XCHRX RE B+B CONSTRUCTION CO. LTD.

HCCW 114/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO. 114 OF 2001

____________

___________

____________________________________

REASONS FOR DECISION

____________________________________

1. This is an application under Section 186 of the Companies Ordinance for an order that notwithstanding the winding-up of B+B Construction Company Limited ("the Company"), the Applicant do have leave to proceed with proceedings in HC Action No. PI 960 of 2000 against the Company provided that no judgment or order obtained by the Applicant shall be enforced against the Company without the leave of the court.

2. Section 186 of the Companies Ordinance provides that when a winding-up order has been made or a provisional liquidator has been appointed, no action or proceedings shall be proceeded with against the Company except by leave of the Court and subject to such terms as the Court may impose.

3. The Applicant is a workman who was injured at work on a site where the Company was the principal contractor. In the personal injuries action, there are two other defendants being the Company's sub-contractor and sub-sub-contractor.

4. The accident occurred in 1997. In June 2000, by a consent order, judgment was entered against the Company and a sub-contractor in favour of the workman for HK$725,000 as employees' compensation. In those proceedings, the Company was represented by solicitors who had been appointed by Tugu Insurance Company, the Company's insurers. I am informed that that sum of HK$725,000 has since been paid by the Insurers.

5. In July 2000, the workman commenced the present personal injuries action. The Company together with the other two Defendants have been represented by the same insurers' solicitors. Pleadings have now been completed as well as discovery and witness statements have been exchanged.

6. In February 2001, however, a petition for the winding-up of the Company was presented and on 18 April 2001 a winding-up order was made. Therefore Section 186 operated to stay this personal injuries claim, unless the stay is lifted which is what the Applicant is seeking today.

7. The Applicant has submitted that he should get leave rather than have to prove as an unsecured creditor in the winding-up of the Company. It is submitted on his behalf that there are issues of fact, such as whether the workman was guilty of contributory negligence, which requires cross-examination of the relevant witnesses. There are also issues as to quantum which would require consideration of expert medical evidence for which directions have been given by the court and for which the court would be the most appropriate tribunal. The action has reached an advanced stage and therefore it is convenient for the proceedings to continue in the High Court action rather than have the Liquidators adjudicate upon this claim.

8. Further the claim is insured and the insurers have not disclaimed liability under the policy. There has been a series of correspondence between the Liquidators' solicitors and the insurers' solicitors which have culminated in a letter from the insurers' solicitors informing the Liquidators' solicitors that the insurers would

"provide policy coverage in respect of this claim subject to terms and conditions of the relevant insurance policy. We have no objection to the Plaintiff's application for lifting the stay of proceedings under the Companies Ordinance".

9. The solicitors for the Liquidators have, at least at one stage of the correspondence, accepted that personal injuries litigation should be treated as an exception to the general policy adopted by these Liquidators that all claims against the Company should be dealt with by way of adjudication of proofs of debt rather than by way of proceedings.

10. The Provisional Liquidators have however taken the view that the letter from the insurers' solicitors set out above is not sufficient and that a formal undertaking and indemnity from the insurers would be required.

11. In my view, given that that letter had been written at the end of a series of correspondence which had started with the insurers' solicitors asking for time to investigate policy liability, it is, in my view, sufficiently clear from the letter of 8 May 2001 that policy liability is no longer contested by the Insurers. Therefore it is probably not necessary for any further indemnity to be provided by the Insurers.

12. In any event, even if no formal indemnity is forthcoming, I take the view that it would not be fair and right, in these circumstances, for the claim to be adjudicated by the Liquidators only when, as has been accepted, it would be more convenient that liability and quantum should be determined in the courts.

13. Before me Mr Tollan for the Liquidators has submitted that the workman may join the insurers in the action thereby leaving the Company out of the matter. He refers to Section 2(1)(b) of the Third Parties (Rights against Insurers) Ordinance Chapter 273. However, it is clear from a reading of that section that what it does is simply to vest the insured's rights against an insurer under the policy on the workman where the insured has been wound-up. In this case, however, there is no indication that the insurer is repudiating liability under the policy, therefore, it is not a question of any rights against the insurer under the policy having to be vested.

14. I do not, therefore, see how that section shows that what the workman should do is to join the insurer as an additional defendant. The workman's rights which are the subject matter of the personal injuries action are rights against the Company.

15. What is of more concern to me is that if the Liquidators adjudicate upon this claim and admit the workman to proof, then that may well open the door to an argument from the insurers that the insured has admitted liability or has compromised a claim which may well lead to arguments by the insurer that it is not bound to pay under the policy.

16. Accordingly, I made an order that notwithstanding the winding-up of the Company, the Applicant should have leave to proceed with the personal injuries action against the Company provided that no judgment or order obtained by the Applicant in the action shall be enforced against the Company without the leave of the court. As far as costs were concerned, I ordered that the Applicant should have his costs in the course in the personal injuries action. As for the Liquidators' own costs, I accept that in any event an application would have to be made by the workman under Section 186 of the Companies Ordinance, and I am satisfied that the Liquidators' costs were incurred as part of the expenses of liquidation in seeking to reduce the Company's potential liabilities.