RE JACKIN TOTAL FULFILMENT SERVICES LTD

HCCW628/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO. 628 OF 2006

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DECISION  ON  COSTS

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1. On 9 May 2008, I handed down judgment in this matter dismissing the winding up petition and making a costs order nisi that the petitioner pay the company’s costs of the petition and that there be no order as to costs between Johnson, Stokes & Masters (“jsm”) and the company.

2. Both the petitioner and the supporting creditor, JSM, seek to vary the costs order.

3. The petitioner submits that the appropriate costs order should be : either that there be no order as to costs between the petitioner and the company or that the petitioner’s costs of the petition up to 5 November 2007 be paid by the company to the petitioner and the petitioner is to pay the company’s costs from 6 November 2007 onwards, to be taxed if not agreed.

4. This is a surprising application given that in paragraph 6 of my judgment I said this in respect of the petitioner’s claims :

“… Whilst I can understand a degree of frustration on the Petitioner’s part over the Company’s conduct my conclusion after argument and re-reading the papers remains the same, namely, that this was a case in which the Petitioner should have commenced proceedings to recover the fees it says it is owed, not to have used the winding-up jurisdiction to pressure the Company into paying. …”

Ms Man, who appeared for the petitioner, argued that the company, when it received the petitioner’s statutory demand, should have done rather more than simply deny the debt.  She argued that the company should have gone further and explained in detail why the debt was disputed.  Inherent in her argument was the assumption that if this had happened, matters might have proceeded differently. 

5. Although as a matter of common sense, it might be advisable for a company, receiving a statutory demand which is in respect of a debt it denies, to write to the creditor explaining in detail why it disputes the debt, a company is under no obligation to do so.  I cannot see any reason, therefore, why a failure to do this provides a foundation for not applying the normal rule that costs follow the event.  Further, the petitioner’s argument necessarily requires me to assume, in its favour, that if the kind of explanation had been provided that it suggests was appropriate, matters would have developed differently and costs reduced accordingly.  That may be the case, but then again it may not.  Such speculation forms no basis for deciding liability for costs.  I will not, therefore, change the costs order nisi that was made as between the petitioner and the company.

6. In the case of JSM, Ms Chan, who appeared again for the supporting creditor, argued that her client had been substantially successful in seeking a winding up of the company and should have its costs.  Ms Chan pointed out that the reason on the face of my judgment for not winding the company up on the basis of the supporting creditor’s debt was the provision on 30 January 2007 of a parent company guarantee by Jackin International Holdings Limited.  This is referred to in paragraph 25 of my judgment.  Ms Chan submitted that the supporting creditor had successfully defeated the technical defences advanced against it by the company (see paragraph 15 of my substantive judgment) and that the tenor of my judgment suggests that but for the parent company guarantee, I would have been minded to wind the company up and accordingly her client should have its costs.

7. Mr Chua, who appeared as he had at the trial, on behalf of the company, argued that the costs order nisi accurately reflected the reality of the outcome of the trial as between JSM and the company, namely, that it was roughly a draw.  He drew my attention in particular to paragraph 26 of my judgment in which I said this :

“  Insolvency is the inability to pay debts as they fall due.  In this case the solvency of the Company has to be judged by reference to the likely debts due to JSM.  The information about the Company’s financial state is limited, but it does not have to demonstrate solvency if the debt relied on is contingent and there is good reason why it has not yet been paid. …”

8. Mr Chua argued that JSM were a contingent debtor and that a good reason had been given for not paying the debt likely due to it, namely, that the taxation process had not been completed.  In these circumstances the company did not have to demonstrate solvency. 

9. Ms Chan’s response to this was that this was besides the point.  The company had put evidence concerning its solvency before the court and this demonstrated that the company was unlikely to be able to pay its debts as they fell due.  Further, she pointed to the principle derived from the judgment of Oliver LJ in Re Claybridge Shipping Co. S.A. [1977] 1 BCLC 572 (referred to in paragraph 24 of my substantive judgment) that even in circumstances where there is a bona fide dispute about the amount of a debt, it may still be proper to wind up a company if there is a real risk that the creditor will be left with no remedy if this does not happen.  Ms Chan said that this principle was broadly applicable on the facts of this case, because various matters (referred to in my substantive judgment) called in to question the commercial probity of the company’s management.

10. The question ultimately comes down to whether or not I think that if the parent company guarantee dated 30 January 2008 had not been provided, I would have ordered a winding up of the company. 

11. Having considered the matter further I have concluded that I would have ordered a winding up of the company. I therefore vary the costs order nisi and order that the costs of and occasioned by JSM in the petition up to and including 30 January 2008 be paid by the company to JSM, to be taxed if not agreed.

12. So far as the costs of this application are concerned, I order that the petitioner pays the company’s costs of the petitioner’s application to vary the costs order nisi.  The company will pay the supporting creditor’s costs of the application to vary the costs order nisi.