Re Hon Seng Engineering Ltd.

HCCW 59/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 59 OF 2000

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REASONS FOR DECISIONS

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1. On 26 June 2001, at the hearing of the Re-Amended Petition, a submission on a preliminary point was made by counsel for the respondent company Hon Seng Engineering Co Ltd ("the Company") that the petition should not be heard because it had not been re-advertised by the newly substituted petitioner.

2. After hearing submissions from counsel for the Company and counsel for the substituted petitioner, I took the view that re-advertisement was not required, and I allowed the hearing of the petition to proceed, although as it turned out, an adjournment was granted to enable evidence to be adduced. Due to time constraints on that date, I did not give reasons for my decision. I do so now.

No need for re-advertisement

3. The facts of this case were that in January 2000, a company called Jason Engineering Co ("Jason") presented a petition to wind up the Company. The Company disputed the debt. There were then various interlocutory battles which are not relevant to these Reasons for Decisions.

4. In February 2001, Jason had to withdraw the petition because the position taken by the Architectural Services Department ("ASD"), the employer in the series of contracts and sub-contracts involving the Company and Jason, had the effect of supporting the Company's dispute of the debt on which Jason had based its petition.

5. At the same time as Jason's withdrawal, another sub-contractor called Lee Yu Kee Fire Protection Ltd applied to substitute as petitioner. Rule 33 of the Winding-Up Rules provides:-

"When a Petitioner is not entitled to present a petition or whether so entitled or not, where he (a) fails to advertise his petition within the time by these rules prescribed or such extended time as the Registrar may allow or (b) consents to withdraw his petition, or to allow it to be dismissed or the hearing adjourned, or fails to appear in support of his petition when it is called on in court on the day originally fixed for the hearing thereof, or on any day to which the hearing has been adjourned, or (c) if appearing, does not apply for an order in the terms of the prayer of his petition, the court may, upon such terms as it may think just, substitute as petitioner any creditor or contributory who in the opinion of the court would have a right to present a petition, and who is desirous of prosecuting the petition. An order to substitute a petitioner may, where a petitioner fails to advertise his petition within the time prescribed by these rules or consents to withdraw his petition, be made in chambers at any time".

6. On 9 February 2001, an order was made substituting Lee Yu Kee as petitioner. Directions as to the filing of evidence were given.

7. In March 2001, however, Lee Yu Kee decided to withdraw. At the same time, Wenden Engineering Service Co Ltd ("Wenden") applied to substitute as petitioner. I should add that there was no time lag between Jason's withdrawal and Lee Yu Kee's application to substitute, and between Lee Yu Kee's withdrawal and Wenden's application to substitute, because they were represented by the same firm of solicitors.

8. Wenden's application was made in chambers under rule 33. The Company disputed Wenden's debt and challenged its application. After a hearing on this issue, I made an order on 26 April 2001 substituting Wenden as petitioner.

9. Wenden's summons did not ask for an order dispensing with re-advertisement. The skeleton submission of its counsel did suggest such a direction, but such a direction was not given.

10. The petition was duly amended and came on for hearing on 26 June 2001. Counsel for the Company submitted that rule 24 of the Winding-Up Rules provides that every petition shall be advertised 7 clear days before the hearing. Since no order had been made for re-advertisement to be dispensed with, that requirement had not been complied with.

11. Counsel for Wenden referred the court to the decision of the Full Bench in Re Kason Engineering and Construction Co Ltd [1969] HKLR 406. In this case, the court at first instance had made an order for substitution and a winding-up order immediately thereafter, without notification of the company. The Full Bench held that the company should have been notified so that it could, if it wished, oppose the winding-up.

12. Although this decision focused on the failure to notify the company, Rigby SPJ (as he then was) agreed with an observation in the 13th edition of Buckley on the Companies Acts at p1033 that upon an order for substitution being made, the petition should be served on the company but it need not be re-advertised. The rule considered in the 13th edition of Buckley was similar to our present Rule 33. (I should add that the English rules have since been amended to state expressly that every petition need only be advertised once).

13. Counsel for Wenden submitted that since Kason was a decision of the Full Bench, it is binding on this court. I did not agree because it was quite clear upon reading that judgment that it was concerned with the failure to notify the company before the winding-up order was made. Therefore the approval of the passage from Buckleys could only have been obiter dictum.

14. Although this court was not bound, that judgment is support for the view that re-advertisement was not required. Apart from Rigby SPJ's agreement with the observation in Buckleys, Huggins J (as he then was) referred to Re Invicta Works [1894] WN 39 which held that no adjournment was required between an order for substitution and an order winding-up the company, so long as the company had been notified in advance to enable it to oppose the winding-up if it wished. If no adjournment was required, it must mean that re-advertisement was not required.

15. Further, that re-advertisement is not required can be deduced from an examination of the purpose of advertisement of the petition in the first place. Advertisement of the petition is for the purpose of informing the creditors and contributories of the company that one of their number has invoked the class remedy of winding-up the company. Upon seeing the advertisement, creditors and contributories may appear at the hearing of the petition to support or oppose it. They could choose to support or oppose not the petitioner, but the petition. The identity of the petitioner is not relevant because winding-up is not a lis between the petitioner and the company.

16. Accordingly, once the petition had been advertised (in this case, by Jason), the creditors and contributories of the Company were already made aware that this class remedy had been invoked. Subsequent changes in the identity of the petitioner do not affect the matter. Different considerations would of course apply if the original petition had been dismissed or withdrawn, and a new petition presented by Wenden.

17. By reason of the above, I took the view that re-advertisement was not required and I allowed the hearing of the Petition to proceed which was however adjourned.

Costs as between the Company and Jason

18. At the resumed hearing on 3 July 2001, the Company no longer opposed the winding-up. However, there was a dispute between the Company and Jason as to certain costs as between the Company and Jason.

19. Having heard counsel for the Company and counsel for Jason, I ordered that other than the costs of the original petition and the costs of advertisement, Jason should be ordered to pay the Company's costs.

20. In re Bostels Ltd [1968] 1 Ch 346, a petitioner presented a petition based on a debt which was paid by the company soon thereafter. A supporting creditor was then substituted as petitioner and a winding-up order was made. It was held by Pennycuick J (as he then was) that so far as the activities of the original petitioner (in our case, Jason) had been conducive to obtaining the winding-up order, the costs referable thereto, i.e. the petition and the advertisement, ought to be included in the costs of the petition. However the costs of preparing the original petitioner's affidavit and its appearance on the petition had, as regards the creditors as a whole, been wasted as they had not led to the winding-up order. These costs should therefore not be costs in the petition.

21. Further, in Jason's case, the Company had expended costs in opposing the petition which opposition had succeeded as it had led to Jason's withdrawal. It may be, as counsel for Jason submitted, that Jason had considered itself justified in pursuing the petition until ASD's position in February 2001 effectively frustrated it. Be that as it may, the reality of the situation was that if it had not been for the substitution of Lee Yu Kee and Wenden, the petition would have been dismissed on the basis of the disputed debt, a dispute which was fuelled by ASD's position. Since as a general rule, costs should follow the event, Jason should bear the Company's costs, save that Jason's costs of petition and the advertisement should be costs in the petition.