.A. 440 as suggesting that the respondent can be restrained from filing the winding up petition because the debt is disputed. Mr. Gitau finally referred to GEILLA v. CASSMAN BROWN & CO. LTD., [1973]E.A.358 and submitted that the applicant had satisfied the criteria laid down in that case for the grant of an injunction and that the injunction sought herein should be granted.

In his response, Mr. Kilonzo for the respondent submitted that the central issue in this matter is whether a party who is served with a creditor’s notice before a winding up petition is filed can come to court to injunct the notifying party from commencing winding up proceedings. He then referred to ss.219 (e) 220, and 226 (1) and (2) of the Companies Act and submitted that it would be an absurdity of the legal process if, upon receiving a demand letter, a debtor would file a suit to prevent the creditor from seeking the assistance of the court. Every party has a right to approach the court unless there is a statutory or constitutional bar, and the court cannot bar a party from approaching it. Mr. Kilonzo then referred to prayer 1 of the plaint which is the same as prayer 2 of the chamber summons and submitted that both are non starters. He further submitted that the question as to whether the debt is disputed or otherwise is one to be determined by the court in which the winding up petition is filed, and if the dispute is genuine then the court will strike out the petition or dismiss it altogether.

As regards the letter of 21st July, 2004, Mr. Kilonzo submitted that there was no shred of evidence to show that the applicant had made any payment. He also submitted that the letter dated 19th October, 2004, was a clear admission that there was an amount due. Since the applicant did not disclose to the court the existence of these two letters, counsel further argued, then it did not come to court with clean hands and the court should show its displeasure. If the court, however, agrees that the amount claimed is disputed, then it should give a conditional stay.

In a short reply, Mr. Gitau submitted that the respondent had not established itself as a creditor within s.220 of the Companies Act. He also argued that one does not have to wait until some irreparable harm has occurred before coming to court, and in the instant case, the applicant need not wait until after the petition has been filed. He urged the court to grant the application as prayed.

After hearing the respective submissions of counsel, it seems to me that the principles of law applicable to this matter are not in dispute. Section 218 of the Companies Act gives the High Court jurisdiction to wind up any company registered in Kenya. From paragraph 1 of the plaint herein it is apparent that the applicant is a company registered in Kenya, and therefore the High Court has jurisdiction to wind it up.

Section 219 sets out the circumstances in which a company may be wound up by the court. Under s.219(e), a company may be wound up by the court if the company is unable to pay its debts. Section 220 defines a company’s inability to pay its debts in the following words:-

“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 one thousand shillings then 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 three weeks thereafter neglected to pay the sum or to secure or compound it to the reasonable satisfaction of the creditor; or

(b) if execution or other process issued on a judgment, decree or order of any court in favour of a creditor of the company is returned unsatisfied in whole or in part; or

(c) if it is proved to the satisfaction of the court that the company is unable to pay its debts, and in determining whether a company is unable to pay its debts the court shall take into account the contingent and prospective liabilities of the company.”

The respondent in this matter has moved under s.220 (a). By a letter dated 13th August, 2004, the respondent wrote to the applicant demanding the payment of US$308,500. 00 within 7 days. There is no evidence of the payment of this sum, or any part thereof, to the respondent. Indeed, there is no indication of the applicant’s response to that demand, if it ever responded at all. One would have thought that if there was any dispute as to that amount, the applicant would have protested immediately upon receipt of that letter. It did nothing of the sort. And days went by.

The authorities cited to this court on this issue have a common thread. In MANN v. GOLDSTEIN, [1968] 2 ALL E.R. 772, Ungoed – Thomas, J., remarked at p.773-

“When the debt is disputed by the company on some substantial ground (and not just on some ground which is frivolous or without substance and which the court should, therefore, ignore) and the company is solvent, the court will restrain the prosecution of a petition to wind up the company.”

It seems that after receiving the respondent’s letter of demand, the applicants sat tight. They were finally shaken by yet another letter from the respondent’s advocates dated 9th December, 2004 by which the applicants were given “one final opportunity to pay the sums due”to the respondents, failing which the latter would be left with no alternative but to petition for the winding-up of the applicants. To demonstrate their seriousness in this matter, the respondent’s advocates attached a copy of the draft petition. That spurred the applicants into action. But, instead of raising any dispute about the debt directly with the respondent, the applicants’ action was to rush to court with the present application, protesting that the debt is disputed. As observed earlier, one would have expected the applicant to confront the respondent with the “dispute” in the first place. Instead they dashed to court seeking an injunction to pre-empt the filing of the petition. Their main ground is that the debt is disputed on substantial grounds.

The main grounds upon which the debt is disputed can be gleaned from paragraph 17 of the supporting affidavit of SOPHIE KINYUA, the general manager of applicant company. These would be seen to be-

(a) that the respondent’s licence was terminated in 2003, meaning that the applicant had to enter into fresh agreements with the principal concessionaire to enable the applicant continue placing its advertisements in areas and sites that had reverted to the principal concessionaire.

(b) That it was not certain that any moneys were owing to the respondent

(c) That no interest was agreed upon or chargeable.

As regards the first ground, if the applicant was genuine about the respondent’s licence having been terminated in 2003, then it looks strange that the two parties kept on corresponding through and through, the last letter from the applicant to the respondent being dated 19th October, 2004. And it is significant that in the said letter, the applicant was requesting the respondent to re issue the invoices for September and October, 2004, at the agreed rate, so that the applicant may pay promptly. Why were the applicants offering to pay invoices for September and October, 2004, when the respondents licence was terminated in 2003 and if the debt was disputed?

The second point relates to uncertainty as to whether any money is owing to the respondent. Here, I can only observe that the sum of US$308,350. 00 claimed by the respondents from the applicant is calculated with arithmetical precision. In their letter dated 13th August, 2004 and addressed to the applicants, the respondents explain why they were claiming the full monthly payment of US$45,500. In a nutshell, it appears that the applicant had given verbal information to the respondent in January, 2004, to the effect that the applicant had not received and was not receiving full payment from Kencel. Consequently the parties agreed to a temporary concession by putting in abeyance part of the monthly payments being made to the respondent in the sum of US$20,200 per month, until such time as Kencel would make full payment to the applicant for Kencel’s advertisements at Jomo Kenyatta International Airport. However, the respondents discovered from Kencel’s Chief Commercial Officer that full payments had been made by Kencel. In the circumstances, the respondent concluded that the information given to it did not represent the true facts and that they were misled into making the above-mentioned concession. The respondents further observed that notwithstanding the concession by way of deferred payments, for the period February to June, 2004, the applicant had failed to make any payments whatsoever save for a payment of US$10,000. 00 earlier in August, 2004. The respondent therefore claimed the full monthly payment of US$45,500. 00 from February, 2004 to the end of August, 2004. That was a period of 7 months for which the total sum works out to US$318,500. 00. By giving credit for US$10,000. 00, this leaves the amount outstanding at US$308,500. 00 which constitutes the respondent’s claim. The basis of the figure claimed is clearly explained, and I don’t see the ground upon which the applicant alleges that there is a dispute as to that figure.

Furthermore, in its letter dated 21st July, 2004, the applicant made a proposal to repay some US$45,000. 00 by 3 instalments. This was a clear and unequivocal admission of indebtedness to the respondent. In paragraph 14 of his replying affidavit, Mr. Arif Hafiz avers that the applicant never honoured the proposal and repayments. That averment has not been controverted in any way.

The other point in dispute is the interest on the capital sum. In the 4th paragraph of its letter dated 13th August, 2004 herein above referred to, the respondent wrote-

“…The sum due to us therefore and which we now claim as at end of August, 2004 amounts to US$318,500. 00, less US$10,000 already paid and is exclusive of interest which we are entitled to charge.”

Frankly, I don’t see that this statement can provoke a dispute in the context of the cases cited under S.220. All I understand the respondent to say is that it is entitled to charge interest. That is not the same as charging interest. If it had added interest, the final figure claimed would have been much higher than it is.

Counsel for the applicant also raised an issue touching upon a disparity in the figure demanded by the respondent and that demanded by the respondent’s lawyers. Whereas the respondents quoted the figure of US$308,500, its lawyers wrote of US$380,500. I would consider this a typing or clerical error. The figure which is arithmetically correct is US$308,500 as stated in the respondent’s letter dated 13th August, 2004.

For the above reasons, I don’t think that the debt in issue is disputed by the company on substantial ground. The “grounds”raised by the applicant lack substance and are, to use the language of Ungoed – Thomas, J., in MANN v.GOLDSTEIN(supra)such as “the court should, therefore, ignore.”

Having found that the debt is not disputed on some substantial ground, it follows that the respondent is truly a creditor, and that gives it the requisite locus standi under S.220, to petition for the applicant’s winding up under S.219(e) of the Companies Act. That renders the point raised by Mr. Kilonzo, as to whether it is competent for the court to grant an injunction restraining the presentation of a winding up petition purely academic. In a nutshell, however, although the issue is now academic, the answer is that it is competent for the court to do so. I am fortified in so saying by no other authority than Halsburys Laws of England, 3rd edition, paragraph 1038 at p.538 where it is authoritatively stated-

“Where a petition has not been presented but is threatened in respect of a disputed debt, an injunction may be granted restraining the presentation.”

Among the authorities cited for that proposition are NIGER MERCHANTS CO., v.

CAPPER (1877) 18 Ch.D.557, and CERCLE RESTAURANT CASTIGLIONE CO. v

LAVERY (1881) 18 Ch.D.555

In sum, as I find no merit in this application I therefore dismiss it with costs.

Dated and delivered at Nairobi this 27th day o January 2005

L. NJAGI

JUDGE