RE PERAK PIONEER LTD

COMPANY LAW - WINDING-UP - AMENDMENT OF PETITIONS TO SUBSTITUTE ASSIGNEE OF DEBTS AS PETITIONER.

                Petitions for the winding-up of two companies were presented by common petitioners alleging, as regards each company, that substantial sums were owed to them. The companies disputed the debts. Subsequently the respective debts alleged were assigned to a corporation and applications made for that corporation to be substituted or added as petitioner in each petition. At the hearing the applications were opposed on the grounds that the corporation was not a creditor entitled to present a petition within the meaning of s.179(1) of the Companies Ordinance (Cap. 32), that one of the petitions was a second petition and therefore an abuse of the process and that, by its terms, rule 33 of the Companies (Winding-up) Rules precludes the substitution of a petitioner who was not a creditor at the time the relevant petition was presented. The assignors and assignee contended that orders for the addition of the corporation as a petitioner should be made. Jones, J. ordered that the corporation be substituted as a petitioner in both petitions.

                On appeal and cross-appeal:-

Held

                Per Cons, Fuad and Kempster, JJ.A.

                Per Cons and Fuad, JJ.A.

                Per Cons and Fuad, JJ.A. (Kempster J.A. dissenting)

Per Cons, J.A.

                The decision in In re Paris Skating Rink Co. [1877] 5 Ch.D. 959 did not form part of the Common Law.

Per Fuad, J.A.

                That decision rested on an erroneous and outdated view of the requirements of public policy.

                In re Paris Skating Rink Co. not followed. Orders of Jones, J. upheld.

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JUDGMENT

___________

Kempster, J.A.:

1. On 9th April 1985 in a reserved judgment Jones, J. concluded that Petroliam Nasional Bhd. should be substituted for Bumiputra Malaysia Finance Ltd.  and Bank Bumiputra Malaysia Bhd.  as petitioner for the winding-up both of Perak Pioneer Ltd. and of Plessey Investments Ltd. These corporations are hereinafter referred to as Petroliam, BMFL, BBMB, Perak and Plessey respectively.

2. Against the orders in question Perak and Plessey appeal on the common grounds that there was no or no sufficient evidence before the learned judge to entitle him to find that Petroliam was a creditor of either and that, in any event, Petroliam could not be substituted as a petitioner as its alleged rights derived from an assignment made since presentation of the respective petitions. Perak also appeal on the ground that the petition of BMFL and BBMB was the second to be presented; the first still remaining on the file.

3. As a matter of history and in relation to the earlier petition for the winding-up of Perak, BMFL being the supporting creditor, this court has explained that when a petition is based on a debt the whole of which is disputed in good faith and on substantial grounds the petitioner is not a creditor entitled to present a petition within the meaning of s.179(1) of the Companies Ordinance (Cap. 32). Perak Pioneer Ltd. v. Carrian Holdings Ltd. ⁽¹⁾ This principle of law is not in issue.

4. In the instant petitions different debts to BMFL were alleged to have been incurred by Perak and Plessey and still to be owing to BMFL and BBMB or to one or other of them. Perak and Plessey respectively issued notices of motion to strike them out on the footing that such debts were disputed in good faith and on substantial grounds. On 20th December 1984 the hearing of Perak's motion was fixed for 27th May next and that of Plessey for 10th June. These matters were drawn to the attention of the learned judge and the submission was made that Petroliam could not be substituted or joined since an assignee of debts disputed on substantial grounds is no more appropriate as a petitioner than his assignor. Jones, J. could have adjourned the applications until after the hearing of the motions to strike out but no one invited him so to do and, therefore, in the absence of such initiative of his own, was required to decide not whether the debts were disputed, again common ground, but whether they were disputed in good faith, as explained by Ungoed Thomas, J. in Mann v. Goldstein ⁽²⁾, and on sub-stantial grounds. He did not do so and Mr. Potts, who appeared on behalf of Perak and Plessey, contends that we should allow the appeal accordingly. But since we are not asked to remit the question for the decision of the learned judge we have to look at the evidence placed before him on 1st and 2nd April and determine for ourselves what his finding would or should have been. Since this evidence was on affirmation we are in as good a position as was he so to do.

5. The relevant evidence, filed by Perak and Plessey for the purposes of the motions, was impressively stacked on counsel's benches below and before us. But it was not read. A visual display is no substitute: Re Welsh Brick Industries Ltd. ⁽³⁾ And the credibility of evidence does not depend on its bulk: In Re Claybridge Shipping Co. S.A. ⁽⁴⁾ at p. 10 per Oliver, L.J. The formal orders of the Court recite what was read; namely the affirmations of Yaacob Haji Ismail and Mohd. Khamil Bin Jamil together with the documents exhibited. These affirmations depose to the truth of the contents of the two petitions which give details of the respective indebtedness of Perak and Plessey to BMFL and of the subsequent assignment of such debts first to BBMB and secondly, as part of a wider transaction on 17th September 1984, to Petroliam. Jones, J. could only have found that Petroliam was a creditor within the meaning of s.179(1). It matters not whether its rights as against Perak and Plessey are legal or equitable: In re Steel Wing Co. Ltd. ⁽⁵⁾

6. In my view there is nothing to the contention urged in relation to Perak that the petition of BMFL and BBMB should be regarded as an abuse of the process merely because it was a second petition. The textbook and other authorities show only that when a second petition is presented the petitioner runs a substantial risk as to costs.

7. Since it is accepted that, albeit the petition to wind up Plessey bears the same date as the assignment to Petroliam of the respective debts alleged, both petitions with which we are concerned were presented prior to its execution, the meaning and application of a decision of the English Court of Appeal cited on the hearing of the applications is crucial: In re Paris Skating Rink Co. ⁽⁶⁾ Jones, J. said only that he had been referred to it.

8. The ascertainable facts of this authority show that, after the presentation of his petition, a creditor who was owed money by the Paris Skating Rink Company for goods sold and delivered assigned his debt, for its face value, to a shareholder of that company who also paid him the costs of the petition to date. Leave having been given to join the assignee as a co-petitioner a winding-up order was made.

9. On appeal the assignor withdrew any authority to use his name and it was argued that the order to join the assignee as a co-petitioner was contrary to public policy; being the petition of a shareholder who had purchased the debt for the purpose of destroying the company, contrary to the laws of champerty and maintenance, and a fraud Upon the Companies Acts.  For the assignee it was argued that public policy in no way inhibited the assignment of a debt pendente lite as 0.50 r.3 of the Rules of the Supreme Court demonstrated. That rule read:

"In case of an assignment - of any estate or title pendente lite, the action maybe continued by or against the person to or upon whom such estate or title has come or devolved."

It was held that the winding-up order should be discharged. James, L.J. said:

"This is the first instance since the Companies Acts were passed in which the experiment has been made of a shareholder in a company, for some purpose or other, buying from a creditor who has presented a winding-up petition the right to proceed with that petition. This has never been done before, and I think it ought to be discouraged, because, to my mind, it is impossible to foresee the amount of mischief and oppression which might be occasioned if any third person were allowed to come in and buy up the right to proceed with a winding-up petition. Upon that simple ground, that such a thing never has been and never ought to be done, I am of opinion that the Vice-Chancellor's order ought to be discharged."

While the words "the right to proceed" could indicate the court's view of the purpose rather than of the effect of the assignment, motive is irrelevant in this context: Bryanston Finance Ltd. v. De Vries (No. 2) ⁽⁷⁾ at P. 75.

10. The reasoning behind the decision was probably the tendency of orders such as that impugned to foster agreements savouring of maintenance. The decision in Harrington v. Long ⁽⁸⁾ cited during the hearing, is authority for the proposition that to acquire a debt pendente lite and also to indemnify the assignor in respect of his costs incurred and to be incurred constitutes that tort. And the headnotes to the Law Reports and the Law Times reports of the case indicate that this is how the reporters saw it.

11. Whatever may have been the effect in England in relation to the In re Paris ⁽⁶⁾ decision of sections 13 and 14 of the Criminal Law Act 1967 which abolished maintenance and champerty as crimes and torts and were considered by the House of Lords in Trendtex Trading Corporation v. Credit Suisse ⁽⁹⁾ that statute has not been extended to Hong Kong and In re Paris ⁽⁶⁾ has never been overruled by the Privy Council or the House of Lords and no case has been cited to us in which a contrary view was expressed. Neither has any case showing that this decision has been followed save in so far as Deputy Commissioner of Taxation v. Sun Heating Pty. Ltd. ⁽¹⁰⁾ can be regarded as an indorsement of the attitude so strongly adopted by James, L.J. I would not, however, expect the decision readily to be the subject of report if followed without argument.

12. We were taken to many references to In re Paris ⁽⁶⁾ in the textbooks but I will mention only the current (4th) edition of Halsbury's Laws of England, volume 7 paragraph 1003 and volume 6 paragraph 86, which respectively cite it as authority for the propositions that the assignee of a debt may petition if the assignment is not made while the creditor's petition is pending and that the assignment of a debt due from a company coupled with the right to proceed with a winding-up petition against the company already filed by the assignor with the view of obtaining payment of the debt is void as tending to maintenance and champerty.

13. In the circumstances In re Paris ⁽⁶⁾ must be persuasive authority as to the law of Hong Kong as it was in 1966 and remains. Section 3(1) of the Application of English Law Ordinance (Cap. 88) "To declare the extent to which English law is in force in the colony" - on 7th January 1966 - reads:

"Common law" is defined in section 3 of the Interpretation and General Clauses Ordinance (Cap. 1) as "the common law of England". In re Paris ⁽⁶⁾ was and is applicable to the circumstances of Hong Kong and its inhabitants without modification. No statutory amendment has been made. We have no basis for concluding that the relevant mischief is any less a matter for concern here in 1985 than it was in England in 1877 so as to allow or require us to find that public policy presently requires a different approach and to declare the common law in a different sense.

14. It follows that in my opinion Jones, J. was wrong in failing to heed the submissions made on behalf of Perak and Plessey with regard to In re Paris Skating Rink ⁽⁶⁾.

15. In order to counter any such conclusion as that just reached BMFH, BBMB and Petroliam seek to replace the orders substituting Petroliam as petitioner by orders for the addition of that corporation as a co-petitioner. Rule 33 of the Companies (Winding-up) Rules reads:

"When a petitioner is not entitled to present a petition or whether so entitled or not, where he (a) fails to advertise his petition within the time by these rules prescribed or such extended time as the Registrar may allow or (b) consents to withdraw his petition, or to allow it to be dismissed, or the hearing adjourned, or fails to appear in support of his petition when it is called on in court on the day originally fixed for the hearing thereof, or on any day to which the hearing has been adjourned, or (c) if appearing, does not apply for an order in the terms of the prayer of his petition, the court may, upon such terms as it may think just, substitute as petitioner any creditor or contributory who in the opinion of the court would have a right to present a petition, and who is desirous of prosecuting the petition. -"

It is apt, submits Mr. Mills-Owens on behalf of the respondents, only for an application to substitute. If, therefore, it is sought to add a co-petitioner recourse must be had, pursuant to Winding-up Rule 210, to "the rules and practice of the court" which, by the terms of Winding-up Rule 2, means the Supreme Court. Thus, it is argued, pursuant also to R.S.C. O.1 r.2(4), that it falls to us to apply O.15 r.7(2) of the R.S.C. which expressly provides for another party to be joined following assign-ment pendente lite. But even if the submission be correct, as it may well be, it does not enable the respondents to avoid the effect of Re Paris Skating Rink Co. ⁽⁶⁾ The equivalent rule of the Supreme Court in force during 1877 has already been recited and it did not weigh with the English Court of Appeal. Reliance has also been placed on the wording of Winding-up Rule 33 by Perak and Plessey. On their behalf Mr. Potts contends that the application to substitute was made and could only have been made pursuant to that rule since, as he rightly contends, BMFH and BBMB retain no interest in the debts and further, which is arguable to say the least, on its proper construction the rule precludes the substitution of a petitioner who was not a creditor at the time the petition was presented. He cites the Australian case, Deputy Commissioner of Taxation v. Sun Heating Pty. Ltd.,⁽¹⁰⁾ which was decided by reference to the similarly worded Pt.80 r.21 of the New South Wales Supreme Court Rules, as persuasive authority in support of his submission. But Winding-up Rule 33 suggests that substitution may take place as and when it transpired that a petitioner is not entitled to present a petition and does not say "who in the opinion of the court would have had a right to present a petition". However, while I do not find it necessary to decide whether this submission is well founded I do find that the contrary submission to the effect that the terms of Winding-up Rule 33 are incompatible with the ratio decidendi of In re Paris Skating Rink Co. ⁽⁶⁾ cannot be sustained. I accept that they do not incorporate that ratio. Had they done so our task would have been simple indeed.

16. I would allow the appeals and discharge the order's permitting the substitution of Petroliam as petitioner. I would also dismiss the cross-appeals.

(1) [1984] H.K.L.R. 349

(2) [1968] 1 W.L.R. 1091

(3) [1946] 2 All E.R. 197

(4) 1981 unreported (English Appeal No. 1842 of 1980)

(5) [1921] 1 Ch. 349

(6) [1877] 5 Ch.D. 959; 37 L.T. 298; 25 W.R. 701

(7) [1976] Ch. 63

(8) [1834] 2 My. & K. 590

(9) 1982 A.C. 679

(10) [1983] 8 A.C.L.R. 314

Fuad, J.A.:

17. It is a well-established rule of practice (as recently re-stated in this jurisdiction in Perak Pioneer Ltd. v. Carrian Holdings Ltd. ⁽¹⁾) that a person whose debt in bona fide disputed on substantial grounds is not to be regarded as a "creditor" who may petition the court to wind up a company under section 179 of the Companies Ordinance ("the Ordinance"). Perak Pioneer and Plessey Investments were, therefore, fully entitled to oppose the substitution of Petroliam for the original applicants in the petitions to wind them up (and, as was prayed in the alternative, to oppose the addition of Petroliam as a co-petitioner) on this ground alone.

18. The authorities seem to me to make it clear that where a challenge to the right to petition is founded on that ground, the judge must go into the evidence before him to consider whether the dispute is bona fide and based on substantial grounds: e.g. Re Welsh Brick Industries Ltd. ⁽³⁾. Re Claybridge Shipping S.A. ⁽⁴⁾ is instructive of the kind of scrutiny required of the court.

19. The right of the original petitioners to petition for the winding up of Perak Pioneer and Plessey Investments was already the subject of challenges, inter alia, on the "disputed debts" point (and the debts are the same as the ones with which we are concerned) due to be heard in striking-out motions on, respectively, the 27th May and the 10th June this year. Several days had been set aside for the hearing of the motions. In the circumstances, therefore, it would have been perfectly understandable had a submission been made on behalf of both companies that a party should not be allowed to be substituted or added as a petitioner while the issue remained unresolved. But Counsel for the companies did not ask for the matter to be stood over pending the hearing of the motions later this month and in June. Rather, he invited the judge to disallow the application for substitution or joinder on what the judge called "a mere assertion" that the applicant's debt was disputed. Even when opposing Counsel took the point, Counsel for the companies did not alter his stand.

20. In my judgment, the material before the judge upon which he was desired to act was not sufficient to show that Petroliam was not a "creditor" for the reason that the debt was disputed on substantial grounds. It follows that Petroliam's application in relation to each petition should not have failed on this ground.

21. I now turn to consider r.33 of the Companies (Winding-up) Rules ("the Rules"), the terms of which my Lord Kempster, J.A. has just read.

22. In my view that rule is intended to be a complete statement as to the circumstances in which the substitution of a petitioner can be ordered so that there is no need to resort to the R.S.C., via r.210 of the Rules. Unlike the position in actions, there is no necessity for provision to allow a person to be added as a petitioner, for his presence will not be necessary to enable the questions at issue to be determined. The original petitioner will be enough, and anyone who wishes to support the petition may do so if he follows the prescribed procedure, without the necessity of becoming a co-petitioner.

23. In my view, the words with which r.33 of the Rules begin "When a petitioner is not entitled to present a petition" must refer to an existing petition and govern the circumstances where it transpires, for one reason or another, that the petitioner (a) was never entitled to present a petition (e.g. where he has not served the statutory demand required by section 178(a) of the Ordinance) or (b) becomes ineligible to present a petition (e.g. where the judgment for the debt on which the petition was presented is reversed on appeal before the petition is heard). It seems to me, therefore, that once the original petitioners had validly assigned the whole of the debts upon which they had based their petitions, they became petitioners who are not entitled to present a petition (the same position would have been reached had their debts been paid off before the hearing). It follows that the first condition precedent for allowing Petroliam to be substituted as a petitioner in each petition was satisfied.

24. The point then arises, on the construction of r.33, whether a person is entitled to be substituted as a petitioner in winding-up proceedings only if he would have been eligible to be petitioner at the time the petition was presented. This proposition, contended for by the Appellants, is supported by Australian authority (e.g. Deputy Commissioner of Taxation v. Sun Heating Pty. Ltd. ⁽¹⁰⁾, a first instance decision of the Supreme Court of New South Wales). The relevant Australian rules are broadly similar in terms to our r.33. Under this rule, the court has power, on terms, to "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 presenting the petition." These words are not apt, in my opinion, to restrict the discretion of the court to granting an application only where the person seeking to be substituted could be regarded as a "creditor" at the time the petition was presented. It is significant that the section speaks first of "a petition" and then of "the petition". Had the legislature intended to restrict the court's powers in the way suggested, a precise limitation would have been spelled out. The assignee of a debt (Re London and Birmingham Flint Glass & Alkali Co. Ltd. ⁽¹¹⁾ ) and an equit-able assignee (Re Steel Wing Co. Ltd. ⁽⁵⁾) are entitled to petition as creditors. I find nothing in r.33 of the Rules that bars Petroliam from being substituted as the petitioner in both petitions.

25. It was submitted on behalf of the companies, on the authority of Re Paris Skating Rink Co. ⁽⁶⁾, that the assignee of a debt is not permitted to petition as a creditor if the assignment was made while the creditor's petition is pending. Most of the textbook writers refer to this case without comment, some adding that the decision of the Court of Appeal was founded on public policy. As I read the judgment of James, L.J., as reported in the three series of reports to which we have been referred, he was concerned with the opportunity for "mischief and oppression" that would be presented if the court were to allow an assignee of a debt to petition in these circumstances.

26. It may well be that the editors of the Chancery Division Reports and of the Law Times Reports were justified in including the words "maintenance of suit" in the catch-lines of their reports of Paris Skating Rink⁽⁶⁾ because James, L.J. refers twice to the need to discourage the buying up of the right to proceed with a winding-up petition, and Bramwell, L.J. puts the matter in the same way. And it is to be noted that the intending petitioner had paid the original petitioner all the costs of the petition up to the date of the assignment.

27. However, whether the arrangements in the Paris Skating Rink case ⁽⁶⁾ savoured of maintenance or not (thus requiring re-examination in the light of the decision of the House of Lords in Trendtex Trading Corporation v. Credit Suisse ⁽⁹⁾ ) after very considerable hesitation I express the view that the rule of practice established by Paris Skating Rink ⁽⁶⁾ (and it can be no more) should not be followed in Hong Kong. This Court is not bound by that decision: de Lasala v. de Lasala ⁽¹²⁾. I would remark that to apply that authority would place an unwarranted gloss on the plain and ordinary meaning of the words in r.33 of the Rules as I have construed them, and there was no equivalent rule in the companies legislation in 1877.

28. However, in my respectful opinion adherence to that rule of practice is not demanded by considerations of public policy. The court has ample power, in the exercise of its inherent jurisdiction (exemplified by In re A Company ⁽¹³⁾ and Mann v. Goldstein ⁽²⁾) to intervene where it appears that a petition is, or is about to be, presented for improper motives. And so, it seems to me that it is this jurisdiction that should be prayed in aid when vexation or oppression is alleged to be the motive of an applicant who has bought shares or a debt which entitle him to prosecute a petition.

29. There was no material before the court that suggested ulterior motives in Petroliam for seeking to be substituted as a petitioner in each petition; I do not consider that the application could be barred on this account.

30. The final ground upon which the application for substitution was resisted (only in the petition to wind-up Perak Pioneer) was that the petition had been presented after the presentation of an earlier petition, on the 4th May 1984, by Carrian Holdings Ltd. to wind up that company, and no evidence had been adduced that Carrian Holdings Ltd. had acted collusively or with lack of good faith. This is one of the grounds upon which the striking out motion due to be heard on the 27th May 1985 is based.

31. This is how the matter is put at pages 547-548 of BUCKLEY ON THE COMPANIES ACTS (14th Edition):

"If a creditor knows that a winding-up petition has been presented but fears that it will not be or finds that it is not being prosecuted with diligence, his remedy is to appear at the hearing in support of the petition and ask to be substituted under Winding-up Rule 37, post.

 

        If instead, he chooses to present another petition, he does so at the risk of having it dismissed with costs against him. This was always so, even before the introduction of Rule 2 of the Companies Winding-up Rules of March 1893 (the predecessor of Rule 37), the only exception being when he succeeded in having the first petition dismissed on the grounds of want of good faith or collusion."

32. I have reached the conclusion that this issue would better be left to be dealt with at the hearing of the 27th May 1985. The law does not prohibit a second petition. The earlier petition by Carrian Holdings has met with a number of vicissitudes and the judge will be able to decide whether the Appellants were justified in presenting their petitions or whether they should have sought to be substituted as petitioners in the first petition. The second petition, unless and until it is struck out, is one which Petroliam is entitled to prosecute and their application should not have been dismissed on this ground.

33. For the reasons I have attempted to give, I would dismiss the appeals.

(1)   [1984] H.K.L.R. 349

(2)    [1968] 1 W.L.R. 1091

(3)   [1946] 2 All E.R. 197

(4)   1981 unreported (English Appeal No. 1842 of 1980)

(5)    [1921] 1 Ch. 349

(6)    [1877] 5 Ch.D. 959; 37 L.T. 298; 25 W.R. 701

(9)    [1982] A.C. 679

(11)  (1859) 1 De G.F. & J. 257

(10)   [1983] 8 A.C.L.R. 314

(12)   [1980] A.C. 546

(13)   [1894] 2 Ch. 349

Cons, J.A.:

34. I have had the privilege of reading in draft the two judgments just given and would respectfully agree with both in so far as they relate to the questions of debts disputed on substantial grounds and of petitions presented during the course of earlier petitions. I also respectfully agree with my Lord Fu ad J.A. with regard to Rule 33.

35. It is the case of In re Paris Skating Rink ⁽⁶⁾ that has created difficulty for me. With every respect to their Lordships I do not find it easy to appreciate what led to their strong condemnation of the course that had been sanctioned in the court below. James L.J. spoke of the "mischief and oppression which might be occasioned". But no illustration of what he might have had in mind has been put to us, except for conduct which, as my Lord Fuad J.A. has observed, the Companies Court has otherwise adequate powers to control. If, as the reporters seem to have taken it at the time, the decision was influenced by antipathy to agreements savouring of maintenance, I would have thought that the correct modern approach would be to make inquiry to see if the party who was seeking to be substituted as petitioner "had a genuine commercial interest in taking the assignment and enforcing it for his own benefit" ⁽⁹⁾ rather than to apply an arbitrary and blanket exclusion.

36. For my part I would not therefore follow In re Paris ⁽⁶⁾ unless this Court is constrained to do so as a matter of law. That suggestion was not put in argument. Mr. Potts not unnaturally laid great emphasis on the persuasive authority of decisions of the English Court of Appeal but he put his case no higher than that there was no good reason why the same policy should not be adopted here.

37. I have come to the conclusion that we are not so constrained. The Application of English Law Ordinance provides that the common law shall be in force in this jurisdiction, that is to say, the common law as expounded by the courts of England. As such it must generally include decisions laying down principles of public policy, but the rule laid down in In re Paris ⁽⁶⁾ is so intimately connected with one particular aspect of company law, which is a branch of law completely unknown to the common law, that it must, in my view, be taken as part of the statutory law itself rather than as part of the general body of law intended by Section 3 of the Ordinance.

38. For these reasons agree that the appeal should be dismissed.

(6)    [1877] 5 Ch.D. 959; 37 L.T. 298; 25 W.R. 701

(9)    Per Lord Roskill in Trendtex Trading v. Credit Suisse (1982) A.C. 679 at 703