MADISON LAB LTD v. PU YAN AND OTHERS

HCMP 757/2019

[2020] HKCFI 1409

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 757 OF 2019

________________________

________________________

________________________

DECISION ON COSTS

________________________

A. THE COSTS APPLICATIONS

1.  By my judgment dated 12 March 2020 (“the Judgment”), I ruled in favour of the Plaintiff’s Amended Originating Summons (“the Injunction Summons”) to restrain the Defendants from presenting winding-up petitions against it.

2.  On costs, I made an order nisi that the Plaintiff should have its costs of the Injunction Summons with certificate for one counsel: Judgment §43. I also made an order nisi that the parties should bear their own costs in relation to the Plaintiff’s application to strike-out two paragraphs from one of the Defendants’ affirmations opposing the Injunction Summons (“the Strike-Out Summons”): Judgment §45.

3.  Following on from my nisi orders:

(1)  The Plaintiff applies by Summons dated 18 March 2020 to vary both nisi orders such that: (a) the costs of the Injunction Summons be assessed on an indemnity basis; and (b) the Plaintiff has the costs of the Strike-Out Summons.

(2)  The Defendants apply by Summons dated 23 March 2020 to vary both nisi orders such that: (a) there be no order as to the costs of the Plaintiff’s ex parte on notice application dated 24 May 2019 for interim relief pending resolution of the Injunction Summons; and (b) the Defendants have the costs of the Strike-Out Summons.  

4.  I will deal with the Injunction Summons and the Strike-Out Summons costs in turn.  

B.  COSTS OF THE INJUNCTION SUMMONS

B1.  Indemnity Basis

5.  In seeking the Plaintiff’s costs of the Injunction Summons on an indemnity basis, Mr Lok (together with Ms Cheung) emphasises:

(1)  My observation at §17 of the Judgment that the presentation of a petition where there is a triable defence is generally a clear case of abuse.

(2)  Harris J’s observation that, in circumstances “where it should have been appreciated by the Petitioner that there was a bona fide defence on substantial grounds”, the costs of the proceedings to enjoin presentation of the petition should as a matter of general principle be awarded on an indemnity basis: Re Cosmigo Limited (unrep., HCMP 905/2017, 8 November 2017) at §9 (Harris J); see also Re Hyundai Engineering & Construction Co Ltd [2002] HKLRD 71 at §7 (Kwan J as she then was).

(3)  The basic reality of the case, as noted at §26 of the Judgment, that the materials fail to show a sufficiently clear and complete picture to enable sound findings in favour of the Plaintiff’s claims without trial.

(4)  The Plaintiff’s repeated attempts from as early as 1 April 2019 to impress upon the Defendants that they were taking an inappropriate “high risk strategy” in pursuing winding-up.

6.  Mr Lok also draws attention to the judgment of Harris J in Re Alpha Building Construction Ltd (unrep., HCCW 283/2014, 20 May 2015), where Harris J stated (at §6) that:

“the winding-up procedure is a summary process and a realistic view has to be taken [by a putative petitioner] of whether or not given the nature of the procedure the court is likely to take the view that there is sufficient substance in a company’s contention to constitute a bona fide defence on substantial grounds”.

7.  Importantly, the onus of care falls upon the putative petitioner and his advisers to determine whether they can fairly say that, as Harris J puts it at §7 of Re Alpha, “on the information available to them any asserted defence is fairly obviously insubstantial and unmeritorious”.

8.  As Harris J put it in Re Cosmigo (above) at §11, “[i]f there is doubt about this, then the prudent course is to proceed to obtain judgment to recover the sums believed to be payable”.

9.  The expectation that putative petitioners must decide whether to issue petitions with all due care is partly grounded in the reality that “a petition presented against a company which has an ongoing business causes considerable disruption. In particular it normally results in banks freezing the company’s accounts”: Re Alpha at §4.  In the present case, the Plaintiff is the subsidiary of a listed company.

10.  In response, Mr Lynn for the Defendants starts by pointing out that, even where a petition is brought in relation to a debt that is bona fide disputed on substantial grounds, whether costs should be awarded on an indemnity basis “is a matter for the discretion of the court on considering all the circumstances of the case, including the events leading up to the institution of the winding-up proceedings”, citing Kwan J in Re Hyundai (above) at §7.  That is no doubt correct.     

11.  Mr Lynn then expresses disagreement with the view expressed by Harris J in Re Cosmigo (above) at §9 that “as a matter of general principle” there should be no difference for the purposes of costs between proceedings to enjoin presentation and winding-up proceedings themselves.  However, no reasons are given as to why Harris J’s view is wrong in principle.

12.  I see no sound basis for treating the two matters as substantially different.  Where a party seeks to enjoin presentation, and that is resisted by the putative petitioner, the same essential concerns as to abuse of process (should the petitioner be allowed to proceed) and unfair harm to the company (as noted in Re Alpha (above) at §4) are in play.

13.  It is also argued for the Defendants that “they should have been but were not properly appraised at the relevant time” by the Plaintiff of the substantial grounds for disputing the alleged debt, and further that the Plaintiff’s defence was in any event “both shifting and inconsistent”.

14.  Having considered the various alleged instances flagged up in the Defendants’ written submissions, I am unable to agree with their allegations of failure and inconsistency on the Plaintiff’s part.  In particular, I do not think the matters cited by the Defendants support the view that, on the information available to them, they could properly conclude that any asserted defence on the Plaintiff’s part would be “fairly obviously insubstantial and unmeritorious” (c.f. Re Alpha (above) at §7).  In my assessment, it should instead have been fairly clear from early on –and in any event by mid-May 2019 – that there was a substantial bona fide dispute between the parties in relation to the alleged debt.

15.  I further note that the Plaintiff had, through correspondence dated 19 May 2019, specifically urged the Defendants not to invoke the winding-up procedure, referring inter alia to Re Cosmigo and the possibility of indemnity costs.      

16.  In all, I agree with the Plaintiff that it is appropriate in the circumstances of this case to allow its costs of the Injunction Summons on an indemnity basis.

 B2. Carve-out for the Plaintiff’s Ex Parte on Notice Application?

17.  The Defendants contend that the costs of the Plaintiff’s ex parte (on notice) application dated 24 May 2019 (heard on 28 May 2019) should in principle be borne by the Plaintiff.  However, as they did not appear at the ex parte hearing, the Defendants say that they are content in to pursue a variation of the costs order nisi to no order as to costs in relation to the hearing. 

18.  The Defendants essentially say that the ex parte hearing was unnecessary.  They contend that: 

(1)  The Plaintiff could have asked them for an interim undertaking, which they “would have been amenable to give” (Defendants’ Skeleton dated 8 April 2020, at §8(2)). 

(2)  The Plaintiff falsely represented to the Court at the ex parte hearing that it had earlier written to the Defendants to seek an undertaking that they would not proceed with winding-up proceedings, but the request had been unequivocally refused by the Defendants, who had instead merely undertaken not to proceed until after 29 May 2019.

19.  Having considered the full span of the parties’ correspondence and conduct on this front, I do not think that proposed variation of the order nisi is warranted.  

20.  The starting point is that costs should generally follow the event.  The Court has granted a final injunction in the terms of the Amended Originating Summons, on the ground that there is a clearly triable dispute as to the Plaintiff’s alleged debt.  There is force in Mr Lok’s submission that it cannot be right for the Plaintiff to bear any costs in its efforts to restrain the Defendants from doing something that the Court has affirmed should not be done.

21.  The Court of course has a discretion to deprive the Plaintiff of its costs in relation to a discrete part of the proceedings having regard to the overall justice and fairness of the position.  This may be warranted where the Plaintiff plainly took significant steps which were unnecessary, unreasonable and wasteful of costs and judicial resources.

22.  However, I am unable to say on the materials before me that the Plaintiff has acted improperly so as to be deprived of its costs of the ex parte hearing.

23.  On whether the Defendants would have been willing to give a sufficient interim undertaking to render the ex parte hearing unnecessary, the short point is that there is no confirmation by the Defendants themselves as to their willingness. 

24.  The assertion in the written submissions of the Defendants’ counsel that they would have been amenable does not in my view suffice.  This is particularly so since the contemporaneous correspondence does not clearly reflect any such willingness.  On the contrary, the Defendants had stated in correspondence as late as 20 May 2019 that “[w]e will not be signing any undertaking to cease this matter until either the sums due and owing are paid or [certain documents are produced]” (my emphasis).    

25.  In concluding that there is no good basis for varying the costs order nisi in respect of the ex parte hearing, I have taken into account the Defendants’ suggestion that the Plaintiff in effect failed to discharge its obligation of full and frank disclosure of all material facts in relation to its application.   Having considered the parties’ submissions on this matter, including the detailed points made in Annex 1 of the Plaintiff’s Skeleton Submissions dated 22 April 2020, I do not agree with the Defendants.  Overall, I consider that the Plaintiff acted reasonably and conscientiously in relation to the Injunction Summons and should not be deprived of any part of its costs in pursuing it.   

C.  COSTS OF THE STRIKE-OUT SUMMONS

26.  My initial decision to make no order as to costs for the Strike-Out Summons was in the light of the matters addressed at §§38-41 of the Judgment, which set out the two paragraphs that the Plaintiff targeted for striking-out (“the Targeted Paragraphs”) in full.

27.  Both the Plaintiff and the Defendants now seek to persuade me to vary the nisi order so that the other side pays their costs.  

28.  The Plaintiff’s essential position is that the Targeted Paragraphs were simply irrelevant to the Injunction Summons, and irrelevance is in itself a sufficient ground for striking-out under Order 41, rule 6 of the Rules of the High Court (Cap 4A); that it effectively obtained what it sought to achieve by the Strike-Out Summons (i.e. that the Targeted Paragraphs would not be relied upon by the Defendants); and that the Defendants’ conduct in relation to the Strike-Out Summons was in various ways undesirable.

29.  The Defendants on the other hand note that they had reasonably sought to minimise the scope for unnecessary debate over the Targeted Paragraphs by inter alia agreeing to redact the first of the paragraphs on a “without admission” basis, and by focusing their efforts at the substantive hearing of the Injunction Summons on the materials which the Plaintiff did not object to on grounds of privilege.  They also contend that the Plaintiff’s position was for numerous reasons hopeless and ill-conceived, not least because it was “illogical” for the Plaintiff to maintain that the discussions alluded to in the Targeted Paragraphs simply did not occur, whilst in the same breath asserting privilege in relation to those discussions.   

30.  In my view, neither side has been wholly successful in relation to the Strike-Out Summons, nor entirely persuasive in their reasons as to why the other side’s position was hopeless or entirely without substance.

31.  I will maintain my decision that there be no order as to costs of the Strike-Out Summons.

D.  DISPOSITION

32.  Accordingly:

(1)  For the costs of the Injunction Summons, I will make an order absolute in terms of paragraph 1 of the Plaintiff’s 18 March 2020 Summons and dismiss the Defendants’ 23 March 2020 Summons (paragraph 2)[1], with costs to the Plaintiff.

(2)  On the costs of the Strike-Out Summons, the Plaintiff’s 18 March 2020 Summons (paragraph 2) and the Defendants’ 23 March 2020 (paragraph 3) are each dismissed, with no order as to costs. 

33.  I thank counsel for their assistance.