CHIM KEE MACHINERY CO LTD v. SNE ENGINEERING CO LTD

HCCW 308/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO 308 OF 2012

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D E C I S I O N

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1. I have before me an application by the Respondent to strike out the Petitioner’s bill of costs issued in respect of 2 orders for costs made in the proceedings in the same terms, namely, “the costs of the application be paid out of the assets of the company”. The costs orders were made as part of validation orders. Neither application was substantively argued and the second of the orders was made by consent. The Petition was struck out by Recorder Ho SC on 23 May 2013. On 19 June 2014 the Respondent issued a summons seeking to either vary the orders under the slip rule to provide that costs be in the cause or leave to appeal. I heard and dismissed those applications for the reasons explained in my decision of 12 August 2014. On 5 September 2014 the Petitioner commenced taxation of its costs of the applications.

2. The Respondent applies to strike out or permanently stay the taxation on the grounds that the costs order only took effect in the event of a winding-up order being made.  It says this for the following reasons.  The order does not provide that the costs are paid by the Respondent.  The language used is only apposite if a winding-up order is made.  The most natural construction of the order given the circumstances that it was made in is that in the event of the Petition being successful the Petitioner would recover its costs of the applications, along with its other costs, out of the assets of the Respondent in accordance with the priorities provided in Rule 179 of the Companies Winding-up Rules, cap. 32H.  The Petitioner’s construction results in it recovering its costs of dealing with an application that was only necessary by virtue of the presentation of its unmeritorious Petition and it is inherently unlikely that the parties intended the wording of the order to have this effect, which would be unfair.

3. The Petitioner says that the Respondent’s description of how the Petitioner contends the order operates, namely unfairly, is misleading.  The applications were disputed because of the unsatisfactory way in which they were formulated and presented.  It does not follow that an order that allowed the Petitioner to recover its costs of dealing with the validation applications even if the Petition proved to be unsuccessful was unfair or might not have been considered by the parties to be a reasonable compromise.  The language, says the Petitioner, provides that the Petitioner would get its costs.  It contains no qualifications and despite the fact that it does not expressly refer to the costs being paid by the Respondent, this is clearly the import of the language of the order.

4. Two things are clear.  First, that the formulation of the costs order was inapposite.  If the Petitioner is correct the order should have provided that “the Petitioner’s costs are paid by the Respondent in any event”.  This would have allowed it to recover from the Respondent if the Petition were unsuccessful and prove for its costs in the liquidation if a winding‑up order were made.  Given the language that was adopted it should, presumably, also have provided for the Respondent’s costs, although this would be unusual as presumably the Respondent’s solicitors would want to be paid on account and if any order were necessary it would be a validation order in respect of such payment.  If the Respondent is correct the order should have provided that the Petitioner’s costs be “the Petitioner’s costs in the cause” and also dealt in some way with the Respondent’s costs.

5. Secondly, neither party suggests that the wording can sensibly be read as allowing the Respondent to recover its costs from the Petitioner.  To the extent that this is relevant at all it tends to suggest that the costs order reflected some form of common acceptance that given the way the Respondent had gone about the applications for validation it was not entitled to recover the costs from the Petitioner.  This is more consistent with the Petitioner’s construction than that of the Respondent.  Conversely the Respondent suggests that the fact that the Petitioner made no effort to have its costs taxed after the Petition was struck out, and it was only a year late after the application to vary the costs order was made that it did so, indicates that Petitioner understood that the costs order did not entitle it to its costs if the Petition were unsuccessful.

6. It does not seem to me that the circumstances in which the orders came to be made provide much assistance in determining what they mean.  Both parties can advance credible reasons why if the parties were being reasonable they must have understood the order to mean what they contend it means.  It follows that the construction of the orders fall to be determined very largely by reference to their language and the procedural context in which they were made. 

7. The form “costs be paid out of the assets of the company” is used in proceedings commenced in liquidations.  Commonly a company will be a party through the involvement of its liquidators and this form of words reflects the fact that any costs order against a company in liquidation is an order allowing the party who obtains it to prove in the liquidation in accordance with the priorities provided in Rule 179. It is not a form of order that one would normally expect to see made prior to a winding‑up order being made.  It is not, in my view, a rather inelegant way of saying that the company will pay the costs of an application in any event.  It is saying that in the event of a winding up you can recover your costs out of assets available for distribution to unsecured creditors in accordance with Rule 179.  It follows that the Petitioner is not entitled to recover its costs incurred in respect of the validation orders.  I, therefore, will strike out the taxation proceedings and order that the costs of the present application are paid by the Petitioner to the Respondent such costs to be taxed if not agreed.