Re Shinwa Company Limited

Headnote

[A winding-up petition founded on a judgment debt cannot properly be maintained on the file after a stay of execution on the judgment has been granted]

IN THE SUPREME COURT OF HONG KONG

COMPANIES (WINDING UP) NO.CWU 417 OF 1992

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J U D G M E N T

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1. On 23rd December 1992, Bicoastal Corporation, a corporation incorporated under the Laws of the State of Florida in the United States of America ("the petitioning creditor"), presented a petition to this Court for the winding up of a local company called Shinwa Company Limited ("the company"). On 5th February 1993, the court fixed 27th and 28th April 1993 as the dates for the hearing of the petition. Those dates were fixed (apparently due to some misunderstanding into which I need not go), on the application of the company and in the absence of any representative of the petitioning creditor, a matter of some concern to the petitioning creditor, which invited the company to agree to the dates being refixed. But the company and the petitioning creditor were unable to agree about this, so the petitioning creditor applied to the court to change the dates. The matter came before Barnett J. on 17th February 1993. He decided that the application should be adjourned from chambers into court to be heard on a date to be fixed. A date, 9th March 1993, was duly fixed. The case was listed to be heard on that date accordingly to enable the court to consider the petitioning creditor's application to change the dates fixed for the hearing of the petition.

2. That was yesterday; and I heard argument yesterday upon that matter. But the petitioning creditor invited me yesterday also to deal with an application to amend the petition which was listed for hearing before me on 10th March 1993, today. The parties took the sensible course of agreeing that I should hear both matters together, over yesterday and today, and I have done so.

3. That is a simplified version of the somewhat convoluted history so far of the proceedings here.

4. I now turn to the petition itself to consider first whether I ought, in the exercise of my discretion, to give leave to the petitioning creditor to amend the petition.

5. The petition is founded on a judgment debt. The judgment was obtained by the petitioning creditor against the company in relation to an Agreement of 26th May 1989 whereby, or so the petitioning creditor alleges, the petitioning creditor assigned to the company a right to the use of the well-known "SINGER" trade and service marks. Under that Agreement, says the petitioning creditor, the company is bound to pay royalties in perpetuity to the petitioning creditor. Obviously, any money judgment in this respect can only be a money judgment in respect of the arrears of any such royalty payable up to the date of the judgment, thus leaving the petitioning creditor to sue from time to time for future arrears if there be any.

6. Proceedings on the 1989 Agreement, by which the petitioning creditor sought to establish the company's liability, were launched by the petitioning creditor against the company in the United States. Because of the petitioning creditor's own difficulties, they were launched in the Bankruptcy Court in Florida. In June 1992 an order was made in that court establishing the company's liability to the petitioning creditor.

7. The proceedings were brought in the United States because the 1989 Agreement contained a jurisdiction clause to that effect. However, the June 1992 judgment establishing the company's liability (the United States Court taking a less than favourable view of the defences advanced by the company), did not enable the petitioning creditor to lay its hands on any money. The only matter with which that judgment was concerned was the matter of liability. The court directed a further hearing to deal with the question of quantum, and in due course that took place.

8. On 4th December 1992, the petitioning creditor obtained against the company a final and conclusive judgment in the sum of US$45,179,000.

9. The company has, however, paid nothing to the petitioning creditor under this judgment, which the company seeks to appeal; and on 29th January 1993 execution was stayed.

10. I pause there to consider what effect this stay has on the petition itself. In my judgment, it has a very significant effect indeed. If a petitioning creditor seeks to support his petition on the ground of the company's failure to satisfy a judgment debt, the company cannot fight off the petitioning creditor merely by appealing the judgment. Despite the appeal, the petitioning creditor is entitled to the fruits of his judgment. On the other hand, if the petitioning creditor accepts, or is forced to accept, a stay of execution on the judgment, quite the opposite obtains. The judgment debt is no longer immediately due and payable.

11. Furthermore, in our case, the judgment relied on in the petition is not a local judgment but a foreign judgment not at this stage enforceable here; all the more reason in my judgment why this petition must be regarded, as from 29th January 1993 when the stay was granted, as no longer maintainable.

12. Notice of appeal was filed by the company in the United States proceedings on 11th December 1992. I have not seen it but I assume, in the absence of any evidence to the contrary, that the company's appeal is against liability as well as quantum. So unless the petition is amended, the court will have no option, whatever other considerations may enter into the case, but to dismiss it. Its maintenance on the file, now that execution has been stayed, would be an abuse of the process of the court. The application for leave to amend is accordingly vital to the continued existence of the petition.

13. What the petitioning creditor wants to do is to amend the petition so as to jettison any reliance on the judgment in relation to which the stay has been obtained. Instead, it wants to base its claim on a simple contract debt for the royalties due, or said to be due, from the company to the petitioning creditor subsequent to the date of the judgment. It is to be observed that the petitioning creditor would be unable to bring an action in Hong Kong to enforce its claim for these royalties because of the jurisdiction clause contained in the 1989 Agreement; but, it says, if there is no genuine dispute as to the existence of the liability, then the court will not hold it barred from enforcing its claim to future royalties in a local action. But the fact is that the petition, if the petitioning creditor is given leave to amend it, will be converted from a petition based on a judgment debt to a petition based on a claim for future royalties, unsupported by any judgment anywhere, in a matter in which very serious disputes have been ventilated over some considerable time between the two parties.

14. The Companies Court is not a debt-collecting agency; nor is it a place for disputes between the parties as to their liabilities, one to the other, to be determined. In a straightforward case, where the company seeks to set up an alleged dispute as to the debt which can be shown with comparatively short evidence to be a dispute with no merit whatever, the Companies Court will treat the debt as undisputed. In other words, it will examine the question of the genuineness of the dispute as to the debt and will determine it; but that is an exceptional course for the Companies Court to take.

15. I have come to the conclusion that it would be quite wrong to allow this petition to be amended in this radical way at this stage, so as to introduce a simple contract claim, based on a contract containing a jurisdiction clause which requires disputes between the parties to be settled in the United States, when in substance that claim is the subject of a judgment execution on which has already been stayed pending an appeal in the United States proceedings. The Hong Kong Court would not entertain such a claim by way of ordinary action and it seems to me to be absurd to expect the Companies Court to do so.

16. In the result I refuse leave to amend the petition as asked. The petitioning creditor is of course at liberty to try and get another judgment in the United States for unpaid royalties accruing due and, if it does so, it will be entitled to seek to enforce that judgment in Hong Kong. (Indeed, it appears it would not be allowed to proceed in Hong Kong without having obtained such a judgment; see s.5 of the Foreign Judgments (Restriction on Recognition and Enforcement) Ordinance, Cap.46.) If the petitioning creditor obtains such a judgment and that judgment is not stayed, it will be able to rely on that judgment in a future petition (having taken the necessary steps to enable it to do so); the company would then, I think, be in very considerable difficulties in resisting a winding-up order. As it is, however, I am quite satisfied, that having refused leave to amend the petition, to allow it to remain on the file would be quite wrong. I propose therefore to strike out this petition.

17. In the circumstances, it is not necessary for me further to consider the question of refixing the dates and I shall accordingly make no order in that regard. The costs of the company incurred after 29th January 1993, when the petition became no longer maintainable, must be taxed if not agreed and paid by the petitioning creditor to the company.