XCHRX RE HONGKONG DIGITAL TELEVISION LTD. (NUMBER 610057)

HCCW 871/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING UP NO. 871 OF 1998

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J U D G M E N T

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1. On 4 December 1998, the petitioner presented a petition to wind up the respondent company. It is a petition based on debts alleged to arise out of an agreement for the provision by the petitioner to the company of computer hardware, software and services under an agreement dated 14 May 1998.

2. As the petitioner is a foreign corporation, having been incorporated under the laws of the State of Washington in the USA, the company applied for security for costs. The sum of security sought was in the amount of HK$460,000.00.

3. The matter came before Madam Justice Yuen who handed down her decision on 5 May 1999. Her Ladyship ordered that security be given by the petitioner in the sum of HK$200,000.00.

4. In reaching her decision, which was a matter lying entirely within her discretion, Yuen J considered the merits of the petitioner's claim, the existence of assets within the jurisdiction which could serve as security and the relatively late stage at which the application was being made by the company.

5. In considering the merits, Yuen J was obviously not making any findings but asking whether prima facie there were such high prospects of success that exceptionally, the merits might be relied on as a ground for dispensing with security from a foreign petitioner. She held that such prospects had not been shown but that there was evidence of various disputes between the parties which could be sufficient to trigger a Honolulu UNCITRAL arbitration clause in the agreement. Yuen J likewise found that the petitioner had not established that sufficient assets lay within the jurisdiction to obviate the need for security and held that delay was not such as to preclude the company's application.

6. Having come to her decision, Yuen J made an order nisi that the costs of the application be paid by the petitioner to the company. The petitioner has not provided the security ordered in the time limited. Accordingly, all proceedings on the petition are presently stayed.

7. There is today before me a summons issued by the petitioner seeking (1) an order dismissing its petition, with the costs to be provided for; (2) an order for an extension of time to be heard on the costs order nisi; and (3) subject to an extension being granted under (2), for that costs order nisi to be varied.

8. The company does not oppose an order under (1), subject to the question of costs. It also does not oppose an extension of time under (2). In such circumstances, I granted the petitioner leave to argue the costs order nisi out of time.

9. An order dismissing a winding-up petition which has been advertised must be made in open court as it seeks a class remedy and could, in theory be taken over by a different creditor. Accordingly, although I will indicate now that I will accede to the application for the petition to be dismissed, the matter should be listed before me in open court at 9.30 a.m. on a convenient date for the order to be pronounced in open court, assuming that no other creditor seeks to be substituted. The Official Receiver's costs can also be dealt with on that occasion and, I understand, is likely to be dealt with by consent, in which event the Official Receiver's attendance may be dispensed with. I have decided that it should be listed before me as the parties have invited me to deal today with the costs of the petition as well as the costs order nisi.

10. Accordingly, the substantive questions before me today are (a) as to whether the order nisi awarding costs to the company for security for costs application should be varied; and (b) as to the order which should be made as to the costs of the petition in the light of its dismissal at the petitioner's request.

11. I am conscious of the need to avoid re-opening any matters already decided by Yuen J, this being a highly unusual case where a review of a costs order nisi made by one judge has been placed for determination before a different judge who has not had the benefit of trying the application in which the order nisi was made. I raised this question at the hearing and, no doubt with a view to avoiding further costs, both parties invited me to proceed. I shall therefore proceed on the basis of the material considerations discernible from the written Decision handed down by Yuen J and the arguments put before me today, avoiding any re-opening of issues already decided.

12. An affirmation by Ms Leslie Himelfarb, a solicitor acting for the petitioner, has been filed in support of the petitioner's applications. In paragraphs 12 to 21, Ms Himelfarb describes the course of the filing of evidence for the security hearing, pointing in particular to the filing of the 2nd affirmation of Mr Ng Chi Shing which occurred, by consent, at the end of the hearing on 4 May 1999.

13. Ms Mairead Rattigan, who appears for the petitioner, took me through the relevant parts of the evidence in question. She submits that after seeing Mr Ng's first Affirmation, filed on 2 January 1999, the petitioner, through a Mr Douglas Walter Thomas, reasonably concluded that there was no genuine dispute raised by the company and that the purported defences referred to by Mr Ng could all be refuted. This Mr Thomas did in his affidavit filed on 20 January 1999. However, so the argument runs, it was only upon seeing the points made by Mr Ng in his second affirmation of 30 April 1999 and filed with the leave of the court on 4 May 1999 that the petitioner had to accept that a sufficient dispute existed to require the matter to be referred to arbitration.

14. It is necessary to descend slightly into detail. The debts upon which the petition is founded are stage payments made payable by the agreement. They are however only payable upon certain criteria having been satisfied. Part of the dispute concerns the question whether the criteria were satisfied so that payment became due, giving rise to a debt capable of supporting a winding-up petition.

15. The first two issues sought to be raised by Mr Ng in this context concerned delivery in Hong Kong of computer equipment referred to as Golden #1 and Golden #2. He sought to suggest that there was an issue as to whether the company had in fact accepted this equipment in accordance with terms dealing with contractual acceptance in the agreement. Mr Thomas sought to refute these as unarguable by exhibiting certificates signed on the company's behalf. Yuen J indicated that she regarded such refutation as successful and Mr Winckless has been content to accept that indication for today's purposes.

16. The third issue raised in the same context concerned items of hardware called "streaming units". Under the agreement, the "Acceptance Criteria" relating to such units are stated as follows:

"Fifty units will be delivered to the N-Cube facility in Beaverton for the video server load testing. They will support MPEG video."

17. The nub of the dispute raised by the company is that this wording, as a matter of construction, entitled it to receive some documentary evidence that the streaming units had been delivered and had been successfully load tested. I should add that these units were not to be delivered in Hong Kong but in Beaverton, which I am told is on the West Coast of the United States. In his affidavit, Mr Thomas disputed this construction. He stated: "Section M.2 of Schedule 1 provides no Acceptance Criteria, other than that the streaming units be delivered to the N-Cube facility." He then proceeded to exhibit evidence of delivery, but not of testing.

18. Mr Winckless therefore submits that whether the company or the petitioner is right in its construction, both parties must have realised they were in dispute over this question and that until it had been determined in arbitration, the petitioner could not claim to have an undisputed debt giving it locus to petition. Yuen J, in the context of the security for costs application, decided that the petitioner's position on the streaming units was not so clear cut as to justify dispensing with security for costs. This, Mr Winckless suggests, was in fact clear to the petitioner from the moment they saw Mr Ng's first affirmation, as demonstrated by Mr Thomas' response.

19. The fourth item arises in a slightly different way. As Yuen J held, it is common ground that the petitioner, having delivered the Golden #1 and #2 equipment to the company, then re-took possession of it and, I am told, still retains it. Yuen J held (again in the security for costs context) that the circumstances of the re-taking of the goods has been disputed and that she considered it unclear whether they can be regarded, as submitted by the petitioner, as goods held on an unpaid seller's lien. She accordingly treated this as another issue that did not surmount the high threshhold test for dispensing with security.

20. Mr Winckless submits that the issue of repossession was squarely raised in Mr Ng's 1st affirmation and that his later evidence did not materially add to it. In paragraph 14(3) of that affirmation Mr Ng stated as one of the grounds for denying "liability to pay the petitioner the amount of US$1,151,650.50" claimed that "since the petitioner has recovered possession of all the goods it allegedly supplied to the Company, the petitioner is not entitled to the purported debt for which it claims." This makes it clear, so it is submitted, that even if liable, the company may only be liable in damages rather than for the whole purchase price and, as such, no liquidated debt existed to found a petition.

21. Ms Rattigan, in reply, contended that these were points not made with sufficient clarity in Mr Ng's 1st affirmation and that if they had been, the petitioner is likely to have recognized the need to go to arbitration and so would have persisted in neither the security application nor the petition itself. She stresses that the company has a duty not merely to point to the existence of an arbitration clause but, if a dispute is said to have arisen under it, to spell out with clarity, what that dispute is. It is really on this central ground that the petitioner seeks a variation on the costs order nisi.

22. In my judgment, the petitioner has failed to make out a basis for varying the costs order nisi made by Yuen J and I dismiss the petitioner's application for such relief in respect of costs.

23. It appears to me, for the reasons outlined by Mr Winckless and outlined above, that the 1st affirmation of Mr Ng can fairly be said to have given sufficiently clear notice of the disputes which Yuen J found to be sufficiently arguable to preclude successful resistance to the application for security. Fundamentally, the petitioner resisted the order and failed. Security was ordered in the sum sought. In the ordinary course, the costs would properly have followed that event. The petitioner has been unable to persuade me that notwithstanding that result, the costs order should be reversed on the basis of the arguments deployed.

24. Turning to the costs of the petition, I have come firmly to the conclusion that the petitioner must also bear those costs. In paragraph 6 of Ms Himelfarb's affirmation, two reasons are given for not proceeding with the petition, namely, the present recognition that triable disputes arise such that the matter ought to be first dealt with by arbitration and secondly, an unwillingness or inability to put up the security ordered.

25. In the light of my decision, the late evidence ground also fails to assist the petitioner in this context. The failure to put up the ordered security, similarly supports an order against the petitioner rather than otherwise.

26. I therefore make the following orders:-

1. The petition be listed in open court on a date to be fixed for hearing before me for pronouncement of an order that it be dismissed.

2. The parties before me and the Official Receiver, if so advised, be at liberty not to attend at the refixed hearing.

3. The petitioner's application for variation of the costs order nisi made by the Honourable Madam Justice Yuen on 5 May 1999 be dismissed.

4. The petitioner do pay the costs of the petition and of this application to be taxed and paid forthwith if not agreed.