CHIM KEE MACHINERY CO LTD v. SNE ENGINEERING CO LTD

HCCW 308/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO 308 OF 2012

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BETWEEN

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RULING ON COSTS

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1.  In the Decision handed down on 23 May 2013 (“the Decision”), I granted the Respondent’s application to strike out the winding-up Petition presented against it on 23 August 2012. Now before me are two applications to vary the costs order nisi:

(i) The Petitioner’s application that there be no order as to costs of the Respondent’s application to strike out;

(ii) The Respondent’s application for an order requiring the Petitioner to pay the costs of the strike out application and the costs of the Petition (including all costs reserved), to be taxed on an indemnity basis.

2.  I do not propose to retrace the history of the dispute.  It suffices for the present purpose to note that the parties were already in dispute over the outstanding payments at least from the first half of 2012.  Despite the fact that some agreement had been reached among the Petitioner, the Respondent and Hsin Chong in May 2012, the dispute over payment was not resolved. 

3.  Matters came to a head when the Petitioner wrote on 3 July 2012 to terminate the contract with the Respondent.  I do not wish to pre-judge the question of liability, but it is a fact that the progress of work at the site had been disrupted since then.  Despite subsequent meetings at the site the parties had not been able to resolve their differences.  The Respondent later resorted to court proceedings to compel the Petitioner to remove its equipment from the site. 

4.  It was against such background that the statutory demand was issued by the Petitioner on 1 August 2012 for outstanding payments which had accrued up to the end of June 2012, totalling over $9 million. 

5.  It is significant to note that the Respondent did not respond to the statutory demand.  The Petitioner therefore proceeded to wind up the Respondent by issuing the Petition on 23 August 2012. 

6.  Mr Remedios (counsel for the Petitioner) submitted that the Petitioner was fully justified in issuing the Petition, especially in light of the fact that the Respondent had completely ignored the statutory demand.  He also submitted that there were special circumstances justifying the Petitioner to continue with the Petition.

7.  Mr Maurellet (counsel for the Respondent) on the other hand contended that it would not have made any difference whether or not the Respondent had responded to the statutory demand.  Having regard to the Petitioner’s conduct throughout the course of this Petition, it was evident that the Petitioner was determined to bring full pressure to bear on the Respondent to pursue payment.  No form of response from the Respondent would have caused the Petitioner to chart a different course or refrain from pursuing the Petition.  Mr Maurellet further submitted that the Petitioner, having adopted a high-risk strategy by invoking the winding-up procedure and failed, should be visited with an order for costs on indemnity basis. 

8.  In this connection I am mindful of Kwan J’s (as the learned judge then was) observation in Re Hyundai Engineering & Construction Co Ltd [2002] 2 HKLRD 71 at §8, that a petition to wind-up a company is not ordinary litigation.  Her ladyship further said:

“The implication of such a petition on a company is tremendous. If the petitioner knows of the basis which makes it improper for the petition to be brought, the petitioner should not be allowed to use ‘high-risk strategy’ without any penalty. …..”

9.  In the circumstances of the present case, as I have remarked in the Decision (as was acknowledged by the Respondent), the Respondent’s challenge to the sums set out in monthly statements, even if upheld, would not have completely extinguished the Petitioning Debt (§22 of the Decision).  The Respondent succeeded in striking out the Petition only because of its cross-claims (§§49, 54 and 57 of the Decision). 

10.  It would therefore be pertinent to ask whether at the time of the Petition, the Petitioner ought to be aware that the Respondent would have substantial cross-claims against it rendering it improper to present the Petition.  What I think should weigh in the balance is that at the time of the statutory demand, there was still little indication from the Respondent of the basis and extent of its cross-claims notwithstanding the fact that the parties were obviously in dispute over payment.  Subsequently there was a further demand by the Petitioner for immediate payment at least of the undisputed portion of the outstanding charges (see letter from the Petitioner dated 17 August 2012).  At that stage, the Respondent would prima facie be indebted to the Petitioner but it had still not properly formulated its cross-claims.  

11.  In these circumstances, I do not think that the Petitioner should be penalised with a cost order in relation to the issuance and presentation of the Petition. 

12.  Since the presentation of the Petition, however, the Respondent had set out the substance of its cross-claims in a series of correspondence (see letters dated 17 and 27 September 2012 from the Respondent, and 4 and 8 October 2012 from its solicitors).  Furthermore, in Mr Matsumoto’s affirmation filed on behalf of the Respondent on 17 October 2012, he set out not only the grounds for disputing the Petitioner’s claim but also the basis of the Respondent’s cross-claims.  At that stage, it would clearly be incumbent on the Petitioner to review whether the continuation of the Petition would be justified, or whether it should first seek to establish its claims for payment through the normal course of an Action, and if appropriate by way of summary judgment.   

13.  Mr Remedios sought to defend the Petitioner’s decision to continue the Petition by pointing, first, to the financial position of the Respondent and argued that since the Respondent was insolvent, the Petitioner was justified in pursuing its winding up.  He next submitted that the Respondent had a propensity for dishonesty as was evidenced by the breach of its undertaking to Hsin Chong in not paying the sum of $3.5 million to the Petitioner upon receipt of the said sum from Hsin Chong.    

14.  I am not persuaded by these arguments.  As Mr Maurellet pointed out, the question of any insolvency was not deployed as a ground in support of the Petition during the strike-out hearing.  The Petition itself also made no reference to matters concerning the honesty or otherwise of the Respondent.  I agree that it would be wholly inappropriate now, in the context of an argument on costs, to embark on a course requiring examination of the evidence which formed no part of the arguments of the strike-out application.

15.  Mr Remedios further relied on the evidence that those controlling the Respondent were apparently transferring business away from the Respondent so as to defeat any judgment against it.  That, with respect, is hardly a justification for maintaining an otherwise improper petition for winding-up.  Had the Petitioner taken the proper course of seeking judgment by an Action, there would be ample interim relief available to the Petitioner to prevent the assets of the Respondent from being improperly dissipated.

16.  Having regard to all circumstances of the case, I am of the view that the Petitioner should bear the Respondent’s costs of the Petition and of the strike-out application incurred after 17 October 2012.  I further consider that this is an appropriate case for such costs to be paid on an indemnity basis. 

17.  Finally, I should also mention that Mr Remedios has invited me to adjourn the issues of costs to await the outcome of the High Court Actions.  I would decline such invitation because with the Petition being now struck out, there seems no good reason to defer the determination of the issues of costs.

Conclusion

18.  The costs order nisi will be varied as follows:

          (1)     There be no order as to costs in respect of the Petition and the strike-out application incurred up to and including 17 October 2012;

          (2)     Costs of the Petition (including any costs reserved) and of the strike-out application incurred thereafter shall be borne by the Petitioner on an indemnity basis.

19.  As for the present applications to vary costs, neither side is a complete winner.  In all circumstances, I think it would be fair to order the Petitioner to bear half of the Respondent’s costs in relation to both summonses on a party-and-party basis, and I so order.