BICOASTAL CORPORATION v. SHINWA CO. LTD.

Headnote

Companies Winding-up - section 179(1) Companies Ordinance (Cap. 32) provides for winding-up "by any creditor .... (including any contingent or prospective creditor....)" - Petition founded on judgment debt overseas - execution on judgment debt subsequently stayed on security being provided - Judge ordered petition to be dismissed. On appeal to Court of Appeal, allowing the appeal, held: the petition should not be dismissed but stayed.

IN THE COURT OF APPEAL

1993, No. 54
(Civil)

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J U D G M E N T

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Kempster, V-P:

1. This is an appeal by Bicoastal Corporation "Bicoastal"), petitioning creditors, from the judgment and order of Godfrey J given and made on 10 March 1993 dismissing both their application to amend the petition for the winding-up of Shinwa Company Limited ("Shinwa") and the petition itself. By Respondent's Notice Shinwa seek to affirm the decisions of the learned judge on grounds additional or alternative to those upon which he expressly relied and, by summonses dated 10 and 14 May, to adduce further evidence and to amend their Notice. The latter application we have granted.

2. Although there was no formal application to dismiss the petition that relief was sought in argument. The judge's jurisdiction to make such order is not disputed. He would have had in mind the reasons rendering the lengthy adjournment of a winding-up petition undesirable which were given by Oliver LJ in Re Boston Timber Fabrications Ltd (1984) BCLC 328 at p 333.

3. On 4 December 1992, in the Florida Bankruptcy Court, Bicoastal entered final judgment against Shinwa for US$45,179,000 but, on 29 January 1993, execution was stayed pending appeal upon Shinwa providing security. As a result Godfrey J held that the judgment debt was no longer either due or payable, was not properly enforceable in Hong Kong and could not ground a petition for winding-up. For related reasons Bicoastal do not dispute this finding. Indeed, appreciating their difficulties, they applied so to amend the petition, which had been presented on 23 December 1992 and was then prima facie sustainable, as to abandon reliance upon the unsatisfied judgment of 4 December 1992 and to ground their claim to relief upon unpaid sums by way of royalties for the use of the "Singer" trade and service marks now and contingently alleged to be owing to them by Shinwa since 1 May 1991 by reason of the terms of an agreement in writing dated 26 May 1989; an agreement which requires any legal proceedings against Shinwa to be brought in the United States of America. Bicoastal have agreed to a stay of their other proceedings, in the Hong Kong Courts, for the recovery from Shinwa of the monies owing under the Florida judgments. The distinctive number of those proceedings is 1992 No. A 8855.

4. By their grounds of appeal Bicoastal contend that the learned judge disregarded principles applicable to the amendment of petitions, misapprehended the terms of two of the United States judgments to which he was referred, failed properly to appreciate the effect of the exclusive jurisdiction clause in the 26 May 1989 agreement and was wrong insofar as he concluded that liability for sums claimed by Bicoastal was subject to real and bona fide or any dispute. Alternatively it is suggested that he declined to consider whether any such dispute was real or bona fide.

5. Having regard to those grounds of appeal and to the terms of the Respondents' Amended Notice the material now ought to be introduced in evidence by Shinwa, read de bene ease, is certainly relevant. It nonetheless falls for us to determine whether we should exercise our discretion under RSC 059 r 10(2) to admit it albeit this is not an appeal "from a judgment after trial or hearing of any cause or matter on the merits" so as to require "special grounds". The failure to bring this material forward at an earlier stage being explained in paragraphs 4 and 5 of Mr Paul Carolan's supporting affidavit I would admit it in evidence on this appeal.

6. What Bicoastal seek is an order quashing that made by the judge and allowing amendment of the petition in the manner prayed in their application.

7. The claim for monies accrued and accruing due since 1 May 1991 upon which Bicoastal seek to rely is the subject of continuing litigation in the Florida District Court. While its outcome ultimately depends on that of the appeal against the earlier judgments, presently in issue between the parties is whether Shinwa are bound by issue estoppel arising from those judgments. If they are not bound according to US law they cannot be bound by that of Hong Kong. Carl Zeiss Stiftung v Rayner & Keeler Ltd and ors [1967] AC 853 at p 919.

8. Section 179(1) of the Ordinance only allows an application for winding-up "by any creditor or creditors (including any contingent or prospective creditor or creditors) ..." and "the winding-up jurisdiction is not for the purpose of deciding a disputed debt (that is, disputed on substantial and not insubstantial grounds) since, until a creditor is established as a creditor he is not entitled to present a petition and has no locus standi in the Companies Court; and that, therefore, to invoke the winding-up jurisdiction when the debt is disputed (that is on substantial grounds) or after it has become clear that it is so disputed is an abuse of the process of the court" per Ungoed-Thomas J in Mann v Goldstein [1968] 1 WLR 1091 at pp 1098-1099; adopted by Buckley LJ in Stonegate Securities v Gregory [1980] Ch 576 at p 579. Buckley LJ went on to say, at p 580, that the question whether or not a petitioner "is or is not a creditor of the company is not appropriate for adjudication in winding-up proceedings". Both he and Goff LJ expressly disassociated themselves from the judgment of Goulding J in Holt Southey Ltd v Catnic Components Ltd [1978] 1 WLR 630 insofar as it suggests the contrary. Shinwa's present and contingent liability for royalties accrued since 1 May 1991 appears to be disputed on substantial grounds. On the other hand it is unattractive to think that Shinwa are themselves receiving large sums by way of royalties from the exploitation of the "Singer" marks and yet resisting liability to part with any or any significant proportion of those royalties to the assignors of those marks; Bicoastal.

9. This court does not readily interfere with the exercise of discretion by a judge dealing with companies business but I am of the opinion that Godfrey J failed adequately to consider either the fact that Shinwa are not a trading corporation or the question whether or not his order might occasion injustice to Bicoastal in the context of "relation back" under s 184(2) of the Companies Ordinance (Cap 32) and made the material orders prematurely. In the premises, and also acknowledging that not all aspects of the relationship between these parties have been revealed to us, I would allow the appeal, set aside the orders of 10 March 1993 and take the unusual course of ordering a stay of all proceedings in this winding-up, including the application to amend the petition, until the determination of the appeal from the judgments given against Shinwa in Florida, duly prosecuted, or further order; any application in this regard to be made to the companies judge. I would also make an order nisi that the costs of this appeal and of the proceedings before Godfrey J on 9 and 10 March 1993 be costs in the winding-up.

Litton, J.A.:

10. The orders proposed by my Lord the Vice-President are unusual, but this is an unusual case. There is no doubt that the appellant was a creditor of the respondent when the winding-up petition was presented on 23 December 1992. There were then reasonable grounds for saying that the respondent was insolvent and unable to pay its debts; an outstanding judgment debt against the company amounting to US$45,179,000 remained unsatisfied. Dates had been fixed for the hearing of the petition. Then the stay of execution intervened, as ordered by the Florida Court on 29 January 1993.

11. The key question as things now stand is this: What is the effect of that stay? Godfrey J thought that unless the petition was amended the court had no option but to dismiss it; its maintenance on the file, once execution had been stayed would, the judge considered, be an abuse of the process of the court. Is this proposition correct?

12. One way of enforcing a judgment against a company is to seek an order from the court to have it wound up - see Sargant J in Amalgamated Properties of Rhodesia (1913) Ltd. [1917]2 Ch 115 at 122. Accordingly, the further prosecution of the petition to wind up the respondent company in Hong Kong must, on the face of it, be to frustrate the purpose of the order of the Florida Court granting the stay. There can be no doubt, therefore, that the further prosecution of the petition should itself be stayed. But must it be dismissed?

13. There are, of course, good reasons for saying that a winding-up petition should not be left hanging over the head of a company for a lengthy period and, normally, where the underlying cause for winding-up a company has virtually disappeared - such as, for example, where security has been put up sufficient to satisfy the debt - the better course would be to have the petition dismissed. In this case there are some unusual features : (1) The appellant is the only creditor of the company; (2) the respondent is not trading; these activities are done through subsidiaries; (3) the judgment debt covered only the royalties up to 30 April 1991; there are other royalties undoubtedly payable since 1 May 1991 which the respondent has not paid; the appellant is therefore not only a creditor but also a prospective creditor of the respondent and entitled as such to petition for winding-up: see s.179(1) Companies Ordinance, Cap. 32; (4) the underlying relationship between the parties, which we have only been able dimly to perceive, may render it important for the appellant to be able to challenge dispositions made by the respondent since 23 December 1992, the date of commencement of the winding-up: see section 182 Companies Ordinance.

14. To put the appellant into the position of having to present a fresh petition for the debts accrued since 30 April 1991, by dismissing the present petition, may be to do the appellant a grave injustice. In my judgment these considerations weigh heavily in favour of a stay, and justify the unusual course of a stay of the petition rather than its dismissal at this stage. The judge failed to consider these matters because, as I understand it, junior counsel then appearing before him did not bring them to his attention. The judge seemed to think that the only option open to him, once the application to amend the petition was refused, was to dismiss the petition. I am satisfied that, in this regard, he fell into error.

15. For the reasons which I have attempted to give I concur with the orders which my Lord the Vice-President has proposed.

Bokhary, J.A.:

16. I, too, would make the orders proposed by my Lord, the Vice-President.

17. Clearly, the presentation of the winding-up petition was not an abuse. In proceedings which it had brought in Florida, the petitioner had obtained a US$45.17 million judgment against the company. At the time when the petition was presented, that judgment was unsatisfied and unsecured. And, in all the circumstances, the judgment, by its size and its implications as to a continuing liability on the part of the company to pay royalties, provided ample foundation for an allegation of insolvency against the company.

18. After the presentation of the petition, execution on the judgment was, it is true, stayed pending an appeal by the company in Florida. But a stay such as that does not inhibit the prosecution of a petition such as this.

19. Moving on, it is also true: that the stay was accompanied by security for payment under the judgment if it is eventually upheld on appeal; and that the appeal concerns not only the sum for which judgment was given but also the company's continuing liability to pay royalties.

20. But none of that renders it an abuse to maintain the petition pending the appeal. It would appear that if the appeal fails, the actual award under the judgment can be recovered under the security provided and therefore without recourse to a winding-up. But what about post-judgment royalties? The company has not pursued the point, contained in its skeleton argument, that the issues in respect of post-judgment royalties are different from the issues in respect of the other matters dealt with in the judgment. So it would appear that if the appeal fails, there would be no real issue as to the petitioner's entitlement to post-judgment royalties. Such royalties are very substantial. And there is no security for their payment. The situation here is wholly different therefore from the one in Re Amalgamated Properties of Rhodesia (1913) Ltd [1917] 2 Ch 115, where Sargant, J considered a dismissal of the petition there appropriate. That was a case in which everything payable to the petitioning judgment creditor in the event of the appeal failing was secured so that no recourse to a winding-up would be necessary. As I have pointed out, that is not the situation with which we are faced here. Reading Sargant, J's judgment, I regard the conclusion to which I have come as supported by his reasoning.

21. That conclusion is that the dismissal of this petition must be reversed. A possible course is to permit the prosecution of the petition here pending the appeal in Florida - on the basis that if no decision is reached in that appeal by the time the petition comes on for hearing, the judge here can decide whether or not to adjourn the hearing pending a decision in the appeal or further order. On the whole, however, I consider the course proposed by my Lord more orderly.

22. Of course, I am only too well aware, from my experience at the Bar and later as the Companies Judge, of the general undesirability of adjournments, especially lengthy ones, in winding-up proceedings. But this is an exceptional case in a number of ways. The company, it may be noted, is not trading. There is "relation back" in rather special circumstances to be considered. And we should do our part in giving the company encouragement to pursue its appeal with expedition however comfortable its group may find exploiting valuable royalties without proper payment, in case that is what it is doing, a thought which seems to have more than crossed the mind of the learned Bankruptcy Judge in Florida.

23. We are differing from Godfrey, J who is a very experienced judge. And it is only fair to say this. We, unlike him, have had the assistance of leading as well as junior counsel. And my impression is that the circumstances of the case were somewhat less clearly presented to him than they were presented to us.