High Court

Truck and Machinery Sales Limited
(Plaintiff)

v.

Marubeni Komatsu Limited
(Defendant)

No. 6928p of 1995
[23rd of February, 1996]

Status: Reported at [1996] 1 IR 12

Keane J.

The facts, insofar as they are not in dispute, in this case are as follows. The plaintiff (hereafter “TMS”) is an Irish company engaged in the business of buying and selling, inter alia, trucks and contractors’ plant and machinery both in Ireland and abroad. Early in 1992, at a time when the European market for the equipment sold by TMS was poor, it identified a market for its goods in the United Arab Emirates (hereafter “the UAE”). The defendant (hereafter “MKL”) is an English subsidiary of a Japanese company which exports machinery of this nature manufactured by the Komatsu company in Japan. MKL entered into a written agreement on the 21st March, 1992, for the sale by MKL to TMS of a consignment of second hand machinery for a sum of approximately STG £2.9 million. The agreement was in form a credit sale agreement under which the sums due under the contract were payable on or before the 31st October, 1992, and it included a reservation of title clause under which the property in the machinery remained vested in MKL until payment. 

The machinery was in due course shipped from England to Dubai, where TMS had leased premises from the government in what was called the Jebel Ali Free Zone. However, the company in the UAE which distributed Komatsu equipment, Galadari Trucks and Heavy Equipment (PVT) Ltd. (hereafter “Galadari”) objected to the sale of the equipment on the ground that they were the sole distributors of Komatsu equipment in the UAE. Although the attitude of the Komatsu company in Japan was that Galadari’s exclusive distributorship arrangement did not extend to second hand machinery, such as that proposed to be sold by TMS, the objections of Galadari prevailed with the local administration and, as a result, TMS were unable to move the equipment from the Jebel Ali Free Zone.

Despite efforts by all the other parties concerned to resolve the situation, both Galadari and the local administration maintained their objection to the removal of the machinery. Since then, there have been extensive correspondence, discussion and negotiations (some of them on a “without prejudice” basis) concerning the outstanding indebtedness of TMS to MKL under the credit sale agreement and the re-sale of the machinery. As a result, some of the machinery was shipped back from the UAE and sold at auction in Rotterdam. TMS also indicated to MKL their intention of instituting legal proceedings in the UAE against Galadari and the local administration. Sums amounting to STG £734,837.26 have been paid by TMS to MKL in reduction of their indebtedness under the credit sale agreement and, in addition, certain trucks (not part of the consignment sold pursuant to the credit sale agreement) were returned by TMS to MKL in respect of which MKL gave credit to TMS in the sum of STG £275,000.
On the 26th July, 1995, the Irish solicitors acting for MKL wrote to TMS as follows:- 

“As you are aware, we are instructed by Marubeni Komatsu Ltd. in relation to the debt due to them by you on foot of the credit sale agreement dated the 31st March, 1992. We are instructed by our clients that despite numerous attempts by them to enter into an arrangement with you regarding the repayment of this debt, no satisfactory proposals regarding repayment have been forthcoming from you.
As solicitors for Marubeni Komatsu Ltd. and on their behalf, we accordingly make formal demand pursuant to the provisions of ss. 213 and 214 of the Companies Act, 1963, as amended that you pay to them the sum of STG £2,357,856.39 (being the sum outstanding on foot of the credit sale agreement as of the 30th June, 1995) within a period of 21 days from the date of this letter.
In the event that the said sum is not paid within this 21 day period, Truck and Machinery Sales Ltd. shall be deemed unable to pay its debts and our clients will petition to the High Court for an order winding-up Truck and Machinery Sales Ltd. pursuant to the aforesaid provisions of the Companies Act, 1963, as amended.”

These proceedings were then instituted in which TMS claims:-

(1) a declaration that MKL is estopped by its conduct and representations from proceeding by way of legal action against TMS whether by petition for winding-up of TMS or otherwise to enforce the payment by TMS to MKL of the sums in question;
(2) specific performance of an agreement allegedly entered into between TMS and MKL on the 23rd December, 1993, under which MKL agreed that it would not proceed further with legal action against TMS for the recovery of the sums in question;
(3) an injunction restraining MKL from advertising a petition to wind-up TMS; and
(4) damages for fraudulent and/or negligent misrepresentation and for breach of fiduciary duty.

A notice of motion was then served on behalf of TMS claiming an injunction restraining MKL from presenting a petition and/or an injunction restraining its advertisement. That motion was grounded on an affidavit of Mr. James Mansfield, the managing director of TMS, which was responded to by an affidavit by Mr. Mark Carrington, the sales director of MKL. Two further affidavits having been sworn by Mr. Mansfield, the motion came on for hearing before me on the 26th January last.

The affidavits sworn by Mr. Mansfield and Mr. Carrington were lengthy and in addition there were exhibited with them voluminous correspondence, faxes and other material. For the purposes of the present application, I need do no more than refer to certain features of the course of conduct between TMS and MKL on which counsel placed particular emphasis in the course of their submissions.

On the 22nd December, 1993, Mr. Carrington sent the following fax to a Mr. Tony Campbell, of Anglo-Irish Bank Corporation, with whom TMS were having discussions as to the financial difficulties they were experiencing because of the abortive UAE transaction:-

“Following our telephone conversation yesterday, we confirm that we have reached agreement with [TMS] regarding the disposal of the remaining used machines in Dubai and it is not our intention to proceed further with legal action.
We have told [TMS] that provided a part payment of approximately 0.75 to 1.0 million pounds is paid to us promptly, we would wait for the balance until such time as the remaining equipment is sold through alternative channels or in the event that the proceeds do not clear the outstanding debt, we will await the outcome of legal proceedings currently in progress in Dubai.”

TMS claimed that the presentation of a winding-up petition by MKL would be a breach of the agreement which, they said, was reflected in this message.

In addition, while it was accepted on behalf of TMS that Galadari were not the agents of MKL, and that the latter were not in a position to compel Galadari or the local administration in Dubai to consent to the sale of the machinery in the UAE, they (TMS) claimed that they had nevertheless entered into the credit sale agreement on the faith of representations by or on behalf of MKL that there would be no difficulty in selling the machinery in the UAE. They say that these assurances were misleading and that, in the event, MKL refused to co-operate in the proceedings which TMS wished to institute in the UAE. They referred in this connection to an extract from a legal opinion furnished to MKL which stated inter alia:- 

“[Counsel] found it very difficult to see how it could be in MKL’s interest to take an assignment of and then prosecute such claims in Dubai. Quite apart from the weakness and speculative nature of the claims themselves and the uncertainty of the recoverable losses, MKL is, in effect, a joint venture between Marubeni and Komatsu and the latter would hardly see their interests as being preserved by such proceedings involving serious claims against their own exclusive agents in the region. The same considerations applied (probably to an even greater extent) to MKL, Marubeni and Komatsu associating themselves with such claims against the Dubai authority.”

TMS claim that this demonstrates that the representations allegedly made prior to the agreement of March, 1992, to the effect that MKL would give all possible assistance to the sale of the machinery in Dubai were false.

On behalf of MKL, it was said that the message of the 23rd December, 1993, to the Anglo-Irish Bank Corporation was not intended to be a waiver of the debt due to MKL and that this was well known to, and accepted by, Mr. Mansfield. Mr. Carrington said that Mr. Mansfield had written to him informing him (Mr. Carrington) that he had decided to place a “very large portion” of the MKL equipment (which had, by then, been released by the UAE authorities) into auction in Rotterdam on the 3rd June, 1993. In the course of that letter, Mr. Mansfield said that:- 

“We have done an excellent deal with (the auctioneers). We have obtained a 5% commission rate which is very, very small when you take into account the amount of advertising and all the effort they put into the auction. So Mark, I will be able to sit down with you about ten days after the auction and get all our business finalised.”

Mr. Carrington said that, in response to a query from him, Mr. Mansfield said in a letter of the 20th May, 1993, that the proceeds of sale from this auction would be transmitted to TMS within 21 days of the auction at the latest. Mr. Carrington says that the period of 21 days passed without the payment of any money to MKL. He said that, finally, after a number of letters written by him, Mr. Mansfield wrote to him (Mr. Carrington) on the 29th July, 1993, stating that all the proceeds of sale had been used up. He said that Mr. Mansfield then offered the prospect of an imminent payment of IR£1.5 million to be paid to MKL from the proceeds of a loan which was to be provided by Anglo-Irish Bank Corporation. In the course of that letter, Mr. Mansfield said:- 

“You can take this as a personal undertaking from me that the moneys that you spoke to Declan Quilligan in Anglo-Irish Bank Corp. about will be transferred to Noel Smyth’s office and Ronan Hannigan in that office will immediately transfer that money to your bank.”
(Messrs. Noel Smyth & Partners were the solicitors acting for TMS).

Mr. Carrington said that, following upon the failure of TMS to remit any of the proceeds of the auction to MKL, proposals were put forward on behalf of TMS for a part payment of £1.5 million which was to be financed by a loan from Anglo-Irish Bank Corporation and which was to be accompanied by the provision of security for the balance. He said that this sum never materialised, but in December of that year he was told by Mr. Campbell of Anglo-Irish Bank Corporation that sums would be transferred to MKL, but only from £750,000 to £1 million. He said that the bank required some degree of reassurance from MKL as to their attitude in the event of such a payment being made and that, in that context, he sent the fax of the 23rd December, 1993. He said that the sole purpose of the letter was to assist TMS to obtain the release of moneys from the bank and that it was not intended to constitute a waiver of any kind. 

Mr. Carrington went on to say that the course of dealings between MKL and TMS subsequent to the fax of the 23rd December, 1993, made it abundantly clear that the arrangements mentioned in that fax were not intended in any sense to constitute a waiver of the balance of the debt owing to MKL. He said that, in particular, TMS confirmed on the 25th March, 1994, that the balance of the equipment held by TMS was to be auctioned in Amsterdam and that the auctioneers had been instructed to transfer the proceeds, less expenses, into an account of MKL, details of which Mr. Carrington had previously supplied at the request of Mr. Mansfield. He said that in purported pursuance of this arrangement which, he said, was wholly inconsistent with the claim that the balance of the debt was being waived, a cheque for £500,000 was sent by TMS to MKL which cheque, however, was returned marked “payment stopped”. Mr. Carrington said that there were further “without prejudice” discussions and correspondence in an attempt to secure the payment of the sums still due to MKL all of which were inconsistent with the claim by TMS that the balance had been waived.

Mr. Carrington also said in his replying affidavit that TMS were clearly insolvent. In that connection, he referred to a letter of the 31st August, 1994, from Mr. Mansfield to him in which the latter said:- 

“We still have not been able to get our accounts finalised as we have not been able to reduce the huge deficit which makes the company completely insolvent.”

A statement of affairs of TMS was produced as of the 31st October, 1994, which included among the current liabilities a debt due to MKL of “£2,600,000”. That statement of affairs showed an excess of current liabilities over current assets of £4,402,918. It also appears that the last accounts furnished to the Companies’ Office with the annual return of TMS were for the year ended the 31st March, 1992, and, at that stage, showed current liabilities exceeding current assets by £715,045. In their report annexed to the accounts in accordance with s. 18, sub-s. 3 of the Companies (Amendment) Act, 1986, the auditors said that they were unable to form an opinion as to whether the financial statements gave a true and fair view of the state of the company’s affairs as of the 31st March, 1992, and whether a financial situation existed which would require the convening of an extraordinary general meeting of the company in accordance with s. 40, sub-s. 1 of the Companies (Amendment) Act, 1983. In a short replying affidavit, Mr. Mansfield said that the company had paid and was continuing to pay its creditors as they fell due and continued to enjoy the full support of its financial institutions, meeting its loan repayments on time and without delay. He said that he understood from the auditors that the 1993 and 1994 accounts would be ready for filing shortly in the Companies’ Office.

Submissions of the parties 

Mr. Shipsey, on behalf of TMS submitted that the affidavits demonstrated that the debt, the payment of which was demanded in the letter from the solicitors for MKL dated the 26th July, 1995, had at all times been disputed by TMS in good faith and on substantial grounds and, accordingly, the presentation of the petition should be restrained by the court on the grounds that it would constitute an abuse of the process of the court. He relied in support of this submission on the decisions in In re Pageboy Couriers Ltd. [1983] I.L.R.M. 510 and of the English Court of Appeal in Stonegate Securities v. Gregory [1980] Ch. 576. He said that, put at its lowest from the plaintiff’s point of view, a serious question had at least been raised as to whether the sum claimed in that letter was at present due and owing by TMS and that, since any conflict that might arise could not be resolved on the affidavits but would have to await a plenary hearing, the plaintiff was entitled, on the balance of convenience and to preserve the status quo, to have the presentation of the petition restrained until the hearing of the action. He relied in support of this submission on the decision of the Supreme Court in Campus Oil Ltd. v. The Minister for Industry and Energy (No. 2) [1983] I.R. 88 and of the House of Lords in American Cynamid Co. v. Ethicon Ltd. [1975] A.C. 396.

Mr. Shipsey, while accepting that MKL might be regarded as a contingent or prospective creditor within the meaning of s. 215 of the Companies Act, 1963, and as such would have, absent any other considerations, locus standi to present a petition provided the requirements of sub-paragraph (c) were met, submitted that, in the present case, they were at least arguably estopped from presenting such a petition by virtue of the agreement reflected in the message of the 23rd December, 1993. Since there was also a fair question to be tried between the parties in this context, TMS was entitled to an interlocutory injunction restraining the presentation of any petition until the hearing of the action. 

Mr. Finlay, on behalf of MKL, submitted that where, as here, the interlocutory relief sought was an order restraining the presentation of the petition for winding-up the criteria laid down in Campus Oil Ltd v. The Minister for Industry and Energy [1983] I.R. 88 were not relevant. He said that, in order to obtain such relief, TMS would have to establish that the presentation of the petition was in fact an abuse of process and that it was bound to fail or, at the least, that there was an alternative remedy available, citing in support of these propositions the decisions of the English Court of Appeal in Bryanston Finance Ltd v. De Vries (No. 2) [1976] Ch. 63 and Coulson Sanderson & Ward Ltd v. Ward (1986) 2 BCC 99,207. He submitted that in the present case there was no evidence whatever that MKL was seeking to wind-up TMS for any collateral or improper motive and said that, on the contrary, they wished to wind-up TMS in order to secure the proper administration of the company’s assets for the benefit of all the relevant class of creditors. Mr. Finlay further submitted that where only part of the debt was disputed, a petitioning creditor could not be restrained from presenting a petition, citing the decision in In re Tweeds Garage Ltd [1962] Ch. 406 affirmed by the Court of Appeal in Taylor’s Industrial v. M & H Plant Hire [1990] B.C.L.C. 216. He further submitted that where, as here, the would-be petitioner was, at the very least, a contingent or prospective creditor, the court should not decide the question as to whether the requirements of sub-paragraph (c) had been satisfied, but should leave that to the court which heard the petition. He relied in support of the latter submission on Holt Southey Ltd v. Catnic Components Ltd [1978] 1 W.L.R. 630. 

While Mr. Finlay accepted that the court could restrain the presentation of the petition even where the company appears to be insolvent, he submitted that the question of whether it was insolvent was an important circumstance to which the court had to have regard in the exercise of its discretionary jurisdiction. He said that where, as here, there was overwhelming evidence as to the insolvency of TMS, the court should accord priority to the interests of the creditors over the shareholders in the company, citing in support the observations of Street C.J. in Kinsela v. Russell Kinsela Ply. Ltd (in liquidation) [1986] 4 N.S.W.L.R. 722 at 730, expressly approved by both the High Court and Supreme Court in In re Frederick Inns Ltd [1991] I.L.R.M. 582 and [1994] 1 I.L.R.M. 387. 

Finally, Mr. Finlay submitted that there was in fact no evidence of any agreement in December, 1993, to waive the entire debt and it was also clear that TMS never relied on any such agreement. In any event, he submitted, the agreement itself was unenforceable for want of consideration, since it was settled law that payment of a lesser sum than the amount of the debt due cannot be consideration, unless there is some benefit added so that there is accord and satisfaction, citing the leading case of Foakes v. Beer (1884) 9 App. Cas. 605. 

The applicable law 

Section 213 of the Companies Act, 1963, provides that:- 

“A company may be wound-up by the court if –
	. . .
(e) the company is unable to pay its debts. . .”
	
Section 214 (as amended) provides that:- 

		“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 £1,000 then due, has served on the company, by leaving at the registered office of the company, a demand in writing 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 for it to the reasonable satisfaction of the creditor, 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.”
	
Section 215 provides that:- 

		“An application to the court for the winding-up of a company shall be by petition presented, subject to the provisions of this section, either by the company or by any creditor or creditors (including any contingent or prospective creditor or creditors), contributory or contributories, or by all or any of those parties, together or separately, so, however, that. . .
(c)	the court shall not give a hearing to a winding-up petition presented by a contingent or prospective creditor until such security for costs has been given as the court thinks reasonable, and until a prima facie case for winding-up has been established to the satisfaction of the court.”
	
It is clear that where 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 the court before the petition is issued, its presentation will in normal circumstances be restrained. This is on the ground that a winding-up petition is not a legitimate means of seeking to enforce payment of a debt which is bona fide disputed. That was the effect of the decision of Ungoed-Thomas J. in Mann v. Goldstein [1968] 1 W.L.R. 1091, which was subsequently approved of by the Court of Appeal in Stonegate Securities v. Gregory [1980] Ch. 576, both of which decisions were expressly adopted by O’Hanlon J. in In re Pageboy Couriers Ltd. [1983] I.L.R.M. 510.

	The words “any liability” are, however, important: where a company admits its indebtedness to the creditor in a sum exceeding £1,000 but disputes the balance, even on substantial grounds, the creditor should not normally be restrained from presenting a petition. That was the view taken by Plowman J. in In re Tweeds Garage Ltd. [1962] Ch. 406 which was upheld by the Court of Appeal in Taylor’s Industrial v. M & H Plant Hire [1990] B.C.L.C. 216. It would appear from the decision of Morris J. in Clandown Ltd v. Davis [1994] 2 I.L.R.M. 536 that he was prepared to restrain the presentation of the petition even where part only of the debt was disputed, but it does not appear from the report that either of the two English authorities to which I have referred were cited to the court. I was also referred during the course of the argument in the present case to an ex tempore judgment I delivered in Patrick Butterly & Sons Ltd v. Top Security Ltd (Unreported, High Court, Keane J., 27th September, 1995) and in which I applied the principle in In re Tweeds Garage Ltd. [1962] Ch. 406. I have not been persuaded by anything I have heard in the arguments in the present case to depart from that view.

It is also clear that, even where the company appears to be insolvent, the court may nonetheless, in the exercise of its equitable discretion, restrain the presentation of the petition where it is satisfied that the petition is being presented for an ulterior or collateral purpose and not in good faith by a creditor forming part of a class of creditors which seeks the administration of the assets of the company for the benefit of that class in an orderly manner under the supervision of the court: see In re a Company [1983] B.C.L.C. 492.

I am also satisfied, however, that the jurisdiction to restrain the presentation of the petition is one to be exercised only with great caution. In Bryanston Finance Ltd v. De Vries (No. 2)  [1976] 1 Ch. 63, Buckley L.J., with whom the other members of the court agreed, observed at p. 78 of the report that:- 

		“It has long been recognised that the jurisdiction of the Court to stay an action in limine as an abuse of process is a jurisdiction to be exercised with great circumspection and exactly the same considerations must apply to a quia timet injunction to restrain commencement of proceedings. These principles are, in my opinion, just as applicable to a winding-up petition as to an action. The right to petition the court for a winding-up order in appropriate circumstances is a right conferred by statute. A would-be petitioner should not be restrained from exercising it except on clear and persuasive grounds. I recognise that the presentation of a petition may do great damage to a company’s business and reputation, though I think that the potential damage in the present case may have been rather exaggerated. The restraint of a petition may also gravely affect the would-be petitioner and not only him but also others, whether creditors or contributories. If the presentation of the petition is prevented the commencement of the winding-up will be postponed until such time as the petition is presented or a winding-up resolution is passed. This is capable of far reaching effects.”

It is also clear that, while the form of the relief sought in such cases is normally, as here, interlocutory in nature, the principles laid down by the Supreme Court in Campus Oil Ltd v. Minister for Industry and Energy (No. 2) [1983] I.R. 88 as to the factors to which the court must have regard in granting or withholding interlocutory injunctive relief are not necessarily applicable. Typically in an application for an interlocutory injunction, the court is invited to restrain an action which is alleged to be a violation of the plaintiff’s rights where there is a fair question to be tried, where damages will not be an adequate remedy and where the balance of convenience (including the desirability of preserving the status quo pending the determination of the action) points to the granting of such relief. Different considerations entirely apply where, as here, the object of the application is to prevent the respondent from exercising his right of access to the courts, whether by way of ordinary process or a winding-up petition. In such a case, the factors which the court should take into account were also identified in Bryanston Finance Ltd v. De Vries (No. 2) [1976] Ch. 63. Thus, Buckley L.J. said at p. 76 that:-

“The plaintiff company cannot assert such a right in respect of any particular anticipated litigation without demonstrating that, at least prima facie, that litigation would be an abuse.”

In the same case, Stephenson L.J. expressly rejected the American Cynamid Co. v. Ethicon Ltd  [1975] A.C. 396 criteria as being applicable and went on to say that it was for the plaintiff company “to prove that the defendant’s exercise of his right to bring legal proceedings is in fact an abuse of process.”

The learned judge also commented at p. 80 that:-

“[Charles Forte Investments Ltd v. Amanda [1964] 1 Ch. 240] still binds us to hold that unless the plaintiff company can prove that the petition is bound to fail – or perhaps that there is a suitable alternative remedy to the petition – the defendant cannot be restrained, even temporarily from presenting it.”

The approach in that case was also adopted by the Court of Appeal in Coulson Sanderson & Ward Ltd v. Ward (1986) 2 B.C.C. 99, 207. In that case, Slade L.J. said:-

“This decision, therefore, is clear authority for the proposition that the court should not, on the hearing of an interlocutory motion, interfere with what would otherwise appear to be the legitimate presentation of a winding-up petition by someone qualified to present it unless the evidence before it is sufficient to establish prima facie that the plaintiff company will succeed in establishing that the proceedings sought to be restrained would constitute an abuse.”

I am satisfied that this is the approach which should also be adopted in this jurisdiction. The constitutional right of recourse to the courts should not be inhibited, save in exceptional circumstances, and this applies as much to the presentation of a petition for the winding-up of a company by a person with the appropriate locus standi as it does to any other form of proceedings. The undoubted power of the courts to restrain proceedings which are an abuse of process is one which should not be lightly exercised. In the context of winding-up petitions, I have no doubt that it should be exercised only where the plaintiff company has established at least a prima facie case that its presentation would constitute an abuse of process. In many cases, a prima facie case will be established where the plaintiff adduces evidence which satisfies the court that the petition is bound to fail or, at the least, that there is a suitable alternative remedy. It would not be appropriate to apply the principles laid down by the Supreme Court in Campus Oil Ltd v. The Minister for Industry and Energy (No. 2) [1983] I.R. 88 in cases of this nature where it is the creditor’s right to have recourse to the courts, rather than any right of the plaintiff company, which is under threat.

It is also clear that, where the would-be petitioner is a contingent or prospective creditor, the court which is asked to restrain the petition is not concerned with whether the creditor will be able to meet the requirements of the proviso in s. 215, under which such a creditor must give security for costs and satisfy the court that a prima facie case for winding-up has been established. I agree entirely with the view expressed by Goulding J. in Holt Southey v. Catnic Components Ltd  [1978] 1 W.L.R. 630 that, where it is shown that the would-be petitioner is a prospective or contingent creditor, it is for the court which hears the petition to determine whether the statutory requirements for the granting of the relief sought in the petition have been met.

Although the fact that the company is insolvent is not, of itself, a ground for allowing a petition to proceed which is clearly an abuse of process, it remains an important factor in every case where the court is exercising its equitable discretion in granting or withholding injunctive relief. The court must approach the position of such a company with the interests of the creditors particularly in mind. As Street C.J. put it in Kinsela v. Russell Kinsela Pty. Ltd (in liquidation) [1986] 4 N.S.W.L.R. 722:-

“In a solvent company the proprietary interests of the shareholders entitle them as a general body to be regarded as the company when questions of the duty of directors arise. If, as a general body, they authorise or ratify a particular action of the directors, there can be no challenge to the validity of what the directors have done. But where a company is insolvent the interests of the creditors intrude. They become prospectively entitled, through the mechanism of liquidation, to displace the power of the shareholders and directors to deal with the company’s assets. It is in a practical sense their assets and not the shareholders’ assets that, through the medium of the company, are under the management of the directors pending either liquidation, return to solvency, or the imposition of some alternative administration.”

This statement of the law has been expressly approved by both the High Court and Supreme Court in In re Frederick Inns Ltd. [1991] I.L.R.M. 582 and [1994] 1 I.L.R.M. 387.

In the present case, it is submitted that MKL should be restrained from presenting a petition, even as a contingent or prospective creditor, since their doing so would constitute a breach of the agreement which, it is alleged, was concluded between them and TMS and is reflected in the fax message of the 23rd December, 1992. Alternatively, it is submitted that they are in any event estopped from so doing. On behalf of MKL, it is urged that there was no consideration to support the alleged agreement and that the necessary conditions do not exist to give rise to an estoppel.

It has been settled law since the decision of the House of Lords in Foakes v. Beer (1884) 9 App. Cas. 605 that a promise to pay part of a debt is not good consideration in law. Its applicability in circumstances such as the present was considered by the English Court of Appeal in In re Selectmove Ltd. [1995] 2 All E.R. 533, where a company claimed that it had come to an arrangement with the Revenue as to the payment of arrears. The Court of Appeal unanimously held that it was bound by the decision in Foakes v. Beer to reject the argument that a promise to pay a sum which the debtor was already bound by law to pay to the promisee could afford any consideration to support the contract. In the course of his judgment, Peter Gibson L.J. referred to another decision of the Court of Appeal, Williams v. Roffey Brothers & Nicholls (Contractors) Ltd. [1991] 1 Q.B. 1; in which an agreement by one party to a contract to pay additional sums to the other, provided that the other performed services which he had already undertaken to perform, was enforceable. Apart from any other consideration, that decision appeared to be inconsistent with the law as laid down by Lord Ellenborough C.J. in the leading case of Stilk v. Myrick (1809) 2 Camp. 317. In addition, however, as Peter Gibson L.J. pointed out, if it was to be extended to a case where the obligation was to make payment rather than provide services, it would leave the principle in Foakes v. Beer without any application. Accordingly, the Court of Appeal in In re Selectmove Ltd., although noting Lord Blackburne’ s powerful reservations in Foakes v. Beer, considered that the latter decision, consistently with the doctrine of precedent, could not be disturbed by the Court of Appeal and that, if any extension in the law was to be made, it should be made by the House of Lords or, perhaps even more appropriately, by Parliament after consideration by the Law Commission.

In the present case, it has not been urged upon me that I should depart from the authority of Foakes v. Beer (1884) 9 App. Cas. 605 (which itself, it should be remembered, was merely the application of a principle which goes back to Pinnel’s Case (1602) 5 Co. Rep. 11 7a). I am, accordingly, satisfied that I should adopt in this case the same approach as that taken by the Court of Appeal in In re Selectmove Ltd. [1995] 2 All E.R. 531.

It is also clear that, where parties to a contract enter into a course of negotiations which has the effect of leading one of the parties to suppose that the strict rights arising under the contract will not be enforced, or will be kept in suspense, the person who might otherwise have enforced those rights will not be allowed to enforce them where it would be inequitable having regard to the dealings which have taken place between the parties. This doctrine, sometimes referred to as “promissory estoppel”, first appeared in English law in Hughes v. Metropolitan Railway Co. (1877) 2 App. Cas. 439 and was given renewed life by Central London Property Trust Ltd v. High Trees House Ltd. [1947] K.B. 130. A not dissimilar approach was adopted by the Supreme Court in Webb v. Ireland [1988] I.R. 353.

Conclusions

One cannot help sympathising with TMS, having regard to the situation in which they found themselves in this case. They had purchased equipment for, on any view, a large sum of money and found themselves unable to sell it in the UAE, through no fault of theirs, but because of the attitude adopted by Galadari and the local administration. Their difficulties were added to by the sort of problems which beset many Irish businesses during the recent devaluation crisis. As against this, it must also be said that MKL recognised that the difficulties which TMS were experiencing were in some ways not of their own making and adopted a patient and understanding attitude. However, I am solely concerned with the question as to whether, in the circumstances which have now arisen, TMS are entitled to an injunction restraining MKL from presenting a petition for the winding-up of TMS. I am satisfied that, in the light of the legal principles which I have already stated, such an injunction should not be granted.

In the first place, TMS have failed to establish a prima facie case that the presentation of the petition would be an abuse of process. No doubt, if the fax message of the 23rd December, 1992, was to be read in isolation, it might be said to afford grounds on which TMS might dispute the debt claimed in the statutory demand. However, when one reads the entire correspondence, it becomes clear beyond argument that MKL at no stage waived the balance of the purchase price due to it. Nor were TMS left under any illusion that it was being waived: their tendering of a cheque for £500,000 (payment of which was subsequently stopped) is wholly inconsistent with any such belief. I am satisfied that TMS have totally failed to demonstrate that the petition, if presented, is bound to fail. Nor, at this stage, is there any alternative remedy available to MKL.

Even if it could be said that the debt is disputed in good faith and on substantial grounds (and I am satisfied that it is not), MKL would remain, at the least, a prospective or contingent creditor. If the fax message of the 23rd December, 1992, stood alone and constituted a fully enforceable legal agreement between TMS and MKL, it envisaged that the balance of the debt would be paid when the proceedings in Dubai had been finalised. In the light of the legal principles to which I have referred, it is clear that it is not the function of the court at this stage to determine whether a contingent or prospective creditor will meet the requirements of section 215. That will be a matter for the judge who hears the winding-up petition.

That is sufficient to dispose of the present application for an interlocutory injunction. However, even if I were satisfied as a matter of fact that the fax message of the 23rd December, 1992, reflected an agreement of the kind alleged on behalf of TMS, it would seem clearly unenforceable in the light of the legal principles to which I have already referred. Nor could it be said that the course of negotiations between the parties was such that it could have left any reasonable person under the impression that MKL were waiving its entitlement to the balance of the debt. On the contrary, the correspondence indicates that the repeated requests from MKL for payment of its account were met with a succession of proposals from TMS which, for the most part, were never implemented by the latter. To hold, at this stage, that MKL should be estopped from taking legal proceedings to enforce its right would, in the light of the correspondence, be a negation of equity.

There is finally the question of the insolvency of TMS. This may be a matter for the judge hearing the winding-up petition to consider. It is, however, sufficient to say that the indications that TMS is insolvent are so clear that, if it were a case in which there might be some doubts as to how the discretion of the court should be exercised, those indications would be decisively in favour of refusing the injunctive relief sought.

The application will, accordingly, be dismissed.