RE HI-TECH PRECISION PRODUCTS LTD

HCCW 920/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 920 OF 2002

____________

____________

______________

D E C I S I O N

______________

1. On 25 June 2003, I gave a decision on costs upon giving leave to the petitioner to discontinue the petition to wind up Hi-Tech Precision Products Limited ("the Company"). I made no order as to costs up to 3 January 2003. I ordered the Company to pay the petitioner's costs in these proceedings incurred after 27 January 2003, with the exception of the costs for issuing the summons for discontinuance and the costs in the preparation of the 3rd affirmation of Chow Chun Man.

2. A summons was issued by the Company on 24 July 2003, under section 14(3)(e) of the High Court Ordinance (Cap. 4), for leave to appeal from my decision on costs. A draft Notice of Appeal is annexed to the summons.

3. The Company seeks to reverse the decision and to obtain an order that the petitioner should pay the Company's costs in the petition, the Company's strike out application and the petitioner's application for leave to discontinue, and that such costs be taxed on an indemnity basis.

4. It is provided in section 14(3)(e) of Cap. 4 that no appeal shall lie against an order of the Court of First Instance "relating only to costs which are by law left to the discretion of the court or tribunal", without the leave of the court making the order or the Court of Appeal.

5. The approach of the appellate court as succinctly stated in paragraph 62/2/11 of The Hong Kong Civil Procedure 2002 Vol. 1 is as follow:

"The Court of Appeal will not interfere with the exercise of a judge's discretion in the award of costs unless it was shown that he failed to exercise the discretion, or exercised it upon a false principle, or did not exercise it judicially (Choy Yee Chun (The representative of the estate of Chan Pui Yiu) v Bond Star Development Ltd [1997] HKLRD 1327, CA) or the exercise of discretion was demonstrably flawed (China Venturetechno International Co. Ltd v New Century Chain Development Co. Ltd [1996] HKLY 1093."

6. It is contended by Mr William Wong, who appeared for the Company, that the intended appeal is not an appeal against an exercise of the discretion of the court on a costs order simpliciter, as the Company is appealing against substantive findings made by the court in the decision on costs, the substantive finding being that at the time the petition was presented the petitioner had not known that the debt in the petition was disputed by the Company on bona fide and substantial grounds. It is contended in the draft Notice of Appeal that the court had erred in fact and in law in making that finding.

7. I suppose implicit in that argument is the acknowledgment that the Company is not seeking to attack the exercise of discretion as to costs, in the event that its contention that the court had erred in making the above finding is rejected.

8. As I understand Mr Wong's submission, he seems to be saying that if the finding had been made after a full trial on the substantive relief sought in the petition, no leave would be required to appeal against that finding. In the present case, there was not a trial because the petitioner sought leave to discontinue the petition and the court was only required to decide on costs. Hence, the test or burden that the Company is required to satisfy in obtaining leave to appeal should be no higher than establishing realistic prospects of success, the Company should not be "penalized" because only the question of costs fell to be determined by the court.

9. It is not a question of the Company being penalized. It is simply that an appeal against costs is an appeal against the exercise of a discretion left to the court, as provided in section 14(3)(e). Where the exercise of discretion is based on findings of fact or law, or mixed fact and law, in accordance with the approach of the appellate court in interfering with the exercise of a judge's discretion, it must be shown that the exercise of that discretion was demonstrably flawed.

10. Six grounds of appeal were advanced in the draft Notice of Appeal. I will deal with each of them.

11. The first ground is that the court has erred in finding that the letter of the Company to the petitioner dated 6 March 2001 constituted an unequivocal and clear admission of indebtedness of the Company. Even on the basis all that the Company is required to do is to show realistic prospects of success, I am quite unable to see any such prospects for this ground of appeal.

12. The second ground is that the court has erred in finding there was no clear retraction of the admission of indebtedness until January 2003 in view of these matters:

(a)	the parties had reached agreement in the withdrawal of the petitioner's claim against the Company in HCA No. 1999 of 2001 and the High Court Action was based on the admission of indebtedness in the letter of the Company dated 6 March 2001;
(b)	the withdrawal of the High Court Action on payment of HK$380,996.45 by the Company;
(c)	the admission by the Company was overtaken by events in that in the Company's letter dated 8 April 2002, the Company had put on record that the High Court Action was discontinued without admission of the petitioner's claim in respect of two debit notes, that the computation of the petitioner was wrong and that the Company had denied liability for debit note No. 001201 as the petitioner was attempting to vary prices unilaterally;
(d)	in the letter of the Company dated 12 April 2002, the Company reiterated its stance in its letter of 8 April 2002 and the Company had settled in full the invoices issued by the petitioner;
(e)	in view of (a) to (d) above, any admission was clearly and demonstrably retracted.

13. All of the above matters were considered and addressed in the decision on costs. After a full review of the evidence before me, I rejected Mr Wong's submission on the last occasion that the admission of indebtedness was overtaken by events and formed the view that there was no clear retraction of this admission until January 2003. I remain unpersuaded that the view I have formed on the evidence is one that I am not entitled to form or that my reasoning is shown to be demonstrably flawed. Whether the petitioner can succeed in obtaining judgment against the Company based on the admission under O. 27 of the Rules of the High Court as contended by Mr Wong is irrelevant, as I did find that the admission was clearly retracted by the Company in its affirmation filed in January 2003.

14. The third ground is that the court has erred in law in ruling:

(a)	the onus is on the Company to adduce evidence in support of its case that it has a bona fide dispute on substantial grounds;
(b)	it is not for the petitioner to substantiate and establish its claim based on admission of liability and the two debit notes, despite the same were disputed by the Company as early as April 2002; and
(c)	the onus is not on the petitioner to prove its entitlement under the two debit notes, despite having full knowledge there were real issues in dispute and the burden somehow shifted to the Company to prove the contrary.

15. These rulings in the decision have been taken out of context. As submitted by Mr Hingorani for the petitioner, prior to making the finding in paragraph 26 of the decision that the petitioner has established a prima facie case the debt in the petition was due and owing from the Company, I had dealt with at some length the admission of indebtedness by the Company and the petitioner's evidence in support of the outstanding debit note. It was in that context that I said that the onus was on the Company to adduce precisely factual evidence to support its case that it has a bona fide dispute on substantial grounds.

16. The fourth ground is that the Company has repeatedly adduced evidence to the effect that all invoices issued by the petitioner pursuant to "relevant purchase orders" were fully settled and there had never been any allegation the petitioner is entitled to payment based on its quotations rather than invoices. These are matters of contention and have yet to be resolved in other proceedings. I cannot see how they can be taken any further at this stage.

17. The fifth ground is that the court should have found that the petitioner knew when it presented the petition, the admission of indebtedness and the underlying debt as well as the two debit notes were bona fide disputed on substantial grounds. This is a general ground premised on the success of other grounds I have already dealt with.

18. The sixth ground is that the court has erred in failing to award part of the costs to the Company regarding debit note No. 001202 when the petitioner had insisted upon the full amount of this debit note but only accepted payment of a lesser amount, which had been offered by the Company since 8 April 2002, less than a week before the hearing on 25 June 2003.

19. The submission for part of the costs to be awarded to the Company was made by Mr Wong at the hearing on 25 June 2003 and I have rejected it after taken into account the offer referred to. Whether to award part of the costs to the Company is an exercise of the discretion of the court. I declined to do so having regard to the whole circumstances. I am not persuaded that I have failed to exercise my discretion judicially or that the exercise of the discretion is plainly wrong.

20. For the above reasons, I refuse the application for leave to appeal. I award costs of this application to the petitioner.

Representation:

Mr Jeevan Hingorani, instructed by Messrs Alvan Liu & Partners, for the Petitioner

Mr William Wong, instructed by Messrs Angela Wang & Co. for the Respondent

Appeal by the Respondent to Court of Appeal. Appeal dismissed. Please refer to the appeal judgment of CACV294/2003.

HCCW 920/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 920 OF 2002

____________

____________

____________________________

DECISION ON COSTS

____________________________

1. I have initially only one summons issued by Hi-Tech Precision Products Limited ("the Company") on 3 January 2003 to strike out a creditor's petition to wind up the Company presented on 14 August 2002 by Soundwell Far East Limited ("the petitioner"), under O. 18 r. 19 of the Rules of High Court, on the ground that the petition is scandalous, frivolous or vexatious or is otherwise an abuse of the process of the court, as there is a bona fide dispute of the debt in the petition on substantial grounds. This summons to strike out was issued some five months after the petition was presented, after the Company has filed its first affirmation in opposition on 5 November 2002, after the petitioner has filed an affirmation in reply on 11 December 2002, and on the same day when the Company had filed yet another affirmation in answer to the petitioner's evidence in reply.

2. On 23 June 2003, two days before the hearing of the strike out summons, the petitioner issued a summons seeking leave to discontinue the petition under O. 21 r. 3 of the Rules of High Court and an order that the costs of the petition and of this application be paid by the Company.

3. The Company does not oppose the application for leave to discontinue the petition, this also renders its strike out application otiose. However, the Company opposes the petitioner's application that it should pay the petitioner's costs. The Company's stance is that not only is the petitioner not entitled to costs, but the petitioner should pay all the Company's costs on the petition, the strike out application and the application for leave to discontinue on an indemnity basis.

4. On the application for leave to discontinue under O. 21 r. 3(1), the court has a discretion to make such order as to costs "as it thinks just". But it would be most unusual, if not impossible, for a party seeking leave to discontinue proceedings to be awarded costs against the defendant or respondent (Ta Tung China & Arts Ltd v Fontana Restaurant Ltd & Others [1999] 1 HKLRD 404 at 406J-407A). I do not think the present case is such an exceptional or unusual position. I consider there are only two realistic alternatives open to me, one is to order costs in favour of the Company, the other is to make no order as to costs.

5. It is not seriously disputed that if the petitioner knew when it presented the petition, the debt was bona fide disputed on substantial grounds, and when the petition is discontinued or dismissed by the court, the petitioner should pay the costs of the company, as it would be an abuse of the process of the court to present a petition for winding up when the petitioner knew it had no locus standi. I emphasise the dispute must be on substantial grounds, it is not sufficient merely for the company to "raise an argument without the fundamental evidence to support it" (Re ICS Computer Distribution Limited [1996] 1 HKLR 181 at 187C). As Rogers J (as he then was) stated at 183I, the onus is on the company to "adduce sufficiently precise factual evidence to satisfy the court it has a bona fide dispute on substantial grounds".

6. That there is now, or at least after the Company has filed its second affirmation in opposition on 3 January 2003, evidence of a sufficiently precise nature to establish a bona fide dispute on substantial grounds is not, in my view, open to challenge. What is contended by parties is whether the petitioner had known, before the Company filed its first and second affirmations, that the debt in petition had been or would be disputed by the Company on substantial grounds.

7. The petitioner's case to wind-up the Company is succinctly set out in paragraphs. 5 and 6 of the petition, which read as follows:

"5. The Company is indebted to Your Petitioner in the sum of HK$374,213.27 ("the Debt") being balance of price for work done and goods supplied due and owing by the Company pursuant to an agreement made between the Petitioner and the Company in or around February 2000 for the assembly of speaker box units.

6. As at 21 March 2001, the date when Your Petitioner's legal advisers sent the first demand letter to the Company, the total outstanding debt due from the Company to Your Petitioner was HK$755,209.72, which debt was admitted by the Company in writing. The Company made a partial settlement of HK$380,996.45 on 20 September 2001, leaving a balance of HK$374,213.27."

8. It is not specified in the petition what was the admission in writing by the Company of its indebtedness. This is clearly a reference to the letter dated 6 March 2001 from Ms Maisy Lui, the Operations General Manager of the Company and the deponent of all the affirmations filed on behalf of the Company, to Mr George Chow, the General Manager of the petitioner. The letter of Ms Lui was apparently written in reply to an earlier letter of the petitioner to the Company dated 26 February 2001, in which Mr Chow referred to a telephone conversation he had with Ms Lui on 12 February 2001, in which Ms Liu "verbally agreed" on that day that the Company owed the petitioner a total of HK$755,209.72 and she promised to send a post-dated cheque of that amount to the petitioner on 16 February 2001. Ms Lui's reply on 6 March 2001 was captioned "Payment HKD755,209.72" and is in these terms:

"We would like to confirm the above mentioned payment will be settle [sic] in full amount the end of April 01. Thank you for your patiant [sic] and assistance on this matter."

9. This, in my view, is a clear admission of indebtedness. Was there any clear retraction of this admission in subsequent letters of the Company, when the petitioner had sought to rely on this admission?

10. On 28 March 2001, the Company wrote to the petitioner's solicitors, in reply to the letter of demand of the petitioner's solicitors dated 21 March 2001 in which the petitioner's solicitors had referred inter alia to the unequivocal admission of indebtedness in the letter of the Company of 6 March 2001. In this reply, the Company pointed out that the figure in the letter of the petitioner's solicitors, i.e. HK$755,209.72 appeared to be incorrect according to the books of the Company and the Company would do a "detailed checking" and reply by 6 April 2001. There being no satisfactory response from the Company, the petitioner issued a writ of summons in HCA No. 1999 of 2001 on 7 May 2001 claiming the sum of HK$755,209.72. In the Statement of Claim filed on 5 September 2001, the admission of the Company by its letter dated 6 March 2001 was pleaded.

11. On 17 September 2001, the Company wrote to the petitioner recording an agreement to settle the High Court Action on these terms. The Company was to pay the petitioner HK$380,996.45, in consideration of the petitioner withdrawing the High Court Action, whilst the outstanding sum of two debit notes numbered 001201 and 001202 were to be "negotiated as separate issues". The total sum owing on these two debit notes is HK$374,213.27, which is the debt claimed in the petition.

12. The petitioner replied on 18 September 2001 stating that it would be prepared to accept payment of HK$380,996.45 with costs of HK$70,000. In consideration of these payments, the High Court Action would be withheld. As for the two debit notes outstanding, in the event that no agreement could be reached between the parties within 30 days from 20 September 2001, the petitioner proposed to instruct its solicitors to proceed with the High Court Action.

13. In the end, a settlement was arrived at between the parties as there was a payment by the Company on 19 September 2001 by cheque in the sum of HK$380,996.45 and on 20 September 2001, an order was made by consent in the High Court Action for the action to be discontinued with no order as to costs.

14. The next relevant letter is a letter of demand from the petitioner's solicitors on 11 March 2002, seeking payment of the amount due on the two debit notes. In this letter, the petitioner's solicitors again referred to the unequivocal admission of indebtedness by the Company in its letter dated 6 March 2001. A demand under section 178 of the Companies Ordinance (Cap. 32) was served by the petitioner's solicitors on the Company on 15 March 2002. The Company responded to the letter and the statutory demand by letter dated 8 April 2002, stating that it would settle debit note no. 001202 to the extent of HK$64,504 (this debit note was for HK$65,517.93) and enclosing a cheque dated 8 April 2002 for this amount. The Company denied liability for the other debit note no. 001201 in the sum of HK$309,709.27. The ground given for denying liability is that the petitioner was "attempting to unilaterally vary the prices for assembling the speaker box units without [the Company's] agreement". No further details or documents were provided with that letter. The Company did not deal with the admission of indebtedness in its letter of 6 March 2001 at all.

15. The petitioner's solicitors replied by letter dated 10 April 2002 again making reference to the admission by letter dated 6 March 2001. They also enclosed documents in support of the petitioner's claim, being the quotations confirmed by the Company and based on which the price was calculated, and a schedule showing the calculation of the amount claimed.

16. The Company responded to this in its letter dated 12 April 2002, reiterating their stance that the Company had "already settled in full the invoices issued by [the petitioner] pursuant to the relevant purchase orders which had been accepted by [the petitioner]", and stating that the schedule enclosed by the petitioner's solicitors did not mean anything. Again, the Company did not address the admission specifically relied on by the petitioner.

17. The petitioner's solicitors wrote on 26 April 2002 requesting the Company to provide documentary evidence to prove its allegation. In its answer dated 30 April 2002, the Company declined to provide documentary evidence and stated that it was for the petitioner to establish and prove its claim.

18. On 8 May 2002, the petitioner's solicitors wrote a long letter to the Company again seeking substantiation of the Company's position and asking five questions at the end of that letter including the following:

"What is the basis of your allegation that our client is not entitled to payment under the debit note no. 001201? Could you elaborate your allegation that the charges under the debit note no. 001201 was not due and payable due to the variation of prices for assembling the speaker box units as alleged by you in your letter to us dated 8 April 2002? Could you provide to us the documentary evidence of your allegations?"

19. In the Company's response to this letter dated 31 May 2002, the Company reiterated its stance that it is for the petitioner to substantiate its claim.

20. The last letter before the petition was presented was a letter dated 11 June 2002 from the petitioner's solicitors enclosing five schedules in which the petitioner set out the basis of its claim.

21. In the first affirmation of Ms Lui filed in November 2002 on behalf of the Company, not a word was mentioned about her letter admitting the full indebtedness on 6 March 2001. Nor was this letter exhibited among the many other letters she exhibited, referred to and commented upon in her affirmation. In paragraph 19 of that affirmation, the Company set out its case for disputing liability.

22. According to Ms Lui, the agreed prices for the assembly of the speaker box units were set out in the Company's purchase orders that had been accepted by the petitioner and there was "never any agreement to vary these prices and the petitioner had in fact invoiced the Company for the assembly of the speaker box units according to the agreed prices as stated in the accepted purchase orders". As the petitioner's invoices had been paid by the Company in full, she asserted that there is no basis to the petitioner's claim for HK$308,695.34 under debit note no. 001201. It is alleged that the petitioner is "attempting to unilaterally vary without the Company's consent or agreement the prices for assembling the speaker box units."

23. That, in essence, was the substance of the Company's case for disputing liability. No documents were adduced by the Company to support its case in this respect. It was only after the petitioner had filed evidence in reply in December 2002 and raised yet again the admission in writing (which was pleaded in the petition) that the Company sought to address this in Ms Lui's second affirmation filed on 3 January 2003. According to the second affirmation, Ms Lui stated that she had made a mistake when she sent the letter dated 6 March 2001. It was only then that the Company set out in its second affirmation in detail its case that the Company had not agreed to the quotations relied on by the petitioner and exhibited the complete quotation consisting of five pages.

24. I should mention that according to the second affirmation of Mr Chow Chun Man filed on behalf of the petitioner in December 2002, it is the petitioner's case that there was no variation of the price for the assembly of the speaker box units and that the "accepted purchase orders" of the Company did not give the entire picture. In his affirmation, Mr Chow referred to the quotations of the petitioner and the invoices issued by the Company for the parts supplied by the Company to the petitioner for the assembly. It is the petitioner's case that the Company had over-charged the petitioner for the components supplied. The petitioner did not know about this until it had received the Company's invoices. It was then that the petitioner realized that it had under-charged the Company when it accepted the purchase orders issued by the Company. Hence, the debit note no. 001201 was issued. There was no agreement to vary the price for the assembly of the products. The petitioner's case is that the price was based all along on the quotations accepted by the Company.

25. I should also mention that in all the affirmations filed by the Company, the Company has not exhibited the invoices issued by the Company to the petitioner for the components supplied, in respect of which the petitioner has alleged there is a price discrepancy.

26. On the above evidence, I am unable to agree with the submissions of Mr William Wong that when the petitioner presented the petition, the petitioner had known of a bona fide dispute of the debt in the petition on substantial grounds. There was no clear retraction of the admission of indebtedness until January 2003. I do not think the admission in the letter dated 6 March 2001 was overtaken by events as Mr Wong has submitted. I consider that the petitioner has established a prima facie case that the debt in the petition was due and owing from the Company. The onus is on the Company to adduce sufficiently precise factual evidence to support its case that it has a bona fide dispute on substantial grounds. Such evidence was not adduced until January 2003, even if one were to leave aside the invoices issued by the Company for the component parts supplied which have not been exhibited. The Company's stance all along is for the petitioner to substantiate its entitlement to payment. I do not consider this stance justifiable particularly in view of the fact that the admission of indebtedness of the Company was not retracted until January 2003, despite the petitioner has raised this admission several times in correspondence in 2002 and has pleaded this in the petition.

27. I am not satisfied there was an abuse of the process of the court when the petition was presented. In my view, it would be appropriate to make no order as to costs up to 3 January 2003.

28. As to costs after 3 January 2003, there is placed before the court a Calderbank letter dated 27 January 2003 from the petitioner's solicitors to the Company's solicitors.

29. The proposal in that letter was as follows:

(1) the petitioner was to withdraw the petition with no order as to costs;

(2) the Company was to withdraw the summons for striking out with no order as to costs; and

(3) the Company was to pay the petitioner HK$64,504.00 in full and final settlement of the debit note no. 001202 and the petitioner was to return the cheque dated 8 April 2002 to the Company.

It was stated in that letter that if the above proposal was not accepted by the Company, the petitioner would apply for leave to withdraw the petition and to determine the question of costs incurred so far and seek the costs of the application.

30. This proposal was not accepted by the Company's solicitors and there was no response from them until 11 June 2003 when they made a counter proposal in a Calderbank letter, the details of which I do not need to go into.

31. On 19 June 2003, the petitioner's solicitors again wrote to the Company's solicitors repeating in an open offer the proposal in their Calderbank letter in January 2003. As this proposal was not accepted by the Company, the summons for discontinuance was issued on 23 June 2003. It seems to me that the petitioner's proposal with no order as to costs is an entirely reasonable one. Had that been accepted, the two summonses for striking out and the summons for discontinuance could have been dealt with by consent and the hearing today would not be required. I do not think there is any justification for giving the petitioner only part of its costs on the ground of its offer in relation to the other debit note no. 001202 as Mr Wong has asked me to do.

32. I order the Company to pay the petitioner's costs in these proceedings incurred after 27 January 2003 with the exception of the costs for issuing the summons for discontinuance and the costs in the preparation of the third affirmation of Mr Chow Chun Man, which I have not allowed to be relied on by the petitioner in this hearing.

Representation:

Mr Jeevan Hingorani, instructed by Messrs Alvan Liu & Partners, for the Petitioner

Mr William Wong, instructed by Messrs Angela Wang & Co. for the Company