ALUHOUSE COMPANY LTD v. SUCCESS LANE DEVELOPMENT LTD

HCMP 967/2023

[2024] HKCFI 1280

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 967 OF 2023

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DECISION ON COSTS

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1.  By Order of 14 December 2023, this Court granted the plaintiff (“P”) leave to discontinue the present action against the defendant (“D”). This Court further directed that evidence and submissions on the issue of costs be filed, with the view that the issue of costs be considered and disposed of on the papers. 

2.  Evidence[1] and submissions have since been filed.  I have considered them.  Below are the reasons for my decision on costs.

Background in summary 

3.  P and D were parties to a number of District Court proceedings.

4.  Under different court Orders made in those proceedings:

(a)  D was ordered to pay P 2 sums of costs in the total amount of HK$85,000 (HK$50,000 under the Order of 23 September 2021, and HK$35,000 under another Order of 7 January 2022, collectively the “2 Costs Orders”) and one additional sum of costs in the amount of HK$1,500 (26 January 2022, the “Additional Costs Order”, subsequently on 14 February 2022 varied to HK$1,700), and

(b)  P was ordered to pay D (Order of 26 January 2022) a sum of HK$271,915.

5.  The 2 Costs Orders arose out D’s attempts to appeal against the result of an application for specific discovery it had earlier made.  The first sum of HK$50,000 was ordered by His Honour Judge MK Liu against D when he dismissed D’s appeal, and the second sum of HK$35,000 ordered when D’s application for leave to appeal against the dismissal was refused.

6.  Under cover of and as explained in CP’s letter of 9 February 2022 to D, P set-off from the total sum HK$271,915 (HK$271,915 + HK$1,500 (the Additional Costs Order before variation)) the sum of HK$85,000 and issued to D a cheque (dated 8 February 2022) for the balance (of HK$188,415).

7.  By email of 22 February 2022, D, whilst acknowledging the receipt of another cheque of HK$200 (the additional HK$200 after variation of the Additional Costs Order), demanded P to settle the sum of HK$85,000 together with interest.

8.  By email in reply of 28 February 2022, CP stated on behalf of P that as D had not settled the costs of HK$85,000, there had been a set-off of the same.

9.  Several months later, on 3 August and 15 September 2022, D again demanded settlement of the HK$85,000.

10.  On 22 September 2022, D issued a Statutory Demand for the sum of HK$85,000.

11.  On 30 September 2022, P issued to D a cheque in the sum of HK$85,000 (the “First Cheque”).

12.  By email of 3 October 2022, D complained that “your cheque of HK$85,000 fails to satisfy the Statutory Demand that full settlement include the interests in the outstanding balance.”  D reserved all legal rights.

13.  On 6 October 2022, P issued to D a further cheque in the sum of HK$4,340.82 (the “Second Cheque”, and together with the First Cheque, the “2 Cheques”) for interest from 10 February 2022 (when the sum of HK$271,915 became due) to 30 September 2022 (when the First Cheque for was issued).

14.  By email of 25 May 2023, whilst acknowledging receipt of those 2 Cheques, D complained that “interest was only calculated up to 30 September 2022, leaving a shortfall in the settlement amount”.  D further said in that email that “Unless your client settles the outstanding balance of $85,000 together with the interest on or before 2 June, 2023. [sic] This will leave us with no choice but to pursue bankruptcy proceedings against your client”.

15.  The complaint, as now put by Yung in Yung/Aff2 §71, is that “interest should have accrued from 10 February 2022 to 5 October 2022, which renders the Second Cheque short for $111.78”.

16.  On 2 June 2023, D issued another Statutory Demand for settlement of the sum of HK$85,000 and interest within 3 weeks (the “June SD”).

17.  By letter of 5 June 2023, CP stated that D had fully settled the sum of HK$271,915 together with interest and the assessed costs of HK$1,700.

18.  By email in reply of 5 June 2023, D “put on record that, [the 2 Cheques] have neither been presented nor cleared and they are now expired”, and stated further that “Make no mistake, bankruptcy proceedings will be initiated without any further notice”.

19.  Having been so told, CP for P on 7 June 2023 issued to D another 2 cheques (the “2 Further Cheques”), one again for the full sum of HK$85,000, and another for interest (in the slightly higher sum of HK$4,396.71) for a slightly longer period between 10 February 2022 and 3 October 2022 (when D would have had sufficient time to cash the 2 Cheques).  In that same letter, P sought a confirmation from D that it would not present any winding-up petition, as follows:

“Please confirm, within the next 3 days from the date hereof, that you will not present any winding-up petition against our client for the alleged debt set out in [the June SD], failing which we have standing instructions to apply to the Court for an injunction to restrain you from presenting a winding up petition and shall hold you liable for all costs incurred by our client on full indemnity basis.”

20.  There is no dispute that D did receive the 2 Further Cheques – Yung/Aff2 §84.  The complaint as now put by Yung in that same paragraph was that as “interest payments were only up to 3 October 2022, not up to 5 October 2022, there was a Shortfall in Interest of $55.89”;

21.  By email of 20 June 2023, CP made reference to their letter of 7 June 2023.  They put on record that they had not heard from D.  They requested and stated further as follows:

“Please revert, on or before 12 pm on 21 June 2023, that the [2 Further Cheques] have duly satisfied the [June SD] and that you will not present any winding-up petition against our client based on the alleged debt set out in the said Statutory Demand.”

22.  No reply was received from D.

23.  22 June 2023 was a public holiday.  The 3-week period stated in the June SD would expire on 23 June 2023.

24.  By Originating Summons of 21 June 2023, P sought an injunction restraining D from presenting any winding-up petition against P based on the debt in the sum of HK$85,000 or any part thereof as stated in the June SD.  On that same day, upon P’s application on an ex parte on notice basis, Peter Ng J granted an interim injunction (the “Injunction”) in the same terms.  The return date was fixed on 30 June 2023.

25.  The return date hearing came before this Court as fixed.  D was not represented by any solicitors.  Yung was in court.  Despite her application for leave to appear for D having on 29 June 2023 been refused by the Practice Master, she filed a 21-paragraph written submissions for D.  She concluded by saying that D had “no intention and grounds to commence bankruptcy Proceedings”, as follows:

“20. CP clearly abused the court process by applying for an injunction when D had no intention and grounds to commence bankruptcy proceedings after receiving the 2 fresh cheques on 7 June 2023, not to mention that any shortfall of interest is only about HK$55.89 and cannot commence bankruptcy proceedings.

21.Cost should be paid by Solicitors and Counsel for P to D on an indemnity basis.”

26.  Having considered submissions and the materials before me, and having considered that D was not properly represented, I gave directions for the filing of evidence on the inter partes summons and the Originating Summons, which I directed to be heard together.

27.  Then, as recorded above, on 14 December 2023, I granted P leave to withdraw the Originating Summons, leaving the issue of costs to be dealt with on the papers.

Discussion

28.  I have outlined the facts above.

29.  P accepts that it is liable to pay D the sum of HK$271,915.

30.  D has been ordered to pay P costs, so far as relevant, in the total amount of HK$85,000. 

31.  D may not accept its liability under the 2 Costs Orders:

(a)  In Yung/Aff2 at §§48 and 49, Yung points to the hearing of an application for amendment of a Writ in the District Court proceedings that took place before Master Joycelyn Leung on 14 September 2022.  Yung says that “Costs should be awarded in the [D]”, and that “[D] submitted that the cost of these amendments should include … the 2 costs orders, the HK$85,000 debt obtained before HH Judge MK Liu on 23 September 2021 and 7 January 2022”[2];

(b)  The applications that led to the 2 Costs Orders were discreet, and are different from the application heard by Master Joycelyn Leung on 14 September 2022.  Nothing has been placed before me which shows that the 2 Costs Orders have thereby or otherwise been set aside;

(c)  I have also considered CP’s letter of 29 December 2023 to D stating its clear position that the 2 Costs Orders are binding on D, that they have not by Master Joycelyn Leung or otherwise been set aside or reversed, but that as D has started a separate action for inter alia a declaration that the 2 Costs Orders have been obtained by fraud, P had withheld proceedings to enforce the 2 Costs Orders;

(d)  But as things stand and on the evidence before me, the 2 Costs Orders have so far not been set aside or reversed, and until they are (if they are), they remain binding on D.  I do not accept D’s submissions to the contrary.

32.  D had refused to settle the HK$85,000.  P originally did a set-off.  Whilst P resorted thereby in effect to self-help, it issued the First Cheque after D’s demands and protests, and further issued the Second Cheque shortly afterwards for interest up to 30 September 2022.

33.  Upon P’s issue of the Second Cheque, even assuming that D were justified in complaining against any shortfall, the shortfall was even on D’s case only HK$111.78.

34.  Despite receipt of the 2 Cheques, P issued the June SD for the full sum of HK$85,000 with interest.  It further on 5 June 2023 stated that “Make no mistake, bankruptcy proceedings will be initiated without any further notice”.

35.  Upon D’s notification that it had not, for whatever reason, banked in the 2 Cheques, D promptly issued the 2 Further Cheques and settled interest up to 3 October 2022. 

36.  Again, despite receipt of the 2 Further Cheques, D still refused to bank them.  Again, even assuming that D were justified in complaining against any shortfall, the shortfall had even on D’s case been reduced to HK$55.89.

37.  Given D’s prior conduct and communications, I am of the view that P was entirely justified in seeking confirmations from D that it would not present any winding-up position.

38.  P on 2 separate occasions did so.  The option of P seeking an injunction was specifically mentioned. 

39.  D gave no response.

40.  In my view, P was justified in seeking the Injunction against D.  D could have averted it.  It had failed to.

41.  It is relevant to note that even in its letter to Court dated 28 June 2023, D remained intent on “lifting the temporary injunction Order” – see the title to D’s draft ground attached to that letter.  It was only during the return date hearing that it became apparent that D had no intention of filing any winding-up petition against P.

42.  D points to the conduct of the application for the Injunction before Ng J, as to eg whether or whether sufficient notice had been given to D.  In my view, that is not relevant.  The learned Judge was aware of the situation and granted the Injunction on the evidence before him.

43.  D has made a number of allegations against P and its legal advisers. Amongst others, D claims that CP failed to settle the post judgment interest intentionally, that that was part of CP’s strategic plan to obtain the Injunction, and that that was a strategic move by CP to create dispute and generate business for themselves.

44.  In my view, none of those allegations are supported by any objective evidence.

45.  D claims that the shortfall in interest was small, so that D “cannot commence bankruptcy proceedings”.

46.  D had decided not to bank in the 2 Cheques.  If it had, the shortfall would only have been HK$111.78.  It chose instead to issue the June SD.  The 2 Further Cheques were then issued.  D, despite having been twice requested to do so, failed to confirm that it would not take out any winding-up petition.  On the facts, I am of the view that P was justified in its concern that D would issue a winding-up petition despite the small amount of the shortfall.

47.  In my view, P’s conduct has been reasonable.  D’s conduct as outlined above is highly unreasonable.  It was such conduct on its part which had led to the application for the Injunction and the present action.  It brought the proceedings upon itself.

48.  D only confirmed that it had no intention to issue any winding-up petition after the Injunction, and after the commencement of the present proceedings.  P then withdrew the action.  Despite the withdrawal, P has obtained what it set-off to obtain. 

49.  I have considered the general principle discussed by Harris J in Cosmigo Ltd v Monin Asia Kl Sdn Bhd (HCMP 905/2017, 8 November 2017) at §9, that:

“The Company…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.”

50.  On the facts, and applying that general principle, I order that:

(a)  D shall pay P’s costs of this action on an indemnity basis;

(b)  For the avoidance of doubt, such costs include all costs of and occasioned by the application for the Injunction, and the costs of and occasioned by these arguments on costs;

(c)  Given that the costs of an entire action are involved, I order that the costs are to be taxed if not agreed.