COSMIGO LTD v. MONIN ASIA KL SDN BHD

HCMP 905/2017

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 905 OF 2017

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DECISION ON COSTS

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1.  On 30 March 2017 O’Melveny & Myers sent on behalf of the Monin Asia KL SDN BHD (“Petitioner”) a statutory demand to the Cosmigo Limited (“Company”) seeking payment of RMB5,724,408.93. On 11 April 2017 Vivien Chan & Co, on behalf of the Company, responded to the statutory demand disputing on behalf of their client any liability to pay the sums demanded by the Petitioner.

2.  In short, the position of the Company is that although it had made payments to settle various invoices delivered in previous years by the Petitioner, it did so to settle the liabilities of another company, Shanghai Walton Concepts Economic & Trading Company Limited (“Shanghai Walton”), pursuant to an agreement that Shanghai Walton had entered into with the Petitioner, and that it had done so in contemplation of a joint venture between Ms Ally Yang and the Petitioner’s holding company.  In other words, it is the Company’s position that whilst as a matter of administration it may have made the payments, it was in fact under no liability to make payments in respect of deliveries made by the Petitioner to Shanghai Walton pursuant to a contract between the latter two companies.

3.  Vivien Chan & Co requested that the statutory demand be withdrawn.  On 13 April 2017 O’Melveny & Myers replied stating that they will take their client’s instructions. 

4.  On 18 April 2017 Vivien Chan & Co wrote again stating that with the approaching deadline for satisfaction of the statutory demand, namely 21 April 2017, and therefore the fast-approaching risk of a petition being issued, they required an undertaking by 2pm on 19 April 2017 that a petition would not be issued until 14-days written notice of an intention to do so had been given to them.  Vivien Chan & Co had not received the undertaking by 2pm on 19 April 2017 and they, therefore, proceeded to issue the originating summons which is now before me. At 2:42pm that afternoon, O’Melveny & Myers wrote undertaking not to commence winding-up proceedings before 26 April 2017. 

5.  On 26 April 2017 O’Melveny & Myers wrote a longer, more comprehensive letter which included an undertaking not to present the petition before 19 May 2017.  The summons was listed for hearing before me on 17 May 2017, but 7 days before that O’Melveny & Myers ceased to act for the Petitioner.  On 17 May 2017, the Petitioner not being present, I granted leave to issue a concurrent originating summons and leave to serve it out of the jurisdiction on the Petitioner which carries on business in Malaysia. 

6.  The issue before me today is costs.  The Company seeks its costs of the proceedings and invites the court to order that they be assessed on an indemnity basis.  The Petitioner has opposed both. 

7.  The Petitioner suggests that the issue of the originating summons was premature.  I disagree.  It seems that there is nothing to be criticised in the way the Company’s solicitors dealt with the matter.  Self‑evidently I would have thought preparation needed to be made a few days before 21 April 2017 for a possible application for an injunction to prevent issue of a petition, and issuing the originating summons on 19 April 2017 after the time period that had been specified had expired was reasonable. 

8.  So far as the suggestion that costs should be assessed on an indemnity basis is concerned, this is advanced on the grounds that it is now well-established that if a petition is issued and the petitioner is aware of matters which constitute a bona fide defence on substantial grounds to the debt, the proceedings are an abuse and it is appropriate for the court to order the costs on a higher basis. 

9.  The Company, which was represented by Ms Frances Lok, argues that by parity of reasoning where a statutory demand is issued and a request to undertake not to issue a petition is refused, in circumstances where it should have been appreciated by the Petitioner that there was a bona fide defence on substantial grounds, similarly, the costs of proceedings to enjoin presentation of the petition should be awarded on an indemnity basis. It would seem to me that, as a matter of general principle, that is correct. 

10.  As I have explained in the present case, the demands for payment were not made in respect of a failure to settle sums allegedly due pursuant to an agreement signed between the Company and the Petitioner. The circumstances in which the Company had come to make various payments to settle sums which, on the face of the matter, were payable pursuant to an agreement made between Shanghai Walton and the Petitioner, are not straightforward. 

11.  As the Companies Court has endeavoured to make clear on various occasions, petitions to wind up companies, particularly companies which there is no reason to think are insolvent, should only be made in straightforward cases where it is clear to the petitioner’s lawyers that there is little ground for the debtor company to dispute liability.  If there is doubt about this, then the prudent course is to proceed to obtain judgment to recover the sums believed to be payable. 

12.  So far as I can see from the papers which I have before me, this is a case, which in my view, it should have been appreciated was not suitable for the winding-up procedure.  It may be that that was not immediately apparent at the time the statutory demand was issued, but it seems to me that if an objective view had been taken of the information that I would imagine would clearly have become available during the course of April 2017, that should have been the conclusion that was reached, and it should have been agreed that the statutory demand be withdrawn. 

13.  It seems to me that in the circumstances it is, therefore, appropriate to order that costs be paid on an indemnity basis.