Re Hin-pro International Logistics Ltd

HCCW 226/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 226 OF 2014

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J U D G M E N T

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Introduction

1.The disputes between the Petitioner, Compania Sud Americana De Vapores S.A., and the Company, Hin-Pro International Logistics Limited, have a chequered history[1]. Thankfully, this application raises an interesting legal question: whether the Court has jurisdiction to give leave to amend a creditor’s winding up petition to include debts which have accrued only after its presentation, and if yes, whether the Court should exercise its discretion to give leave.

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[2] 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 [3]; 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:

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

The Governing Principles

8.I shall first remind myself of some of the well‑established principles concerning amendments, summarized in a Judgment of this court in Hsu Ming Chi v Lam Shu Chit unrep.; HCCL8 of 2013; 22 October 2014 at [13] – [18]:

“13. It is a guiding principle of cardinal importance on the question of amendment that generally speaking, all such amendments ought to be made “for the purpose of determining the real question in controversy between the parties to any proceedings or of correcting any defect or error in any proceedings”: Re Playmates Investments Ltd [1996] 4 HKC 577 at 582E‑H (per Le Pichon J as she then was); Natamon Protpakorn v Citibank NA [2009] 1 HKLRD 455 at para. 25 (per Cheung JA); Hong Kong Civil Procedure 2014 Vol. 1 para. 20/8/6.

14. Leave is readily granted to amend before trial unless it can be shown that the new claim based on the proposed amendment is bound to fail. While the court is entitled to have regard to the merits of the case, it should only do so when the merits are readily apparent, and are so apparent as not to require prolonged investigation: Natamon Protpakorn v Citibank NA supra at para. 25 (per Cheung JA).

15. If the proposed amendments are bound to fail, no leave to amend should be granted. In this regard, the court will take the applicant’s proposed pleaded case to the highest: Bank of China v Leigh Hardwick unrep., HCA 1110 of 2006, 28 August 2013, per Anthony Chan J at para. 2.

16. Absent any real prejudice, an application for amendment, albeit late, must be decided upon the general principle that a court of law seeks to adjudicate on the real issues and disputes between the parties and, if possible, technical and procedural rules should not stand in the way of allowing the parties to raise their real claims or defences before the court for adjudication: VSC Building Products Co Ltd v Kono Insurance Ltd., unrep. HCA 947/2005, 9 September 2009, per A Cheung J (as he then was) at [22].

17. Where prejudice is claimed, the burden is on the party opposing the amendment to show prejudice. There is no injustice to the opposing party if he can be compensated by appropriate orders as to costs: Re Playmates Investments Ltd supra at 582H, 584C (Le Pichon J as she then was).

18. Lastly, in giving effect to the underlying objectives of the Rules of the High Court, the court shall always recognize that the primary aim in exercising the powers of the court is to ‘secure the just resolution of disputes in accordance with the substantive rights of the parties’: RHC O 1A r 2(2).” (emphasis added)

Deliberation

9.Mr Scott SC submits that the re-amendments to the Petition do not involve the addition of any cause of action as such and limitation period is not engaged. He further submits the Court has a wide discretion to allow them at any stage of the proceedings for the purpose of determining the real question in controversy between the parties under RHC O 20 rr 5(1), 7 and 8. 

Jurisdiction

10.In Re Richbell Strategic Holdings Ltd [1997] 2 BCLC 429, Neuberger J (as he then was) allowed the petitioning creditor’s application to re‑amend the petition to rely on the non-payment of a post-petition debt.  At 452g to 455c, Neuberger J set out his careful analysis of the issues involved:   

“I have not been referred to any authority where the question of whether, and if so in what circumstances, a petitioner should be given leave to amend his petition so as to rely on a debt which has accrued after the petition was presented. However, Miss Newman, quite rightly in my judgment, does not suggest that the court has no power to allow such an amendment…

…

The law governing the right to amend a writ or statement of claim to add a cause of action which accrued after the issue of the writ has been considered in a number of recent cases. In Vax Appliances Ltd v Hoover plc [1990] RPC 656, Mummery J gave leave to the plaintiff to add such a new cause of action. He distinguished the earlier decision of the Court of Appeal in Roban Jig & Tool Co Ltd v Taylor [1979] FSR 130 on the basis that the Court of Appeal had refused leave to amend in that case on the ground that ([1990] RPC 656 at 660):

‘it was wrong to validate . . . an action by granting leave to amend the writ in the case where the plaintiffs had no cause of action at all at the time when they started the proceedings . . . It also appears from the decision . . . that there does not exist any absolute rule that a plaintiff is unable to recover on a cause of action which has accrued to him only after the writ has issued . . .’

…

Accordingly, he gave leave to amend the counterclaim. That decision was cited with implied approval by the Court of Appeal in Banks v CBS Songs Ltd [1992] FSR 278 at 294 and, more recently, was fully considered and followed by Jacob J in Beecham Group plc v Norton Healthcare Ltd [1997] FSR 81 at 92‑95. I note that, apparently without the assistance of those authorities, Rix J reached the same conclusion in Bastone & Firminger Ltd v Nasima Enterprises (Nigeria) Ltd (20 May 1996, unreported).

These cases appear to leave open the question of how bad the unamended writ has to be before the court would refuse leave to amend by adding a post-writ cause of action. In the absence of any authority, it appears to me unlikely that the plaintiff has to establish that he will certainly get some relief at trial on his original writ before he can have leave to amend to plead a post-writ cause of action… 

…

Aldous J took the same view in Chiron Corp v Organon Teknika Ltd (No 4) [1994] FSR 252 at 256 where, after quoting from the judgment in Vax, he said:

‘Mummery J. clearly had in mind that a plaintiff who has a cause of action at the date of the writ might not succeed in that action at the trial.’

Accordingly, Aldous J held that he had jurisdiction to grant leave to the plaintiff to amend the writ to plead a post-writ cause of action, even though he had dismissed the plaintiff's claim…

Assuming, for the moment, that the test of whether or not to allow leave to amend a petition to rely on a post-presentation debt is the same as the test to be applied to the question of whether to give leave to amend a writ to plead a post-writ cause of action, then I consider that, on the facts of the present case, there is no bar to the petitioner's leave to re-amend…

…

In my judgment, 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. First, unlike a plaintiff in a writ, a petitioner in a winding-up petition is asserting a class remedy: he is acting on behalf of all the company's creditors, and there is, therefore, an element of potential public interest which is absent in a normal writ action. That is well illustrated by the fact that, once a petition is presented, it cannot automatically be 'bought off' by the company paying the petition debt in full: any other creditor of the company can be added as a supporting creditor, and indeed can take over the conduct of the petition. Indeed, the point can be graphically underlined by the fact that, as Miss Newman very fairly accepts, this could happen in a case where the supporting creditor relies on a post-petition debt… Furthermore, the court would normally refuse to issue a petition at the suit of one creditor, if there is already an extant petition brought by another creditor: see for instance Re Creative Handbook Ltd [1985] BCLC 1 at 2.” (emphasis added)

11.From the extracts of Re Richbell Strategic Holdings Ltd quoted above, this court derives three principles which are germane to the present discussion:

(1) The Court has jurisdiction under the Rules of the High Court to allow an application to amend by introducing post-petition debts in a creditor’s winding up petition.

(2) The test which has to be satisfied by a petitioner in such an application is less stringent than the test for a plaintiff seeking leave to amend a writ to add or substitute a post-writ cause of action.

(3) So long as the original debt in a creditor’s petition existed at the date of the petition, the petitioner does not have to establish that the original petition will certainly succeed.

12.The way in which Neuberger J differentiated a creditor’s winding petition from an ordinary writ action is critical to an understanding of why, in my judgment, the line of authorities which followed the so‑called Eshelby Rule[4] are distinguishable from the present case. Such authorities include inter alia Lark International Finance Ltd v Lam Kim Marisa & Anor [2000] 4 HKC 688 and Wing Siu Co Ltd v Goldquest International Ltd. [2003] 2 HKC 64. Both are Court of Appeal decisions which are obviously binding on this court. Such authorities also include Cheung Hon Wah v Cheung Kam Wah & Ors [2005] 2 HKLRD 599 which adopted the reasoning of Lark International Finance Ltd and Wing Siu Co Ltdin refusing leave to amend a section 168A petition to include post-petition unfairly prejudicial events. While Cheung Hon Wah v Cheung Kam Wah & Ors is strictly speaking not binding on this court, it is of persuasive authority. I shall come back to this point later in the judgment.

13.At this juncture, this court proposes to digress slightly to consider the recent development of the Eshelby Rule in the context of a normal writ action. 

14.It appears from the authorities cited to this court that, in recent times, the Eshelby Rule has fallen out of favour, in England at least, and has been replaced by a more “modern” and “flexible” approach.

15.In Hendry v Chartsearch Limited [1998] CLC 1382 at [23], Evans LJ (with whom Henry LJ and Millet LJ (as he then was) agreed) explained as follows:

“…The scope of the Rules of the Supreme Court has been extended since the days when Eshelby was decided in 1932. In accordance with modern practice generally, the court has a general discretion which should not be restricted by hard-and-fast rules of practice, if not of law, such as that which is suggested here. The judge therefore was wrong to consider that the court had no power to give leave to make the re-amendment. In my view, he was wrong also to consider that the discretion was somehow restricted by what he called ‘the principle set out in Eshelby and Roban[5]’. It is a general power which in modern parlance has to be exercised in accordance with the justice of the case.” [6](emphasis added)

16.In Hendry v Chartsearch Limited, the English Court of Appeal disapproved Eshelby v Federated European Bank Ltd and approved Vax  Appliances Ltd v Hoover plc [1990] RPC 656, a case referred to in Re Richbell Strategic Holdings Ltd supra with apparent approval.

17.In Warnborough Limited v Garmite Ltd [2005] EWHC 3511,the Court allowed an amendment even though it introduced a cause of action accrued only after the claim form. Lindsay J stated at [6]:

“There would thus seem to be Court of Appeal authority[7], which binds me, suggesting that even in the more vexing case, where there is no cause of action at all at the date of the writ, there can be added, by reference to post-writ events, a cause of action, and a cause of action can be added to that which, arguably, had been a nullity in the first place…” (emphasis added)

18.Coming back to the core issue in the present case, in my judgment, no matter whether the Eshelby Rule survives completely, partially or at all in a writ action in the modern era, especially after the CJR in Hong Kong, it has no application to a creditor’s winding up petition. In this regard, I find the analysis of Neuberger J in Re Richbell Strategic Holdings Ltd supra highly convincing and will gratefully adopt it. The following differences between a creditor’s petition and a writ action are sufficient justifications for discarding the Eshelby Rule in a creditor’s petition.

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[8] 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 supra 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[9] 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 supra 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[10], he can rely on a future debt in presenting a winding up petition as a prospective creditor: section 179 (1)(c) 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.

23.Concerning Cheung Hon Wah v Cheung Kam Wah supra, it is important to bear in mind the principal reason why the court refused leave to amend. At [42], the learned Judge said:

“…If the conduct initially complained of, even though it might be part of a course of conduct that carried on after the petition was presented, was not sufficiently prejudicial or unfair to justify the making of an order under section 168A … at the time that the petition was presented, the position would be, as I have indicated, that there was no “cause of action” at the time that the petition was presented, and that the amendments would necessarily involve the introduction of a cause of action (or basis for relief) which did not exist at the time when the petition was presented.  On balance, therefore, it seems to me that it would not be appropriate to permit the introduction of the post‑petition events into the petition in this case.” (emphasis added)

24.That rationale is inapplicable here. In the present case, while the Saunders Order was subsequently discharged in October 2014, it was subsisting and of full legal effect at the time of the Petition, in the same way that any Court Order is of full legal effect and must be complied with unless and until it is set aside. If so, unlike the position in Cheung Hon Wah v Cheung Kam Wah, it cannot be said that there was no “cause of action” at the time the Petition was presented.

25.Further, a section 168A petition is essentially a shareholders’ dispute: Re Crossmore Electrical and Civil Engineering Ltd (1989) 5 BCC 37 (Hoffmann J as he then was) applied in Re CG & L Investment Ltd v Wyatt Estate Ltd [1992] 1 HKC 78[11]. Similarly, a normal writ action usually, though not invariably, involves disputes between private individuals. In both types of cases, public interest seldom, if at all, comes into play. Hence, it is usually 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.

26.For all these reasons, in my judgment, the Eshelby Rule does not govern a creditor’s winding up petition and this court clearly has jurisdiction under RHC O 20 to give leave to re-amend the Petition.

Discretion

27.I now turn to the exercise of discretion. In my judgment, this court shall exercise its discretion in favour of the Petitioner and grant leave to make the proposed re‑amendments. The reasons are these.

28.First, the underlying objectives of the Rules of the High Court as introduced by the CJR are, inter alia, 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: RHC O 1A r 1. 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: RHC O 1A r 2(2).

29.In the present case, the proposed re-amendments consist of a total of 8 Subsequent Debts arising from Court Orders and Judgments made on divers dates. The practical implication of a rigid insistence in requiring a fresh petition for each Subsequent Debt as and when it arises should be obvious: it will result in multiplicity of proceedings, unnecessary waste of costs, time and the Court’s resources. All these consequences are inimical to the underlying objectives of the CJR which this court is duty bound to give effect to.

30.Second, adopting by analogy the reasoning of Neuberger J’s in Re Richbell Strategic Holdings Ltd supra at 456 a - c, allowing the re‑amendments will not cause the Company any substantive prejudice. If the Company has a bona fide defence to the Subsequent Debts on substantial grounds, it can always apply to strike out the re‑amended Petition or oppose it at the hearing of the re-amended Petition. In this regard, this court notes that the Company’s so-called “Dismissal Application” has already been ordered by Harris J to be heard at the same time as the Petition itself. Putting it in any way, it seems to this court the Company will not suffer any prejudice which cannot be compensated for by an appropriate award of costs.

31.Third, of course, if, as submitted by the Company, the re‑amendments are bound to fail, then they can fairly and justifiably be regarded as immaterial, useless or an abuse of process and no leave to amend should be granted. However, at this stage, the court will only go into the merits if the merits are readily apparent and the court will take the Petitioner’s proposed case to its highest.

32.Having carefully considered the 4^th affirmation of Mr Shea, the Company’s skeleton submissions and the Petitioner’s reply submissions, this court is not satisfied that the re-amendments are bound to fail – at least, it is not readily apparent so.

(1) The Subsequent Debts are all based on Court Orders and Judgments made in Hong Kong and in England. No evidence has been adduced by the Company that any of them has been set aside, whether on appeal or otherwise. If so, it is trite law that these Court Orders and Judgments are prima facie evidence that the Company is indebted to the Petitioner: cf Dawodu v American Express Bank [2001] BPIR 983; Re Tam Mei Kam unrep.; CACV87 of 2012; 8 May 2013; Cheung, Yuen & Lam JJA.

(2) In so far as the Company submits it has a counterclaim or set off which “wipes out” the Subsequent Debts in that the Petitioner has allegedly admitted it owes the Company over HK$97 million in unsatisfied PRC judgments[12] and between HK$4 million to HK$8 million in terms of legal costs,[13] the submission is rejected for the present purpose. In this regard, this court accepts Mr Scott SC’s explanation at paragraph 17 of his written replysubmissions that the Company’s submissionsare flawed and the alleged admission is dubious.

33.It follows from the above this court rejects the Company’s submission that the re‑amendments are immaterial, useless or an abuse of process.

Disposition

34.There shall be an order in terms of paragraph 1 of the Petitioner’s summons dated 1 December 2014 save that the Petitioner is granted leave to re‑amend in terms of its latest draft referred to in footnote 2 above, instead of the draft annexed to the summons.

35.This court is not satisfied that it is appropriate to make the orders sought in paragraphs 2 to 4 of the summons and shall not do so.

36.In the absence of agreement within 14 days, the parties are to file and exchange their written submissions on costs, which shall be dealt with by this court on paper.

37.Lastly, I thank counsel for their helpful submissions.

Mr John Scott SC and Ms Frances Lok, instructed by Stephenson Harwood, for the petitioner

Mr Barrie Barlow SC and Mr George Chu, instructed by Damien Shea & Co, for the respondent

The attendance of the Official Receiver was excused

[1] Compania Sud Americana De Vapores S.A. v Hin-Pro International Logistics Limited; unrep. HCMP1449/2014; 17 July 2014; 29 August 2014; 15 October 2014; 26 November 2014; 12 May 2015; 27 May 2015. On appeal: CACV 243/2014; unrep.; 18 December 2014; 11 March 2015 (reported in [2015] 2 HKLRD 458); 31 July 2015 (reported in [2015] 4 HKLRD 388).

[2] After the hearing, the Petitioner filed with this court another draft in which paras. 5 to 7 were deleted, in  line with Leading Counsel’s indication at the hearing, and consequently the paragraphs were re‑numbered.

[3] Hong Kong Civil Procedure 2016 Vol. 1 para. 20/8/24.

[4] Eshelby v Federated European Bank Ltd  [1932] 1 KB 254

[5] Roban Jig and Tool Co Ltd v Taylor [1979] FSR 130

[6] Adopted by the English Court of Appeal in Maridive & Oil Services v Can Insurance Company [2002] EWCA Civ 369 at [23]

[7] Hendry v Chartsearch Limited supra

[8] or contributory

[9] or contributory

[10] and has given security for costs

[11] a just and equitable winding up petition which is also essentially a shareholders’ dispute

[12] Para. 5.2 of the Company’s Submissions

[13] Para. 5.7(a) of the Company’s Submissions