Re Perak Pioneer Ltd

HCCW000141/1984

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Coram: The Honourable Mr. Justice Jones in Court.

Dates of hearing: 9 & 10 July 1984

Date of delivery of judgment: 11 July 1984

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JUDGMENT

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1. A creditor's  petition was presented by Carrian Holdings Limited (in liquidation) on the 4th May 1984 to wind up Perak Pioneer Limited (the Company), which is a company in the Carrian Group. The petition is based upon a debt of HK$676,568,327 alleged to be owed by the company to the petitioner. The Official Receiver has been appointed to be the provisional liquidator of the company, and upon the Official Receiver's application special managers were also appointed.

2. On the 17th May 1984 an affirmation was filed on behalf of Florence Ho Ngar Fun, a director of the company in which she denies that the company is indebted to the petitioner for the amount claimed.

3. The petition was amended by an order dated the 14th June 1984. The amended petition sets out in detail how the sum of HK$676,568,327 is calculated. Paragraph 5 of the petition states that between the 15th June 1981 and the 31st December 1982, the petitioner advanced sums totalling $1,927,129,716.69 to the Company and particulars of the advances are set out Paragraph 6 refers to payments made by the petitioner to the Company between the 3rd September 1981 and the 5th January 1983 in the sum of $1,250,561,389.69 with particulars of each payment. The difference between the two amounts is set out in paragraph 7 which is the sum claimed in the original petition. Paragraph 9 alleges that there were a series of nettings off between December 1981 and May 1983 by the petitioner in respect of the Company whereby debts due to the petitioner from the company were purportedly set off against the petitioner's alleged indebtedness to another company, Plessey Investments Limited. This eliminated the debt due from  the  Company to the petitioner. By paragraph 10 the petition alleses that the nettings off and purported elimination of the indebtedness of the company were invalid on five grounds which are set out in paragraph 10 as follows:-

Paragraphs 12, 13 and 14 relate to a claim of $41,003,505.70 for interest.  Paragraph 16 sets out particulars of the close relationship between the petitioner, the company and Plessey.

4. On the 5th June 1984 the petition came before me for call over when a date was fixed for the hearing.  Counsel who appeared for the company at that time said that the company had not yet decided whether to oppose the petition.  Subsequently, the company changed its solicitors and instructed different counsel.

5. A notice of motion was filed by the company on the 3rd July 1984 which seeks an order that the petition as amended be removed from the file of proceedings on the grounds that it discloses no reasonable cause of action and/or is frivolous or vexatious and/or will or may prejudice and/or embarrass and/or delay the fair trial of the said petition and/or is otherwise an abuse of the process of this honourable court.  On the same date the company served a request for further and better particulars of the amended petition.   This request was refused by the petitioner.

6. Mr. Hamilton, counsel for the petitioner, addressed me first upon the company’s motion to the effect that it is an abuse of the process of the court for the company is hopelessly insolvent.  He also challenged the bona fides of the  application.  He therefore submits that the motion should be struck out in limine.

7. My attention was drawn to the audited accounts for the company in 1981 and 1982 which show enormous deficiencies.  The accounts in 1982 were heavily qualifeed by the auditors.   It is quite clear from the evidence that the company was insolvent in July 1981. I am told  that disregarding the debt claimed by the petitioner, which as I say, is in dispute, debts alleged to be owed by the company to other companies in or closely associated with the Carrian Group, such as Carrian Investments Limited, Grand Marine and Bylamson the company has a deficiency at the present time of at least $237,000,000. The insolvency of the company has been confirmed by the Official Receiver.  The petition is, in fact, supported by one creditor Bumiputra Malaysia Finance Limited who claim the sum of $31,350,100.61 as at the 31st December 1983.

8. Mr. Potts who appeared for the company submitted four propositions in support of the motion.  First, the petitioner has no locus stand as the debt is the subject matter of a substantial dispute.  Secondly, on the face of the petition, the petitioner has shown no reasonable cause of action. Thirdly, the petition is embarrassing within the meaning of Order 18 rule 19 of the Rules of the Supreme Court.  Fourthly, that in the alternative from a combination of the petition and the bulk of the evidence, the debt is bona fide and the subject matter of substantial disoute.  Mr. Potts has addressed me on the first three propositions, but has deferred argument on the fourth pending my ruling on those submissions. Mr. Potts asserts that the bona fides of the motion to strike out   are irrelevant for the debt does not exist.  He cited the authority of Mann v. Goldstein [1968] 1 W.L.R. at page 1091, which held that even though a company is insolvent if the debt is substantially disputed the petition should not be allowed to proceed.  Ungoed-Thomas J. at page 1095 had this to say on an allegation of bona fides and an abuse of the process:-

"         I come now to the allegation of lack of bona fides and to abuse of process.  It seems to me that to pursue a substantial claim  in accordance with the procedure provided and in the normal manner, even though with personal hostility or even venom, and from some ulterior motive, such as the hope of compromise or some indirect advantage, is not an abuse of the process of the court or acting mala fide but acting bona fide in accordance with the process. And certainly no authority suggesting otherwise has been brought to my attention. In In re Welsh Brick Industries ([1946] 2 All E. R. 197) Lord Greene M.R. treated a bona fide claim as being a claim based on some substantial ground when he referred to "considering whether or not the dispute is a bona fide dispute, or, putting it in another way, whether or not there is some substantial ground for defending the action."

Mr. Potts also cited the cases of In re Lympne Investments Ltd. [1972] 1 W.L.R. 523 and Stonegate Securities Ltd. v. Gregory [1980] 1 Ch. 576. He therefore submits that the petitioner has no locus standi and is therefore not in a position to petition as a creditor of the company. With regard to Mr. Potts' second proposition that the petitioner has not established that he has shown a reasonable cause of action he cited In re Rica Gold Washing Co. (1879) 11 Ch. D. 36.   This was a contributory 's petition where the court held that facts constituting an allegation of fraud must be specifically pleaded. I do not consider that this case has any relevance to the instant case.

9. So far as a creditor's petition is concerned, I am of the opinion that the petitioner need only plead the amount of the debt alleged to be due and that the company is unable to pay its debts to establish that it has a reasonable course of action.  In view of my decision on the motion, I do not propose to dwell on the third proposition that the petition is  embarrassing, except to say, with respect to Mr. Potts, that I do not consider it has any merit.

10. I will now deal with the argument of Mr. Hamilton in reply.  He submits, as I have said, that the company is hopelessly insolvent, that the company through its directors has no locus standi and that only the creditors are entitled to be heard. Accordingly the motion should be struck out in limine. An analogy was drawn by Mr.  Hamilton with regard to a derivative action whereby a contributory must prove that there is a surplus available for distribution in the event of a winding-up before he has any locus standi see In Re Rica Gold Washing Co. (1879) 11 Ch. D. 36.  A Hone Kong case of relevance on :the principles is Lenka Investments Ltd. & Anor. v. Cheuna Kong (Holdings) Ltd. & Anor.  (1983) H.K.L.R. 258, where part of the headnote on D. 259 reads:-

"Where the court is being asked to exercise its jurisdiction to restrain a person from exercising the constitutional right to institute legal proceedings it is necessary" to bring the case within the settled legal principles governing the circumstances where the courts will restrain vexatious litigation."

This principle equally applies to a person who abuses the process by defending proceedings.

11. Mr. Hamilton referred to the failure by the directors to comply with section 190 of the Companies Ordinance which provides that within 28 days after the appointment of a provisional liquidator, a statement of affairs should be submitted to the Official Receiver.  Further, no steps have been taken to discharge the appointment of the provisional liquidator or the special managers.

12. The authority which has been of most assistance to me on the issue of bona fides is Re Claybridge Shipping Co. S. A. unreported, No. 001842 of 1980, a judgment of the Court   of Appeal dated the 9th of March of 1981 which was cited by both Mr. Potts and by Mr. Hamilton.  At p. 7 of the judgment, Lord Denning said: -

"I entirely agree that a petition for winding up should not be used as the means of getting in a debt which is bona fide disputed on substantial grounds - on which the company would get unconditional leave to defend.  But I think the Companies Court should be able to look into the bona fides of the defence.  If it is obviously a "put-up job" -or if it is so insubstantial that a Queen's Bench master would only give conditional leave to defend - then I should think the petition to wind up should stand.  In short I think that the Companies Court should keep the remedy flexible-for the sake of all creditors - so that the assets may not be disposed of or removed by the company before there is a chance of dealing with them".

Oliver L. J. in his judgment at page 14 had this to say,

"       Now the jurisdiction in relation to restraining advertisement and striking out a petition which is based upon a debt which is subject to a bona fide and substantial dispute is, I think, a salutary one, because a winding-up petition is a Draconian measure which, even if it does not succeed, can have very serious consequences for the company by publicly affecting its credit and reputation.  It ought not, therefore, to be used as a means of putting on pressure in cases of genuine dispute, and it is right that the Companies Court should, as a matter of its practice, keep a watchful eye on proceedings which can so easily be abused. But, having said that, the refusal of the court to entertain cases where the underlying debt is said to be disputed is, in my judgment, a matter of practice only. It is not, in general, convenient that the very status of the petitioner to proceed with his petition should be fought out on a winding - up petition. But the court must, I think, remain flexible in its approach to such cases. There may well be cases where to compel the creditor to go off to another division of the court to establish his debt would effectively deprive him of any remedy at all.  That may, of course, be inevitable where the court is convinced that the dispute is a genuine one, genuinely raised and persisted in, and one which cannot conveniently be determined in a short space of time on hearing the one application-and that, I think, must be particularly the case even in cases which can perhaps conveniently be dealt with where the grounds of dispute have been known to and canvassed with the petitioner well before the presentation of the petition. But it ought not, in my judgment, to be an inflexible rule that the Companies Court should never take upon itself the burden of determining the matter on the hearing of the petition. It does so in petitions on the just and  equitable ground, and it is only too easy for an unwilling debtor to raise a cloud of objections on affidavits and then to claim that, because a dispute of fact cannot be decided without cross-examination, the petition should not be heard at all but the matter should be left to be determined in some other proceedings. Whilst I do not in any way, therefore, seek to weaken the rule of practice as a general rule, I think that it ought not to be assumed to be inflexible and to preclude the Companies Court from determining the issue in an appropriate case simply because the debtor files mountains of evidence raising disputes of fact which require to be determined by cross-examination.  The court must, I think, reserve to itself the right to determine disputes - even perhaps in some cases substantial disputes - where this can be done without undue inconvenience and where the position of the company, whether it be an English company or a foreign company, is such that the likely result in effect of striking out the petition would be that the creditor, if he established his debt, would lose his remedy altogether."

13. Mr. Potts commented that Mann v. Goldstein and other authorities were not cited to the court in this case, but it seems to me most unlikely that the members of the court were not aware of those decisions when they gave judgment.

14. The uncontradicted facts here show that the company is insolvent and unable to pay its debts. It is evident that the opposition to the petition is being financed by outsiders for no application has been made under Section 182 of the Companies Ordinance. Their motives for so doing appear to be highly questionable. Accordingly, as submitted by Mr. Hamilton what is the point of prolonging the existence of this company which should have been wound up a long time ago. Mr. Potts responds by saying that the company is entitled to defend itself. Undeniably, he is right, but at whose expense and for what reasons.   In my view, a realistic approach must be taken. The company is not a trading company and there is not the remotest chance that the company can pay the debts which are not in dispute. It is inconceivable that unconditional leave would be granted by a Master upon the hearings of summons issued under Order 14. No evidence has been placed before me to indicate why why company, which is a lame duck, should continue to remain alive. A prolongation of this litigation will inevitably be at the expense of the creditors who through the liquidators have no other remedy to pursue. A company can only act by agents who are normally the directors. Where the company is obviously insolvent, the directors have no further interest in the company.  They are functus officio so that the company has no locus standi. The interests to be protected are those of the creditors.  In these circumstances if the debt is in dispute it is a matter for proof by the creditor in the liquidation.

15. I accept Mr. Hamilton's submission that the opposition to the petition amounts to an abuse of the process of the court.  As a result the motion is dismissed.

Representation:

Mr. E. V. Hamilton, Q.C. & Mr. G. Ma (Wilkinson & Grist) for petitioner.

Mr. R. Potts, Q.C. & Mr. W. Poon (Fairbairn & Kwok) for Company.

Mr. N T. Clement-Jones for Official Receiver.

Mr. A. Neoh (Peter Mark & Co.) for Bumiputra Malaysia Finance Ltd.