XCHRX P & T ARCHITECTS AND ENGINEERS LTD. v. FAR EAST (CHINA) INVESTMENT LTD.

HCA 1620/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1620 OF 2000

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J U D G M E N T

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1. Originally there were two applications before me; one by the defendant for a stay, the other by the plaintiff for summary judgment. There being insufficient time for me to deal with both and the logical order being that the stay application comes first, I have adjourned the plaintiff's application sine die to be dealt with later in the event the stay is declined.

2. The court is required to deal with the application to stay by exercise of a judicial discretion because the defendant after filing of the suit became the subject of a voluntary winding up. Were it to have been wound up by the court the stay would be automatic, unless leave had been applied for and granted to continue.

3. How that discretion is properly to be exercised in such cases will largely depend on the extent to which the debt is admitted. Collins M R was one of the presiding judges on appeal in the case of Currie v. Consolidated Kent Collieries Corporation Limited [1906] 1 KB 134, where the judge at first instance had declined an application for a stay. He said at p. 138:-

"It appears to me that the counsel for the liquidator sought in argument to put the case of a claim made against a company where a company is in voluntary liquidation on precisely the same footing as that of one made where a company is being compulsorily wound up, which is what the Legislature appears to have deliberately abstained from doing. Whereas in the case of a compulsory liquidation the creditor is debarred from proceeding by way of action, unless he can shew special grounds for granting him leave to do so, in the case of a voluntary liquidation the onus appears to be thrown on the liquidator of shewing that an order should be made staying an action brought against the company. One looks for some basis in principle for this distinction being made, and it would seem that it must have been because the Legislature thought that prima facie, in the case of a voluntary liquidation, the ordinary tribunal was the proper one to decide upon a claim against the company. The Court had no doubt stayed the action in cases where the liquidator could shew some sufficient reason for its not being decided in the ordinary way. Where, for instance, the existence of a debt or liability was substantially admitted, though there might be some question of the exact amount due, the ordinary practice seems to have been that, liability not being really contested, but only the exact amount due, the matter was treated as one which might properly, and ought to, be determined in the liquidation. But that practice does not appear to apply to a case like the present, where there is a real dispute as to the existence of any liability. It seems to me that the learned judge at chambers was right. We have not been referred to any decision which establishes that, in the case of a voluntary liquidation, the burden is in all cases thrown on the creditor of shewing special grounds why his action should not be stayed, and the presumption appears to be prima facie in his favour."

4. I turn now to the facts of this case which can be shortly stated.

1. On 15 February 2000 the plaintiff issued a writ against the defendant claiming HK$2,405,000 and S$57,824 for unpaid consultancy fees and expenses.

2. Following service the defendant filed an acknowledgement of service on 28 February.

3. On 15 March the plaintiff received word from one Ma Wing Hung (Mr Ma) that by special resolution of 6 March the defendant had entered into a creditors' voluntary winding up and that he was the appointed liquidator. The plaintiff had not been independently notified of the meeting called for the purpose save that by virtue of announcements advertised in the local press there was constructive notice.

4. By letter of 29 March Mr Ma invited the plaintiff to file a proof of debt upon receipt of which he would forward minutes of the creditors' meeting, a statement of affairs and list of creditors and consider admitting the debt. But he gave a deadline that if that was not forthcoming by 31 March he would apply for a stay.

5. The plaintiff not having complied by the deadline or thereafter on 5 April Mr Ma filed his application for a stay.

6. On 12 April the defendant filed its defence. In it it denied certain of the allegations set out in the statement of claim, putting the plaintiff to strict proof in respect of others.

7. On 5 May the plaintiff filed its application for summary judgment.

5. In support of the defendant's application for a stay Mr Ma made an affidavit deposing to the facts as I have stated. At paragraphs 14 and 15 he said:-

"14. Notwithstanding that the Company had filed the Notice of Intention to Defend on 28th February 2000 (i.e. before the Company entered into creditors' voluntary winding up and before I was appointed the Liquidator of the Company), I will consider the plaintiff's claim should the plaintiff lodge its duly completed proof of debt together with supporting documents for my consideration. If the Alleged Debt or any part thereof can be proved by the plaintiff, I will admit the same to be a valid debt of the Company.

15. If this Action is not stayed, the Company will have to dissipate its assets in defending the same. I am of the view that it is not in the best interests of the creditors of the Company to proceed with this Action."

6. Mr Wong appearing before me for the defendant for a stay submits that the liquidator's stated intentions and the saving of expenditure associated with his dealing with the plaintiff's demand on a proof of debt should be sufficient reasons to persuade me that to grant a stay as the appropriate exercise of my discretion.

7. His argument is persuasive but with due respect to him I believe he puts something of a gloss on likely events.

8. Mr Ma says in effect that he will consider the merits of the plaintiff's claim once he has its proof of debt and supporting documents. Of course he can say no more. Certainly this does not amount to a substantial admission that the debt is due. On the contrary, seven days after his affidavit was made the defendant filed a defence substantially denying liability. Though Mr Wong says it is a holding defence pending proof of claim it is all, presently, I can go on in determining the defendant's reaction to the writ. It leaves open the possibility that the debt after enquiry and a passage of time might be disputed and the proof rejected. If this is so the plaintiff will be left to pursue its claim by appealing by originating summons, a process likely to be no less expensive than a trial in the proceedings already filed. There can be no going back to this action. And there can be no conditional stay, or a stay with directions, to hold the defendant to a timetable. In effect a stay amounts to a termination, without tags.

9. I conclude from the papers before me that there are triable issues raised. If the court required to deal with the plaintiff's summary judgment application agrees with me the result of that is foregone; but that, if pursued, is for another day.

10. In respect of this application I am not satisfied the defendant has proved the circumstances are such that I should exercise my discretion in favour of granting its stay; I decline to do so.

11. The application is dismissed. Costs, nisi at first instance, are to the plaintiff.