RE HIN-PRO INTERNATIONAL LOGISTICS LTD

CACV 54/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 54 OF 2016

(ON APPEAL FROM HCCW NO. 226 OF 2014)

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J U D G M E N T

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Hon Kwan JA:

1. This appeal from the judgment of Ng J on 28 January 2016 ([2016] 1 HKLRD 1367) involves the question whether the court has jurisdiction to grant leave to amend a creditor’s winding-up petition to include debts which have accrued after its presentation and, if so, whether the court should exercise its discretion to grant leave. Ng J answered the question in favour of the petitioner, Compania Sud Americana De Vapores S.A. By his decision on costs on 3 March 2016, he ordered the costs of and occasioned by the amendment be to the subject company, Hin-Pro International Logistics Limited (“the Company”), and the costs of the hearing of the amendment application be to the petitioner.

2. The Company sought leave to appeal against the judgment.  Ng J granted leave to appeal on 9 March 2016, not because he was satisfied there were reasonable prospects of success, but because it might be in the interests of justice that the appeal should be heard for the Court of Appeal to clarify the continued applicability or otherwise of the rule in Eshelby v Federated European Bank Ltd [1932] 1 KB 254.  What became known as the “Eshelby rule” originated from what was said by Swift J in that case at 262:

“The Court is limited in giving its leave to the powers which are conferred upon it by the Rules and by the statute under which those Rules are made, and I cannot see how, without the consent of the parties, the Court can so amend a writ as completely to change the cause of action so as to bring in a cause of action which was non-existent at the time the writ was originally issued.”

Background

3. I adopt the background matters as set out in the judgment below at §§2 to 7, leaving out the footnotes in the judgment:

“2. The application before this court is for leave to re-amend the Amended Petition. The Petition was presented by the Petitioner on 18 August 2014 and was subsequently amended on 8 October 2014. The proposed re‑amendments, at paragraphs 8 to 25 of the draft attached to the Petitioner’s summons, set out the additional debts arising from Judgments and Orders made by the Courts in Hong Kong and England after 18 August 2014. These debts are said to be still owing to the Petitioner.

3. The application is opposed by the Company on the grounds that (i) it constitutes an abuse of the Court’s process and the proposed re‑amendments are immaterial and useless; and (ii) the proposed re‑amendments are bound to fail: see the Company’s skeleton submissions at paras. 1.4 & 5.11. The evidence in support of the Company’s opposition can be found in the 4^th Affirmation of Mr Shea Ying Fai.

4. The original Petition included only one debt in the sum of HK$433,430 (“Original Debt”) payable by the Company to the Petitioner pursuant to a costs order of Deputy High Court Judge Saunders dated 21 July 2014 in HCMP 1449/2014. On 25 July 2014, the Petitioner served a statutory demand on the Company. The Petition was based on the Company’s non‑compliance with the demand: paragraphs 5 to 7 of the Petition.

5. It is not in dispute that the Saunders Order was discharged by Deputy High Court Judge W. Chan on 15 October 2014. The discharge of the Saunders Order was subsequently affirmed by the Court of Appeal. As a result, Mr Scott SC, appropriately, indicated to this court at the hearing that the Original Debt no longer subsisted and paragraphs 5 to 7 of the Petition should be crossed out.

6. The question is whether the Petitioner can substitute the Original Debt with a number of subsequently arisen debts (“Subsequent Debts”) by amendment. They are:

	Order / Due Date	Amount due to Petitioner (excluding interest)	Proceedings	Order by
1.	15/9/14; 29/9/14	HK$43,222	HCMP 1449/2014	DHCJ B. Chu (as she then was)
2.	3/10/14; 17/10/14	£47,000	English proceedings 2013 Folio No. 1248 (“English Action”)	Flaux J
3.	14/10/14; 14/10/14	US$360,000	English Action	Cooke J
4.	14/10/14; 14/10/14	RMB100,000	English Action	Cooke J
5.	14/10/14; 14/10/14	US$489,692.71	English Action	Cooke J
6.	14/10/14; 28/10/14	£286,036.5	English Action	Cooke J
7.	4/11/14; 18/11/14	£2,561	English Action	Cooke J
8.	10/11/14; 10/11/14	HK$132,250	HCMP1932/2014	Cheung CJHC, Lam VP

7.  Save for items (3) and (4) above, the Subsequent Debts arose as a result of costs orders made by the Courts identified.”[1]

4. I would add that after Deputy Judge W Chan set aside the Saunders Order on 15 October 2014, the Company issued a summons on 22 October 2014 to strike out the petition.  On 10 November 2014, Harris J ordered that the strike out summons be adjourned to the substantive hearing of the petition and that the hearing of the petition be adjourned for argument with two days reserved in consultation with counsels’ diaries.  The petitioner issued the present summons to re-amend the petition on 1 December 2014.  The Company’s strike out summons was not before Ng J, as he noted in §30 of his judgment.  He was merely concerned with whether to give leave to re-amend the petition so that the petitioner could substitute the Original Debt with the Subsequent Debts which came into existence after the petition was presented.

5. Between the presentation of the petition on 18 August 2014 and the hearing of the amendment application before Ng J on 21 May 2015, no other creditors of the Company had served notice to appear in the winding-up proceedings.  As noted by the judge at the outset of his judgment, the disputes between the petitioner and the Company have a chequered history.  There was hostile litigation between them going back to 2012, first in various courts in Mainland China, then in the English Commercial Court, and later in Hong Kong in 2014, and litigation is ongoing between them.

This appeal

6. Two broad issues arose in this appeal.

7. The first is whether there is jurisdiction to amend the petition to rely on the non-payment of a post-petition debt.

8. Mr Barrie Barlow, SC, who appeared with Mr George Chu, submitted on behalf of the Company it has long been the practice of the courts in Hong Kong that no amendment should be allowed if its effect would be to permit the pleading of a cause of action which arose subsequent to the issue of the writ or other originating process, citing Lark International Finance Ltd v Lam Kim Marisa & Anr [2000] 4 HKC 688 at 699F to 700A, and Wing Siu Co Ltd v Goldquest International Ltd [2003] 2 HKC 64 at 70H to 71B, which applied the rule in Eshelby.  Both are decisions of the Court of Appeal dealing with the amendment of pleadings in writ actions.

9. Mr Barlow argued that the same should apply to a creditor’s winding-up petition, having regard to complications involving the principle of “relation back”, by which I understood him to refer to the statutory provisions that the winding up of a company by the court shall be deemed to commence at the time of the presentation of the petition, and that dispositions of a company’s property following the presentation of a petition against it are in effect avoided in the absence of validation orders.  These decisions of the Court of Appeal have been followed in the context of a petition brought by a shareholder for relief under section 168A and Barma J (as he then was) refused to allow amendments to plead post-petition instances of unfairly prejudicial conduct (Cheung Hon Wah v Cheung Kam Wah & Ors [2005] 2 HKLRD 599).  In light of the doctrine of stare decisis, Mr Barlow contended that the decisions of the Court of Appeal should not be departed from, unless it can be demonstrated convincingly that they are plainly wrong (Solicitor (24/07) v Law Society of Hong Kong (2008) 11 HKCFAR 117 at §46).  There is no jurisdiction to allow the proposed re-amendments.

10. The second broad issue is discretion.

11. Mr Barlow contended that the Company has bona fide reasons to dispute the Subsequent Debts on substantial grounds.  The proposed re-amendments are ineffectual and an abuse of the process of the court.  The judge should not have allowed the re-amendments on the basis that the Company could always apply to strike out the petition with the permitted amendments or oppose the re-amended petition at the substantive hearing of the petition.  An invalid petition should not be allowed to remain on file for a protracted period.  Even if any post-petition debts were genuine, in the absence of supporting creditors, they should be the subject of a new petition.

Jurisdiction

12. In holding that there is jurisdiction to allow an amendment to substitute a petitioning debt by a post-petition debt, Ng J followed the decision of Neuberger J (as he then was) in Re Richbell Strategic Holdings Ltd [1997] 2 BCLC 429.  As stated by Ng J in §18 of his judgment, no matter whether the Eshelby rule survives completely, partially or at all in a writ action in the modern era, especially after the Civil Justice Reform in Hong Kong, it has no application to a creditor’s winding-up petition.

13. In Re Richbell Strategic Holdings Ltd, it was held that:

(1)  The court has the power to allow an amendment to introduce post-petition debts in a winding-up petition.  The question is whether the court should do so. (at 452h to i)

(2)  Comparing the principles governing leave to amend a writ or statement of claim to add a cause of action which arose after the issue of the writ to a winding-up petition, Neuberger J concluded that “the test which has to be satisfied by a petitioner in an application such as this is not more stringent than the test for a plaintiff seeking to amend a writ: if anything it is less stringent.” (at 454i to 455a)

14. Ng J distilled from Re Richbell Strategic Holdings Ltd four differences between a creditor’s petition and a writ action that would provide sufficient justification for not applying the Eshelby rule in a creditor’s petition.  I quote from §§19 to 22 of his judgment, omitting the footnotes:

“19. First, unlike a plaintiff in a writ action, a petitioner in a creditor’s winding-up petition is asserting a class remedy on behalf of all the company’s creditors. Further, public interest which is normally absent in a writ action is engaged in a creditor’s winding-up petition. The public interest involved is that an insolvent company should not be allowed to continue to trade – instead, there should be an orderly distribution of its assets, if any, among its creditors who has the same rights e.g. unsecured creditors, on the basis of the pari passu principle. The need to take into account public interest is reflected in the rule that even if both the company and petitioning creditor consent to the dismissal of the petition, the court is not compelled to give effect to that consent – it retains a discretion to wind up the company if satisfied it is insolvent: In Re Shop Clothing Ltd (t/a Theme) [1999] 2 HKLRD 280, Le Pichon J, (as she then was).

20. Second, the need to take into account the public interest involved is also reflected in the much lower threshold for other creditors of a company to participate in a creditor’s winding up petition. In this regard, any creditor of a company can give notice of intention to appear in a creditor’s petition as a supporting or opposing creditor, whether it is relying on a pre-petition or a post-petition debt: Re Richbell Strategic Holdings Ltd at 455b-c; Rule 30 of the Companies (Winding-up) Rules, Cap.32H. There is no requirement that the creditor must have an interest in the matters in dispute between the petitioner and the company as such. By contrast, in a normal writ action, a non-party will only be allowed to intervene under RHC O.16 r 2(b) if he has an interest in the matters in dispute between the plaintiff and the defendant or if there exists a question or issue in the action which in the opinion of the court it would be just and convenient to determine between him and a party to the action as well as between the parties to the action: Hong Kong Civil Procedure 2016 paras.15/6/7–15/6/8.

21. Third, if a petitioner fails to advertise his petition, consents to withdraw his petition, allows it to be dismissed, fails to appear in support of his petition or does not apply for an order in terms of the prayer in the petition at the hearing, the court may, upon such terms as it may think just, substitute as petitioner any creditor who in the opinion of the court would have a right to present a petition and who is desirous of prosecuting the petition. Again, such a creditor can seek leave to substitute the original petitioner whether it is relying on a pre-petition or a post-petition debt: Re Richbell Strategic Holdings Ltd at 455b-c; Rule 33 of the Companies (Winding-up) Rules, Cap 32H. The mechanism for substitution renders it unnecessary for the other creditor to issue a fresh petition to wind up the company after the withdrawal or dismissal of the original one, thereby preserving the commencing date of the winding up order in the event the court is satisfied the company is insolvent and should be wound up. This is yet another manifestation of the public interest involved in a creditor’s petition which is normally absent in a writ action.

22.   Fourth, provided that a petitioner can show a prima facie case to the court’s satisfaction that a company is insolvent and should be wound up, he can rely on a future debt in presenting a winding up petition as a prospective creditor: section 179(1)(c) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32. In a normal writ action, it is unknown to this court how a plaintiff can possibly sue for the recovery of a debt which is not due – the complete cause of action simply has not yet accrued.”

15. I agree with the above statements of Ng J.  I have no doubt that the court does have jurisdiction to allow amendments to include post-petition debts.  Mr Barlow has no real answer to Re Richbell Strategic Holdings Ltd.  He merely stressed that a petitioner who petitions to wind up a company on the basis of an alleged debt which the company disputes bona fide and on substantial grounds lacks the locus standi to invoke the winding-up jurisdiction, citing Buckley LJ in Stonegate Securities Ltd v Gregory [1980] Ch 576 at 579 to 580, and asserted that the locus standi of a petitioning creditor must continue throughout the proceedings for the winding-up jurisdiction to be invoked.  So if the petition is liable to be struck out in this instance when the costs order on which the petition is founded is set aside, the petitioner would have no locus to present the petition and should not be given leave to amend to preserve an invalid petition by relying on post-petition debts.

16. In giving leave to amend the creditor’s petition to rely on a post-petition debt, at 454e to f, Neuberger J had appreciated that with regard to the effect of his earlier conclusion that there was a sufficiently arguable case in relation to the existing petitioning debt, it could be said the petitioner was not a “creditor” of the company (within section 123(1)(a) of the Companies Act 1986; equivalent to section section178(1)(a) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32), in light of the observations of Buckley LJ in Stonegate Securities Ltd v Gregory.  He did not think the locus of the petitioner should pose a problem, as the petition before him could not be said to be bad on its face and if the amendment was allowed, the petitioner would have a good prospect of establishing through proceedings, in due course, that it was in fact a “creditor” (at 454f to h).

17. I do not agree with Mr Barlow there is any error in this approach.

18. Apart from Re Richbell Strategic Holdings Ltd, I would add the decision of the Privy Council in Perak Pioneer Ltd v Petroliam Nasional BHD & Ors [1986] 1 AC 849, in which it was held that on the plain wording of rule 33 of the Companies (Winding-up) Rules, there was no fetter on the exercise of the court’s discretion to permit the substitution of a petitioner who had acquired the debt by assignment only after the presentation of the petition.  Although the court was concerned with the discretionary jurisdiction to permit substitution of a petitioner and not the discretionary jurisdiction to wind up a company, as Lord Brightman stated in 857C to D, that is not a real point of distinction, because the discretionary jurisdiction to order substitution would clearly not be exercised in favour of a would-be petitioner who would not be able successfully to invoke the jurisdiction to make a winding-up order.  The Privy Council concluded that In re Paris Skating Rink Co (1877) 5 Ch D 959 is not an authority that the court is required to exercise its discretion adversely to a petitioning creditor whose status as such was acquired by assignment after the presentation of the petition.  “A contrary conclusion would impose a wholly unreasonable and oppressive fetter on the court’s winding up jurisdiction.” (at 857H)

19. Lord Brightman then gave the example at 857H to 858B of a finance house that acquires the undertaking of another and the transferor finance house has a number of debts owing to it at the date of the transfer by companies against whom the transferor finance house has presented winding-up petitions.  He asked rhetorically what possible reason there could be for requiring the court to dismiss all such petitions (in the absence of another creditor seeking substitution) so that costs are thrown away, the transferee finance house has the pointless burden of presenting new petitions based on the same debts, and furthermore may be prejudiced as a result of the postponement of the commencement date of the winding up.

20. The question thrown up by the above example would apply in much the same way to the present situation.

21. I agree also with Mr John Scott, SC, who appeared with Ms Frances Lok for the petitioner, that the provisions of Order 20 rule 5(1), 7 and 8 give the court a wide and general discretion to allow amendment at any stage of the proceedings for the purpose of determining the real question in controversy, and there is nothing in Order 20 rule 5 that bars the power of the court to allow a creditor’s winding-up petition to be amended to include post-petition debts.

22. Mr Barlow referred to Order 20 rule 8(1A), which provides that the court shall not under rule 8(1) order a pleading to be amended unless it is of the opinion “that the order is necessary either for disposing fairly of the cause or matter or for saving costs”.  This provision was among the amendments introduced by the Civil Justice Reform.  He contended that the petitioner’s application to re-amend the petition was not necessary for disposing fairly of the cause or matter or for saving costs, and so the court has no jurisdiction to allow the amendments.

23. It seems to me that this contention is bound up with his submission that the proposed amendments are immaterial and useless, as the Subsequent Debts are the subject of bona fide disputes of the Company on substantial grounds.  In my view, rule 8(1A) goes to the discretion of the court to allow amendments, rather than the jurisdiction to do so.  In §28 of his judgment, Ng J drew attention to the underlying objectives of the Rules of the High Court introduced by the Civil Justice Reform in Order 1A rule 1, which includes: to increase the cost-effectiveness of any practice and procedure to be followed in relation to proceedings before the court; to promote a sense of reasonable proportion and procedural economy in the conduct of proceedings; and to ensure the resources of the court are distributed fairly.  And in Order 1A rule 2(2): in giving effect to those underlying objectives, the court shall always recognize that the primary aim in exercising its powers is to secure the just resolution of disputes in accordance with the substantive rights of the parties.  The judge had rightly borne in mind these objectives when he considered whether he should exercise his discretion to allow the proposed amendments.

24. As for the case of Cheung Hon Wah v Cheung Kam Wah, Ng J distinguished this (at §25) on the basis it was a section 168A petition which is essentially a shareholders’ dispute, in which public interest seldom, if at all, comes into play, and it would be much more apt to draw a parallel between a writ action and a section 168A petition than between a writ action and a creditor’s petition.  That must be right.

25. Furthermore, the principal reason why Barma J refused to give leave to plead post-petition unfairly prejudicial conduct is not applicable to the present situation, as Ng J had reasoned in §24.  Barma J adopted the approach (in following the decisions of the Court of Appeal in Lark International and Wing Siu) that while it may be permissible to introduce an amendment to clarify the basis on which it is said that a cause of action exists and that cause of action already existed at the time the writ was issued, it is not permissible to allege facts so as to introduce a cause of action that did not exist at the time the writ was issued (at 608F to G, §39).  He reasoned at 609B to D in §42 that if the conduct initially complained of in the petition was not sufficiently prejudicial or unfair to justify the granting of relief under section 168A, the position would be that there was no “cause of action” at the time the petition was presented and for that reason did not think it appropriate to permit the introduction of post-petition events into the petition.

26. In the present case, even if the Eshelby rule were to apply, this is not a situation in which there was no “cause of action” at all at the time the petition was presented or was “incurably bad” (Roban Jig & Tool Co Ltd & Anr v Taylor & Ors [1979] FSR 130 at 144; Vax Appliances Ltd v Hoover Plc [1990] RPC 656 at 661, line 33).  As Ng J rightly pointed out in §24, when the petition was presented on 18 August 2014, the Saunders Order was subsisting and had not been discharged.  It must be complied with until it was set aside on 15 October 2014.  That is another reason why Cheung Hon Wah v Cheung Kam Wah may be distinguished.

27. Mr Scott echoed the views of Ng J in granting leave to appeal that it is likely to cause confusion among practitioners if the Eshelby rule applies to a petition under section 168A and a winding-up petition presented by a shareholder on the just and equitable ground, but not to a creditor’s winding-up petition.  Leaving aside the question whether the Eshelby rule should be put to rest, the justification lies in the fact that the public interest element is seldom present in the former types of petitions.  I wish also to point out that for a petition under section 168A or a winding-up petition on the just and equitable ground that is essentially a shareholders’ dispute, adding facts which arose after the petition to an existing complaint to give an updated progress is clearly permissible and does not contravene the Eshelby rule (Geoglobal Partners, LLC v Peaktop Technologies (USA) Hong Kong Ltd & Anr, HCCW 87/2007, 12 December 2007, at §§10 to 12).

The Eshelby rule

28. Having concluded that the Eshelby rule does not apply to the present situation, it is strictly unnecessary to rule on its applicability to writ actions, section 168A petitions and shareholder’s winding-up petitions on the just and equitable ground.  This is not the first instance that the Court of Appeal was asked to depart from its previous decisions in Lark International and Wing Siu on the ground that these decisions are “plainly wrong”.

29. In Asia-Pac Infrastructure Development Ltd v Shearman & Sterling (a firm) [2012] 3 HKLRD 321, Cheung CJHC (with whose judgment Yuen JA and Bharwaney J agreed) declined to rule on this as, properly analysed, the Eshelby rule was not engaged in the case before the court, and given that whatever the court might say in relation to the previous decisions would be bound to be obiter in nature, that would not be a desirable premise for a discussion on whether the previous decisions should be departed from (at §§4 to 6 and 25).

30. For the same reason, I do not think it appropriate in this instance to rule on the question whether the Eshelby rule should continue to apply in other situations.  I also take note of the emphasis laid by the Court of Final Appeal in Solicitor (24/07) v Law Society of Hong Kong at §§46 to 50 – that the plainly wrong test sets a high hurdle, and the departure from a previous decision in accordance with the test should be wholly exceptional and should only occur very rarely.

31. In deference to the submissions made to us, I would limit myself to re-stating some pertinent propositions in the cases cited by Mr Scott and making a few observations.

32. The rule in Eshelby is a rule of practice rather than a rule of law.  It can be departed from whenever the justice of the case so requires.  Common examples of departures from the rule are where the court gives judgment for mesne profits or for interest which arises after the issue of the writ, and where damages are awarded in a personal injuries action in respect of loss of earnings which arise after the writ (Roban Jig & Tool Co Ltd at 144 per Bridge LJ, citing Lord Denning, MR in Alfred C Toepfer v Peter Cremer [1975] 2 Lloyd’s Rep 118 at 125).  It is a general power which in modern parlance has to be exercised in accordance with the justice of the case (Hendry v Chartsearch Ltd [1998] CLC 1383 at §23, per Evans LJ).  The question is whether the justice of the case would require departure from this rule of practice in a situation when the plaintiff had no cause of action at all at the time the writ was issued to allow an amendment to introduce a fact giving him a cause of action.  In Roban Jig & Tool Co Ltd, Bridge LJ gave a negative answer to that question at 144.

33. The Eshelby rule was linked with the “relation back” theory, namely that the amendments to a pleading relate back to the date of the pleading.  But since the comments of Brandon LJ in Liff v Peasley [1980] 1 WLR 781 at 803C to E, which he reiterated in Ketteman & Ors v Hansel Properties Ltd & Ors [1987] 1 AC 189 at 210D to G, it has been accepted that the relation back theory is not an absolute rule applicable to all situations.  See the discussion of Rogers VP in Wing Siu at §§10 and 11.  Lord Brandon’s comments made it clear that an amendment which involves the addition of a new cause of action or a new party does not relate back to the writ or pleading, the amendment dates only from the time it is made.  The relation back theory is no longer generally applicable beyond the scope of its statutory embodiment in section 35 of the Limitation Ordinance, Cap 347 (our equivalent to section 35 of the Limitation Act 1980) (Vax Appliances Ltd v Hoover Plc, at 661, lines 39 to 44; Banks v CBS Songs Ltd & Ors [1992] FSR 278 at 294; Beecham Group plc v Norton Healthcare Ltd [1997] FSR 81 at 94 to 95).

34. The English courts recognized that the scope of the Rules of the Supreme Court has been extended since Eshelby was decided and have adopted an approach, in accordance with modern practice, that the court has a general discretion which should not be restricted by hard-and-fast rules of practice (Hendry v Chartsearch Ltd,at §23; followed in Maridive & Oil Services (SAE) v CNA Insurance Co (Europe) Ltd [2002] 2 Lloyd’s Rep 9 and subsequent cases).  It is also clear from Order 18 rule 9[2] (introduced in the English rules in 1962 after Eshelby, there is equivalent provision in the rules in Hong Kong), which is in the most general terms, there is power to include in a pleading any matter which has arisen since the issue of the writ (Vax Appliances Ltd v Hoover Plc, at 661, lines 44 to 48; Hendry v Chartsearch Ltd,at §21).

35. Hence, the position in England is that there is no absolute rule of law or practice which precludes an amendment to rely on a cause of action which has arisen after the commencement of the proceedings in circumstances where (but for the amendment) the claim would fail.  The court has a discretion whether or not to allow such an amendment, and this discretion is to be exercised as justice requires (Maridive & Oil Services, at §54).  The interests of justice would generally require the court to consider whether to allow an amendment so that the real dispute between the parties may be adjudicated, and balance this against any prejudice to the defendant, such as depriving him of a possible accrued defence (Maridive & Oil Services, at §§73 to 75).

36. In §§17 and 18 of Wing Siu, Rogers VP read the cases of Hendry v Chartsearch Ltd and Maridive & Oil Services as drawing a distinction between permitting an amendment which allows the real dispute in the case to be determined and one which introduces into the action a cause of action which is incurably bad because it did not exist at the time of the original claim.  He took the view it could not be said that the Eshelby rule has disappeared.  And although the courts in England have been disposed to adopt a flexible attitude, specifically where they have permitted the pleading of subsequent events which clarify why a claim could be made based on a cause of action which existed at the date of the writ, he remarked that no decision had been brought to the attention of the court which has gone so far as permitting an amendment, in the face of opposition, which would introduce into a writ a cause of action which did not exist at the date of the issue of the writ.

37. That may be a rather restrictive reading of the English cases.  In Finlan v Eyton Morris Winfield (a firm) [2007] 4 All ER 143 (Ch), a case decided after Wing Siu, Blackburne J gave leave to amend a claim form in respect of an assignee whose assignment of the rights of action took effect a few hours after the claim form was issued and the limitation period expired the following day.  In §46, Blackburne J endorsed the modern practice of allowing an amendment, the effect of which is to make good a defect in the claimant’s title to sue even though the event relied on did not arise until after the proceedings were issued so that in strict law the claimant did not have a cause of action at the time he issued his process.

38. But the law in Hong Kong has taken a different course.  Following Wing Siu, it has been held that an amendment is not permissible to cure a defective claim by a necessary factual averment that could not be pleaded as at the date of the writ, see for example, Lead Mile Ltd v Sino Peak Finance Ltd [2004] 4 HKC 646 at §§54 and 58; Telecommunications & Technology Asia (BVI) Ltd v Outblaze Ltd [2011] HKEC 648 at §§18 to 20.

39. For the reasons given earlier, I would leave it to an appropriate case for the appeal court to decide whether the rule of practice in Eshelby should continue to apply to writ actions and other types of petitions where the public interest element may not be present.

Discretion

40. Ng J exercised his discretion in favour of the petitioner for a number of reasons.  I have already mentioned his reference to the underlying objectives in Order 1A rule 1.  He took into account the practical implication of a rigid insistence in requiring a fresh petition for each Subsequent Debt as and when it arises – that it will result in multiplicity of proceedings, unnecessary waste of costs, time and the court’s resources (at §29).

41. Furthermore, he adopted by analogy the reasoning of Neuberger J in Re Richbell Strategic Holdings Ltd at 456a to c, that it will not cause the Company any substantive prejudice to allow the proposed amendments.  For if the Company has a bona fide defence to the post-petition debts on substantial grounds, it can always apply to strike out the re-amended petition or oppose it at the substantive hearing of the petition.  He noted that the Company’s strike out summons has been ordered to be heard at the same time as the petition.  It did not appear to him that the Company would suffer any prejudice which cannot be compensated by an appropriate award of costs (at §30).  The judge did recognize that if the proposed amendments are bound to fail, as contended by the Company, then they can fairly and justifiably be regarded as immaterial, useless or an abuse of process and leave to amend should not be granted.  But at the amendment stage, the court will only go into the merits if they are readily apparent and the court will take the petitioner’s proposed case to its highest (at §31).  On that approach, the judge concluded it is not readily apparent to him that the proposed amendments are bound to fail (at §32).

42. I am not persuaded by Mr Barlow there is any error in principle in the judge’s approach.  For the Company to challenge the exercise of the judge’s discretion, unless it is demonstrated it is readily apparent that the proposed amendments are bound to fail, there is no basis for the appeal court to interfere.

43. Mr Barlow repeated his arguments before the judge there is clear evidence that the Company was not insolvent or indebted to the petitioner.  I will endeavour to deal with them succinctly.

44. First, he submitted that the Subsequent Debts are in the total amount of HK$10,896,426.58[3], whereas it was admitted by the petitioner that the Company has unsatisfied judgments against the petitioner in the total sum of about HK$97,212,457.43 (made up of US$12,233,186 and RMB 1.9 million)[4], plus there are unpaid costs as a result of orders in favour of the Company in Hong Kong proceedings of about HK$4 million (as at 9 March 2015) and in excess of HK$7 million (as at 14 May 2015)[5].  Thus, prima facie, the debts owed by the petitioner to the Company would greatly exceed the alleged debts owed by the Company to the petitioner.

45. There is nothing in this point.  The unsatisfied judgments referred to are the 19 judgments of the Ningbo Maritime Court against the petitioner in favour of the Company.  Save for the 507 Ningbo Judgment, the petitioner has filed applications to appeal all the 18 judgments.  There is affidavit evidence before the court that on the advice of the Chinese law firm who represented the petitioner in various proceedings brought by the Company against the petitioner in the PRC, under PRC law the Ningbo judgments are not enforceable while they are under appeal[6].  As for the 507 Ningbo Judgment, the petitioner successfully applied to the Zhejiang Higher People’s Court to challenge the ruling and a retrial was to be conducted[7].  In any event, it is not in dispute that the petitioner has already paid the Company US$360,000 and RMB 100,000 in respect of the 507 Ningbo Judgment, so this judgment is not unsatisfied.  Regarding the costs liability of the petitioner to the Company in Hong Kong proceedings, it has not been taxed on the available evidence.  The costs awarded to the Company, which are expected to be taxed down, are not sufficient to cover the Subsequent Debts of HK$10.896 million.

46. Second, Mr Barlow contended that the Subsequent Debts are in the nature of pre-emptive claims and a form of reflective damages, citing the judgment of the Court of Appeal in CACV 243/2014, 18 December 2014, at §§18 to 22 (“the CA Judgment”).  What the Court of Appeal said is that the judgment obtained in the English proceedings for damages is a form of reflective damages in the amount of any sums awarded in China so if the PRC judgments are not enforced or not enforceable, the petitioner suffers no loss apart from the costs incurred.  Mr Barlow drew attention to two undertakings given by the Company on 26 November 2014: (1) not to take any step to enforce any PRC judgment against the petitioner without first obtaining the prior consent of the petitioner or the leave of the Hong Kong court and the English court; and (2) to pay into court the sum of HK$2,916,522.80 (being the US$360,000 and RMB 100,000 paid by the petitioner in respect of the 507 Ningbo Judgment) and to abide by further orders of the court as to its disposal[8] (“the Company’s undertakings”)[9].  The petitioner had given undertakings to the English court that in the event of the petitioner appealing any of the PRC judgments, it will not execute the English judgment in respect of that appealed judgment against any of the Company’s assets except and to the extent that, following any appeal, the PRC appellate court orders that such sums are payable by the petitioner to the Company (“the petitioner’s undertakings”)[10].  Mr Barlow also referred to an assurance given by Mr Scott to the Court of Appeal at the hearing in December 2014 of the petitioner’s application for stay of the discharge of the Mareva injunctions and receivership orders pending appeal that the petitioner “is not trying to get a windfall advantage by these [English Action] judgments.” (“the petitioner’s assurance”)[11]

47. The upshot of the above, as contended on behalf of the Company, is that there is in effect a “standstill” arrangement until the proceedings in HCMP 1449/2014 (in which the petitioner sought the assistance of the Hong Kong court to implement the anti-suit injunctions granted against the Company in the English proceedings) are finally determined.  In the CA Judgment, the Court of Appeal relied on the petitioner’s assurance that so long as the Company abided by its undertaking not to execute the PRC judgments, the petitioner would not execute upon its reflective English judgments.  It was asserted that in seeking to amend the winding-up petition by relying on the Subsequent Debts, the petitioner has acted in breach of the petitioner’s assurance[12].  Mr Barlow further submitted that as the English judgment debts are reflective judgments in that they reflect the Company’s PRC judgments against the petitioner, the English judgment debts will always be matched by equivalent PRC judgment debts and which the Company is entitled to set off against them.

48. I reject the above submissions as readily apparent contentions that the proposed amendments are bound to fail.

49. The Subsequent Debts are not in the nature of pre-emptive claims and reflective damages.  Items (1) and (8) (HK$43,222 and HK$132,250) are costs orders made by the Hong Kong court.  Items (2), (6) and (7) (£47,000, £286,036.5 and £2,561) are costs orders made by the English court.  Items (3) and (4) (US$360,000 and RMB 100,000) are sums already paid by the petitioner to the Company in respect of the 507 Ningbo Judgment. Item (5) (US$489,692.71) are costs that have been incurred by the petitioner in the PRC proceedings.  Mr Barlow said this sum is not the subject of a costs order but is an award of damages made by the English court in respect of the costs. I do not think it matters.  Items (3), (4) and (5) must be treated the same way in that they all represent sums already paid or incurred.

50. The petitioner’s undertakings do not apply to costs orders made by the Hong Kong court or the English court, or to the Ningbo 507 Judgment.  It does not prevent the petitioner from executing the English orders in respect of items (3), (4) and (5), which are sums already paid or incurred by the petitioner and payment of which was ordered by the English court on 14 October 2014.

51. As regards the PRC judgments issued in favour of the Company for which the English court granted an order that the Company is to pay equivalent sums to the petitioner (which are subject to the petitioner’s undertakings), I find it difficult to understand how there could be a possible defence of set-off, when the debts are not currently enforceable in view of the Company’s undertakings and the petitioner’s undertakings.

52. As for the petitioner’s assurance, there is explanation from its solicitors that properly understood in the context in which it was given by its counsel, this was to allay the concern of the court that the petitioner may obtain a windfall if it could enforce an English judgment “even though the defendant does not enforce the PRC judgment or does not obtain any payment under such judgment”[13], and should not be interpreted to mean that the petitioner, aside from the petitioner’s undertakings, would not execute its reflective English orders.  And that is not the situation with the Subsequent Debts, the payment of which would not result in a windfall to the petitioner[14].

53. Lastly, it is alleged by the Company that the application to re-amend the petition is part of an abusive campaign calculated to close down the Company’s business, to remove its ability to pay debts, and to facilitate the discontinuance of the Company’s actions against the petitioner in the PRC[15].  These contentions should be addressed at the substantive hearing of the petition.

54. There is no basis to interfere with the exercise of discretion of the judge.

Conclusion and costs

55. For the above reasons, I would dismiss the Company’s appeal with an order nisi that it should pay the petitioner’s costs of this appeal, with a certificate for two counsel.

Hon Au J:

56. I respectfully agree.