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Re Alpha Building Construction Ltd

Judgment Cited authorities 2 Cited in Precedent Map Related
Vincent
Judgment Date20 May 2015
Year2015
Judgement NumberHCCW283/2014
Subject MatterCompanies Winding-up Proceedings
CourtHigh Court (Hong Kong)
HCCW283/2014 RE ALPHA BUILDING CONSTRUCTION LTD

HCCW 283/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO 283 OF 2014

____________

IN THE MATTER OF THE COMPANIES (WINDING UP AND MISCELLANEOUS PROVISIONS) ORDINANCE, CHAPTER 32 OF THE LAWS OF HONG KONG
and
IN THE MATTER OF ALPHA BUILDING CONSTRUCTION LIMITED (浚達建築有限公司)

____________

Before: Hon Harris J in Chambers
Date of Hearing: 20 May 2015
Date of Decision: 20 May 2015

________________

DECISION

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Introduction

1. The Petitioner, Best Partner Ltd, is a developer. It engaged the Company to carry out construction work for it. Disputes arose between them that led to lengthy arbitration proceeding. On 30 March 2012 the arbitrator delivered an interim award on liability and quantum in the Company’s favour for $6,581,003.04, which was paid. However, the Petitioner applied to the High Court for an order for remission in respect of the interim award dismissing its counterclaim. That application was successful. As a result the arbitrator delivered a supplemental interim arbitration award and a consent final award dated respectively 31 July 2014 and 10 September 2014 awarding the Petitioner $2,219,282.27 in respect of its counterclaim. Following receipt of the consent final award the Petitioner served on Monday 15 September 2014 a statutory demand in respect of the amount of the final award of $2,219,282.27. The Company’s solicitors replied stating that as the Company still had not had its costs of the arbitration assessed, and that this would be well in excess of the amount of the award, it would be inappropriate for the Petitioner to present a petition as the Petitioner owed the Company money rather than vice versa. On 13 October 2014 the Petitioner issued a petition to wind up the Company on the grounds of insolvency. On 21 October 2014 the Company issued a summons to strike out the Petition and it is that application that I have before me today for determination. On 24 November 2014 the Company, which has adduced evidence demonstrating solvency, paid $2,219,282.27 into court.

2. In order better to understand how the Company is able to argue that despite a final award in the Petitioner’s favour it is probably the net creditor it is helpful to give a chronology of the relevant events, which I take from the affidavits and affirmations filed by the solicitors for both parties:

(1) 24 January 2006 – Company served its notice of arbitration;

(2) 17 June 2008 – after the Petitioner’s solicitors noticed that there were unpleaded matters in the Company’s witness statements, the Petitioner invited the Company to amend its statement of claim to reflect the contents of its witness statements;

(3) 18 September 2008 – Company’s solicitors reverted stating that it had no plans to amend its statement of claim;

(4) 23 June 2009 – the Petitioner applied to the arbitrator to expunge irrelevant evidence in the witness statements and expert reports;

(5) 28 August 2009 – The Petitioner’s application to expunge evidence was allowed and the costs of the application was awarded to the Petitioner;

(6) 2 September 2009 – The Company’s solicitors applied to amend the statement of claim despite having refused to do so when first invited by the Petitioner. The Petitioner opposed the amendments and the parties made submissions to the arbitrator;

(7) 2 December 2009 – arbitrator allowed the amendment of the statement of claim but awarded the costs of the application to the Petitioner. The arbitrator further gave the following costs order: “All costs in connection with and arising out of this Order for Directions No. 24 are awarded in favour of the Respondent in any event.”;

(8) 22 December 2009 – The costs order awarded to the Petitioner on 2 December 2009 was amended by the arbitrator to the following: “All costs incurred and thrown away by the amendment and the costs of any consequent amendment be to the Respondent in any event.”;

(9) September 2011 – main hearing, over 9 days;

(10) 30 March 2012 – interim award on liability and quantum, awarding principal sums totalling $6,581,003.04 to the Company on its claim and, save for $127,632.25, dismissing the Petitioner’s counterclaim;

(11) 30 April 2012 – the Petitioner sought leave to appeal against the interim liability award. Specifically, it challenged the arbitrator’s dismissal of its counterclaim;

(12) 27 July 2012 – arbitrator’s final award, awarding the costs of the arbitration (including the counterclaim) to the Company;

(13) 11 December 2012 – Au J gave the Petitioner leave to appeal;

(14) 11 March 2013 – the hearing of the appeal;

(15) 30 January 2014 – Au J allowed the appeal and remitted the award to the arbitrator for reconsideration;

(16) 3 April 2014 – remission hearing before the arbitrator;

(17) 31 July 2014 – arbitrator’s supplemental interim award on liability and quantum, reversing his dismissal of the counterclaim and awarding liquidated damages of $1,320,000 to the Petitioner;

(18) 10 September 2014 – arbitrator’s revised final award. By consent, the arbitrator gave the Petitioner the costs of the arbitration, post-remission but left untouched the costs of the award pre-remission;

(19) On 9 March 2015 Mimmie Chan J granted the Company an extension of time to commence taxation of its costs in the arbitration.

3. Subsequent to the presentation of the Petition the Company has produced its bill of costs for its costs from 24 January 2006 to 30 January 2014. These costs total $6,679,655.53. It will be readily appreciated why the Company argues that it has a substantial cross‑claim.

Legal Principles

4. The Petitioner relies on a statutory demand to establish deemed insolvency pursuant to section 178(1)(a) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap. 32. If a company neglects to pay a debt within 21 days of receipt of a statutory demand a creditor can properly present a petition to wind up the company unless he is aware of matters that constitute a bona fide defence on substantial grounds to the debt. If he is aware of such matters he should not present a petition. To do so is an abuse of process and it is improper for a petition to be used to exert pressure on a company to pay a disputed debt: Yueshou Environmental Holdings Ltd[1]. A petitioner should understand that a petition presented against a company which has an ongoing business causes considerable disruption. In particular it normally results in banks freezing the company’s accounts. The decision whether or not to issue a petition where a debt is disputed has to be taken with appropriate care. Commonly if a petition is presented at a time when the petitioner is aware of the matters, which a court subsequently finds constitute a bona fide defence on substantial grounds, the petition will be dismissed and the petitioner ordered to pay the costs on an indemnity basis[2].

5. Various authorities have considered what constitutes a bona fide defence on substantial grounds. I summarised the principles that emerge from them in Yueshou ibid at paragraphs 8 and 9:

“8. It is well established that a winding-up Petition should only be issued if a creditor is clearly owed a liquidated sum and the debtor company does not have any valid ground for refusing payment. If the company has a bona fide defence on substantial grounds to the debt a petition should not be brought and if the court concludes either on the hearing of a strike out application or on the hearing of the petition that the company does have such a defence, the Petition will be dismissed. Many cases consider what constitutes a bona fide defence on substantial grounds and how the court should approach determining whether such a defence has been demonstrated. I will cite three commonly cited authorities which together explain the established principles.

(1) The onus is on the Company to show that it disputes the debt on substantial grounds:

‘Importantly for this case there is a distinction between a consideration of whether the company has established a defence on substantial grounds and a consideration of whether the evidence is believable. Taken to the ultimate, the difference is between...

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