RE RAD SOURCE TECHNOLOGIES ASIA LTD

HCCW 253/2017

[2018] HKCFI 542

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 253 OF 2017

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D E C I S I O N

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1.  There are two applications before the court, one by the company for security for costs of the petition, the other is an application by the company for leave to file and serve supplemental evidence in the form of the 3^rd affirmation of Zhao Xi.

Application for Security for Costs

2.  Right from the start, the petitioner has not disputed the liability to pay.  The question is only one of quantum and the identity of the person funding the costs for the company.  The petitioner has openly offered security in the sum of $150,000, later revised slightly upwards to $158,570.

3.  The background is such that the petition was filed by a creditor based on two unpaid invoices for a total sum of US$238,800 (HK$1.85 million). The goods involved were irradiators supplied by the petitioner which have been installed at the premises of the respondent’s customers.

4.  The respondent company complained that the irradiators were defective. The petitioner has replaced one but provided technical support on installation of the other.  The company said that despite these measures of the petitioner, the irradiator or replacement irradiator was still defective.

5.  The company also alleges that there was an oral tripartite agreement and supplemental agreement involving the parties for payment of the invoices to be deferred until “well installation and operation” of the two units of irradiators and further testing in 2018.

6.  The security sought by the company was $1,021,600 inclusive of costs of senior and junior counsel for the substantive hearing of the petition.  Taking out the costs of the application for security, the quantum claimed is still over $900,000.

7.  The mention of these figures for security speaks for itself.  It is quite disproportionate, being 50% of the underlying debt in respect of the two unpaid invoices, and if the petition is dismissed because of this bona fide dispute over the invoice amount, there will be further costs to be incurred if the petitioner were to sue for the invoiced sums.

8.  On the other hand, the figure suggested by the petitioner was, in my view, unrealistically low for the normal process up to substantive hearing of the petition.

9.  Mr Hudson for the petitioner submits that there is no evidence as to costs being incurred or billed.  I am not concerned about there being no billed amount because security can cover future costs.  But Mr Hudson does make a valid point: because of the petition against the company, actually the company’s funds could not be used for the present application.  There must have been a backer behind the company.  Despite the petitioner’s inquiries in correspondence, it is only today that the court is informed through counsel that the true backer for the company is Mr Zhao Xi, a director and substantial shareholder of the company.

10.  In my view, any order for security ought to be made naming the true backer of these proceedings.  Considering the circumstances of this petition, in my view, an appropriate amount for security should be in the region of $250,000.  At this stage I am not able to see the justification for engaging senior counsel.

11.  I therefore order that:

(1)  the petitioner do, within 14 days, pay into court the amount of $250,000 as security for Mr Zhao Xi’s costs as a backer of the company which costs should cover proceedings up to conclusion of the petition proceedings

(2)  until such security is given, all proceedings against the respondent company be stayed; and

(3)  there will be liberty to apply.

I will deal with costs in a moment.

Application to adduce 3^rd Affirmation of Zhao Xi

12.  The petitioner opposes on the ground that there had been a previous affirmation filed on behalf of the company as to there being a tripartite oral agreement to postpone payment.  There have been only two parties to the documents instead.  Mr Hudson submits that there is evidence to demonstrate the alleged oral agreement to be false.  Further, the previous affirmations filed on behalf of the company have already mentioned that the irradiators were defective.  There is no point for Mr Zhao Xi to put in yet another affirmation to repeat the evidence.

13.  With respect to Mr Hudson, this is not the occasion for the court to make findings on the credibility of a deponent’s evidence.  The further affirmation of Mr Zhao is also not just to repeat evidence previously mentioned.  The contents of this affirmation is to inform the court of events after the last round of affirmation on the part of the company in November 2017.  This new affirmation purports to show that the alleged defects had remained and the customer had complained about those defects, and these may support the company’s defence to the petition.

14.  Accordingly, despite the order of Mr Justice Harris that no further affirmation is to be filed, in the circumstances of this case, the evidence appearing to be relevant, I give leave for the 3^rd affirmation of Mr Zhao Xi to be filed.

(Discussion on costs)

15.  So, in that situation, I think I will order costs of the security application to be paid by the petitioner to Mr Zhao Xi subject to proof of the bill of the solicitors.  The bill will not be shown to you because it is privileged, but it can be shown to me.

(Discussion on quantum)

16.  Leave to the petitioner to file and serve evidence in reply to the 3^rd affirmation of Zhao Xi by 27 February 2018.  No further affirmation is to be filed.

(Further discussion on costs)

17.  Costs of and occasioned by the summons to adduce further affirmation be in the cause of the amended petition.  Costs of the security application, I am going to summarily assess it and allow it to Mr Zhao.  In my view, Mr Hudson was correct; an applicant for security ought to discuss the appropriate quantum in order to save court hearings.  In the present case, in my view, the million-dollar security sought is excessive for the petition.  I therefore allow a sum of $40,000 to be paid by the petitioner to Mr Zhao Xi for the security application.  This is subject to the production of the bill of costs issued by the solicitors to the company or Mr Zhao Xi as regards the security application to the court within 7 days.