DATA COMMUNICATIONS LIMITED v HENNESSY COURT LIMITED

2018 SCJ 353

Record No. SC/COM/MOT/01121/2017

IN THE SUPREME COURT OF MAURITIUS

(BANKRUPTCY DIVISION)

In the matter of:

Data Communications Limited

Applicant
v.

Hennessy Court Limited

Respondent

Judgment

On 11 August 2017, the respondent served a statutory demand upon the applicant. It is
averred in the demand that the applicant is indebted to the respondent in a total amount of
Rs 919,875 representing outstanding rent for the months of February to July 2016 together with
Attorney’s commission and VAT (Rs 825,000 + Rs 82,500 + Rs 12,375) with respect to the
respondent’s premises rented to the applicant.

On 21 August 2017 the applicant has lodged the present application for setting aside of
the statutory demand.

In its affidavit the applicant has denied being indebted to the respondent in any sum
whatsoever. It has averred that it has been the respondent’s tenant for several years, there has
always been an understanding between the applicant and the respondent regarding the
payment of rent and the parties have been negotiating about payment of arrears of rent.
According to the applicant, the respondent is of bad faith and is making an abuse of the process
inasmuch as there has been a “transaction” and “novation” between the respondent and the
applicant regarding the arrears of rent.

On 9 May 2017 the applicant served a “mise en demeure” upon the respondent. It is
averred in the “mise en demeure” that the applicant entered into the lease agreement with the
respondent which agreement expired on 31 May 2015. The applicant however continued
occupying the premises until June 2016. By virtue of an agreement reached between the
applicant and the respondent’s “préposé”, the applicant agreed to vacate the premises on 31
 2

July 2016. The parties further agreed that the respondent would indemnify the applicant for all
the refurbishments which it had made to the premises in a total sum of Rs 1,800,000 + VAT. It
is further averred that by virtue of this agreement, an amount of Rs 817,973 representing
outstanding rent, would be deducted from the above sum so that an amount of Rs 1,252,027
remains due and payable to the applicant.

It is the case for the applicant that as at 31 July 2016 there has been a “transaction” and
“novation” between the parties with respect to the arrears of rent owed by the applicant.
According to the applicant the parties agreed to a set-off as a result of which it is the respondent
which is indebted to the applicant in the sum of Rs 1,252,017; the applicant has accordingly
prayed that the statutory demand be set aside.

On 30 May 2017 the applicant served a statutory demand upon the respondent claiming
the liquidated amount of Rs 1,252,027 being the amount allegedly due by the respondent to the
applicant after the alleged set-off.

In its affidavit the respondent has denied that there was ever any understanding or
negotiations regarding the rent payable by the applicant. The rent for the leased premises was
the amount prescribed in the lease agreement which was for a sum of Rs 150,000 monthly.
The terms of the agreement had to be adhered to and payment of rent was never by consent of
parties. The respondent gave the applicant a delay to clear arrears due on the agreement; the
applicant never made any proposal to the respondent for the settlement of arrears of rent.

The respondent has denied that there was ever any “transaction” or “novation” as
averred by the applicant. It has maintained that the only agreement regarding the payment of
rent was that prescribed in the lease.

The respondent has agreed that the applicant did make various proposals for the
purchase of its refurbishments and for a set-off towards the rental due, the applicant sent emails
to that effect to the respondent, the respondent however never agreed to any such proposal.
The respondent has denied having ever agreed to indemnify the applicant for its refurbishments.
In so far as the statutory demand which the applicant has caused to be served upon it, the
respondent has averred that the alleged claim is not based upon a “créance certaine, liquide et
exigible”.
 3

The respondent has denied being indebted to the applicant in any sum whatsoever. It
has maintained that the payment of rent was in accordance with the lease agreement, the rent
subject matter of the present statutory demand is still outstanding and that there has never been
any set-off between the parties.

An application to set aside a statutory demand is governed by Section 181(4) of the

Insolvency Act which empowers the court to grant such an application where it is satisfied that –

Section 184(4) –

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

due;

(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.”

The issues raised in the present application are two-fold: whether there exists a
substantial dispute as to whether the debt is owing and secondly, whether there is in the
circumstances a genuinely arguable set-off.

What amounts to a substantial dispute has been explained in the case of Areff
International Ltd v ZSI Trading LLP [2015 SCJ 437]. The court in that case referred to the
relevant applicable principles as set out in the following extract from “Brookers Insolvency
Law & Practice” and quoted in the case of Amstar Interiors Limited v. AIS Insulation
Limited (In Liquidation) – HC AK CIV2011-404-3320:

“(a) The applicant must show that there is arguably a genuine and
substantial dispute as to the existence of the debt. The task for the Court
is not to resolve the dispute but to determine whether there is a
substantial dispute that the debt is due. The mere assertion that there is a
genuine substantial dispute is not sufficient: Queen City Residential Ltd v
Patterson Co-Partners Architects Ltd (No 2) (1995) 7 NZCLC 260,936
(HC).

(b) The mere assertion that a dispute exists is not sufficient. Material,
short of proof, is required to support the claim that the debt is disputed.
 4

(c) If such material is available, the dispute should normally be resolved

other than by means of proceedings in the Companies Court.

(d) An applicant must establish that any counterclaim or cross demand is

reasonably arguable in all the circumstances. The obligation is not to 5
prove the actual claim. Such an obligation would amount to the dispute
itself being tried on the application.

(e) It is not usually possible to resolve disputed questions of fact on

affidavit evidence alone, particularly when issues of credibility arise.”

In order to decide whether there exists a substantial dispute –

“[34] The Court is not required in cases of this character meekly to accept
without question whatever unvarnished statements may happen to be
made on affidavit. The Court is entitled to act in a more robust and
commonsense manner. …” - United Homes (1988) Ltd v Workman
[2001] 3NZLR 447 (CA)

In order to establish that there exists a substantial dispute as to whether the debt is due,
mere assertions to that effect are not sufficient, it is incumbent upon the applicant to lay a
proper foundation for the dispute and show that there is a fairly arguable basis upon which it is
not liable for the amount claimed. The applicant had thus to place before the court information
which at least “… has the appearance of sufficient reliability that it can be said that a court
dealing with the matter could accept the account given as being correct” [Denize Farms
Limited and Spotburn Farms Limited (In liquidation) – (CIV-2011-404-5374)].

In the present case the applicant contends that although it had occupied the applicant’s
premises by virtue of a lease agreement which spelt out all the conditions of the tenancy, the
rent paid was in fact agreed by consent between the parties and there has always been an
understanding between them in connection with rental payments. The applicant has admitted
owing the rent claimed, it however contends that there were negotiations between the parties
regarding the payment of arrears, that there was a “transaction” and “novation” on the subject
and that the parties had reached an agreement whereby the respondent would indemnify the
applicant for its refurbishments to the premises in a total amount of Rs 1,800,000. The
outstanding rental amount was to be deducted from this sum and after set-off, the applicant was
not indebted to the respondent in any sum whatsoever. On the other hand, it was the
respondent which was indebted to the applicant in the balance of Rs 1,252,027.
 5

However save for the applicant’s ipse dixit, there is no evidence to either establish that
the respondent had agreed to indemnify the applicant in respect of the refurbishments to the
premises let alone the amount of any such indemnity or the existence of any “transaction”,
“novation” or set-off between the parties. There is on record no prima facie evidence. be it an
agreement, an exchange of correspondence or emails to substantiate any of the above
contentions. The applicant’s case rests on a vague allusion to negotiations and an agreement
with the respondent’s préposé and/or those acting under its authority without giving any further
details as to the identity of such préposé nor did it adduce the least evidence on that score.

On the other hand the respondent has produced the lease agreement duly signed by the
applicant which clearly stipulates the rent payable (Doc A annexed to respondent’s first affidavit
refers).

In the circumstances it cannot be said that there is arguably a genuine substantial

dispute as to the existence of the debt.

In so far as the claim for set-off in connection with the refurbishments to the premises is
concerned, it was incumbent upon the applicant to satisfy the court that such set-off is valid,
genuine and serious.

This is explained in the following extract pertaining to Section 287(a) of The Companies
Act in New Zealand which is similar to the provisions of Section 181(4)(b) and which provides
useful guidance:

“… in order to impeach the statutory demand and overcome the

presumption in section 287(a) that the company is unable to pay its debts
when it has failed to comply with the demand, it must be able to do more
than merely assert that there is an available set-off. It must be able to
point to evidence before the Court showing that it has a real basis for the
claimed set-off and that accordingly the applicant’s claim to be a creditor
is, to the extent of the set-off, seriously in doubt. In the words of Buckley
L.J in Bryanston Finance Ltd v de Wries (No.2) [1976] Ch 63 at page
78, it must show that there are ‘clear and persuasive grounds’ for the
setoff claim. …” – 79 Manners Street Limited v BJ Pye Sheet Metals
 6

Limited HC Wellington CTV 2008-485-1907 [2010] NZHC (10 February

2010).

The lease agreement between the parties inter alia clearly spelt out the terms and
conditions regarding refurbishments. It is thus clearly provided that the respondent would not
indemnify the tenant for refurbishments carried out.

This is clearly spelt out in the following clause of the agreement:

“No alteration of, addition to the premises, building premises, etc. by Lessee

No alteration, installation and work of any nature whatsoever to the

building of the premises or to the, fixtures and fittings shall be done by the
Lessee except with the Lessor’s prior written approval by a plan (layout) and the
permission of the authorities concerned, if any, at the cost of the Lessee,
provided such approval from the Lessor shall not be unreasonably withheld.

Unless the Lessor requires the Lessee to remove any or all such
alteration, addition or work (in which case the Lessee shall be bound to comply
with such requirement and the Lessee will have to restore at its cost the said
premises to the former state, fair, wear and tear excepted.

Any such alteration, addition or work so made shall not otherwise

be removed by the Lessee at the expiry of the lease of any of its renewals.

In case, the Lessee is not required to remove any such alteration,

addition, installation or work, it or they shall accrue to the Lessor without the
latter having to pay indemnity and compensation whatsoever to the Lessee
or to any other person, article 555 of the Civil Code or any other enactment
notwithstanding.” (Emphasis added)

The evidence has revealed that the applicant remained in occupation for some twelve
months after the expiry of the lease. It is clear that in terms of the lease agreement, no
indemnity was payable for refurbishments. Further whilst it is clearly established that the
applicant remained in occupation after the expiry of the lease, the applicant has not adduced
any evidence regarding any alleged agreement for an indemnity for refurbishments during the
period that it undisputably remained in occupation after the lease agreement had expired. As
such I find that the applicant has failed to discharge its burden to lay a fairly arguable basis that
there was an agreement for the respondent to pay indemnity to it.
 7

For the reasons given above I find that there is no substance for the applicant’s claim for
a set-off. The applicant has merely contented itself to assert that there is an arguable set-off, it
has failed to point to evidence before the court showing that it has a real basis for the set-off
such that the respondent’s claim that it is the applicant’s creditor, is seriously in doubt. There is
in the present case no evidence, let alone any clear and persuasive grounds, for the set-off
claim.

I find that the application to set aside the statutory demand cannot succeed. The
applicant has failed to show either that there is arguably a genuine and substantial dispute that
the debt is due and demandable or that it has clear and persuasive grounds for a set-off.

The applicant is in arrears for rent in a total amount of Rs 919,875 being outstanding
rent for the months of February to July 2016 together with commission and VAT; it has not
shown that it is willing and able to settle the amount due if it is given time to do so.

I accordingly make an order under Section 181(6)(a) of the Insolvency Act.

I therefore dismiss the application and forthwith make an order putting the company into
liquidation on the ground that it has been unable to pay its debts as they became due in the
ordinary course of business, the company having failed to pay the debt within the specified
period. I order that the Acting Official Receiver be appointed as provisional liquidator and that
dissolution proceedings be completed by 31 January 2019.

R. Mungly-Gulbul
Judge
26 October 2018

For Applicant : Mr. Y. Reesaul, of Counsel

Mr. Attorney F. Hajee Abdoola

For Respondent : Mr. A. K. Ujoodha, of Counsel

Mr. Attorney N. Ramasawmy