RE C. MAHENDRA EXPORTS (H.K.) LTD

HCCW 38/2019

[2019] HKCFI 1556

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 38 OF 2019

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D E C I S I O N

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1.  I have before me a Petition issued on the 4 February 2019 to wind up C Mahendra Exports (H K) Limited (司馬漢有限公司) on the grounds of insolvency. In order to prove insolvency, the Petitioner relies on a Statutory Demand dated 28 March 2018 for HK$44,764,679.64 (there was a minor typographical error in the statutory demand when specifying the amount of the debt).

2.  The Company contests the Petition on the grounds that it has a bona fide defence on substantial grounds to the debt. As will be apparent from the date of the statutory demand and the date on which the Petition was issued, some 11 months has passed between the service of the statutory demand and presentation of the petition.  There was however considerable activity during this period.  The Company after service of the statutory demand made an application ex-parte to obtain an injunction to enjoin the Petitioner from presenting a Petition in existing High Court proceedings between the parties.

3.  In my view, the correct way in which the application should have been made was to issue an Originating Summons in the Companies’ list, apply to the Companies Judge or a judge dealing with Companies’ matters for the relevant relief.  If that have been done it   may be the problems which I am about to describe which the Company has encountered would not have occurred.  As matters transpired it was not necessary for a judge to determine the ex-parte application because the Petitioner gave an undertaking not to present a petition until determination of an inter parties summons for an order to restrain presentation of the petition.

4.  An inter parties summons was issued and a date for a substantive determination was fixed for the 30 October 2018. On the 18 October 2018, after a considerable amount of evidence have been filed, the Company’s Solicitors wrote (the Solicitors in the   High Court action are different from the legal representation in the petition) proposing apparently on Counsel’s advice that the summons   be withdrawn.  The Petitioner’s Solicitor (the defendant in High Court action) wrote stating that their client was prepared to agree to the Summons being dismissed.  As a consequence the Summons was dismissed and the Company ordered to pay the costs of the application.  In order for the Company to have obtained the injunction that it sought by its inter parties summons, it would have been necessary for the Company to satisfy the court that it had a bona fide defence on substantial grounds to the debt relied on by the Petitioner.  It will be appreciated that this is the same test as it would have to satisfy in order to defeat the winding up petition.

5.  It would appear from what I had been told today by Mr Ryan Poon who appeared for the Company, and who had not been involved in High Court action, that the reason the Company wished to withdraw its summons was that it had difficulty putting together all the evidence it wished to rely on because a number of the people from whom the Solicitors take instructions are in India.  In other words, it would appear, Mr Poon did not dispute this, that what in reality the Company seems to have been intending to achieve was an adjournment of the application for an injunction.  I say that because it must had been known that if an injunction was not obtained, it was quite likely, if not probable, that a petition to wind up of the Company would be presented.    However, neither the Petitioner nor the Court were told that this was the reason why the Company had decided not to proceed with its application.

6.  Unsurprisingly, it is well established that where a Company fails to satisfy the Court that it is entitled to an injunction on the grounds that it has a bona fide defence on substantial grounds to a debt it cannot then attempt to reargue the same point when the Petition is presented.

7.  The question that arises in this case is whether although there was no determination of the application for an injunction, as it was clearly open to the Company to argue what it now wishes to   argue in the petition proceedings, the Henderson v Henderson Principle applies and prevents it now seeking to do so.  In my view, it does.  There is a helpful review of the relevant principles in the decision of HHJ Paul Matthews sitting as an additional Judge of the High Court in EDF Energy Customers Ltd v Re-Energized Ltd [1].

8.  In [60] to [62] of his decision, the Judge addresses the issue of whether or not it is open to a party subject to formal bankruptcy proceedings to advance new arguments which could have been presented to the Court at an earlier stage. 

“60. As I have said, in addition to these points on the merits of the three further arguments now sought to be pursued, there is the important point that none of them was made at the hearing before the district judge, although each of them could have been. I have already quoted from the judgment of Henderson LJ in Harvey v Dunbar Assets plc[2] . At [35] the judge referred to the question

‘how far it is open to a debtor to rely, at one of the later stages in the bankruptcy process, on an argument relating to his liability for the debt … which he failed to run on such an application but upon which he later wishes to rely’.

At [37] he referred to:

‘the approach which the court should adopt when on the hearing of a petition the debtor seeks to rely on arguments which he presented, or had an opportunity to present, at a previous hearing on the merits (usually on an application to set aside the statutory demand).’

61. So it is clear that the principle endorsed by the Court of Appeal applies not only to cases where an argument has been made on an earlier occasion and rejected, but also to cases where the party had the opportunity to present an argument which he or she failed to do, but later wishes to rely on.

62. As expressed by Chadwick LJ in Turner v Royal Bank of Scotland[3], 694, the principle was put in this way, albeit in the context of a point which had already been made without success at an earlier stage:

‘[T]he debtor cannot go back and reargue the very grounds on which he unsuccessfully sought to have the statutory demand set aside. It will require some change of circumstance between the unsuccessful attempt to set aside the statutory demand and the hearing of the petition before the court (on the hearing of the petition) can be asked to go into the question which has already been determined at the hearing of the statutory demand. To hold otherwise would be to encourage a waste of court time, and a waste of the parties' money; and would defeat the obvious purpose of the statutory scheme.’”

9.  It seems to me in present case the Company had the opportunity in the application which it commenced to argue that it had a bona fide defence on substantial grounds and the matters on which it wished to rely in support of such an argument were the same as it now wishes to rely on.

10.  The only reason for it not having argued on 30 October 2018 that it had a defence, was that the Company had decided it was not in its best interests to do so at that stage.  As I have already explained the Company’s thinking was not brought to the attention of the Petitioner nor brought to the attention of the Court and in my view the way which they were intending to proceed was disingenuous.

11.  In the circumstance I can see no reason why the Petitioner should now be allowed to argue what it previously had the opportunity to argue, but decided entirely for its own reasons not to do so.  To allow otherwise would result in delay and waste of costs and the misuse of Court resources.

12.  I would note in passing that the position might be different had there been a contributory or another creditor who appeared before the Companies Court and wished to have the opportunity to argue that there is a bona fide defence on substantial grounds because unless the contributory or creditor had been party to the previous application they would not be bound by the Henderson v Henderson Principle, but that is not the case here.  I will, therefore, make the normal winding up order.