RE JINRO (HK) INTERNATIONAL LTD

HCCW 1352/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 1352 OF 2001

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DECISION ON COSTS

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1. On 14 May 2003, I handed down judgment in a contested creditor's petition to wind up Jinro (HK) International Ltd ("the Company") after a 3-day hearing from 25 March 2003 to 28 March 2003. I ruled in favour of the petitioners on the only ground of opposition, which related to the locus of each of the petitioners to present the petition as creditors of the Company. I did not make any order to wind up the Company as a letter was received from the petitioners' solicitors after the hearing that they intended to apply for provisional liquidators to be appointed to explore the benefits to creditors of a rescue proposal as opposed to immediate liquidation of the Company. I have reserved the question of costs of the contested hearing and costs of the amendment to the petition sought and granted at the outset of the contested hearing. The hearing today is to resolve the costs reserved.

2. The Company has not appeared at this hearing. Notwithstanding that the hearing date was fixed in consultation with counsel's diaries pursuant to the directions I made on 22 May 2003, it transpires that the Company's solicitors have not in fact instructed counsel to appear. The Company's solicitors have sent a representative to court today on a watching brief. I have heard submissions only from the petitioners' counsel, Mr Bartlett.

3. The petitioners seek the costs of the contested hearing in accordance with the normal rule that costs should follow the event.

4. But for the late amendment made to the petition at the start of the contested hearing, there should have been no difficulty in awarding the entire costs of the hearing to the petitioners who have succeeded on the question of their locus to present the petition. In my view, the amendment sought is of material importance to the petitioners' case. I have summarised the different versions advanced by the petitioners in their petition as regards their claim to be the creditors of the Company in paragraphs 19 and 20 of my judgment in May 2003 and I do not propose to go into the details. Suffice it to say that the previous assertions, although not abandoned, were not relied upon at the hearing and it was on the basis of the latest amendments made (i.e. that the petitioners are "successors and/or assigns [of the Accountholders] and/or equitable assignees of the rights under the Deed of Covenant") that the petitioners rested their case at the hearing.

5. Mr Bartlett recognizes the general rule that when late amendment is made by the plaintiff which has substantially altered the case the defendant has to meet and without which the action would have failed, the defendant is entitled to costs of the action down to the date of the amendment (Hong Kong Civil Procedure 2002, Vol. 1, para 20/8/12; Beoco Ltd v Alfa Laval Co. Ltd & Another [1994] 3 WLR 1179 at 1193A-C, 1194G-H). He submitted that this rule should be departed from in the present situation on two broad grounds.

6. Firstly, a winding-up petition is not the equivalent of a writ and statement of claim. It is not a pleading, see O. 1 r. 4(1) of the Rules of the High Court. The court was urged to adopt a broad and flexible approach. Mr Bartlett cited the cases of Re Playmates Investment Ltd [1996] 4 HKC 577 and Re Richbell Strategic Holdings Ltd [1997] 2 BCLC 429 as examples where the court has adopted a less stringent approach in allowing amendments to winding-up petitions. I would observe that both cases do not relate directly to the implication of costs arising from late amendments. It was said that it is a characteristic of proceedings by way of petition that the petitioners' case is generally not as precisely pleaded as it would be in a proper pleading. Further, as the amendments only related to matters of law, i.e. whether on the facts the petitioners were successors and assigns or equitable assignees, it was unnecessary to plead this in the petition. The amendments in the petition, Mr Bartlett contended, have only served to refine the legal issues relating to the challenge of the petitioners' locus and conform the petition to what the parties had clearly regarded as the locus issue as appeared from the evidence filed and the agreed list of issues.

7. I am not satisfied that these matters would give adequate justification to depart from the general rule that I have mentioned. I do not think it could be explained away in this case that the petitioners' claim to be creditors of the Company is not required to be set out as precisely as one would expect in a pleading.

8. Although a petition is not a pleading, it must contain all necessary allegations in a form which is sufficient to enable the court to make the requisite findings and consider the appropriate order. I fully endorse what Chu J had said about this in Re Tourmaline Ltd [2000] 4 HKC 348 at 354C-D:

"Although a petition does not constitute a formal pleading, it serves to define the scope of the matters in issue and the disputes that the court has to resolve. Accordingly, a petition must set out with precision and sufficient particulars the matters complained of or relied on by a petitioner in justifying a winding-up order on just and equitable ground and the court will not travel beyond the allegations contained in the petition in adjudicating the matter: In re Fildes Bros Ltd [1970] 1 WLR 592 at 597G-598C. It follows that a sufficient case must be stated on the petition and defects or omissions in the petition cannot be cured by the supporting affidavit, see Derek French, Applications to Wind Up Companies, p. 86-88; Re Wear Engine Works Company (1875) LR 10 Ch. App. 188 at 191."

9. I should also point out that the amendments introduced at the last minute are not just in relation to legal conclusions to be drawn on the basis of factual matters in the petition. The petitioners have also alleged that they have purchased the floating rate notes through the Euroclear System as a result of which they acquired rights as successors and assigns under the Deed of Covenant and/or as equitable assignees. These are material allegations to the petitioners' case, although they have deposed to the purchases in their evidence filed earlier.

10. I have been taken by Mr Bartlett to the first draft of the agreed list of issues put forward by the Company's solicitors. From the issues set out, I am not persuaded that the Company had anticipated or envisaged what the petitioners ultimately relied on to support their claim that they have acquired valid rights as successors and assigns of Accountholders that could be enforced against the Company.

11. The fact that the petitioners' case was set out in the skeleton submissions served on the Company prior to the hearing or that the Company's leading counsel was able to deal with the petition as amended without seeking an adjournment does not alter the fact that an important and material change was made to the petition and it was on the amended case that the court was asked to adjudicate on the petitioners' claim to be creditors of the Company.

12. The other broad ground advanced by Mr Bartlett is that the amendments would not have altered the position in that the Company was always going to contest the petition vigorously, regardless of whether the amendments were made. He referred me to Kaines (UK) Ltd v Osterreichische [1993] 2 Lloyd's Rep. 1 at 9, which was cited at Beoco, supra. at 1193B. He has set out in his submissions the considerable number of issues raised by the Company and ultimately abandoned at the hearing. It does seem to me that the Company's approach from the start has been to generate as much delay as possible by raising as many issues as it could to buy time. I agree with Mr Bartlett's assessment that the late amendment would have made no difference to the Company's opposition to the petition. In these circumstances, I think there is sufficient justification to depart from the rule of awarding costs of the proceedings to the opposite party down to the date of the late amendment.

13. I order that the petitioners should have the costs of the contested hearing, with a certificate for two counsel, to be paid out of the assets of the Company. The costs in favour of the petitioners are to include all costs reserved on previous occasions, except for the costs of the late amendment of the petition. As for the costs of the late amendment, I follow the usual rule and order that the costs of and occasioned by the amendment of the petition be to the Company.

14. Regarding the costs of the Company, the Company has fully opposed the petition and failed. I make no order as to the Company's costs after the first hearing date of the petition, with the effect that they do not rank as costs of the petition within the 2nd category of rule 179 of the Companies (Winding-up) Rules and thereby achieve no priority over unsecured creditors (Re Bathampton Properties Ltd [1976] 1 WLR 168 at 172-5).

15. It is not necessary to provide for the costs of any supporting creditor as Notice of Intention to appear was served by the supporting creditors only after the contested hearing.

16. I also order that the petitioners are to have their costs of today as part of the costs of the petition and that they are to be paid out of the Company's assets.