HCCW001134A/2002
HCCW 1134/2002
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
COMPANIES (WINDING-UP) NO. 1134 OF 2002
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| IN THE MATTER of KEEN LLOYD RESOURCES LIMITED (formerly known as KEEN LLOYD (HOLDINGS) LIMITED) AND IN THE MATTER of the Companies Ordinance, Cap. 32 |
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Coram: Hon Kwan J in Court
Date of Hearing: 9 July 2003
Date of Handing Down of Judgment: 23 July 2003
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J U D G M E N T
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1. This is a petition to wind up Keen Lloyd Resources Limited ("the Company") by the Bank of China (Hong Kong) Limited ("the petitioner") as the successor corporation of The Kwangtung Provincial Bank, based on a judgment obtained by the latter against the Company pursuant to an order made by Chu J in HCMP No. 4696 of 2000 on 3 July 2001. The Company had appealed against this judgment, but the appeal was dismissed by the Court of Appeal in CACV No. 1787 of 2001 on 8 February 2002.
2. By the judgment, the Company was ordered to pay HK$23,025,393.32 and US$3,043,159.07 with interest. A demand was served on the Company on 26 August 2002 by the petitioner's solicitors, requiring the Company to pay the balance of the judgment debt of HK$6,308,669.72 and US$3,675,154.08 with interest within 21 days, after giving credit to the estimated value of the security held by the petitioner in the sum of HK$21.5 million. As no payment was made by the Company, the petition herein was presented in respect of the balance of the judgment debt on 10 October 2002.
3. The property charged to the petitioner as security was sold on 30 December 2002 at HK$22,080,000.00 and the net proceeds of sale applied to reduce the indebtedness of the Company amounted to HK$21,705,927.19. As at 30 December 2002, the balance of the judgment debt due from the Company to the petitioner, including interest calculated up to that date, was HK$6,651,796.24 and US$3,747,608.14. Interest continues to accrue on these sums at the judgment rate from 31 December 2002.
4. The petitioning debt is not in dispute. The Company has opposed the petition on these grounds:
(1) It has genuine cross-claims in damages against the petitioner, as the successor corporation of Sin Hua Bank Limited ("Sin Hua"), for amounts exceeding the petitioning debt in HCA No. 10521 of 2000 ("the 10521 Action") and in HCA No. 1319 of 2001 ("the 1319 Action").
(2) The petition was presented for an ulterior motive in order to exert pressure on the Company to come to a global settlement of the existing disputes in terms favourable to the petitioner.
(3) The Company is solvent; alternatively if it were insolvent, the insolvency was caused by the wrongs of the petitioner.
5. For the purpose of these proceedings, it is accepted by the petitioner that although the 10521 Action and the 1319 Action were instituted against Sin Hua rather than the petitioner as such, these actions are to be treated as if they had been brought against the petitioner, by virtue of section 8(a) of the Bank of China (Hong Kong) Limited (Merger) Ordinance, Cap. 1167.
6. There is one supporting creditor, Societe Nationale D'Operations Petrolieres de la Cote D'Ivoire-Holding, acting on behalf of Petroci Exploration Production S.A. This creditor has obtained a judgment in its favour in the sum of US$5,950,000.00 on 2 August 2001 in HCCT No. 55 of 2001, based on an arbitration award dated 28 June 2001 of the International Court of Arbitration, Paris, France. The Company appealed against the judgment in HCCT No. 55 of 2001 on the ground that it had filed an application on 27 July 2001 to set aside the arbitration award in the Paris Appeal Court. As the application to set aside the arbitration award was unsuccessful, the Company has consented to have its appeal against HCCT No. 55 of 2001 dismissed with costs.
7. There are three opposing creditors, Winbest Resources Limited ("Winbest Resources"; with a claim for HK$258,978,402.53), Winko Metal Limited ("Winko Metal"; with a claim for HK$113,535,943.95) and Winko Motor Industries Limited (with a claim for HK$150,569,677.74). These companies are all within the same group ("the Keen Lloyd group"). The first and the third are related companies of the Company, according to the balance sheet of the Company printed on 18 January 2003. The Company owns 99.9998% of the shares of the second, according to a chart exhibited to the 1st affirmation of Chin Kam Chiu ("Mr Chin") filed herein on 30 December 2002. I should mention that Mr Chin holds 99.4% of the shares in the Company and is a director. The opposing creditors have not advanced any ground for opposing the petition.
The relevance of cross-claims
8. The recent leading authority on the approach to be adopted where cross-claims are raised in opposition to winding-up proceedings is the decision of the English Court of Appeal in Re Bayoil SA [1999] 1 Lloyd's Rep 211, in which the earlier decisions of the Court of Appeal in Re Portman Provincial Cinemas Ltd [1999] 1 WLR 157 (this was decided in 1964 but only reported as a note in the law reports in 1999) and Re L.H.F. Wools Ltd [1969] 3 WLR 100 were re-affirmed. The principles in Bayoil were adopted and applied by the Hong Kong Court of Appeal in Re S.Y. Engineering Co. Ltd, CACV No. 1896 of 2001, 27 February 2002, paragraphs 15 and 16, and they are encapsulated in the following passages in the judgment of Nourse LJ:
"Having held that the company had a genuine and serious counterclaim in the arbitration, which it had been unable to litigate, in an amount exceeding the amount of [the petitioner's] debt, the Judge ought to have asked himself whether there were special circumstances which made it inappropriate for the petition to be dismissed or stayed ...
These, I believe, are considerations which go to justify the practice in cross-claim cases. I emphasize that the cross-claim must be genuine and serious or, if you prefer, one of substance; that it must be one which the company has been unable to litigate; and that it must be in an amount exceeding the amount of the petitioner's debt." (at 216)
9. There are therefore four elements in the principles in the Bayoil case:
(1) the debtor company has a genuine and serious cross-claim;
(2) it has been unable to litigate the cross-claim;
(3) the cross-claim exceeds the amount of the petitioner's debt; and
(4) where the requirements in (1) to (3) are met, the court should exercise its discretion to dismiss or stay the petition in the absence of special circumstances.
10. Mr Scott, SC, who appeared for the Company, submitted that the requirement in (2) is questionable. He pointed out there was no examination of this requirement in Bayoil and it is not apparently derived from Portman Provincial Cinemas and L.H.F. Wools, on which the principles in Bayoil are founded. He queried the precise scope of this requirement. Does it mean that the company is not able to litigate its cross-claim to a judgment before the petition is heard? And what is meant by "inability" in this context? Does it mean financial inability or is that a reference in terms of time? It was submitted that the incorporation of this requirement by the Court of Appeal in S.Y. Engineering was obiter.
11. Mr Tang, SC, who appeared for the petitioner, informed me that he does not wish to rely on that part of his written submission in which he contended that the cross-claim in the 1319 Action is not one which the Company has been unable to litigate. No point was taken in his written submission as regards the inability or otherwise of the Company to litigate the cross-claim in the 10521 Action, as that action was stayed by consent on 15 February 2002 pending the final determination of the 1319 Action. That being the position of the petitioner, Mr Scott did not find it necessary to develop further his challenge of the correctness of requirement (2) in Bayoil.
12. It is therefore unnecessary for me to decide whether the incorporation of requirement (2) was not part of the ratio decidendi of Bayoil and that the incorporation of this requirement in S.Y. Engineering was likewise obiter. I wish merely to observe that in another case cited by Mr Tang, Montgomery v. Wanda Modes Ltd [2002] 1 BCLC 289, Park J had considered at some length what Nourse LJ said about the requirement that the debtor must not have been able to litigate his cross-claim, with the benefit of the decision of Rimer J in Re a Debtor (No. 87 of 1999) [2000] BPIR 589. It was held that a company is not precluded from relying on a cross-claim as a ground for opposing a winding-up petition by the fact that it could reasonably have litigated the cross-claim before the winding-up petition was presented. Park J concluded on the authorities that this requirement was either not met (as in Portman Provincial Cinemas) or was not in issue (as in L.H.F. Wools and Bayoil), so it could not have formed part of the ratio of the decision in these authorities. He suggested that Nourse LJ might have taken this requirement from the headnote in L.H.F. Wools and the headnote writer had gone beyond what the court had decided. As a matter of principle, Park J finds nothing objectionable in a company which had refrained from pursuing a claim which it believed it had against anther party, and later deciding to pursue the cross-claim if the other party threatened it with winding-up proceedings for non-payment of a debt, since it would be undesirable if companies were penalised for refraining from litigating an issue or if parties were encouraged to litigate possible claims sooner rather than later.
13. I wish also to point out that Rimer J's decision, insofar as he had questioned the requirement of inability to litigate, was not disapproved in subsequent decisions of the English Court of Appeal and the requirement of inability to litigate a cross-claim has not been insisted upon in cases of personal insolvency (Garrow v. Society of Lloyd's [2000] Lloyd's Rep IR 38; Hurst v. Bennett [2001] 2 BCLC 290). As Robert Walker LJ stated in Garrow: "Delay in putting forward a cross-claim may lead to an inference that it is not put forward in good faith, but only as a pretext in an attempt to stave off bankruptcy." Hence, delay in bringing the cross-claim would not, by itself, be regarded as fatal to defeat the cross-claim argument in personal insolvency.
14. For present purpose, I need only concentrate on the questions whether the cross-claims in the 10521 Action and the 1319 Action are serious and genuine and whether they would exceed the petitioning debt and the reverse cross claim of the petitioner, which I will deal with. Mr Tang submitted that by analogy with the situation where there is an alleged bona fide dispute of the petitioner's debt, the onus is on the company to adduce "sufficiently precise factual evidence" to satisfy the court that it has such a cross-claim (Re ICS Computer Distribution Ltd [1996] 1 HKLR 181 at 183I).
15. Mr Scott did not dispute the above proposition of Mr Tang. He merely wished to emphasise that since the procedure of winding up a company for insolvency by petition is summary, it is not appropriate to conduct a detailed examination of the veracity of affidavit evidence without cross-examination and that the test is not whether the Company's evidence is to be believed but whether it is believable. So long as the court is satisfied that there are cross-claims that are the subject matter of proceedings that have not been struck out as demurrable, the cross-claims should be regarded as serious and substantial for present purpose. He asked me to adopt a high level of scepticism if I were minded to reject any statement on affidavit in these proceedings.
16. In assessing whether the Company's cross-claims are genuine and substantial, I bear in mind that the onus is on the Company to adduce sufficiently precise factual evidence to establish the cross-claims. In looking at the evidence adduced by the Company, I ask whether the evidence is believable. I do not think it relevant that there is no application to strike out the 10521 Action or the 1319 Action as unsustainable or that it was held by Chung J in an application of the Company for an interlocutory injunction against Sin Hua in the 1319 Action that there are serious questions to be tried in that action. It is clear from page 4 of the judgment handed down on 4 April 2001 that Chung J was concerned with rather different issues in holding that there are serious questions to be tried, whereas I am concerned primarily with the substantiation and quantification of the claim in damages.
17. The reverse cross-claim of the petitioner that I mentioned earlier arose in this way. The petitioner has succeeded to the undertakings of Hua Chiao Commercial Bank Limited ("Hua Chiao") in the merger of banks by virtue of Cap. 1167. On 3 March 2001, Hua Chiao obtained summary judgment against the Company and another in HCMP No. 7183 of 1999 in the sum of HK$10,695,840.43 with interest. An appeal to Waung J was dismissed with costs on 5 June 2001. A further appeal to the Court of Appeal was dismissed by consent on 18 February 2002. The claim was based on a loan and the Company had raised as defence an alleged oral agreement that the loan was for a fixed term of five years.
18. The Company brought a related action against Hua Chiao for specific performance of the alleged oral agreement on 15 September 2000 in HCA No. 9010 of 2000. That action was struck out by a Master on 10 September 2001 and the appeal of the Company to the Court of First Instance was dismissed by consent with costs on 21 March 2002.
19. The petitioner has not recovered from the Company the judgment debt in HCMP No. 7183 of 1999 or the costs in HCA No. 9010 of 2000. The Company does not dispute it has no defence to these claims, having exhausted or abandoned its appeals. The court would allow a reverse cross-claim of the petitioner to neutralise a cross-claim of the debtor if the reverse cross-claim is certain to become a definite debt because there is no realistic defence to it (Montgomery v. Wanda Modes, supra. at 300).
20. The totality of the petitioner's debt in the petition and its reverse cross-claim is in the region of HK$47 million, with interest calculated up to December 2002. The Company would need to establish it has genuine and substantial cross-claims against the petitioner in excess of HK$47 million.
The cross-claim in the 10521 Action
21. The writ in the 10521 Action was issued by the Company against Sin Hua on 18 December 2000 with an indorsement of claim stating that the Company's claims are based on Sin Hua's failure to release nine bills of lading with dates of arrival in Hong Kong between 23 January 1999 and 2 March 1999 and that the Company has suffered damages of the goods in the sum of US$7,428,204.64 and storage fee up to November 2000 of HK$63,322,178.58. The alleged damages of the goods, as clarified in the 2nd affirmation of Tsang Siu Lan Jones ("Miss Tsang") filed herein on 8 July 2003 on behalf of the Company, relate to the entire value of the goods in the shipments.
22. A statement of claim settled by counsel was filed on 28 February 2001. The pleaded allegations may be summarised as follows:
(1) There was an agreement between the Company and Sin Hua that Sin Hua would provide banking facilities for the Company to take delivery and/or to sell the shipments under certain letters of credit.
(2) It was further agreed that, subject to the execution of trust receipts by the Company in favour of Sin Hua, Sin Hua would release to the Company shipping documents received by Sin Hua on behalf of the Company for each of the relevant shipments.
(3) In breach of the agreement, Sin Hua had refused to extend trust receipt facilities to the Company in relation to the nine shipments (different dates of arrival were pleaded in the statement of claim for five of these shipments, they were all within January to March 1999) and had also refused to release the shipping documents in respect of these shipments to the Company.
(4) As a result, the Company has incurred the sum of HK$63,322,178.58 in storage fees for these shipments, for which Sin Hua should be liable.
23. In the prayer for relief, the Company claims (1) delivery of the shipping documents for the nine shipments; (2) compensation for losses caused under the Court's equitable jurisdiction; (3) alternatively, damages; (4) special damages in the sum of HK$63,322,178.58 up to November 2000 and thereafter to be assessed. There is no claim for damages being the entire value of the shipments as in the indorsement of claim.
24. The claim in this action is premised on the existence of the goods covered by the nine shipments. It is immaterial that Sin Hua has not specifically pleaded the non-existence of the goods in its defence and counterclaim filed in the 10521 Action. Six vessels were stated to be the carriers in the nine bills of lading. The Marine Department of Hong Kong had confirmed in its letter to the petitioner's solicitors dated 5 January 2001 that for four of the vessels, namely, Fair Fountain 14, Maria, Jian Xiang 1 and Changan 105, there was no entry and clearance record of any of them calling in Hong Kong in 1999. As for the remaining two vessels, Chang Yue and Chang Zhan, it was stated in the bills of lading that the port of loading was Singapore and the port of discharge was Hong Kong. According to the aforesaid letter of the Marine Department, the record showed that two vessels of those names had been reported as having arrived in Hong Kong on 29 January 1999 and 2 February 1999 respectively, after leaving Huangpu in Guangzhou. There was, however, no record of these two vessels calling at Singapore during the years of 1998 and 1999, according to the letters of the Maritime and Port Authority of Singapore to the petitioner's solicitors dated 22 and 28 December 2000. This authority also confirmed that it had no records of the vessels Fair Fountain 14 and Jian Xiang 1 calling at Singapore during 1998 and 1999 (the relevant bills of lading had stated that Singapore was the port of loading for these two vessels). The Johor Port Berhad of Malaysia had confirmed in its fax to the petitioner's solicitors dated 3 January 2001 that it had no record of the vessel Maria calling at Pasir Gudang, Malaysia on 15 January 1999 and 22 February 1999 (the relevant bills of lading had stated that Pasir Gudang was the port of loading for this vessel).
25. As regards the nine bills of lading, save for the charter bill of lading relating to the vessel Maria, they were issued by Ocean Eagle Shipping Agency Limited ("Ocean Eagle") or Pacific Shipping (Far East) Limited ("Pacific Shipping"). In the 5th affirmation of Mr Chin filed herein on 3rd July 2003, he claimed that "the shipping company is not under the control of the Keen Lloyd group" (emphasis supplied). In the 2nd affirmation of Miss Tsang, she stated that there was no common shareholder or director between Ocean Eagle and the Keen Lloyd at all material times and as to Pacific Shipping, Mr Chin had resigned as a director in March 1998 whereas she was appointed as a director in March 1998 and had resigned in June 2000.
26. Ocean Eagle had changed its name to Winko Shipping Agency Limited on 24 July 2000 and has been deregistered on 19 July 2002 pursuant to section 291AA(9) of the Companies Ordinance, Cap. 32 as a defunct company. At the relevant time in 1999, Pacific Shipping was the holding company of Ocean Eagle, holding 99.99% of its shares.
27. Pacific Shipping had changed its name to Winko Management Services Limited on 17 July 2000 and was wound up by the court on 11 September 2002 on a creditor's petition. There is a letter dated 26 October 2000 from the Company's solicitors to the petitioner's solicitors stating that Pacific Shipping was one of the companies within the Keen Lloyd group. Mr Chin was a subscriber of Pacific Shipping.
28. There is no evidence of any payment of the storage fees claimed in the sum of HK$63 million odd, which were calculated only up to November 2000, save for various reminder letters in 1999 and 2000 sent by Ocean Eagle and Pacific Shipping to the shippers Agritrade International Private Limited ("Agritrade") and MG Metal and Commodity Company Limited and copied to the notify party, Keen Lloyd Energy Limited ("Keen Lloyd Energy"; formerly known as Keen Lloyd Investments Limited). It was stated in those letters that if the storage charges were not settled as soon as possible, Ocean Eagle and Pacific Shipping would arrange for the goods to be sold by auction. As described in the bills of lading, the goods were electrolytic copper cathodes, refined palm olein, and aluminium ingots. In the 2nd affirmation of Miss Tsang, she has calculated the up-to-date storage charges owed to Ocean Eagle and Pacific Shipping in the respective sums of HK$135,141,223.33 and HK$21,833,282.77.
29. According to the 1st affirmation of Chan Chi Wing Tony ("Mr Chan") filed herein on 7 July 2003 on behalf of the Company, Mr Chan, who is a former director of Pacific Shipping, has claimed that the goods covered by the bills of lading issued by Pacific Shipping are still being stored in a bonded warehouse in Huangpu, Guangzhou.
30. As for the goods covered by the bills of lading issued by Ocean Eagle, Miss Tsang has disclosed in her 2nd affirmation a letter dated 4 October 2000 from the petitioner's solicitors to Ocean Eagle in which the solicitors stated that the goods or their equivalent under the bills of lading had not been satisfactorily accounted to the petitioner and demanded information on the following matters with satisfactory documentary evidence: (1) when were the goods actually shipped from their destinations; (2) what was the name of the vessel and when did it sail and arrive in Hong Kong; (3) were the goods on board the vessel and when were they discharged in Hong Kong and to whom; (4) when was the petitioner informed to take delivery of the goods; (5) who has taken delivery of the goods; and (6) what was done to the goods with full account of all current holdings and/or dealings thereof. Miss Tsang made no mention if there was any reply to the petitioner's request for information and evidence.
31. There is no explanation why the goods have not been sold for four years notwithstanding substantial storage charges were incurred or why Ocean Eagle and Pacific Shipping have not sued for the storage charges.
32. Mr Chin has exhibited to his 5th affirmation two statements given by Ng Say Pek ("Mr Ng"), the managing director of Agritrade, a company incorporated in Singapore, to the investigating authorities there. Mr Ng stated that for the letters of credit issued by Sin Hua in favour of Agritrade as the shipper for the goods covered by the bills of lading set out in his first statement (four of which were among the nine bills of lading in the 10521 Action), Agritrade had obtained payment under the letters of credit and remitted a total of US$10 million to the Company via Winbest Resources, and as mentioned earlier, Winbest Resources was and is within the Keen Lloyd group. The remittance was made on the instructions of the supplier from which Agritrade had purchased the goods, Sichuan New-field Industry Development Company Limited ("Sichuan"), a company in Mainland China. It was Sichuan that had arranged for the shipment of the goods by Ocean Eagle and Pacific Shipping.
33. The statements of Mr Ng were put forward by the Company to counter any suggestion that the transactions covered by the bills of lading were non-existent, as they form the basis of criminal charges laid against Mr Chin, Miss Tsang and others in May 2003. It was submitted by Mr Tang that far from supporting the Company's case, Mr Ng's statements had cast doubt on the bona fides of the transactions as it would appear from the statements that in respect of the four bills of lading covered by the statements, Mr Chin had paid for the goods purportedly purchased with the letters of credit but the bulk of the proceeds ended up in Winbest Resources, a company within the Keen Lloyd group. I agree the statements of Mr Ng do not assist the Company's case in these proceedings, it is not necessary for me to go further.
34. As for the absence of records of four of the vessels named in the bills of lading calling in Hong Kong, Mr Chin explained in his 5th affirmation that because of the process known as "mid stream operation", there would be the involvement of an intermediary in that the goods on the vessels transporting them would generally be unloaded by tugs or unloaded onto other vessels, and it is wrong to assume that the vessels transporting the goods would be calling at the port of discharge. Mr Tang submitted that even if the mid stream operation were to take place, the vessels transporting the goods would have been moored at buoy or at anchor in the harbour for the tugs to unload the goods, so Mr Chin's explanation of the absence of records of arrival is simply inadequate. Mr Tang further submitted that if the goods were carried by other vessels, there ought to be evidence of a cargo manifest or clearance through customs and no such evidence has been adduced.
35. Mr Scott submitted on behalf of the Company that one cannot rule out the possibility for the mid stream operation to take place outside the territorial waters of Hong Kong, so there would be no records of arrival of the vessels transporting the goods. That, however, is contrary to the evidence filed on behalf of the Company. According to the affirmation of Mr Chan, "it is the practice of Pacific Shipping and in the industry that after the goods arrived into the Hong Kong waters, those goods would be unloaded from the vessels onto other vessels or onto tugs or delivered to warehouse for storage" (emphasis supplied).
36. I find that the evidence adduced by the Company in support of its cross-claim in the 10521 Action is unbelievable and that it has failed to discharge the onus that it has a genuine and substantial cross-claim.
The cross-claim in the 1319 Action
37. The 1319 Action was brought by the Company and Keen Lloyd Energy against Sin Hua and the individuals appointed by Sin Hua as receivers of various properties charged to Sin Hua as security for banking facilities granted. The writ was issued on 23 March 2001 with a statement of claim. It is alleged that Sin Hua had acted in breach of a settlement agreement made between the Company, Keen Lloyd Energy and Sin Hua on 14 April 2000 ("the Agreement").
38. By the Agreement, in return for Sin Hua agreeing not to proceed with any legal action to recover the debts owed by the Company, Keen Lloyd Energy and other associated companies in the Keen Lloyd group, the Company and Keen Lloyd Energy agreed, inter alia, as follows:
(1) They would procure Guangzhou Keen Lloyd Copper Industry Company Limited ("Guangzhou Keen Lloyd"; a joint venture company in Mainland China, in which the Keen Lloyd group holds a 90% equity interest through Winko Metal) to create a specific charge on its properties in favour of Sin Hua.
(2) They would surrender and deliver possession of six of the properties charged to Sin Hua at such time and in such manner as might be imposed by Sin Hua.
(3) They would sell and dispose of no less than two of the properties that had been charged to Sin Hua per month on such terms and conditions as might be approved by Sin Hua and to apply the proceeds of sale thereof to partially settle the indebtedness due to Sin Hua.
(4) They would partially settle the indebtedness by repaying to Sin Hua in accordance with the following repayment schedule:
(a) no less than HK$5 million before the end of April 2000;
(b) no less than HK$6 million before the end of May 2000; and
(c) no less than HK$10 million per month before the end of each month from June 2000 to March 2001.
39. It is alleged in the statement of claim that there was an implied term of the Agreement that Sin Hua and the Keen Lloyd group would use their best endeavours to facilitate the restructuring of the indebtedness of the group to Sin Hua and in particular Sin Hua was to grant to Guangzhou Keen Lloyd facilities for opening letters of credit to enable Guangzhou Keen Lloyd to generate business and revenue to the Company and Keen Lloyd Energy. It is further alleged that there was a collateral agreement in that Sin Hua had warranted to the Company and Keen Lloyd Energy that it would grant to Guangzhou Keen Lloyd facilities for opening letters of credit against a pledge of the properties, plant and machinery of Guangzhou Keen Lloyd.
40. In performance of the Agreement, the Company and Keen Lloyd Energy had procured Guangzhou Keen Lloyd to pledge its assets to the Shenzhen branch of Sin Hua ("the Shenzhen branch") on or about 17 April 2000 by a loan agreement ("the Loan Agreement") and various security documents. By the Loan Agreement, the Shenzhen branch agreed to grant to Guangzhou Keen Lloyd facilities for opening letters of credit to the extent of HK$200 million. Further, the Company and Keen Lloyd Energy had surrendered and delivered to Sin Hua possession of ten of the properties that had been been charged, sold six of the charged properties and had made some repayments, although not in accordance with the repayment schedule.
41. It is alleged that Sin Hua was in breach of the Agreement in that the Shenzhen branch had not performed the Loan Agreement to grant facilities to Guangzhou Keen Lloyd for opening letters of credit; it had wrongfully alleged repudiation of the Agreement by the Company and Keen Lloyd Energy and had purportedly accepted such repudiation; it had commenced proceedings against various companies in the Keen Lloyd group for recovery of the entire indebtedness; and it had appointed receivers of the properties charged claiming there was default under the charges.
42. In the prayer for relief, the Company and Keen Lloyd Energy claim against Sin Hua the following reliefs: (1) a declaration that the Agreement is valid and subsisting; (2) stay of the proceedings brought by Sin Hua against various companies in the Keen Lloyd group for recovery of the entire indebtedness; (3) an injunction to restrain Sin Hua from bringing further proceedings for recovery of the entire indebtedness; (4) a declaration that the appointment of receivers of the charged properties was unlawful and void; (5) an injunction to restrain Sin Hua from enforcing the charges for recovery of the indebtedness; (6) an injunction to restrain Sin Hua from proceeding with any action on the personal guarantees given by the directors of the Company and Keen Lloyd Energy; and (7) damages.
43. It is the claim for damages that is important for present purpose. The only allegations made in the statement of claim regarding loss and damage suffered by the Company and Keen Lloyd are that: (1) the tenant of one charged property had given notice it would give up possession on 30 March 2001; (2) the tenant of one charged property had given notice he did not wish to renew the tenancy; and (3) the tenant of one charged property had given notice he would suspend the payment of rent for three months from March 2001. It is pleaded that the Company and Keen Lloyd "will continue to suffer other loss and damage", but no particulars have been provided in the 1319 Action for this allegation. Assuming that the pleaded allegations in support of the claim for damages were of substance, the claim for damages would come nowhere near the petitioner's debt and reverse cross-claim in the region of HK$47 million.
44. In the evidence filed in these proceedings by the Company, Mr Chin has alleged that if the Agreement and the collateral agreement should be held to be valid and subsisting, the Company and Keen Lloyd Energy would be entitled to enforce the same and obtain from the petitioner the promised facility of HK$200 million. At no stage in the 1319 Action have the Company and Keen Lloyd Energy claimed that Sin Hua is liable as to HK$200 million by way of damages.
45. Mr Tang submitted that there is no sufficiently precise factual evidence that the Company is entitled to claim the loss of HK$200 million. Besides, any breach resulting in loss by Guangzhou Keen Lloyd could only be claimed by this entity, not by the Company, as it is established law that a shareholder (the Company in this instance) cannot sue for a loss merely reflective of the company's loss (Guangzhou Keen Lloyd in this instance), unless the company had no claim or where the loss which the shareholder suffered was additional to and different from that suffered by the company (Prudential Assurance Co. Ltd v. Newman Industries Ltd (No. 2) [1982] 1 Ch 204; Johnson v. Gore Wood & Co. [2001] 1 BCLC 313; Day v. Cook [2002] 1 BCLC 1). Further, the loss of Guangzhou Keen Lloyd could not be the HK$200 million credit limit because even if facilities were granted, Guangzhou Keen Lloyd would still have to repay the HK$200 million to the Shenzhen branch. At most, Guangzhou Keen Lloyd could only claim for losses arising out of the refusal to grant the facilities. In any event, on 10 March 2002, the collegiate bench of the Guangdong Higher People's Court has dismissed the claim of Guangzhou Keen Lloyd against the Shenzhen branch ("the PRC Action"), based on the alleged breach of the Loan Agreement, for specific performance of the Loan Agreement to provide facilities of HK$200 million, damages of US$900,000.00 and costs. Although an appeal has been lodged against this decision and heard in November 2002, no decision has yet been reached by the appellate court.
46. These are powerful submissions. Notwithstanding the evidence filed by the Company in these proceedings which took up nearly three lever arch files, there is hardly any attempt to quantify the damages claimed in the 1319 Action until the 2nd affirmation of Miss Tsang was filed on 8 July 2003, the day before the hearing. Miss Tsang advanced for the first time two other heads of damages.
47. Firstly, she alleged that in reliance on the collateral agreement that Sin Hua would grant the HK$200 million facility, Guangzhou Keen Lloyd had entered into two contracts with Agritrade on 28 June 2000 and 23 July 2000 to purchase 6,000 metric tons and 72,000 metric tons of electrolytic copper cathodes, with the express condition in the contract for 72,000 metric tons that if there should be a breach of contract, the party in breach would be required to pay compensation to the other side in the sum of US$75.00 per metric ton. In respect of the method of payment, it was provided in both contracts that only a letter of credit issued by Guangzhou Keen Lloyd through Sin Hua or the Shenzhen branch would be acceptable and a letter of credit issued through any other bank would not be acceptable. Miss Tsang deposed that as the facility was not provided by Sin Hua, Guangzhou Keen Lloyd tried to seek alternative funding but was unsuccessful. It could not honour the two contracts and had to pay compensation to Agritrade in the sum of HK$45,337,500.00 and a letter from Guangzhou Keen Lloyd to the Company was produced giving a breakdown of the above figure.
48. Secondly, Miss Tsang alleged that if the contracts with Agritrade were performed, about 6,000 metric tons of copper would be shipped to Guangzhou Keen Lloyd per month from July 2000 to July 2001 and Guangzhou Keen Lloyd could have made a profit of HK$364 million. She produced another letter from Guangzhou Keen Lloyd to the Company giving a breakdown of the loss of profits over a three-year period, after taking into account the cost of raw materials and processing costs, and the projected sales figures. The letter is not a quantification of any claim for loss of business on the part of the Company, as distinct from Guangzhou Keen Lloyd.
49. Mr Chin has averred in his 3rd affirmation filed herein on 10 March 2003 that after the presentation of the petition in October 2002 the Company has resolved to prosecute the claims in the 1319 Action "with full force". There is no explanation why these alleged heads of damages were not pleaded in the 1319 Action and only adduced in the present proceedings at the eleventh hour.
50. The claim for compensation payable to Agritrade was made by Guangzhou Keen Lloyd in the PRC Action, being the claim for damages in the sum of US$900,000.00 (compensation payable for 12,000 metric tons at US$75.00 per metric ton). This claim was rejected by the collegiate bench of the Guangdong Higher People's Court, as it was held there was no breach of contract by the Shenzhen branch and the claim for damages is unsupported by law.
51. As for the claim for loss of profits allegedly suffered by Guangzhou Keen Lloyd in the sum of HK$364 million, there is no sufficiently precise factual evidence in support of this claim.
52. In any event, in respect of these two heads of damages raised for the first time in Miss Tsang's 2nd affirmation, I am not satisfied that these are losses suffered by the Company independent of and different from the losses suffered by Guangzhou Keen Lloyd so that the Company can properly claim for such losses.
53. For the above reasons, I hold that the Company has failed to establish that it has a genuine and substantial cross-claim against the petitioner in excess of HK$47 million in the 1319 Action.
Alleged ulterior motive in presenting the petition
54. I turn to the alleged ulterior motive of the petitioner in presenting the petition.
55. Mr Tang submitted that in a creditor's petition to wind up a company for insolvency, where there is no dispute of the debt on substantial grounds, the question of presenting the petition for an ulterior motive is irrelevant, citing the dicta of Ungoed-Thomas J in Mann v. Goldstein [1968] 1 WLR 1091 at 1095F:
"It seems to me that to pursue a substantial claim in accordance with the procedure provided and in the normal manner, even though with personal hostility or even venom, and from some ulterior motive, such as the hope of compromise or some indirect advantage, is not an abuse of the process of the court or acting mala fide but acting bona fide in accordance with the process."
56. I agree. Mr Scott has relied on the statement in Re Yick Fung Estates Ltd and Re Shui Hing Investment Co. Ltd, CWU Nos. 100 and 101 of 1984, 15 June 1984, to the effect that a petition presented to put pressure on a company in order to achieve a collateral purpose is not properly presented. I do not think this is applicable to the present situation. In that case, the court was concerned with petitions presented by contributories to wind up the companies on the just and equitable ground.
57. In any event, the alleged ulterior motive that the petition was presented to exert pressure on the Company to settle the 10521 Action and the 1319 Action in terms unduly favourable to the petitioner has been laid to rest by a letter from the petitioner's solicitors to the Company's solicitors dated 11 January 2003. It was clearly stated by the petitioner's solicitors that the petitioner's claims under the petition are limited to the petitioning debt and costs, and that the petitioner is prepared to apply for a dismissal of the petition on payment of the petitioning debt and costs.
58. Much evidence was filed by the Company on the alleged irregular and unlawful conduct of some of the officers of Sin Hua towards the Keen Lloyd group. I fail to see the relevance of such allegations.
Insolvency of the Company
59. The Company is the holding company of the Keen Lloyd group of companies. It has a paid up share capital of HK$1.3 billion and the Keen Lloyd group owns a large number of properties in Hong Kong and elsewhere. The audited accounts were prepared up to 31 March 1998 only, with net assets of HK$382 million odd. It is claimed that the group has not been able to produce audited financial statements thereafter because since around September 2000, Sin Hua has failed or refused to provide bank statements for all accounts of the group and because the ICAC had seized documents (most of them have been released according to the 1st affirmation of Mr Chin filed herein on 30 December 2002) in investigating the affairs of the Company in June 2001. I am unable to see why audited accounts have not been prepared for the period from April 1998 to March 1999.
60. Mr Chin has claimed that the Company is not insolvent, having regard to the cross-claims against the petitioner in the 10521 Action and the 1319 Action, and asserted that the total value of the properties mortgaged to the petitioner should provide adequate security to discharge the total indebtedness to the petitioner. He produced a set of management accounts in his 2nd affirmation filed on 18 January 2003, covering the period from 1 April 2001 to 31 December 2002, and qualified this with the statement that they "may not be complete and accurate because they were prepared on the basis of limited information and incomplete records". The balance sheet showed net assets in the region of HK$76 million odd. Mr Tang has queried the reliability of these accounts, pointing out that in the cashflow forecast for the year 2003, the cash outflow in respect of bank charges and interest was given at HK$978,000.00 only. This could hardly be correct in view of the bank overdraft stated in the balance sheet of over HK$430 million, as 5% of this figure would exceed HK$20 million. I cannot regard the management accounts as representing the true and accurate financial position of the Company.
61. As for the value of the properties charged to the petitioner, Mr Chin has relied on a surveyor's report prepared in June 2000 giving an aggregate value of HK$1.16 billion. The petitioner has provided a valuation in February 2003 giving an aggregate value of HK$723 million odd on the basis of open market value, and an aggregate value of HK$578 million odd on the basis of forced sale value. As at 3 March 2003, the outstanding indebtedness due by the Company and other companies in the Keen Lloyd group to the petitioner in respect of Sin Hua and the Shenzhen branch (not including the indebtedness to The Kwangtung Provincial Bank and Hua Chiao) amounted to HK$1,248,542,283.64 and US$64,142,336.17. The Company's indebtedness to Sin Hua and the Shenzhen branch as at 3 March 2003 is approximately HK$1,039,646,924.74. This well exceeds the value of the properties charged to the petitioner.
62. Apart from the supporting creditor to this petition with a judgment debt of US$5,950,000.00, there are other creditors of the Company known to the petitioner as follows:
(1) The Company owes the Commissioner of Inland Revenue a judgment debt of HK$22,952,377.40.
(2) The Company owes HK$219,000.00 to Famous Project Estate Limited.
(3) The Bank of East Asia is actively pursuing a claim against the Company for HK$50,496,671.02 and US$1,236,595.11 with interest in HCA No. 1355 of 2002.
(4) The Company owes Vigers Property Management Services (Hong Kong) Limited HK$8,000.00 by way of legal costs.
(5) The Company is indebted to Winland Capital Limited for an unascertained amount even though the properties charged to the latter have been sold to reduce the indebtedness in part.
63. The Company is clearly insolvent on the available evidence. It is irrelevant to consider if the Company's insolvency is caused by the alleged misdeeds of the officers of Sin Hua. Nor is it relevant to consider the opposition to the petition of the three creditors which are related companies in the same group, as none of them have advanced any ground for their opposition.
Orders
64. I am satisfied that none of the grounds advanced by the Company in opposition are of any substance. I make a winding-up order against the Company. The petitioner's costs and the costs of the supporting creditor are to be paid out of the assets of the Company. I make an order nisi that the petitioner is to have a certificate for two counsel for the present hearing.
| (S Kwan) |
| Judge of the Court of First Instance |
| High Court |
Representation:
Mr Robert Tang, SC and Mr Bernard Man, instructed by Messrs Deacons, for the Petitioner
Mr John Scott, SC, instructed by Messrs Alvan Liu & Partners, for the Company
Societe Nationale D'Operations Petrolieres de la Cote D'Ivoire-Holding, the Supporting Creditor, represented by Coudert Brothers, attendance excused
Winbest Resources Limited, Winko Metal Limited and Winko Motor Industries Limited, the Opposing Creditors, appearing by their directors
The Official Receiver, attendance excused