GOODWAY LTD v. PIRELLI CABLES LTD

1997, No.MP1966

IN THE HIGH COURT OF HONG KONG

COURT OF FIRST INSTANCE

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J U D G M E N T

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1. The Applicant Goodway Limited ("Goodway") seeks an injunction to restrain the Respondent Pirelli Cables Limited ("Pirelli Cables") from presenting a petition to wind-up Goodway and from advertising the presentation of the petition. The short point raised is whether a judgment creditor should be restrained from presenting a winding-up petition when the judgment in question is under appeal.

2. The relevant chronology of the events may be summarised as follows. Pirelli Cables commenced an action against Goodway in July 1996. Goodway filed a defence and counterclaim in September 1996. Pirelli Cables took out an O.14 summons in November 1996. After a hotly contested hearing, it obtained summary judgment in April 1997 against Goodway for £1.7 million together with interest and costs. Goodway's counterclaim was also dismissed. On 9 May 1997, Goodway filed a notice and grounds of appeal. That appeal is due to be heard by the Court of Appeal on 7 October 1997.

Applicable principles

3. Counsel for Goodway submitted that where there is a genuine dispute as to the debt, the winding-up procedure should not be used. In support, he referred to In re a Company No.0012209 of 1991 [1992] 1 WLR 351. As a proposition of law, that statement is well-established. But how does it impinge on a judgment debt? When one looks at the underlying facts in that case, it is apparent that it was not a case in which any judgment had been obtained. Rather Hoffmann J. (as he then was) observed that winding-up petitions ought not to be used as an alternative to an application for summary judgment under O.14. In the present case, of course, an O.14 application was made and Pirelli Cables was in fact successful.

4. Counsel for Goodway also referred to the observations of Harman J. in In re a Company No.001573 of 1983 [1983] 1 BCC 98,937 at 98,939 to 98,940 :

"... it is trite law that the Companies Court is not, and should not be used as (despite the methods often adopted) a debt-collecting court."

In the case before Harman J. those observations were made in the context of a petition being presented by a "prospective creditor" in respect of costs to which the creditor was entitled but where the costs had neither been taxed nor agreed. In those circumstances, those costs were no more than an unascertained debt which had never been demanded and which the company had never had the chance to pay. Those circumstances are again very different from the present situation where there has been a contested hearing and a judgment by the court which is enforceable.

5. The question is whether those observations are nevertheless apposite where there is a judgment debt. Is there "a genuine dispute as to the debt" simply because an appeal is lodged against the judgment by a dissatisfied party?

6. The leading authority is the case of Amalgamated Properties of Rhodesia (1913) Ltd. [1917] 2 Ch 115. The facts were as follows. An action by the A company against the G company was dismissed with costs and costs payable by the A company were taxed at a sum of over £65,000. A statutory demand was served and on non-compliance, a petition for the winding-up of A company was filed. In the meantime A company which had not applied to the judge who tried the action or to the Court of Appeal for a stay of execution on the judgment lodged an appeal from the decision at the trial. For the respondent in that case it was submitted that the petitioners were not presenting the petition bona fide in order to obtain payment of the sum owing to them but that it was presented for the purpose of stifling the appeal. The same argument is deployed by Mr Thomson on behalf of Goodway.

7. In Amalgamated Properties (supra), Sergeant J. observed (at p.121) that :

"Judgment creditors are prima facie entitled ex debito justitiae to a winding-up order and it seems to me to be impossible to displace that prima facie position without the very strongest proof that the petition is being improperly made use of for some ulterior motive."

That observation reflected the holding in the much earlier decision of the House of Lords in Bowes v. Hope Life Insurance and Guarantee Company (1865) 11 HLC 388, 389. Thus fraud or collusion which taints the judgment upon which the debt is based might raise a valid plea of bona fide dispute in relation to the judgment debt. See Fletcher on The Law of Insolvency 2^nd Edition (1966) at 525-6. But that is not the case before me.

8. Sergeant J. then went on to say :

"I have yet to learn that judgment creditors were entitled to be paid a judgment debt are to have evil motives attributed to them or are to be deprived of their rights because they are seeking to enforce those rights before the assets to which they looked are mortgaged or charged in such way as to deprive them of illegitimate expectation of being paid."

As to the submission that the filing of the petition was to hamper the prosecution of the appeal, the learned judge said (at pp.121-123) :

"The argument is such a bold one that it answers itself, for it really comes to this, that, if an unsuccessful litigant happens to be a limited company and intends to appeal, that litigant practically is discharged from the necessity which litigants are under in such a state of things of applying to the Court of First Instance or to the Court of Appeal to stay execution on the judgment because the respondents to the petition can always say that the necessary effect of the enforcement of the judgment by execution in the shape of a winding-up order must be to hamper the appeal and therefore no such order must be made and the petition must actually be dismissed for fear of those consequences. ... There is no reported authority on the point before me, but my attention has been drawn to a case in which Mr Holmes was engaged, Wyler and the Ibo & Nyassa Corporation v. Lewis and Marks, another celebrated litigation as regards length and costs. In that case the plaintiffs had been successful in the Court of First Instance but had failed in the Court of Appeal and been ordered to pay a large sum for costs. They presented an appeal from the judgment to the House of Lords and while that appeal was pending, a petition was presented in respect of the costs to wind-up the plaintiff corporation. The petition was opposed by the corporation and creditors and was heard Neville J. who thought that the petition should not be dismissed ... but that it should stand over. The Court of Appeal however apparently took the view that the petitioners were entitled to their order ex debito justitiae and accordingly made a winding-up order. That is a precedent in substance for the order I propose to make though not for all the details of that order and I feel bound to follow it."

9. In my judgment that is clear authority that the existence of an appeal does not affect the right of the judgment creditor as creditor to make a statutory demand and to present a petition unless special circumstances exist, for example, where the judgment upon which the debt is founded is tainted by fraud or collusion or where it could be shown that the petition would be bound to fail.

10. The present application is not incidental to a winding-up petition. Rather, as Kirby P. observed in Australian Mid-Eastern Club Limited v. Elbakht (1988) 13 NSWLR 697 at 704-705, such an application is "anterior to the winding-up summons and not interlocutory to those proceedings. The court's jurisdiction to provide the relief sought ... derives from its jurisdiction to prevent an abuse of process." It is common ground between the parties that a company will be granted an injunction to restrain the presentation of a petition if the threatened presentation would be an abuse of process of the court. Such relief is granted sparingly. As Buckley L.J. pointed out in Bryanston Finance Limited v. De Vries (No.2) [1976] 1 Ch. 63 (at 78) :

"The restraint of a petition may gravely affect the would-be petitioner and not only him but also others where the creditors are contributories. If the presentation of the petitioner is prevented, the commencement of the winding-up will be postponed until such time as a petition is presented or a winding-up resolution is passed. This is capable of far-reaching effects."

11. An abuse of process is made out if it were demonstrated that such a petition would be bound to fail. In such circumstances it could be said that to present it or after presentation to seek to prosecute it would constitute an abuse. See per Buckley L.J. in Bryanston Finance Limited (supra) at 77A. Goodway has not demonstrated this in the present case. No authority has been cited to support the proposition that the presentation of a petition when the judgment on which the debt was based was under appeal constitutes an abuse of process.

In fact the Amalgamated Properties case is clear authority to the contrary.

12. So in my judgment there is no evidence to suggest that the filing of a petition by Pirelli Cables would constitute an abuse of process. As counsel for Pirelli Cables correctly pointed out, the judgment obtained is a binding and final judgment. Although an appeal has been lodged, that fact does not operate to stay an execution of the judgment under O.59 r.13(4), so the judgment debt is presently due and payable. It is open to the judgment creditor either to proceed with any one of the seven methods of execution or, as an alternative, to present a winding-up petition in its capacity as a creditor of the company. I accept those submissions.

13. A party appealing a judgment is at liberty to apply for a stay of execution. Whilst that in itself would not prevent the filing of a petition, if granted, a stay of execution would be highly relevant in deciding whether winding-up proceedings should be stayed or adjourned. Goodway made a conscious decision not to apply for a stay of execution although Pirelli Cables was agreeable to a stay upon the payment into Court of all sums due (including costs) under the judgment. It is therefore not the case that Goodway had no alternative but to seek injunctive relief.

14. For the reasons stated above, I will dismiss the present application for an injunction.

15. I would add, as a footnote, that the Applicant rightly conceded that the principles in American Cyanamid Co. v. Ethicon Ltd. are neither relevant nor applicable to applications for injunctions to restrain the presentation of a winding-up petition. If authority were required, clear authority may be found in Bryanston (supra). See also Halsbury's Laws of England 4^th Edition Vol.7(3) at para.2212 footnote 11.