RE PRIMLAKS (H.K.) LTD (IN LIQUIDATION)

HCCW 258/2018

[2024] HKCFI 2156

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO. 258 of 2018

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DECISION ON COSTS

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A.  PROCEDURAL HISTORY

1.  By Decision dated 12 March 2024 (“Decision”), I dismissed the summons dated 23 June 2023 (“ReversalSummons”) taken out by the Petitioner to reverse the decision of the Joint and Several Liquidators (“Liquidators”) in their Notice of Adjudication of Proof of Debt dated 2 June 2023 to reject a claim of HK$15,812.21 and a claim of US$8,325,712.75. At the same time, the Petitioner’s Further Evidence Summons dated 6 December 2023 (as defined in paragraph 10 of the Decision) was also dismissed.

2.  In the Decision, I made a costs order nisi that the Petitioner shall pay the costs of and occasioned by the Reversal Summons and also the Further Evidence Summons (including all costs reserved) to the Liquidators, to be taxed if not agreed (“Costs Order Nisi”).

3.  By summons dated 25 March 2024, the Liquidators applied to vary the Costs Order Nisi such that the costs of the Reversal Summons and Further Evidence Summons be summarily assessed and payable forthwith (“Variation Summons”).

4.  By letters dated 12 and 16 April 2024 from the Court, parties were directed to lodge written submissions and file statements of costs (“Directions”). As indicated in the letter dated 12 April 2024, while the Liquidators’ summons dated 25 March 2024 only referred to the application for summary assessment, it appeared from the Liquidators’ solicitors’ letter dated 25 March 2024 that they also sought to vary the Costs Order Nisi with a view to including costs of the following summonses, which had previously been reserved (“Reserved Costs Application”):

(1)  The Petitioner’s summons dated 12 May 2023 to apply for an order for the Liquidators to provide adjudication on the Proof of Debt (as defined in Decision §6) (“Adjudication Summons”); and

(2)  The Liquidators’ summons dated 28 November 2023 to apply for Ashok to attend the hearing of the Reversal Summons for cross-examination (“Cross-Examination Summons”).

5.  By letter dated 12 April 2024, the Petitioner’s solicitors informed the Court that their client “wishes to claim costs in respect of the Reserved Costs Application”. Directions were given for the parties to make submissions and also provide the relevant statements of costs in respect of the above applications. In the circumstances, although no summons has been filed by the Petitioner for any application to vary the Costs Order Nisi, the Petitioner is taken to have made such an application, in view of its solicitors’ letter dated 12 April 2024 (as mentioned above) and also the fact that the Liquidators’ submissions have already addressed the Petitioner’s arguments on costs in this regard.

6.  By summons dated 26 April 2024, the Liquidators applied for leave to amend their summons dated 25 March 2024 as they sought an additional order for costs to be assessed on an indemnity basis (“Amendment Summons”).

B.  ISSUES FOR DETERMINATION

7.  In these circumstances, the following issues arise for my determination:

(1)  Whether summary assessment is appropriate.

(2)  How the Reserved Costs Application should be resolved.

(3)  Whether the Costs Order Nisi should be varied for costs to be awarded on an indemnity basis.

C.  ANALYSIS

C1.  Whether summary assessment is appropriate

8.  It is common ground that the court has jurisdiction under Order 62 rule 9(4)(b) of the Rules of High Court (Cap. 4A) (“RHC”) to order summary assessment in lieu of taxation for non-interlocutory applications.

9.  Order 62 rule 9C(1)(a) provides that no direction or order may be made for summary assessment if “the paying party shows substantial grounds for disputing the sum claimed for costs that cannot be dealt with summarily”.

10.  Under the Civil Justice Reform, the court is encouraged to order immediate payment of costs of interlocutory proceedings, and if possible, by way of summary assessment of costs: Midland Business Management Ltd v Lo Man Kui (No 2) [2011] 2 HKLRD 667 §9 (Johnson Lam J, as he then was).

11.  In Beyonics Technology Ltd v Goh Chan Peng (unreported, CACV 244/2014, 13 October 2015), Chu JA (as she then was) took into account the following factors in ordering summary assessment (§§7, 10):

(1)  The short duration of the proceedings, which lasted only for three months with three hearings.

(2)  No complex procedures were involved and the papers were not voluminous.

(3)  Summary assessment of the costs will promote procedural economy and save time and costs, and accord with the underlying objectives in Order 1A.

(4)  The estimated amount of costs was not very substantial.

12.  The Liquidators submitted that these factors were equally applicable to the present case. The case lasted for 7 months from the Adjudication Summons to the Reversal Summons. No complex procedures were involved as the matters were determined based on affirmation evidence alone. The papers were not voluminous for a substantive two-day hearing.

13.  The Liquidators also pointed out that since I had already determined the Reversal Summons, I should be in as good a position as a Taxing Master to assess the Liquidators’ costs based on the presently available materials, and the parties could avoid spending more time and costs on taxation.

14.  In reply, the Petitioner submitted that there appeared to be duplications of costs as between work done by solicitors and work done by counsel and such items should be properly examined by way of taxation.

15.  In view of the relatively short duration of these proceedings, the nature of the issues involved and also my previous involvement in hearing and determining this matter, I agree with the Liquidators that summary assessment is appropriate.

C2.  Reserved Costs Application

16.  As mentioned above, both parties have claimed costs of and occasioned by the Adjudication Summons and also the Cross-Examination Summons, which are the subject matters of the Reserved Costs Application.

17.  The Petitioner submitted that the Adjudication Summons was necessary given the Liquidators’ delay in issuing the adjudication for the proof of debt sought by the Petitioner. It appears that the time taken for the adjudication was partly due to the fact that various requests for documents had been made by the Liquidators. Further, by letter dated 26 April 2023, the Liquidators had indicated to the Petitioner that they expect to issue the final adjudication “within one month” after the Liquidators have received the Petitioner’s response. In the circumstances, it was quite unnecessary for the Petitioner to issue the Adjudication Summons. In any event, the Liquidators’ Notice of Adjudication of Proof of Debt was eventually issued on 2 June 2023 (i.e. shortly after expiry of the one-month period they indicated). In addition, whilst the Petitioner might have considered the issuance of the Adjudication Summons an attempt to press for an early adjudication from the Liquidators, it would hardly serve any meaningful purpose in reality.

18.  On the other hand, since the Adjudication Summons could have little utility, the time and efforts that the Liquidators were required to spend on addressing the summons should not be substantial. In this regard, insofar as the Liquidators seek to include costs of preparing the 1^st Affirmation of Kenneth Fung in the costs of the Adjudication Summons, I have some reservations as to the necessity of preparing a detailed affirmation which traverses the minute details of the procedural history. It should be borne in mind that the Liquidators should only be allowed to claim costs reasonably and proportionately incurred for that purpose only.

19.  As regards the Cross-Examination Summons, since I have made an order in favour of the Liquidators, there is no reason why costs should not follow the event, regardless of Ashok’s decision not to attend the substantive hearing of the Reversal Summons.

C3.  Whether costs should be awarded on an indemnity basis

20.  The mere fact that the Petitioner’s case has been rejected does not per se justify that costs should be awarded on an indemnity basis. It is incumbent upon the Liquidators to demonstrate some exceptional circumstances which could provide good reasons for indemnity costs. The Liquidators have complained about the lack of evidence in the Petitioner’s case and this does not in my opinion render the case an unusual one. In the present case, as shown in the Decision, the Court was required to closely examine all relevant materials before coming to a conclusion. Further, the fact that Ashok chose not to give oral testimony may reflect the Petitioner’s concerns over its own case but it could also have been caused by some other reasons. However, as a result of Ashok’s absence, the substantive hearing was conducted on affidavit evidence without the need to hear and consider oral evidence and no additional costs were unnecessarily incurred accordingly. Moreover, the Court’s decision on the Further Evidence Summons was a case management decision made upon exercising its discretion and it, in my view, cannot be used as a ground in support of an order for indemnity costs.

21.  Insofar as the Liquidators also complained that the Petitioner acted in an unreasonable manner by putting undue pressure on the Liquidators to accept its proof through false allegations and repeated threats to seek court orders, I do not consider this alone to constitute a basis for indemnity costs, as this has already been taken into account in my costs order in respect of the Adjudication Summons, as discussed above.

22.  In the circumstances, I order that all relevant costs should be awarded on a party and party basis (as opposed to an indemnity basis). Consequently, the Liquidators should not be allowed to claim the costs of the Amendment Summons. Further, insofar as the costs of the Liquidators’ Variation Summons are concerned, although the Liquidators have succeeded in some parts of the application, I am required, in conducting a summary assessment, to take into account the fact that their arguments on indemnity costs (which constituted about 30% of the overall submissions), as explained above, have failed.

23.  In passing, I note that the Liquidators have submitted two statements of costs in respect of the Reversal Summons and the Further Evidence Summons (i.e. one for assessment on a party and party basis and one for assessment on an indemnity basis). Apparently, the Liquidators’ statement for assessment of indemnity costs referred to higher hourly rates than those used in the other statement. Nonetheless, I do not think there is any legitimate basis for any party to think that it is entitled to submit larger sums of costs for assessment simply because it seeks to claim costs on a higher basis.

D.  SUMMARY ASSESSMENT AND ORDER

24.  Adopting a broad-brushed approach and having considered the parties’ statements of costs (and also their comments on each other’s statements), I summarily assess the costs of and occasioned by the various summonses as follows, (in light of the observations I have made above):

(1)  Reversal Summons and Further Evidence Summons (claimed in the sum of HK$836,483): HK$680,000.

(2)  Adjudication Summons (claimed in the sum of HK$73,995): HK$20,000.

(3)  Cross-Examination Summons (claimed in the sum of HK$159,619): HK$100,000.

(4)  Variation Summons and Amendment Summons (claimed in the sum of HK$132,984): HK$60,000.

25.  By reason of the matters stated above, I make an order that the Petitioner shall pay costs summarily assessed in the sum of HK$860,000 to the Liquidators forthwith.

Mr Andrew Nicholas Hart, Solicitor Advocate of Hart Giles, for the Petitioner

Mr Justin Lam and Mr Billy Liu, instructed by J. Chan, Yip, So & Partners, for the Joint and Several Liquidators

HCCW 258/2018

[2024] HKCFI 752

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 258 OF 2018

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D E C I S I O N

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A.  INTRODUCTION

1.  By summons dated 23 June 2023 (“Summons”), the Petitioner, Renew Limited, applies to reverse the decision of the Joint and Several Liquidators (“Liquidators”) in their Notice of Adjudication of Proof of Debt dated 2 June 2023 (“Notice of Adjudication”), whereby the Liquidators (a) admitted as an ordinary claim a sum of US$1,007,959.60 but (b) rejected a claim of HK$15,812.21 and a claim of US$8,325,712.75 which the Petitioner sought to prove (“Decision”). The Petitioner’s position is that the proof of debt should be admitted in full.

2.  The factual background and each party’s position will be set out below. There is no dispute that the present application should be conducted by a hearing de novo. In essence, the dispute boils down to whether the Petitioner is capable of proving the alleged debts by credible evidence.

B.  BACKGROUND

3.  The Company, Primlaks (H.K.) Limited, forms part of the Primlaks group of companies which are owned by members of the Hemnani family. Mr. Ashok Kodumal Hemnani (“Ashok”) was one of the Company’s two directors from around 1977 to 2019.

4.  Mrs. Komal Ashok Hemnani (“Komal”) is the wife of Ashok and she is a director of the Petitioner. On 31 January 2017, Komal was purportedly appointed as a director of the Company in place of Mr. Ramchand Kodumal Hemnani (i.e. Ashok’s brother). Komal’s appointment as director of the Company is the subject-matter of the dispute in HCMP 879/2018.

5.  The late Mr. Ramchand Mahtani (“Mahtani”) was the father of Komal (i.e. Ashok’s father-in-law). During his lifetime, Mahtani was the owner of Future Proof Development Inc (“Future Proof”).

6.  On 6 September 2019, the Petitioner lodged a Proof of Debt (“Proof of Debt”) claiming to be a creditor of the Company in the sum of US$9,333,672.35 and HK$15,872.21 as at 12 August 2019, i.e. the date of the winding-up order of the Company. The Petitioner’s claim was based on, inter alia, a default judgment against the Company in HCCL 42/2007 on 2 January 2008 (“Default Judgment”) for the sum of US$5,003,925.70 (“Judgment Sum”) with interest at 10.75% per annum from 14 December 2007 to 2 January 2008 and thereafter at judgment rate.

7.  The Judgment Sum relates to four loans which were purportedly assigned to the Petitioner by way of a Deed of Assignment dated 11 December 2007 (“Deed of Assignment”). The four loans, according to the Petitioner’s case, consist of:-

(1)  Three loans allegedly advanced by Mahtani to the Company (“Alleged Loans”):

(a)  the first loan advanced in July 1994, being (i) US$437,235.90 on 4 July 1994; (ii) US$129,505.70 on 15 July 1994; and (iii) US$338,998.40 on 18 July 1994, with a partial repayment of US$100,000 on 15 March 1996 (“1^st Loan”);

(b)  the second loan advanced from 1990 to 1991, being (i) US$301,156.30 on 31 May 1990; (ii) US$200,971.30 on 27 December 1990; and (iii) US$24,418.40 on 1 March 1991, with a partial repayment of US$197,573.97 on 31 March 1993 (“2^nd Loan”); and

(c)  the third loan advanced in 1991, being (i) US$312,500 on 10 December 1991 and (ii) US$87,500 on 12 December 1991 (“3^rd Loan”).

(2)  A loan allegedly advanced by Future Proof (i.e. the company owned by Mahtani) to the Company, being (a) US$1,000,000 on 10 November 1992 and (b) US$500,000 on 18 March 1994 (“Future Proof Loan”).

8.  On 2 June 2023, by the Notice of Adjudication as mentioned above, the Liquidators admitted US$1,007,959.60 (i.e. the principal element of the Future Proof Loan) as an ordinary claim, but rejected the remaining claims under the Proof of Debt on, inter alia, the grounds that:-

(1)  No loan agreements or other contemporaneous documents evidencing the existence of the alleged loans and/or its terms were provided by the Petitioner.

(2)  According to the documents which were provided, there is evidence to show that certain sums allegedly advanced by Mahtani were not used by the Company but by its fellow subsidiaries. Credit entries of such sums were not recorded in the Company’s books but in the books of the Company’s fellow subsidiaries, thereby suggesting that they were loans advanced by Mahtani to the Company’s fellow subsidiaries instead of the Company.

9.  On 23 June 2023, the Petitioner took out the Summons and applied to reverse the Decision pursuant to Rule 95 of the Companies (Winding-up) Rules (Cap. 32H) (“Rule 95”). The Petitioner filed the 5^th, 6^th and 7^th Affirmations of Komal in support of the Summons. The Liquidators filed the 2^nd Affirmation of Kenneth Fung (“Fung’s 2^nd Affirmation”) in opposition.

10.  By summons dated 28 November 2023, the Liquidators applied for an order that Ashok should attend the hearing of the Summons for cross-examination (“Cross-Examination Summons”) under O.38, r.2(3) of the Rules of the High Court (Cap. 4A) (“RHC”). By summons dated 6 December 2023, the Petitioner seeks leave to additionally rely on the 8^th Affirmation of Komal (“Komal’s 8^th Affirmation”) and the 1^st and 2^nd Affirmations of Ashok (“Further Evidence Summons”).

11.  At the hearing of the Cross-Examination Summons on 4 December 2023, I ordered that Ashok should attend the substantive hearing of the Summons for cross-examination.

12.  Despite the Court’s order, Ashok failed to attend the hearing on 12 December 2023 on the ground that he was “not available” to do so without providing any further explanation.

C.  NON-ATTENDANCE OF ASHOK

13.  I will first address the consequences of Ashok’s failure to attend the hearing for cross-examination.

14.  Under RHC O.38, r.2(3):-

“In any cause or matter begun by originating summons, originating motion or petition, and on any application made by summons or motion, evidence may be given by affidavit unless in the case of any such cause, matter or application any provision of these rules otherwise provides or the Court otherwise directs, but the Court may, on the application of any party, order the attendance for cross-examination of the person making any such affidavit, and where, after such an order has been made, the person in question does not attend, his affidavit shall not be used as evidence without the leave of the Court” (emphasis added).

15.  In Re Chow Kam Fai, ex p Rambas Marketing Co LLC [2004] 1 HKLRD 161 at §42, Deputy High Court Judge A To commented on the effect of RHC O.38, r.2(3) as follows:-

“My reading of O.38 r.2(3) is that once the order for cross-examination is made, the exclusion of the deponent’s affidavit follows as a matter of course upon his default of attendance, and not that the court has to make a further order to that effect. If the exclusion does not follow as of course, the order for cross-examination is nugatory as being an empty order without the threat of any sanction” (emphasis added).

16.  I agree that once an order for cross-examination of a deponent is made, if the deponent refuses to attend the hearing, the court may exclude his evidence. According to RHC O. 38, r.2(3), in these circumstances, “his affidavit shall not be used as evidence without the leave of the Court”. In other words, there are no hard and fast rules regarding how the absent deponent’s evidence should be treated; but it is ultimately within the court’s discretion and power. For example, if the affirmation of the absent deponent refers to documents and there is no dispute that such documents exist, there is no reason why the court should simply exclude the entirety of his or her evidence without even considering the documents for the purpose of evaluating if the proof of debts should be admitted.

17.  In the present case, the Affirmations of Ashok, apart from stating his own assertions, primarily refer to the documents exhibited to Komal’s Affirmations. Hence, even if Ashok’s evidence is excluded, it is still necessary to examine Komal’s evidence and the relevant documents referred thereto. In the circumstances, in exercising my discretion, I will not exclude Ashok’s evidence and will proceed to consider the totality of all the evidence adduced by the Petitioner. However, given Ashok’s decision not to attend the substantive hearing, I remind myself that little weight should be attached to the statements and assertions made in Ashok’s Affirmations insofar as they are not supported by documents or other corroborating evidence.

D.  FURTHER EVIDENCE SUMMONS

18.  By the Further Evidence Summons, the Petitioner seeks leave to adduce Komal’s 8^th Aff and Ashok’s 1^st and 2^nd Affirmations (collectively, “Further Affirmations”), which were said to be made in reply to the 3^rd Affirmation of Kenneth Fung dated 28 November 2023 (“Fung’s 3^rd Affirmation”) made on behalf of the Liquidators in support of the Cross-Examination Summons.

19.  There is no dispute that, in view of Harris J’s order dated 14 September 2023 on the directions for filing of evidence, leave is required for the Petitioner to adduce the Further Affirmations. In this regard, I have been referred to the case of Tian Hongmei v Zhang Wei[2023] HKCFI 2675, in which the court has summarised the applicable principles at §§26-32:-

(1)  The applicant must demonstrate exceptional circumstances (which need to satisfy the conditions laid down in Ladd v Marshall [1954] 1 WLR 1489) in order to obtain leave to adduce further evidence.

(2)  Pursuant to Ladd v Marshall, further evidence is admissible only where such evidence: (i) could not have been obtained before with reasonable diligence; (ii) would or might, if believed, have a very important influence on the result of the case, though it need not be decisive; and (iii) is apparently credible though it need not be incontrovertible.

(3)  It does not matter whether the initial directions for the filing of evidence were given by a Judge or by a Master. The same principles should apply.

20.  The decision of Tian Hongmei (above) refers to the earlier case of Jose Miranda Da Costa Junior & Another v Lorenzo Yih, also known as Yu Chuan Yih & Others, HCA 156/2010, unrep., 28 April 2014, §§9 and 12 in which the court at first instance took the view that when an order makes it abundantly clear that no further affidavit shall be filed without the leave of the court, the party who applies to adduce any late affidavit shall show “genuine extenuating circumstances” and “they would be exceptions that normally would fall within the rule in Ladd v Marshall” or “likely to be along [those] lines”. On the basis of these principles, the court dismissed the application to adduce further evidence. It is however noteworthy that the court did not go so far as to say that the test should strictly follow the Ladd v Marshall conditions. Further, when the Court of Appeal refused to grant leave to appeal and upheld the judge’s decision at first instance, Lam VP (as he then was) in giving the judgment of the Court of Appeal held (at §6) as follows:-

“ … In respect of late applications for admission of evidence, the court in the exercise of its case management power must pay regard to timetable already in place and the potential disruption such late application may cause to any substantive hearing. It cannot be seriously suggested that the judge was not entitled to dismiss the application in the absence of good explanation and exceptional circumstances for such late application.”

21.  While the Court of Appeal has reiterated that it is incumbent on a party who seeks to adduce late evidence to show “good explanation and exceptional circumstances”, it does not refer to the Ladd v Marshall conditions or draw any analogy with the same. I accept that the Ladd v Marshall conditions may sometimes help determine if exceptional circumstances exist; but it is also possible for exceptional circumstances to exist without satisfying the Ladd v Marshall conditions. Hence, I am inclined to think that the test in this context is whether exceptional circumstances can be shown and such test should not be straitjacketed by the Ladd v Marshall conditions.

22.  Having said the above, I am of the view that the Petitioner has failed to demonstrate any exceptional circumstances justifying the grant of leave:-

(1)  The Petitioner first introduced the Further Affirmations with a view to resisting the Liquidators’ Cross-Examination Summons. In view of the determination of the Cross-Examination Summons, the purported purposes and functions have apparently become obsolete.

(2)  If it is now the Petitioner’s case that the Further Affirmations are generally relevant to the substantive merits of the Summons (i.e. beyond the scope of the Cross-Examination Summons), there is no reason why they could not have been adduced earlier. No explanation has been provided as to why the evidence contained in the Further Affirmations could not have been adduced at an earlier stage of these proceedings.

(3)  In addition, while the Petitioner seeks to adduce the Further Affirmation, the fact that Ashok has chosen not to attend the substantive hearing is no doubt a factor against the Petitioner in the overall exercise of the Court’s discretion in this regard.

23.  As such, I dismiss the Further Evidence Summons.

E.  APPLICABLE PRINCIPLES

24.  The applicable principles as to a challenge against the rejection of proofs under Rule 95 are well-established and have been summarised by Coleman J in Re Fortune King Trading Limited[2020] HKCFI 353 at §20 as follows:-

(1)  An appeal under Rule 95 against a liquidator’s adjudication is a hearing de novo, at which the Court may confirm, reverse or vary the liquidator’s decision.

(2)  The purpose of the hearing is for the Court to determine to what extent the applicant should be allowed to rank as a proving creditor. Therefore, the Court is bound to decide the rights of the applicant in the light of all of the evidence which is before the Court, and not merely to express a view as to whether the liquidator was right or wrong in rejecting the proof on the evidence then available to the liquidator at the time he rejected it.

(3)  A liquidator who defends his decision to reject a proof is no longer acting in a quasi-judicial capacity, but is cast in the role of an adversary.

(4)  The onus of proof is on the applicant to show on a balance of probabilities that a real debt is due to him.

(5)  The requirement for a liquidator or trustee in bankruptcy in admitting or rejecting a proof is to require some satisfactory evidence that the debt on which the proof is founded is a real debt, and this is a relatively low threshold. Nevertheless, the liquidator or trustee is entitled to go behind mere form so as to get at the truth.

(6)  On an appeal against the rejection of a proof, the applicant’s burden is to prove a real debt, to be established by credible evidence.

(7)  Hence, there may be cases, for example where probative evidence is scarce, where the incidence and standard of proof has some significance. The burden remains with the applicant to establish proof of the claim on the balance of probabilities on whatever evidence is produced.

(8)  The applicant is not entitled to say that his claim should be admitted because this is all the evidence that he has and because the best evidence has been lost or destroyed. Even in such a situation, the burden remains with the applicant to prove his claim on the balance of probabilities on the evidence as is produced.

(9)  But the Court is not bound to accept at face value any accounts of a company previously prepared, and is entitled to go behind them to form its own conclusion as to the truth. Even if the accounts in question have been audited, where there is evidence to show that the accounts are or may be inaccurate, or to cast doubt on the way in which the auditor carried out his duties, this will be a factor to take into account.

25.  The above principles obviously demonstrate the importance of the applicant having to discharge the burden of proof by credible evidence. The mere proof of payment to the alleged debtor does not per se establish the existence of any loan or obligation to repay. In other words, there is no presumption of an implied obligation to repay from the fact of payment to a stranger. As explained by Sir Anthony Mason NPJ in Big Island Construction (HK) Ltd v Wu Yi Development Co Ltd (2015) 18 HKCFAR 364 at §106:-

“The making of a bare payment to another may in the nature of things be explicable by reference to a wide variety of possibilities. To my mind, the probability that there is an obligation to repay the amount is not so strong that it should become the subject of a presumption, even a presumption of fact... It is the making of the payment in the circumstances which surround it that will enable appropriate inferences to be drawn, in the light of any relevant traditional presumption. In such a situation it is preferable to avoid the making of a presumption and leave the character and effect of the payment to the drawing of inferences.”

26.  As mentioned above, in deciding whether to admit or reject a proof of debt, a liquidator carries out a quasi-judicial function. In such position, he does not act on behalf of the company and hence may go behind a judgment or a stated account which before the winding up would have been binding on the company. The usual grounds under which a liquidator may go behind a judgment include fraud, collusion or miscarriage of justice, i.e. for some reason there ought not to have been a judgment: Re Dragon Seafoods Ltd[2023] HKCFI 2624 at §§58-61, 70-72 (per Anthony Chan J). In the present case, the Liquidators rely on the ground of “miscarriage of justice” which encompasses the circumstances where “for some reason there ought not to have been a judgment”. The apparent width of this ground allows the court to consider all relevant circumstances in order to determine if it would be unjust to admit or reject a proof of debt.

27.  Where, as in the present case, the proof of debt is based on a default judgment, I agree with the Liquidators that the ground of “miscarriage of justice” may be particularly relevant since a default judgment, by its very nature, involves a one-sided presentation of the facts, the objectivity and accuracy of which may be subject to challenge or further scrutiny: Re Tam Mei Kam (unrep., CACV 87/2012, 8 May 2013) at §23 (per Yuen JA).

F.  DISCUSSION

28.  In these proceedings, the evidence relied on by the Petitioner is primarily documentary in nature. Although Komal has filed her 5^th, 6^th and 7^th Affirmations in support of the Summons, she does not purport to have any personal knowledge of the Alleged Loans owed by the Company to Mahtani and Future Proof. Her affidavit evidence is mainly based on the historical documentary evidence which, as contended by the Petitioner, supports the existence of the Alleged Loans. Further, as discussed above, Ashok’s Affirmation mainly refers to the evidence referred to by Komal. Insofar Ashok’s Affirmation contains his own assertions, little weight should be placed given his decision not to attend the hearing despite the order for cross-examination made.

29.  The Petitioner’s written and oral submissions do not provide any further elaborations or explanations on the matters set out in its affidavit evidence (particularly the 5^th Affirmation of Komal). Instead, the Petitioner attempts to highlight various legal submissions on why the Liquidators were wrong in going behind the Default Judgment and forming its own view on the existence of the Alleged Loans. The Petitioner’s contentions include the following:-

(1)  The Default Judgment formed the basis of the winding-up petition of this case. Neither the Default Judgment nor the Charging Order absolute dated 15 February 2008 in respect of the Judgment Sum (“Charging Order”) have ever been challenged.

(2)  Specifically, the Liquidators themselves have not sought to challenge either the Default Judgment or the Charging Order.

(3)  No allegation or suggestion has ever been made by the Liquidators or any other party that there was any fraud, collusion or miscarriage of justice in obtaining the Default Judgment. As such, there is no basis for either the Liquidators or the Court to look behind the Default Judgment and form its own view on whether the alleged debts exist.

30.  I cannot accept the Petitioner’s contentions, particularly in view of the authorities referred to above:-

(1)  There is no requirement that a liquidator should seek to challenge the judgment (or a charging order granted in respect of the judgment) before looking behind the judgment. As explained in both Re Dragon Seafoods (above) at §58 and Re Fortune King Trading Limited (above) at §20, in deciding whether to admit or reject a proof of debt, a liquidator does not act on behalf of the company but acts in a quasi-judicial capacity, and may go behind a judgment which before the winding up would have been binding on the company.

(2)  In my view, it is sufficiently clear that the Liquidators’ case is based on an alleged miscarriage of justice in the Default Judgment in the sense that had the Company properly defended the proceedings, it would have succeeded in establishing that the Alleged Loans were not owed by the Company. Hence, as contended by the Liquidators, there is some good reason that the Default Judgment ought not to have been granted. In this connection, I note that a significant part of the Notice of Adjudication and Fung’s 2^nd Affirmation (for the Liquidators) addressed why there is no factual basis for the Petitioner to claim for the Alleged Loans against the Company, which falls within the “miscarriage of justice” ground for going behind a judgment. I also fail to see why the existence of a Charging Order could advance the Petitioner’s case further.

The Alleged Loans

31.  For reasons explained below, having considered all the evidence, I am not satisfied that the Petitioner has discharged its burden of proving the Alleged Loans as genuine debts owed by the Company to the Petitioner by way of credible evidence.

32.  First, there is a lack of direct evidence supporting the existence of the Alleged Loans. The Petitioner has not adduced any affidavit evidence explaining the genesis of the Alleged Loans, such as whether it was entered orally or in writing. Nor is there any documentation recording or evidencing the terms of the Alleged Loans.

33.  Secondly, in my view, the available contemporaneous documents fall short of demonstrating the existence of the Alleged Loans. As a matter of fact, in many instances, the documents show information which directly contradicts the Petitioner’s case.

34.  As for the 1^st Loan:-

(1)  The bank documents relied upon by the Petitioner show that Future Proof (i.e. the company previously owned by Mahtani, father of Komal and father-in-law of Ashok) uplifted three time deposits held with Standard Chartered Bank (“SCB”) on 4, 18 and 25 July 1994 and that a substantial part of it was apparently used to settle bills which, according to SCB’s letter dated 5 August 1994, related to a “Mr. Rama” of “Akume Limited”.

(2)  There is no evidence showing any details of the bills that were settled by funds uplifted from Future Proof’s time deposits. In particular, there is no information as to whether the money alleged used was at any point in time deposited into the Company’s bank account. Neither is there any information as to whether the Company was involved in settling the bills.

(3)  In my view, the available evidence is, to say the least, equally consistent with Future Proof settling its own bills or those of Akume Limited. It is not supportive of any loan advanced by Mahtani/Future Proof to the Company.

35.  As for the 2^nd Loan:-

(1)  In relation to the first sum of US$301,156.30 allegedly advanced by Mahtani on 31 May 1990:-

(a)  A payment voucher issued by the Company shows that on 31 August 1990, the account of Mahtani was debited and the account of a company known as “Zacommita” (which, according to the Company, is one of its fellow subsidiaries and now known as “Supersonic S.P.R.L. Kinshasa, D.R.C.”) was credited with US$301,156.30. However, a reverse entry was subsequently recorded in the Company’s journal entry on 31 December 1990 showing that Zacommitta’s account was debited and Mahtani’s account was credited with the same amount. Such entries cannot support the alleged loan owed by the Company to Mahtani.

(b)  Again, none of the documents show that the first sum of the 2^nd Loan was ever deposited or credited into the Company’s bank account, whether on 31 May 1990 or at all.

(2)  As for the second and third sums of US$200,971.30 and US$24,418.40 allegedly advanced by Mahtani on 27 December 1990 and 1 March 1991 respectively, the journal entries and credit advices show that these sums were credited into Company’s Société Générale account on 27 December 1990 and 1 March 1991 respectively. However, they do not show or explain the reasons or purpose for which the sums were so credited, for example, whether as a loan or otherwise.

(3)  Significantly, subsequent accounting entries appear to show that all three sums (insofar as they were advanced to the Company) were repaid to Mahtani on 31 March 1991 by the credit of an equivalent sum to Zacommita’s account.

(a)  The journal entry on 31 March 1991 shows that Mahtani’s account was debited and Zacommita’s account was credited with the sum of US$554,957.54. The transfer of the credit of US$554,957.54 is also shown in the account ledger of Zacommita’s account.

(b)  The breakdown of the sum of US$554,957.54 is shown in a Statement of Mahtani’s account as at 31 March 1991, which includes, inter alia, the sums of US$301,156.30, US$200,971.30 and US$24,418.40.

(c)  Consistent with the above, in the Statement of Mahtani’s account as at 30 November 1991, it was stated that the sums of US$301,156.30, US$200,971.30 and US$24,418.40 were credited first to Mahtani’s account and later on 31 March 1991 transferred and credited to Zacomitta’s account.

(4)  Thus, on the contemporaneous accounting records provided by the Petitioner, I am not satisfied that: (a) any of the sums said to constitute the 2^nd Loan were advanced as a loan to the company and (b) even if they were so advanced, they remained due to Mahtani after 31 March 1991.

36.  As for the 3^rd Loan, the contemporaneous documents are inconsistent with the existence of a creditor and debtor relationship between Mahtani (or Future Proof) and the Company:-

(1)  The accounting entries in the Company’s sub-ledgers and journals throughout the year of 1991 consistently record that the two sums of US$312,500 and US$87,500 said to constitute the 3^rd Loan were booked as amounts credited into the Company’s accounts to partially settle (i.e. to reduce) the debit balance (i.e. sums then due to the Company) on Zacommita’s account.

(2)  In the credit advice of the first sum of US$312,500, it was expressly recorded that the purpose of payment was for “PART PAYMENT FOR THE GOODS PURCHASED”. In my view, this simply cannot be reconciled with the existence of a loan from Mahtani to the Company. On the other hand, it is consistent with the sum being applied towards the settlement of sums due from Zacommita to the Company arising from goods purchased by it from the Company. In this regard, I agree with the Liquidators that if the credited sums were in the nature of a loan at all, they could be regarded as loans from Mahtani (or Future Proof) to Zacommita and not to the Company.

37.  Thirdly, it does not appear to be in dispute that the Alleged Loans (and interest thereon) were never recorded in any of the audited financial statements or management accounts of the Company. What is more alarming is that, according to documents authored by, inter alia, Ashok, it appears that the Alleged Loans were in fact booked in the accounts of other companies. For example:-

(1)  On 5 April 2002, Ashok executed three guarantees apparently in favour of Mahtani in respect of the Alleged Loans. According to the guarantees, the 1^st and 3^rd Loans were “advanced accumulatively to Primdale General Trading, Dubai”, whereas the 2^nd Loan was “advanced accumulatively to Supersonic S.P.R.L.”. No mention whatsoever was made of the Company.

(2)  On 19 November 2002, in a fax sent by Ashok to one Mr. Raman, Ashok noted: (a) the 1^st and 3^rd Loans “were reflected in Dubai’s Balance Sheet” and (b) the 2^nd Loan “is reflected in Supersonic’s Balance Sheet”. Statements to the same effect can also be found in a “Group Liabilities Statement” as at 31 March 2005. Again, there is no reference to the Company in these documents.

(3)  On 2 June 2005, Ashok circulated a document entitled “Creditors Position” by email, whereby it was recorded that the total sums due from the Company to Mahtani was approximately US$24,516.76 only. The same information was repeated in another document circulated by Ashok on 22 November 2006.

38.  I also note that in Komal’s 6^th Affirmation, four vouchers dated 31 March 2008 from the purchase journal of the Company, which purport to establish the existence of the Alleged Loans, were exhibited. Insofar as they are relied upon by the Petitioner to demonstrate the existence of the Alleged Loans, I attach minimal or no weight on them in view of the fact that, even on the Petitioner’s own case, they were created more than 10 years after the Alleged Loans were advanced. On the other hand, the contents of the vouchers which appear to show that the Alleged Loans were “now” booked to the accounts of the Company confirm that the Alleged Loans were never so booked before 31 March 2008 and no explanation has ever been proffered for such an inordinate delay.

Interest on the Alleged Loans

39.  For completeness, I agree with the Liquidators that there is, in any event, insufficient evidence supporting the Petitioner’s claim for interest on the Alleged Loans. None of the documents demonstrate that there was any “agreed basis” for the sums advance to carry interest “at the 3 months’ fixed deposit rate of interest for United States Dollars laid down from time to time by Bank of India”, as alleged in the Petitioner’s Statement of Claim in HCCL 42/2007.

The Future Proof Loan

40.  The existence of the principal element of the Future Proof Loan is not in dispute and has been admitted by the Liquidators as an ordinary claim in their Notice of Adjudication. However, the Liquidators have rejected the interest element on the Future Proof Loan.

41.  I agree with the Liquidators that, as with the Alleged Loans, there is also no evidence showing the alleged basis of interest for the sums advanced under the Future Proof Loan. Further, in contrast to the principal element of the Future Proof Loan, its interest element was never recognised in the Company’s books.

42.  As such, I reject the Petitioner’s claim for interest on the Future Proof Loan.

G.  CONCLUSION

43.  In view of the reasons stated above, I confirm the Liquidators’ Decision and dismiss the Summons. As mentioned above, I have dismissed the Petitioner’s Further Evidence Summons.

44.  Accordingly, I make a costs order nisi that the Petitioner shall pay the costs of and occasioned by the Summons and the Further Evidence Summons (including all costs reserved) to the Liquidators, to be taxed if not agreed.

Mr Andrew Nicholas Hart, Solicitor Advocate of Hart Giles, for the Petitioner

Mr Justin Lam and Mr Billy Liu, instructed by J. Chan, Yip, So & Partners, for the Joint and Several Liquidators

HCCW 258/2018 & HCMP 879/2018
(HEARD TOGETHER)

[2020] HKCFI 339

HCCW 258/2018

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING‑UP PROCEEDINGS NO 258 OF 2018

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IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 879 OF 2018

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REASONS FOR DECISION

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1.  On 25 July 2019 I heard two summonses. The first is in HCMP 879 of 2018 (in which Ramchand Hemnani seeks declarations and rectification of the 3^rd Defendant’s share register “Action”), which is a summons issued by the Defendants (in practice the 1^st and 2^nd Defendants, who are contributories, the 3^rd Defendant “Company” not being represented at the hearing) dated 21 September 2018 to stay Ramchand’s action. The second is in HCCW 258 of 2018, which is a creditor’s petition issued by Renew Limited to wind-up the 3^rd Defendant “Petition”. Ramchand issued a summons on 7 November 2018 principally for an order staying the Petition pending determination of the Action.

2.  The Company, which is the subject of the winding-up petition is owned by members of the Hemnani Family.  The Petitioner is a third party. Ramchand harbours concerns about the circumstances in which the alleged debt came to be incurred.  He cannot take any steps to intervene in the conduct of the Petition, because he has been removed as a director and the share register records shares once registered in his name as having been transferred to the 1^st Defendant, Ashok.  Ramchand says both actions were done without his consent and are unlawful.  Ramchand is concerned the Petition debt is not due and wishes to investigate the matter.  He has commenced the Action, which is contested, in order to rectify the share register.

3.  At the end of the hearing I declined to stay the winding-up petition.  It did not seem to me that there was any justification for preventing the Petitioner pursuing the Petition until after the determination of an unrelated dispute between the Company’s shareholders had been resolved.  Ramchand has been unable to file any evidence that demonstrates that there may have been collusion between the Petitioner and the Company.

4.  Mr Brown on behalf of the Petitioner told me that as a consequence no order was required on the summons in the Action.  The only issue that remained to be dealt with is costs.  In the case of Ramchand’s summons in the winding-up proceedings I will order that Ramchand pays the Petitioner’s costs with a certificate for counsel.

5.  The costs of the summons in the Action is more controversial.  Mr Chen on behalf of Ramchand argued that the summons was unnecessary.  Given that the purpose of the Action was to obtain orders that facilitated Ramchand taking steps to determine if the Petition should be defended it was unnecessary from its inception, or certainly became so once the summons in the Petition had been issued as the latter was always likely to be determinative of the matter.

6.  The position that has arisen in these proceedings is unusual.  Ramchand is asking for the Petition to be delayed until he has been put in a position to assess whether or not it should be defended.  Viewed from the Petitioner’s position this is unsatisfactory.  It is, however, difficult to see why the contributories thought it necessary to expend money certainly after issue of the summons in the Petition, which was always likely to determine whether the Company was wound-up.  I will order that the Plaintiff in the Action pays the 1^st and 2^nd Defendant’s costs up to one month after issue of the summons in the Petition, namely, 7 December 2018 to take into account the need to consider its implications for the future conduct of the Summons in the Action and no order for costs thereafter.