Zebra Industries (Orogenesis Nova) Ltd v. Wah Tong Paper Products Group Ltd

HCMP 436/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 436 OF 2013

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Before: Hon G Lam J in Chambers

Date of Hearing: 29 August 2014

Date of Judgment: 27 October 2014

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D E C I S I O N

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1.This is an application made by the plaintiff in these proceedings by summons dated 25 July 2014 for a “stay of execution” in respect of two costs orders made by Au J on 6 February 2013 and 7 March 2013 respectively in the proceedings with the title HCCT 46/2011. The plaintiff and defendant herein are also the plaintiff and defendant respectively in HCCT 46/2011. The costs orders in question are the costs consequences of certain interlocutory applications before Au J.

2.The history of the dispute between the parties and the context of the orders made by Au J can be seen from my decision also being handed down today on certain other applications of the plaintiff herein. Suffice it to say here that the result of Au J’s orders was that the plaintiff’s applications before him were dismissed with costs to the defendant to be taxed if not agreed.  There is no longer any extant appeal against those costs orders. The defendant initiated the taxation process by filing a bill of costs on 13 June 2014 pursuant to the two costs orders in question and a notice of commencement of taxation.

3.The defendant has also filed an application for setting down for taxation on 23 July 2014.  From the bill of costs, it can be seen that the defendant seeks to recover costs in the sum of $102,928.00.

4.The trial of the proceedings in HCMP 436/2013 has been fixed to take place in March 2015.  The plaintiff as represented by Mr Saatori is concerned that these costs orders will be used by the defendant as the basis for a winding-up petition to be presented against the plaintiff in advance of the trial.

5.By the summons dated 25 July 2014, the plaintiff therefore seeks the following alternative orders:

(1) “stay of execution against the defendant’s planned taxation commencement, until 14 days after the date of the trial judgment”;

(2) “stay of execution against the defendant converting its taxed bill of costs into an allocator, to be used to obtain a statutory demand to bankrupt/wind up the plaintiff company, until 14 days after the date of the trial judgment”;

(3) “stay of execution against the defendant converting an allocator(s), resulting from its taxed bill of costs into a statutory demand to bankrupt/wind up the plaintiff company, until 14 days after the date of the trial judgment”; and

(4) “stay of execution against the defendant converting any other bill for costs it may obtain, either in this action, or any satellite action, into either an allocator or a statutory demand, to be used by the defendant to bankrupt/wind up the plaintiff company, until 14 days after the date of the trial judgment”.

6.At the hearing of the summons, Mr Saatori recognised that whether or not the taxation proceedings in HCCT 46/2011 should proceed is primarily a matter for the taxing master.  He did not therefore seriously pursue the first order sought above.  He maintains, however, that the plaintiff has a legitimate fear that the defendant will use the two costs orders in question as well as any other costs order it has obtained or may in future obtain in its favour to commence insolvency proceedings against the plaintiff in order to put pressure on it, and obstruct its preparation for and pursuit of its claim in HCMP 436/2013.

7.While I can understand Mr Saatori’s concerns, on established principles, I am unable to accede to the plaintiff’s application.  So far as the 4^th order sought is concerned, there is, in my view, no power for me to grant a stay of execution in relation to some unspecified costs orders that the defendant may obtain in future against the plaintiff. 

8.As regards the two costs orders in HCCT 46/2011 which are the subject matter of the notice of commencement of taxation I have referred to, first, it appears that taxation resulting in an allocatur is not an essential requirement before the entitlement to costs can be relied upon for the presentation of a winding-up petition. 

9.In Re Jackin Total Fulfilment Services Ltd [2008] 3 HKLRD 475, Deputy Judge Jonathan Harris SC (as he then was), distinguishing Re Golden Always Ltd [1996] 3 HKC 252, held that under s. 179(1) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32), a person to whom a company has a liability to pay a debt contingent on the occurrence of a future event has locus to issue a winding-up petition although he cannot serve a statutory demand.  If he chooses to present a petition he does so under ss. 177(1)(d) and 178(1)(c).  However, the court may not be satisfied the debtor company is insolvent if the debt relied on is contingent and there is good reason why it has not yet been paid (see §§22 and 26).

10.Secondly, in the present case, the costs remain to be taxed.  If the taxation proceeds, there will in all probabilities be a taxation hearing either because the taxing master directs one under Order 62 rule 21C or because if the master makes an order nisi, either party may call for a hearing under rule 21B(3) and (4).

11.Thirdly, even if an allocatur is finally produced before the trial in March next year, it does not mean the defendant will necessarily serve a statutory demand and present a winding-up petition against the plaintiff, given that inevitably the plaintiff will seek to rely on its claim in HCMP 436/2013 as an existing substantial cross-claim in opposition to any winding-up petition.  Indeed, despite the decision of Re Jackin Total Fulfilment Services Ltd, the defendant has not presented any petition based on the costs orders themselves. 

12.Fourthly, if and when there is an imminent risk of a petition being presented against the plaintiff, it may still be open to it to apply for an injunction to prevent the presentation of such petition. 

13.Fifthly, even if a petition is presented, the plaintiff will no doubt seek to resist it by relying on its claim in HCMP 436/2013 as an existing cross-claim.

14.It seems to me therefore that it is premature to consider the present application, which may potentially be redundant.

15.Mr Saatori places a great deal of reliance on the decision of Stone J in Tsui Po Hing v SK Kaken Co Ltd, HCCL 42/2004, 27 April 2010, in which the learned Judge granted a stay of execution of his own costs order made after a trial, in light of the fact that the applicant had a cross-claim which was the subject of another action against the parties who are seeking to enforce the costs order against him by way of bankruptcy proceedings.

16.However, the costs in that case had been taxed resulting in a liquidated judgment debt on the basis of which bankruptcy proceedings had actually been taken out.  Here, in contrast, the costs remain to be taxed especially in light of Mr Saatori’s taxation objections and it is entirely unclear whether, despite the existence of the plaintiff’s claim in HCMP 436/2013 which will be tried in March 2015, the defendant will nevertheless invoke winding-up proceedings. 

17.Furthermore, in Tsui Po Hing, Stone J actually refused a first stay application brought pending an appeal (see §7 of Stone J’s judgment).  It seems to me in the circumstances of the present case what Stone J said at paragraph 41 is apt:

“It seems to me that the analysis as propounded is not correct; in fact, if anything, it is off-point. The correct argument, it seems to me, is that the 1^st stay application (which was dismissed, both at first instance and on appeal) was premature, and that instead of taking out the 1^st stay application in the attempt to prevent the taxation of the defendants’ costs in HCCL 42 of 2004, Mr Tsui should have waited until, emergent from this taxation, there had appeared a costs’ sum certain as due and owing, as now is the position, and which forms the basis of the current bankruptcy petition as mounted by the defendants.”

18.In the circumstances, it seems to me that the plaintiff’s application for stay of execution is premature and potentially unnecessary, and I decline to deal with it at this stage on this basis. 

19.I shall therefore adjourn the plaintiff’s summons sine die with liberty to restore.  I reserve the costs on a nisi basis. 

20.I should add that this application, being an application to stay the costs orders made in the proceedings HCCT 46/2011, ought to have been made in those proceedings instead of in HCMP 436/2013. That however is a mere procedural irregularity on which Mr Josiah Chan, who appears for the defendant, has not taken any point.

Mr Elijah Saatori, the Director of the plaintiff company, for the plaintiff

Mr Chan Chung Ming Josiah, instructed by W.K. To & Co., for the defendant