Re Hyundai Engineering & Construction Co. Ltd.

HCCW 1299/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 1299 OF 2001

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DECISION ON COSTS

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1. On 21 February 2002, I made an order to strike out the petition to wind up the Company brought by the petitioner, Full Winning Trading Ltd ("FWT"), on the basis that there is a bona fide dispute of the debt in the petition on substantial grounds and that FWT does not have locus standi to present the petition. I have held that the petition is an abuse of the process of the court. As the parties indicated that they would wish to make submissions on costs, I adjourned that application to today.

2. There are three sets of costs involved. One relates to the Company's application for an injunction to restrain further prosecution of the petition. The second relates to the Company's application to strike out the petition and the third relates to its application for a validation order.

3. The position taken by Mr William Wong, who appeared on behalf of FWT, is this. He does not resist the application for costs in the striking out application. He has not addressed me specifically on the costs relating to the injunction but it would seem from his submission that that should also follow the event. He disputes that costs should be awarded on an indemnity basis.

4. As for the validation order, Mr Wong has opposed an order for costs to be made in favour of the Company at this stage. He has submitted that I should adjourn the Company's application for costs relating to the validation order because I am not in a position to form a view whether the Company is solvent and whether it would be proper for the Company to apply for a validation order. Mr Wong has also opposed that a certificate for two counsel should be granted to the Company in these proceedings.

5. I have been referred by both sides to a number of authorities. I do not propose to deal with each of them. Indeed, I do not think it would assist very much to look at the facts of those cases because when it comes to an exercise of the court's discretion, the way that the discretion should be exercised should surely be guided by the circumstances of that particular case. I do derive assistance from the general propositions in the cases that I have been referred to and I have considered them.

6. The power to order costs on an indemnity basis, as stated by the Court of Appeal in Sung Foo Kee Ltd v Pak Lik Co. [1996] 3 HKC 570 at 575 B - E, is not confined to cases which have been brought with an ulterior motive or for an improper purpose. "Litigants who conduct their cases in bad faith or as a personal vendetta, or in an improper or oppressive manner, or who cause costs to be incurred irrationally or out of all proportion as to what is at stake, may also expect to be ordered to pay costs on an indemnity basis if they lose. .... Nor are these necessarily the only situations where the jurisdiction may be exercised; the discretion is not to be fettered or circumscribed beyond the requirement that taxation on an indemnity basis must be 'appropriate'".

7. Where there is an abuse of the process of the court, this may well be a candidate for an award of taxation of costs on an indemnity basis (see Overseas Trust Bank Ltd v Coopers & Lybrand & Ors [1991] 1 HKLR 177 at 182G - 183C). Where a petition is brought in a situation that the debt is bona fide disputed on substantial grounds so that the petitioner has no locus to present the petition as a creditor, it does constitute an abuse of process Mann v Goldstein [1968] 1 WLR 1091. Whether costs are to be awarded on an indemnity basis in the situation where it is established that there is a bona fide dispute of the debt in the petition on substantial grounds is a matter for the discretion of the court on considering all the circumstances of the case, including the events leading up to the institution of the winding-up proceedings. Examples where the courts have ordered costs on an indemnity basis are situations where the petitioner is well aware that there is a dispute of the debt on substantial grounds and yet has chosen to present a petition without any warning to the Company or with very little warning (see Re a Company (No. 00751 of 1992), ex parte Avocet Aviation Ltd [1992] BCLC 869 and Attorney General v Flack, English Court of Appeal, 29 November 2000, Lexis transcript).

8. Mr Wong has submitted that these proceedings are but ordinary hostile litigation and there is nothing unusual in the proceedings to warrant costs on an indemnity basis. I do not agree that a petition to wind up a company is ordinary litigation. The implication of such a petition on a company is tremendous. If the petitioner knows of the basis which makes it improper for the petition to be brought, the petitioner should not be allowed to use "high risk strategy" without any penalty. In the particular circumstances of this case, I have taken into account the following matters.

9. Firstly, the petition was brought after FWT had brought proceedings in the High Court against the Company in respect of the same debt. In the High Court Action extensive pleadings had been filed and pleadings had closed by the time FWT presented the petition. Secondly, as I have indicated in my judgement, it would appear that FWT has shifted the grounds on which it alleges that the Company is liable for the debt in the petition. Thirdly, notwithstanding this apparent shift of stance, FWT had chosen not to give any forewarning to the Company before it embarked on the winding-up proceedings.

10. In my view, this strategy employed by FWT was designed to catch the Company by surprise and cause maximum damage to the Company.

11. I have borne in mind Mr Wong's submission that when FWT presented the petition, it was concerned about the solvency of the Company. Assuming without deciding whether that was indeed the concern of FWT, in my view, this is not a sufficient justification for FWT to present the winding-up petition without any warning letter or without the service of a statutory demand, given the circumstances of the dispute and the amount of the debt pursued in this petition in the context of the size of the business of Company. In my judgment, it would be proper in these circumstances to award costs on an indemnity basis.

12. As for the costs relating to the application for a validation order, I also reject the submission of Mr Wong that I should adjourn this application until I have further evidence from the Company to enable me to form a view whether the Company is solvent. In deciding whether costs relating to this application should also be awarded to the Company, I should ask myself (1) whether the application was necessitated by the petition; and (2) whether it was reasonable for the Company to apply for a validation order. I would answer both in the affirmative. The Company is part of a multi-national organization with construction projects not just in Hong Kong but world-wide. It seems to me entirely reasonable in these circumstances for the Company to apply for a validation order after a petition for winding-up was presented.

13. Given the importance of these proceedings to the Company and that the Company had to act on an urgent basis to seek an injunction to restrain further prosecution of the winding-up proceedings, I am of the view that it was justified for two counsel to be employed by the Company. I will also grant a certificate for two counsel.

14. The order I make is that the petitioner is to pay the Company the costs of these proceedings up to today on an indemnity basis, to be taxed if not agreed, with a certificate for two counsel.