Re SEA WAVE HAIR DESIGN HOLDINGS LTD.

HCCW939/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP NO.939 OF 1998

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J U D G M E N T

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1. This is a creditor's petition based on a Labour Tribunal award of a little over $1 million to wind-up Sea Wave Hair Design Holdings Limited. ("the Company"). The Company has taken out a summons to strike out the petition on the basis that the debt is substantially disputed.

2. On the evidence before me, it would appear that on 16 January 1998, the Company's solicitors threatened legal proceedings against the Petitioner in respect of a sum of $1.8 million advanced to him. The Petitioner was a director of the Company and had been associated with the Company for over ten years. Three days thereafter, the Petitioner, who had left the Company in November 1997, filed a claim against the Company under the Labour Tribunal Ordinance. The hearing was held in February 1998 but judgment was not delivered until September 1998. The judgment was reviewed and the award upon which the petition is founded was made on 23rd November 1998. Meanwhile, in February 1998, the Company commenced proceedings against the Petitioner in the High Court seeking repayment of the $1.8 million.

3. The Petitioner filed a defence and also a counterclaim under which the Petitioner asserted that he was entitled to counterclaim against the Company in any event in a sum in excess of $1 million. The defence was that at the date he left his employment, the loan had been repaid and the directors' account showed a zero balance.

4. The Company appealed against the Labour Tribunal's award, but that occurred after the Petitioner had presented the petition to wind-up the Company. In any event, in January 1999, leave was granted to the Company to appeal against the Labour Tribunal's award. The appeal came before Yam J on 14 May 1999. Judgment was handed down on 31 May 1999 in which the appeal was dismissed. Meanwhile in the High Court action, directions were given by Master Cannon on 11 March 1999 but neither the Plaintiff nor the Defendant complied with the directions.

5. The Company now seeks leave to adduce further evidence concerning the directors' account and in relation to the counterclaim. But what is of critical importance here is how the parties have chosen to deal with the Labour Tribunal claim and the High Court action. In the judgment of Yam J, there is the following passage :

" According to the record of proceedings on 11 February 1998 as exhibited to the third affirmation of Ms Tang, the Tribunal suggested that parties might choose to have this employment case heard together with the economic transactions case in the High Court (HCA1902 of 1998) between the Claimant and the Defendant. The Claimant and the Defendant, however, decided to have the instant case dealt with in the Tribunal and not to be jointly heard with the High Court case.

In the judgment delivered upon Review on 23 November 1998, both the Claimant and the Defendant agreed that this employment case could be dealt with separately from the High Court case dealing with their economic transactions.

Furthermore, as revealed in the summons (Exhibit C17) of that High Court case, this employment case was not intended to be jointly heard with the case on all those economic transactions.

Having adverted his mind to the parties' choice as aforesaid, the learned Presiding Officer did look into the context of the statement in relation to the cheque issued by the Claimant to the Defendant. He then found it unnecessary to deal with those economic transactions between the parties as he found as a matter of fact that there was no such agreement as aforesaid and those transactions were not related to the employment dispute between the parties. Consequently, he was perfectly correct to find that there was no need to transfer this case to the High Court." (page 8)

Nothing could be clearer than what the learned judge has summarized in his judgment. The parties chose to deal with the Labour Tribunal award and the other economic transactions between them separately. At no stage did they consider it appropriate to have all the claims and disputes between them, including what might be awarded by the Labour Tribunal, dealt with together. The Company has now, somewhat late in the day, changed its mind.

6. The English Court of Appeal has recently considered in In re Bayoil S.A. [1999] 1 WLR 147, the question when, in the absence of special circumstances, the court would exercise its discretion to dismiss or stay the petition where there is an undisputed debt. It is clearly set out in the judgment of Nourse LJ that :

"...the cross-claim must be genuine and serious or, if you prefer, one of substance; that it must be one which the company has been unable to litigate; and that it must be in an amount exceeding the amount of the petitioner's debt...." (at 155F)

In the present case, it is not suggested that the High Court action was one which the Company has been unable to litigate. It certainly was in a position to do so but it is quite clear from the record of events that have happened, that the Company was not pursuing that action with any degree of seriousness. In fact, but for the winding-up petition, it would possibly have let the action go to sleep. Further, there is also a counterclaim by the Petitioner which is substantial and if that is taken into account, the Company's claim would not exceed the amount of the Petitioner's debt.

7. The question is whether special circumstances exist for the general rule not to apply . It appears to me that the proper course for the Company to have taken would have been to apply for a stay of execution of the Labour Tribunal award. I was informed by counsel for the Company that in effect such a request was made to the Labour Tribunal and that upon review, the amount payable was to be made in instalments. There is, however, no written evidence of any such order before the court. In any event, counsel for the Company accepts that the due dates on which the instalments ought to have been paid have all expired. Even if an application had been made for a stay of execution, it is doubtful if such a stay would have been granted. One has to have regard to the purpose and scheme of the Labour Tribunal Ordinance which was meant to provide a summary and speedy resolution to claims within the Ordinance.

8. The Company was invited to consider whether or not it wished to pay the amount into court, in which event this petition would be stayed pending the outcome of the High Court action. Regrettably, the Company is not in a financial position to do so and the amount it is able to pay into court ($50,000) is, in the circumstances, derisory.

9. In my judgment, how the parties have elected to deal with the Labour Tribunal claim and the High Court action and the fact that the Company does not appear to have pursued the High Court action with any degree of seriousness do not constitute "special circumstances" for the general rule not to apply. Rather, if anything, they support the application of the general rule as enunciated in In re Bayoil S.A. (supra). It is difficult for the court to conclude that there is a bona fide dispute as to the Labour Tribunal award. Had there been one, the parties would not have elected to have pursued the claims separately as summarized in the judgment cited above.

10. In all the circumstances, I will make the usual compulsory order and the Petitioner's costs is to be a liquidation expense.