RE MANDARIN RESOURCES CORPORATION LIMITED

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

COMPANIES WINDING UP

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JUDGMENT

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1. This is a summons issued on behalf of Mandarin Resources Corporation Limited (the company) to dismiss a winding up petition presented by Markle Land Limited (the petitioner) on the grounds of insolvency by reason that it discloses no reasonable cause of action and is an abuse of the process of the court. At the hearing, it was agreed that the petition should be dismissed for the debt upon which the petition was based had been paid. However, there is a dispute between the parties on the matter of costs.

2. The debt arose as a result of an order for costs that I made on the 10th September 1987 in High Court Action No. A7375, in favour of the petitioner against the company. The costs were not taxed until the 16th November 1988 whilst the master's allocatur was issued on the 2nd December 1988 and served on the company through its solicitors just before 5:30 p.m. on the 8th December 1988. Accompanying the allocatur was a letter of the same date demanding payment of the taxed costs amounting to $611,939.10 before 5 p.m. on Friday, the 9th December 1988 and that if payment was not made, the petitioner would take such action against the company as may be advised. After the solicitors for the company had recieved the demand for payment, they wrote a letter in reply on the 9th December in which they admitted liability for payment but expressed the view that the time given for payment was unreasonable. As no payment was made by the time stated a petition to wind up the company was presented at 11:35 a.m. on the 10th December 1988. Payment of the costs was made by the company on the 12th December 1988 at about 2:00 p.m. and the summons to dismiss the petition came before me at 2:30 p.m. on the same day.

3. In an affidavit in support of the summons, the company's solicitor, Mr King, states that the petitioner's solicitors were aware that the company would pay the costs, but had imposed the deadline for payment as a tactical manoeuvre to support an application by Lucky Man Properties Limited (Lucky Man) for an order for security for costs against the company which was due to be heard by a master on the following day, the 13th December 1988. Both the petitioner and Lucky Man are controlled by the same directors and have the same firm of solicitors acting for them.

4. Mr Poon who appeared for the petitioner, relied strongly on Cornhill Insurance plc v. Improvement Services Ltd and Others [1986] B.C.L.C. 26. In that case, the well known insurance company, Cornhill Insurance plc, admitted an indebtedness for a sum of approximately £1,150 but failed to settle this sum after a considerable period of time had elapsed, with the result that the defendant served a statutory demand for payment and threatened to present a petition to wind up if payment was not made. Before any petition was presented, Cornhill applied for an injunction to restrain the defendant from presenting the petition on the grounds that it would constitute an abuse of the process of the court. Without deciding whether the allegations against Cornhill made by the defendant were unreasonable, Harman J. approached the case by adopting equitable principles and cited the words of Ungoed-Thomas J. in Mann v. Goldstein [1968] 1 W.L.R. 1091 at 1096 when he said :-

"When the creditor's debt is clearly established it seems to me to follow that this court would not, in general at any rate, interfere even though the company would appear to be solvent, for the creditor would, as such, be entitled to present a petition and the debtor would have its own remedy in paying the undisputed debt which it should pay. So, to persist in non-payment of the debt in such circumstances would itself either suggest inability to pay or that the application was an application that the court should give the debtor relief which it itself could provide, but would not provide, by paying the debt. "

After the citation, Harman J. had this to say at p.30 in his reasons for refusing to make the order sought :-

"This is a case of a rich company which could pay an undoubted debt and has chosen, I think I must use that word, not to do so from 12 June to today. In my view in such circumstances the creditor was entitled to (1) threaten to and (2) in fact if it chooses present a winding-up petition, and I was wrong to make the ex parte order which I made on 12 July ant I should not accede to this motion to continue that order today.

 

.............. it is my business to give people their rights, according to their proper entitlement in the law and not to force them into other courses, and in my judgment this claimant was entitled to say: 'I am undoubtedly owed £1,154. If you don't pay me I must suspect you can't. Therefore I can properly swear you are insolvent and I can properly present a winding-up petition to the Companies Court'. I so hold and therefore refuse to make any order on this motion in favour of the plaintiff."

5. In the instant case, the petitioner did not rely upon the provisions of section 178(1)(a) of the Companies Ordinance by making a statutory demand, but upon section 178(1)(c) which provides:

"A company shall be deemed to be unable to pay its debts-

6. Apart from the verifying affidavit of Mr Tan Kok-seng, a director of the petitioner, in which he averred that the contents of the petition were true, there was no evidence before me that the company was unable to pay its debts. In fact having regard to the prompt payment that was made the contrary would appear to be the case.

7. Mr Poon's submission that the facts of the instant case can be equated with those in Cornhill is misconceived, for the insurance company had persistently failed to pay an undisputed debt which justified the threat and presentation of winding up proceedings. Cornhill had also been clearly warned that such steps would be taken. However, the solicitors for the petitioner gave no warning that it would take steps to present a petition to wind up the company if payment was not made, but merely said that the petitioner would take such action as it was advised. In addition, there had been no persistent non-payment of the sum due, but a failure to comply with a demand for payment within a period of less than 24 hours. Without coming to any conclusion upon the allegation made by Mr King that it was a tactical manouvre, the demand for payment within that time was wholly unreasonable. That a reasonable time should be expected to be given to a debtor as a matter of common sense is confirmed in In re Capital Annuities Ltd. (1979)1 W.L.R. 170 which was cited by Mr Barlow, counsel for the company where Slade J. considered the evidence that is required to establish that a company is unable to pay its debts when he said at page 187 :-

"A failure by the company to nay an admitted creditor within a reasonable time after demand would be likely to provide ample evidence of such inability. "

8. The facts of the present case are clearly distinguishable from those in Cornhill. In my judgment, the petitioner was quite unjustified in presenting a winding up petition where evidence of insolvency had not been established and in the absence of evidence to show that the company had persistently failed to pay the debt together with a warning that such action would be taken. The petition was an abuse of the process of the court. Costs will therefore be awarded to the company.