SHUN LOONG HOLDINGS LTD v. PROFITEX INVESTMENTS LTD

HCMP 983/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 983 OF 2004

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J U D G M E N T

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1. This is an application by Shun Loong Holdings Limited ("Shun Loong") for an injunction to restrain Profitex Investments Limited ("Profitex") from presenting a winding-up petition against it.

2. Profitex is a subsidiary of a company called Shanghai Land Holdings Limited ("Shanghai Land"), to which receivers have been appointed by the court. Profitex is now under the control of the receivers. The background to the application can be summarized as follows.

3. On 17 October 2003, Profitex commenced proceedings against Shun Loong claiming a sum of some HK$2,214,769 plus interest. On 18 March 2004, Profitex obtained summary judgment against Shun Loong for substantially this sum. On the same day, at the conclusion of the hearing, Shun Loong sought a stay of execution on the summary judgment which had been awarded against it from Master Hui, who had heard the application for summary judgment. The application for a stay of execution was refused.

4. Although it appears that Profitex had offered to agree to a stay if the judgment sum was paid into court, such agreement was not forthcoming as those acting for Shun Loong at the time did not appear to have instructions to agree to any such condition. That afternoon, Shun Loong issued a notice of appeal against the decision of Master Hui in relation to the summary judgment.

5. The next day, 19 March 2004, Profitex served a statutory demand on Shun Loong demanding payment of the judgment amount including interest (although it turned out that this was not included in the judgment) within 21 days of the demand.

6. On 22 March 2004, Shun Loong applied to a judge in chambers seeking a stay of execution on the judgment. The next day, 23 March 2004, Shun Loong's solicitors wrote to the solicitors acting for Profitex demanding that the statutory demand be withdrawn and warning them not to issue a winding-up petition against Shun Loong on the strength of the statutory demand having regard to the fact that the summary judgment was under appeal.

7. On 26 March 2004, Shun Loong's solicitors wrote again - this time seeking an undertaking from Profitex that Profitex would not present a petition. It appears that on the same day, an offer to pay the judgment sum into court was made by Shun Loong by way of an affidavit, filed presumably for the purposes of the application for a stay of execution.

8. The next day, 27 March 2004, Profitex agreed through its solicitors to a stay of execution being granted on payment in being made. By a separate letter from its solicitors to those acting for Shun Loong, Profitex indicated that it did not intend to present a petition for the winding-up of Shun Loong.

9. There then followed, on 31 March 2004, the making of a consent order granting a stay of execution upon payment into court, and on 1 April 2004, payment into court was made in accordance with the consent order that had been filed.

10. On 2 April 2004, Shun Loong through its solicitors again sought an undertaking that Profitex would not present a petition and this request was repeated on 13 April 2004. In response, Profitex through its solicitors replied on 14 April 2004 repeating that it had no intention to present a petition, and drawing attention to the fact that it had consented to the stay of execution on security being provided.

11. Further correspondence took place between the parties to no real effect and on 16 April 2004 Shun Loong issued its notice of motion seeking an injunction which is before me today.

12. The evidence in this matter consists on Shun Loong's part of two affirmations, one from its solicitor and another from one of its directors. The solicitor sets out most of the background matters which I have mentioned above. Shun Loong's director deposed to the serious consequences that Shun Loong would be likely to suffer if a petition were to be presented.

13. There was also an affirmation from one of the receivers of Shanghai Land, made on behalf of Profitex. He says that the offer to agree to the stay of execution on payment in of the judgment amount was made in order to address Shun Loong's concerns expressed in its solicitor's letter dated 23 March 2004, and that thereafter the consent order was in fact entered into and execution stayed.

14. In my view, the question that I have to determine for present purposes is whether or not there is any real threat that a winding-up petition will be presented. I am prepared to accept for present purposes (and this was not disputed by Mr Fung SC, appearing for Profitex) that if there was such a threat, the consequences for Shun Loong would be serious and that the balance of convenience in those circumstances would favour an injunction being granted.

15. Mr Kwan, appearing for Shun Loong, says that there is such a risk, and that it is a real one, notwithstanding the statement in Profitex's solicitor's letter of 27 March 2004 to the effect that Profitex did not intend to present a winding-up petition.

16. Mr Kwan points out that as a petition to wind up a company is not a form of execution, the fact that execution on the judgment has been stayed pending the outcome of Shun Loong's appeal to a judge in chambers (which is presently fixed to be heard on 19 May 2004) does not prevent Profitex from presenting a petition in the meantime if it were minded to do so. He says that there is no guarantee that Profitex will not change its mind and present a petition, notwithstanding its statement of intention, and that the consequences for Shun Loong would be serious if this were to happen.

17. I accept that in theory it would be possible that Profitex might still seek to present a petition to wind up Shun Loong, notwithstanding that there has been a stay of execution. This is because I accept that the presentation of a petition does not amount to execution or enforcement of a judgment. That this is so is clear from a number of cases including Re A Company [1915] 1 Ch 520, Re International Tin Council [1989] Ch 309, Goodway Ltd v. Pirelli Cables Ltd [1997] 3 HKC 265 and Credit Lyonnais v. SK Global HK Ltd [2003] 4 HKC 104.

18. However, it is also pertinent to note that in Goodway v. Pirelli (supra), Le Pichon J, as she then was, pointed out that where a stay of execution is in place, although this would not prevent presentation of a petition, it would be a highly relevant factor that the court hearing such a petition would take into account when deciding whether to stay or adjourn the petition. Moreover, where the petitioner is fully secured, as it would be in this case, having regard to the payment into court, this is a factor which is likely to lead the court to dismiss the petition, see IJ Langleb Ltd [1996] 4 HKC 68, in which, notwithstanding the service of a statutory demand, the petition was dismissed since the fact that there was full security is a factor which the court will take into account in exercising its discretion as to whether or not to make a winding-up order.

19. Mr Fung, for Profitex, says that there is in this case simply no real threat that a winding-up petition will be presented and there is no serious risk that this could happen having regard to the statement of intention by Profitex through its solicitors, and to the existence of the stay and the payment in, which has the effect that any petition presented by Profitex would be wholly unjustified and liable to be dismissed, given that they are fully secured. He also stresses the fact that Profitex is controlled by the receivers of Shanghai Land, who are officers of the court, and as such would not act irrationally, irresponsibly or without good cause.

20. While I would accept that the service of a statutory demand will usually be good evidence of an intention on the part of the person serving it to present a petition to wind up in the event that it is not paid, it seems to me that it remains necessary to consider the situation at the time when the application for an injunction is made and to assess whether or not there is, at that stage, a threat to present a winding-up petition having regard to all the evidence as to the circumstances then prevailing. When this is done in this case, it seems to me that it cannot be said that there is any real threat or risk that a winding-up petition will be presented against Shun Loong.

21. Although it may well have been Profitex's intention as at 19 March 2004, when the statutory demand was served, to present a winding-up petition if that proved necessary, it must be remembered that at that stage, Profitex had a judgment in its favour in respect of which it had offered to have execution stayed on condition of a payment in. That offer had not been taken up as Shun Loong did not appear to have given any instructions in relation to it and had pressed, unsuccessfully, for a stay to be granted without conditions being attached.

22. That being so, I do not see anything particularly unreasonable in Profitex having served a statutory demand at that stage, since there would at that point have been nothing to suggest to Profitex that Shun Loong was either prepared to pay it the judgment debt, or to secure it in respect of the judgment debt by making a payment into court.

23. However, things did not rest there, and following Shun Loong's indication that it was prepared to make a payment into court after all, Profitex indicated that it would consent to a stay on that basis, and also indicated that it was not any longer its intention, assuming it to have been so in the first place, to present a petition for the winding-up of Shun Loong.

24. In these circumstances, I cannot see that there was after 27 March 2004, any real threat that Profitex would seek to present a winding-up petition against Shun Loong.

25. So far as the authorities which have been cited to me as to the need, before granting an injunction, to be satisfied of a real threat that the action complained of is likely to take place are concerned, I would make the following brief comments.

26. It seems to me that the cases cited by Mr Kwan do not take the matter very much further. In Shafto v. Bolckow, Vaughn & Co. (1887) 34 Ch D 725, it seems from the facts of the case that there was no indication that there had ever been any statement of intention on the part of the proposed defendants not to do the act threatened. It was in any event, a case concerned with whether or not it was appropriate to add certain parties to the litigation, and not in fact a case in which an injunction was sought against the parties to the application with which the court was concerned.

27. In Phillips v. Thomas (1890) 62 LT 793, it appears that there was actual evidence of an intention to continue to do the act complained of. This intention was also inferred from the fact that there had been previous occasions on which the acts complained of had been done, and there was an insistence on the part of the defendant on his right to do those acts.

28. Finally, in Hooper v. Rogers [1975] 1 Ch 43, it appeared that the act in question had already been done and the finding of the judge at first instance, accepted by the Court of Appeal, was that there was a very real probability that damage would ensue in due course.

29. To my mind, all of those cases are very different on their facts from the present case where, as things stand, there is to my mind no real risk that a winding-up petition will be presented.

30. It seems to me that if that is the case, Shun Loong does not get over the initial hurdle of satisfying the court that there is a real risk or danger that the presentation of a winding-up petition, the act sought to be restrained, will take place if no injunction is granted.

31. Thus, in these circumstances, and having regard also to the fact that Profitex is controlled by officers of the court, I do not consider that the failure by Profitex to give the undertaking sought or perhaps some other form of undertaking such as one not to present a petition without notice to Shun Loong, requires me to infer that Profitex is seeking to keep its options open in such a way as to give rise to a real threat that it might present such a petition.

32. Put slightly differently, it seems to me that as from 27 March 2004, Profitex by its actions in agreeing to the stay of execution on provision of security and by its statement of intention not to present a petition, was no longer insisting on its right to do so.

33. In these circumstances, I conclude that Shun Loong has not demonstrated that there is a real risk that Profitex might present a petition against it if not enjoined from doing so. It seems to me that although there would be little down side or damage to Profitex if it were restrained from presenting a petition, it would not be appropriate for me, in the light of the authorities cited by Mr Fung, to grant an injunction simply on the basis that it would do no damage to the party enjoined.

34. As a fallback position, Mr Kwan suggested that I should give a direction to the receivers of Shanghai Land as officers of the court that they should not cause Profitex to present a petition against Shun Loong. It seems to me that, essentially for the same reasons that I have expressed in its judgment, there is no real risk or no real reason to believe that they are likely to do so, and therefore I would be disinclined to give such a direction even if it were appropriate to do so in the context of these proceedings to which the receivers are not themselves parties.

35. For these reasons, I dismiss this application.