RE PARADIGM CONNECTIONS LTD

IN THE SUPREME COURT OF HONG KONG

HIGH COURT 

COMPANIES (WINDING-UP)

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JUDGMENT

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1. There are before me amended petitions to wind up Golden Always Limited and Paradigm Connections Limited. They are respectively the 1st and 2nd Defendants in an action brought by Australian Telephone Distributors Pty Ltd. (in liquidation), the Petitioner in the High Court, 1993 No. A6220 ("the Action").

2. The Petitioner obtained part summary judgment in the Action for the delivery up of certain tools on 17 November 1994 when an order for costs was made against Golden Always and Paradigm.

3. The Petitioner proceeded to have those costs taxed. At the hearing of the amended petitions on 18 March 1996, Mr Maydwell, a director of each of the companies concerned who has obtained leave to represent the companies at the hearing, informed the Court that he personally attended the taxation proceedings and opposed the Petitioner's bill of costs.

4. According to Mr Maydwell, the taxation took several hearings spread over a period of months. Although the Petitioner does not admit that there was more than one hearing, it is common ground that a hearing, which according to Mr Maydwell was the last day of the hearing, took place on 22 September 1995. The bill of costs ran to over 20 pages and many items were apparently disallowed or reduced by the Taxing Officer. So, on 22 September, the amount of taxed costs was not known.

5. The companies heard nothing more about the taxation and on 24 November 1995, a statutory demand in the prescribed form was duly served on each of the companies. The statutory demands gave the following particulars of the debt:

6. On 13 December 1995, the companies wrote to the solicitors for the Petitioner informing them that no allocatur had been served on the companies and that for that reason they were unable to attend to the claim. On 21 December 1995, winding-up petitions were filed by the Petitioner to wind up the companies. Paragraph 5 of each of the petitions referred to an allocatur dated "31 October 1993" whilst the particulars of the debt corresponded to those appearing in the statutory demand served on 24 November 1995 and referred to an allocatur dated "31 October 1995". Pausing there, the Petitioner's solicitors appeared to have adopted a somewhat cavalier approach : not only did they ignore the companies' letter of 13 December, they did not bother to provide the companies with a copy of the allocatur until 2 February 1996, the eve of the first hearing of the petitions. On 5 February 1996, pursuant to leave granted on that day, amended petitions were filed. Inter alia, the reference to "1993" in paragraph 5 was amended to read "1995".

7. The petitions to wind up the companies are based on the companies' inability to pay debts. The Petitioner relies on s.178(1)(a) of the Companies Ordinance which reads as follows :

          "(1) A company shall be deemed to be unable to pay its debts -

8. An issue which arises in both petitions is whether the statutory demand made in each case was valid. A sealed copy of the allocatur dated 31 October 1995 was produced at the hearing. The companies' assertion that they were never served with a copy of the allocatur prior to 2 February 1996 was not challenged. The question which arises for determination is whether at the date the statutory demand was made, there was a debt "then due". "Due" has been construed as meaning "absolutely due" and "presently payable". See In re European Life Assurance Society (1869) 9 LR Eq.122, 127; The New Travellers' Chambers Limited v. Cheese and Green (1894) 70 LT Times 271 and In re Bryant Investment Co. Ltd. [1974] 1 WLR 826, 828H.

9. Once taxation has been finalised and completed, an allocatur or certificate is issued to the party entitled to the order for costs: see O.62, r.22 of the Rules of the Supreme Court. Until either taxation or agreement, a liability for untaxed, unagreed costs could not be a debt capable of founding a winding up petition. As was stated in Re Laceward Limited [1981] 1 WLR 133 at p.137A-B:

"Before such taxation takes place [that's to say, taxation of the Bill of Costs concerned] there is no certainty whatever as to whether all or any specific part of the debt alleged by the petition will be found truly due to the Petitioners."

See also in Re a Company No.001573 of 1983 [1983] 1 BCC 98,937.

10. Whilst the issuance of an allocatur to the party entitled to costs crystallises the amount of debt and renders it certain, until the party liable to pay the costs is presented with a copy of the allocatur, there is no obligation to pay. Hence after obtaining an office copy of the allocatur from the taxing officer, the practice is for the party entitled to costs to present the allocatur to the party directed to pay the costs for payment: see 37 Halsbury's Laws of England, 4th Ed. para.743.

11. The Petitioner submitted that the statutory demand which contained information regarding the allocatur was or constituted sufficient notice. I would agree had it been accompanied by a copy of the allocatur. But it was not. In my view, the obligation of the party directed to pay the costs does not arise until such time as he is presented with a copy of the allocatur. It follows that the statutory demands served on the companies were invalid because at the time such demands were served, there was not in existence a debt "then due".

12. The Petitioner, supported by the Official Receiver, submitted that nothing would be achieved by this "technical" point because fresh statutory demands could be issued: it would be a waste of time and effort and serve only to delay the inevitable since if such fresh demands were served, the Petitioner is bound to obtain winding up orders because the companies do not have the wherewithal to discharge the debt. I do not accept the proposition that the Petitioner is bound to obtain the orders since it is not entitled as of right to such orders. Further, a defective statutory demand can hardly constitute a valid reason for depriving the companies of their entitlement to have the amended petitions dismissed, given the effect and consequences of a winding-up order.

13. Having come to this conclusion, it is not necessary for me to deal in detail with the other arguments raised by the companies. I will touch upon them briefly as they may become relevant as and when fresh statutory demands are served and fresh petitions filed.

14. The second argument raised by the companies is that the Court is not bound to make a winding-up order even if the statutory demands are valid. It has a residual discretion and it is submitted that the Court should exercise its discretion against the making of a winding-up order because the effect of such an order would be to stifle the counterclaim brought by the companies in the Action. Mr Maydwell referred to in Flender Werft AG v. Aegean Maritime Limited [1992] LI.L.R.27 in support, a decision given in the context of security for costs.

15. The argument is not entirely novel in a winding up context. A similar argument was in fact advanced to resist a winding-up application in Tottenham Hotspur Plc v. Edennote Plc [1994] BCC 681. The submission there was that it amounted to an improper purpose which the Court should not allow to be achieved by a winding-up petition. Reliance for that proposition was placed on the decision of the Court of Appeal in Re LHF Wools Limited [1970] Ch.27 where importance was attached to the fact that the company had no assets except the counterclaim so that delaying its winding up could cause no detriment to the petitioning creditor except in so far as it made it easier for the companies to pursue the counterclaim. Whilst in the Tottenham Hotspur case, the argument as to improper purpose failed and a winding-up order was made, whether the discretion ought to be similarly exercised in the present case is a matter which will have to be decided by the Judge hearing the fresh petitions should they be issued. Suffice to say that the facts in Tottenham Hotspur were very different and there appear to be features in this case that may render inapplicable the considerations that ultimately persuaded Rattee J to exercise the discretion in the way that he did.

16. What is clear is that even if the Petitioner were able to demonstrate the inability of the companies to pay their debts by means of valid statutory notices, there is nonetheless a discretion vested in the Court. How that discretion should be exercised must inevitably turn on the facts of the particular case.

17. In relation to CWU624, Mr Maydwell raised an additional argument. Paradigm has appealed against the costs order made against it in the O.14 proceedings. As I understand it, the judgment obtained in the O.14 proceedings related only to the claim for delivery up of certain tools which relief was only sought against Golden Always in the Action. It is not apparent why Paradigm was party to the O.14 application. The order for costs was apparently made against both companies. Mr Maydwell's complaint is that it is manifestly unfair to make a winding-up order in respect of Paradigm in respect of a costs order which, on the face of it, ought not to have been made.

18. I express no views as to the merits of this submission save to say that it may be a relevant consideration for the Judge when it comes to considering the exercise of his discretion in relation to the making of a winding-up order. As I have said, that is a question that is not before me today because of my decision on the validity of the statutory demands.

19. For the reasons stated, the amended petitions are dismissed. I make an order nisi for costs in favour of the companies.