Re Shiamas International Ltd

HCCW 80/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO 80 OF 2014

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D E C I S I O N

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1.On 2 April 2014 the Petitioner issued a petition to wind up the Company on the grounds of insolvency. The petition came to be issued in the following circumstances. On 13 March 2008, the Company commenced proceedings in the Paris Commercial Court against SAS Bailly Creations (“Bailly”). Bailly defended the claim and counterclaimed. On 29 September 2011, the Paris Commercial Court ruled that both parties were at fault, but ordered that the Company pay damages to Bailly. The Company appealed to the Paris Court of Appeal against the judgment. By judgment dated 19 April 2013 the Paris Court of Appeal adjudged that the Company must pay to Bailly € 1,336,230 with costs and interest. On 2 August 2013, the Company launched an appeal to the French Court of Cassation. Apparently an appellant normally has to pay the amount of the judgment into court in order to progress an appeal to the Court of Cassation. The Company did not do this and on 13 February 2014 Bailly raised a preliminary objection to the appeal on this ground and the appeal proceedings were suspended on 13 February 2014.

2.Bailly took steps to enforce the judgment in Hong Kong. Pursuant to the order of Master Hui dated 8 January 2014 the French Court of Appeal’s judgment was registered in Hong Kong. Notice of the registration of the Court of Appeal's judgment was served on the Company on 11 February 2014. On 12 March 2014 Bailly’s solicitors issued a statutory demand in Hong Kong against the Company in respect of HK$15,222,904. Paradoxically the presentation of the petition in Hong Kong on the grounds of insolvency allowed the Company to apply to the Court of Cassation to restore the Company's appeal. The application was successful and it is anticipated that the appeal will be heard sometime between the end of March and August 2015.

3.The Petitioner is a shareholder in the Company. The Company seeks an adjournment of the Petition until after the determination of the appeal in France. The Company says that if the appeal is successful it may result in an order in its favour that will restore the Company to solvency.  The Petitioner agrees to such an adjournment. The Company currently has no business and it is common ground that unless the judgment is overturned it is insolvent and should be wound up.

4.Bailly is a supporting creditor. It wishes the Company to be wound up immediately. It argues that as the French judgment has been registered in Hong Kong it should be treated in the same manner as a Hong Kong judgment. Mr Dobby who appeared for the supporting creditor submitted that it is quite clear that in the absence of a stay of a judgment it is only in very limited circumstances that the Court will decline to make a winding up order until after an appeal of the judgment has been determined.  In order to justify the stay of a winding‑up petition, there must be shown very strong prospects of an appeal succeeding: Kwan J explained the principles in Re Rotegear Corporation Limited  HCCW 538/2009 (16 Nov 2009) ([2009] HKEC 1874) at para 4:

“The principles upon which the court acts in an application to stay a winding-up petition pending the hearing of an appeal from a judgment upon which the petition is founded were considered by Barma J in Re Sky Talent Properties Ltd, HCCW No. 892 of 2003, unreported, 9 December 2003, paras. 7 to 12. The fact that an appeal is pending does not amount to a ground for declining to make a winding-up order, where no stay of execution has been obtained. As stated by Barma J, the alternate basis on which a stay of execution pending appeal may be granted, namely that there are arguable grounds of appeal and the appeal would be rendered nugatory if there should be no stay, would not generally provide a ground for the court to stay the winding-up petition, as the making of a winding-up order would not prevent the appeal from going ahead, it being open to the liquidator to prosecute the appeal if he feels it in the interest of the company to do so and contributories or creditors are willing to provide funding for the exercise. The requisite degree of strength of merits of the appeal, to justify an exercise of discretion for a stay of the winding-up petition, is not just arguable but very strong prospects of the appeal succeeding.”

Similarly in Re Sky Talent Properties Limited, HCCW No. 892 of 2003 (9 Dec 2003) ([2004] HKEC 472) at para 11, Barma J says this:

“.…, it seems to me that if, on the material presented at the hearing of the winding up petition, the court is able to see, without going into the merits of the appeal in more than a preliminary way, that there are very strong prospects of the appeal succeeding, it may well be appropriate for the court to consider at least staying the winding up proceedings pending the outcome of the appeal. In the context of an application for a stay of execution, the level of strength required has been described as so strong as to suggest that “something has gone grievously wrong with theprocess of law in the court below” (see e.g. World Trade Centre Group Limited v Resourceful River Limited (unreported, CA, LittonJA, 12 May 1993), applied in Wenden Engineering Service Company Limited v Lee Shing Yue Construction Company Limited (unreported, CFI, Ma J, 17 July 2002)). I see no reason why the level of strength required in order to resist the making of a winding up order, where no stay of execution has been applied for, should be any lower.”

5.Both the Company and Bailly have filed reports prepared by French lawyers commenting on the strengths of the Company’s appeal. It would not be possible for me to determine on the basis of these reports just how strong the appeal is. I am, however, satisfied that the appeal gives rise to serious issues and that it is not frivolous. It does not seem to me that it can be said that the appeal has very strong prospects of success and I do not read the report of the Company’s expert as going this far. It follows that if the criteria for determining whether or not the appeal should be determined before the Petition is determined are the criteria described in the authorities that I have referred to above, those criteria are not satisfied and the pending appeal in France is not a ground for declining to make a winding-up order.

6.Mr Maurellet submitted on behalf of the Company that this was not the correct approach on the unusual facts of this case. He argued that at the time the French judgment was registered it was not possible for the Company to apply to set it aside on the grounds that there was a pending appeal overseas because at that time the appeal had been suspended by the Court of Cassation.  By the time that it was possible to make such an application, the application was out of time. Mr Maurellet took me to the judgment of Chung J in Guido Karl Wenk v Alan Lee Goldstein HCMP 3908/1997 (29 July 1998) in which he held that for the reasons explained in his decision the Court could not extend time for an application to set aside registration of a foreign judgment.

7.Mr Maurellet argued that I should approach the issue of whether or not the Petition should be adjourned pending the determination of the appeal in France on the same basis that the Court should, in his submission, have approached an application to set aside enforcement if it had been possible to make such an application in time. Mr Maurellet argued that such an application should be approached in the manner explained by Barker J in Hunt v BP Exploration Company (Libya) Ltd [1980] 1 NZLR 104. In that case judgment had been entered in the High Court in England for a substantial sum against Mr Hunt. The judgment was under appeal.  The issues in the case were complex and the appeal was anticipated to be very lengthy.  The judgment was registered in New Zealand. Mr Hunt applied to set registration aside. Section 7 of New Zealand's Reciprocal Enforcement of Judgments Act 1934 provides: “If, on an application to set aside the registration of the judgment, the applicant satisfies the Supreme Court either that an appeal is pending or, that he is entitled and intends to appeal, against the judgment, the Court, if it thinks fit, may, on such terms as it may think just, either set aside the registration or adjourn the application to set aside the registration until after the expiration of such period as appears to the Supreme Court to be reasonably sufficient to enable the applicant to take the necessary steps to have the appeal disposed of by a competent tribunal”.  Barker J suspended enforcement.  The judge was satisfied that the appeal was brought bona fide and that it was an appropriate exercise of his discretion to restrain enforcement in New Zealand until after the determination of the appeal in England.

8.In my view this will generally be the correct approach to an application to set aside registration of a foreign judgment pursuant to section 7(1) of the Foreign Judgment (Reciprocal) Enforcement Ordinance, Cap. 319.  It is very difficult for a Hong Kong Court to assess the merits of an appeal in a foreign jurisdiction and this is all the more so if the jurisdiction is, as in the present case, a civil law jurisdiction and does not use English.  If the Court is satisfied that the appeal is brought bona fide and will be prosecuted with reasonable diligence enforcement should normally be withheld pending determination of the appeal.  Indeed this is what the language of section 7(1) seems to envisage.

9.This is not an application to set aside the registration of the judgment and as I have indicated earlier in my view normally if a foreign judgment has been registered and an application to set aside the judgment is not made in time the Companies Court should approach the matter on the basis that the petitioner has a Hong Kong judgment, which is unpaid and in order for a company to avoid a winding-up order on the grounds that the judgment is being appealed it will have to satisfy the high test referred to earlier.  However, I accept that in the present case the fact that the Company could not apply to set aside registration justifies a more flexible approach.  This justifies the Court taking into account the fact that the judgment relied on has been obtained in a foreign court.  However, this does not have the same weight as it has in the context of enforcement under the Foreign Judgment (Reciprocal) Enforcement Ordinance.  The Companies Court should have regard to whether or not the Company appears to be solvent, evidence of whether or not an application to stay the judgment has been made or is possible, how long it will take to conclude the appeal and any other matter that is relevant to its determination.

10.In the present case the Company is insolvent and dormant.  It appears that the appeal will not be determined for some time and quite possibly a year.  I have no evidence of whether it was possible to stay the judgment.  Such an application was not made and it appears likely, given the requirement of the Court of Cassation that normally the judgment must be paid before the appeal is heard, that it could not be stayed.  In my view the fact that under French law it appears that the judgment would normally have to be paid is itself relevant and weighs in favour of the supporting creditor’s wish for an immediate winding up order.  I also understand that even if the appeal is successful the matter will have to be remitted to the Court of Appeal for further consideration, which will take time and does not necessarily mean that an order will be made that the Company is owed money by Bailly.

11.I take into account that Bailly has a vested interest in winding up the Company as this may stifle the appeal, but this consideration is to some degree balanced by the fact that it will be open to the Petitioner to invite the liquidator to enter a funding agreement with it and for the appeal to be prosecuted.

12.On balance in my view this is not an appropriate case in which to stay the Petition pending the determination of the appeal in France.  The Petition shall be listed for the first Monday after handing down of this decision at which time I shall make the normal winding up order.

Mr Kerby Lau, instructed by Kenneth Sit, for the petitioner

Mr Jose Maurellet, instructed by Baker & McKenzie, for the respondent

Mr Christopher Dobby, Solicitor Advocate, of Hogan Lovells for the supporting creditor, SAS Bailly Creations

Ms Vivian Yeung, instructed by the Official Receiver’s Office, for the Official Receiver