Re Tin Wan Tung

HCCW 250/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING‑UP) PROCEEDINGS NO 250 OF 2016

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AND

HCCW 251/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING UP) PROCEEDINGS NO 251 OF 2016

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(Heard Together)

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D E C I S I O N

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Introduction

1.This is the trial of two petitions in which the petitioner (“Tin”) is petitioning for the winding up of Fully Fortune (Asia) Limited (“Fully Fortune”) under HCCW 250/2016 and Matrix Wealth Limited (“Matrix Wealth”) under HCCW 251/2016, pursuant to section 177(1)(d) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance.  The ground for the petition is that Fully Fortune and Matrix Wealth (collectively, the “Companies”) have failed to pay a debt of $560,527.07 as set out in the statutory demand dated 3 March 2016 and served on them on 8 March 2016. 

2.The petitioning debt is the taxed costs under an allocator issued by Master K Lo in HCA 167/2011 (the “main action”) in respect of Tin’s bills in discovery proceedings against the Companies and Wong See Yin (“Wong”) who is the person in control of the Companies.  Wong and his Companies appealed and applied for stay of execution of the costs order.  On 17 January 2017, Wilson Chan J dismissed the appeal and the application for stay of execution of the costs order.  He also ordered indemnity costs against Wong and his Companies.

3.A statutory demand in respect of the same petitioning debt was served on Wong.  His application to set aside that statutory demand was dismissed by Anthony Chan J on 29 June 2016[1].  Then, Wong issued a notice of appeal in CACV 160/2016 and Tin applied for security for costs of the appeal.  Tin’s application was dismissed by the Court of Appeal on 7 November 2016 as the Court of Appeal was of the opinion that the court below had not given separate or proper consideration to Wong’s argument on his cross-claim, impliedly the appeal is not unarguable.  No date has yet been fixed for the hearing of the appeal.

4.Fully Fortune is represented by counsel, Miss Andrea Yu.  However, her instructions were limited to making legal submissions on behalf of Fully Fortune only.  Wong, who had been given leave to represent Matrix Wealth, addressed the court on the facts.  Their submissions are applicable to both Companies.  Miss Yu’s primary argument is that the petition should be dismissed because the Companies have a bona fide counterclaim equal to or exceeding the petitioning debt or, as a fall back, should be adjourned until after the decision of the Court of Appeal in CACV 160/2016 which would have determined the same issue, although in the context of Wong’s application to set aside the statutory demand.

5.Wong raised a number of arguments on the facts, including that the petitioning debt is disputed on substantial grounds, is not final and conclusive,and is not payable until conclusion of the main action.  These arguments are not supported by Miss Yu.  In my view, these arguments are unmeritorious and spurious.  The petitioning debt, being the taxed costs in a legal proceeding the appeal against which has been dismissed, is indisputable and payable forthwith.   The statutory demands had been duly served on the Companies on 8 March 2016.  The Companies failed or neglected to pay.  In applying for stay of execution of the costs order from which the petitioning debt arose, Wong confirmed before the master that he and the Companies were unable to pay.  The Companies are therefore insolvent and are unable to pay the petitioning debt.  Tin is prima facie entitled ex debito justitiae to a winding up order.

6.Wong raised a number of other defences, many of which are repetitive.  In essence, he says that the Companies have a bona fide and substantial counterclaim against Tin in the main action which exceeds the petitioning debt and the petition was brought with improper motive of stopping him and the Companies from pursuing the counterclaim.  He further argues that the counterclaim for damages for Tin’s breach of contract includes all litigation costs including the costs which gave rise to the petitioning debt.  The real and only issue raised by this petition is whether the Companies have a bona fide counterclaim on substantive grounds which exceeds the petitioning debt and whether it would be unfair in all the circumstances to wind up the Companies. 

The applicable legal principles

7.Counsel have no dispute about the legal principles applicable to these defences.  These principles are summarised as follows.  Firstly, winding up proceedings are only to be invoked in clear cases. The court does not try the related disputes on affidavit.

8.Secondly, where a company is unable to meet an undisputed obligation to pay a specific sum, it is liable to be wound up. Thus, where a petitioner had obtained a judgment against a company and the company was unable to pay the judgment debt, the petitioner is entitled ex debito justitiae to a winding up order.  This right is not to be displaced because the company had a disputed claim against the petitioner that was subject of litigation: Re United Strength Ltd[2].

9.Thirdly, if a company wishes to resist a winding up order by disputing the petitioning debt or by raising a counterclaim or set off, the onus is on the company to show a bona fide dispute of the debt on substantial grounds or a bona fide counterclaim or set off: Re Capital Globe Ltd[3].  To discharge this burden, the company has to adduce sufficiently precise factual evidence to satisfy the court that it has a bona fide dispute of the debt or has a genuine counterclaim or set off.  A bona fide dispute is not a trivial or insubstantial dispute but is one based on solid grounds indisputable both in law and on the facts of the case.  In respect of a bona fide counterclaim or set off, the company has to show not only that its set off is believable but also that there is precise factual evidence in support of that set off, not just mere assertions.  The court will look at the company’s evidence against so much of the background and evidence that is not disputed or not capable of being disputed.  This is a higher standard than that required of a defendant in resisting an application under Order 14, rule 3 of the Rules of the High Court.  An honest belief that it has a substantial ground of defence is not sufficient to avoid a winding up order from being made.  See: Re Hong Kong Construction (Works) Ltd[4] and Re First Dragon Fashion (Hong Kong) Ltd[5].

10.Fourthly, winding up proceedings should not be used as a means of debt collection.  It would be an abuse of legal process to use the proceedings as a means to coerce the company into paying its debt.

The factual background

11.The following factual background is based on the parties’ affirmations and facts which are not in dispute or capable of dispute.

12.Tin was the owner of a flat in Kwun Tong Mansion, which he used as his residence.  At the material time, he was and still is receiving comprehensive social security assistance (“CSSA”).  This is a fact strongly relied on by Wong as an attack on Tin’s credibility.  Pong is a shadow director of Full Pacific Development Limited (“Full Pacific”), which was the owner of another flat in Kwun Tong Mansion used by Pong as his residence.  His wife (“So”) and their daughter are shareholders and directors of Full Pacific.

13.Pong and Donovan Chan (“Chan”), who is the owner of another flat in Kwun Tong Mansion, are directors of E‑pacific Technologies Limited (“E‑pacific”), of which Tin, is the managing chairman of the board of directors.   E‑pacific operates a decoration design business and invests in hydraulic power. 

14.Wong is an accountant from whom Tin had sought advice on financial matters.  He is the owner and person in control of the Companies and Mega City Limited (“Mega City”).  He was introduced to Pong by Tin.

15.In December 2007, Tin and Pong had a meeting with Wong in a restaurant in Saigon where they discussed business.

16.On 9 January 2008, Tin, Pong and So had another meeting with Wong during which Tin and So, on behalf of Full Pacific, each signed a Chinese document drafted by Wong (the “1^st Chinese Document”).

17.On 24 January 2008, Tin and So, on behalf of Full Pacific, each signed another Chinese document drafted by Wong (the “2^nd Chinese Document”) to replace the 1^st Chinese Document.  The two documents are essentially similar.  The 2^nd Chinese Document contains the following material clauses (note in particular to the provisions relating to “the said limited company”):

Clause 1  Tin agreed to purchase from Wong 8% of the issued shares in Matrix Wealth (described as “the said limited company” in the document) at the price of $800,000;

Clause 2  Tin agreed to sell his flat in Kwun Tong Mansion free from encumbrance to Wong or a corporation nominated by him at the price of $800,000;

Clause 6  Within 36 months of the transfer of Tin’s flat, Wong has the option to purchase the 8% of the issued shares in Matrix Wealth from Tin for 8% of the issued shares of another company; and Tin may not object to this swap;

Clause 13  Tin shall bear all the water charges, electricity charges, gas charges, telephone charges, rates, government rent, management fees, maintenance fees, insurance premium, miscellaneous expenses, related taxes, and specifically, Tin shall at his own expense purchase fire, household and third party risks insurance in respect of the flat;

Clause 15  Wong has the right to utilize the assets, funds, shares and rights of the said limited company to invest in other items and companies; to transfer, remove and mortgage the same; to which Tin may not object;

Clause 19(a) If the conditions for applying for licence as an asset management company are met or if Wong considers the conditions for operating the licence are appropriate, Wong will make his best endeavor to use part of the available funds to set up a local or overseas asset management company, but without warranting that he will be able to do so;

(b) the costs of setting up such companies and the said limited company shall be jointly borne by all the shareholders setting up such companies;

(c) during the first 12 months of the incorporation of the said limited company, the mortgage interest of the said flat shall be borne by the said limited company and the mortgage repayments thereafter shall be borne by Tin.

18.On 17 March 2008, Tin and So attended the office of Messrs Damien Shea & Co (“DSC”), a firm of solicitors arranged by Wong to execute certain documents for the purpose of transferring their flats to Matrix Wealth.  Tin and So signed a number of documents, including sale and purchase agreements for the sale of their flats with vacant possession to Matrix Wealth dated 7 March 2008; assignments their flats to the Fully Fortune dated 17 March 2008 with Matrix Wealth acting as confirmor; and a letter dated 10 March 2008 confirming that the parties would settle the purchase price without going through the solicitors.  Tin had, in addition, signed a declaration that certain title documents of his flat had been lost.  In Tin’s affirmation, he said he did not know what the documents were, and he and So just signed as they were told and without any explanation having been given to them by DSC’s attending clerk (“Tsang”).  This allegation was denied by Tsang.  Notwithstanding the transfer of the ownership of their flats, Tin and Pong continued to remain in possession of their respective flats.  On the face of the documents, except for delivery of vacant possession, Tin had performed his obligations under the 2^nd Chinese Document by transferring his flat to Fully Fortune, but had not received the consideration of 8% shareholding in Matrix Wealth. 

19.Three months later, Wong procured Fully Fortune to mortgage Tin’s and Full Pacific’s flats to Hong Kong & Shanghai Banking Corporation for banking facilities on 13 June 2008.  Later, Wong procured two successive mortgages with Wing Lung Bank and then Dah Sing Bank on 9 November 2009 and 2 August 2010 respectively.

20.On 15 July 2008, Wong transferred 16 of his shares in Matrix Wealth to Tin and Full Pacific each, representing 8% of the shareholding in Matrix Wealth, presumably in the performance of his obligations under the 2^nd Chinese Documents.

21.In September 2008, Tin and Pong entered into a tenancy agreement with Full Pacific in respect of their respective flats.  Each of them also signed a letter dated 4 September 2008 to Matrix Wealth requesting Matrix Wealth to pay the rental expenses for them for the period from 1 October 2008 to 30 September 2010 and to debit the payments against their shareholder’s current accounts with Matrix Wealth.

22.In April 2009, Fully Pacific issued demand letters to Tin and Pong demanding payment of rent.  Tin and Pong did not respond.

23.On 20 August 2009, Wong swapped the 8% shareholding in Matrix Wealth under the name of Tin and Full Pacific for 8% shareholding in Mega City, presumably in the exercise of his option under the 2^nd Chinese Documents.

24.On 31 January 2011, Tin obtained legal aid and commenced legal action in HCA 167/2011 against Wong, Matrix Wealth and Fully Fortune alleging fraud and/or misrepresentation and seeking to have his flat transfer back to him.  Full Pacific had commenced a similar action under HCA 1801/2010 a few months earlier.

25.In 2013, Tin and Full Pacific commenced legal action against DSC for professional negligence under HCA 376/2013 and HCA 377/2013 respectively.

26.On 26 April 2013, Louis Chan J gave his decision in respect of discovery application in HCA 167/2011 and HCA 1801/2010 and ordered costs against Wong and his Companies.  This was followed by a series of taxation hearing, review, appeal and application for stay of execution of the costs order, which were all decided against Wong and his Companies.

27.On 2 March 2016, Master Lo issued allocaturs in respect of Tin’s and Full Pacific’s bills of costs in the respective sums of $560,527.07 and $306,434.11.

28.On 4 March 2016, statutory demands for the above sums were served on Wong and his Companies.  These statutory demands were not satisfied.

29.On 18 March 2016, Wong took out an application under HCSD 11/2016 to set aside the statutory demand served upon him.  

30.On 29 June 2016, Wong’s application was heard before Anthony Chan J who dismissed it with costs.  From this date on, Fully Fortune ceased making mortgage payments to Dah Sing Bank, which led to the bank taking out mortgagee action in DCMP 2538/2016 in the District Court against Fully Fortune as mortgagor and Wong as guarantor in respect of the outstanding loans raised on the mortgage of Tin’s and Full Pacific’s flats.  The outstanding amounts of these loans were about $822,000 and $877,000.  That action was subsequently transferred to the High Court as HCMP 78/2017. 

31.On 23 May 2017, judgment was entered in favour of Dah Sing Bank in HCMP 78/2017 against Wong and Fully Fortune for the total sum of about $1.7 million plus interest and costs.  The issue of possession of the two flats was ordered to be heard together with the main actions.  

The parties’ case

32.According to Tin, at the meeting in December 2007, Wong proposed to Tin and Pong that they could invest in an asset management company with net asset value of HK$10 million, which Wong would set up to be listed in the stock exchange in Singapore.   He suggested that if Tin and Pong did not have sufficient money to invest in the company, they could inject their flats into the company at a nominal value of HK$800,000 each in exchange of 8% of the issued shares of the company while they could, at the same time, continue to reside in the flats rent free.  Wong further represented to Tin and Pong that injecting their flats into the company would facilitate the company in raising funds and to obtain listing in Singapore; and that after the listing, the company could assist Tin and Pong to finance their constructions projects. 

33.At the meeting on 9 January 2008, Wong asked Tin and So each to sign the 1^st Chinese Document, which he said summarised the representations made on the previous meeting.  Pong noticed that the documents did not record his and Tin’s right to continue residing in their respective flats rent free.  However, Wong assured them that these two documents were mere formalities and the representations were still valid.  On the strength of Wong’s assurance, So, on behalf of Full Pacific, and Tin signed the 1^st Chinese Documents. Wong admitted that the 1^st Chinese Documents were drafted by him but denied making the representations.

34.At another meeting on 24 January 2008, Wong told Tin, Pong and So that their names should not appear as shareholders of the asset management company in order to reduce the company’s tax liability.  He advised that Tin and Full Pacific should take up shares in another company instead which turned out to be Matrix Wealth, but their rights would remain the same as represented to them previously.  In reliance on these representations, So, on behalf of Full Pacific, and Tin each signed the 2^nd Chinese Documents. Again, Wong admitted having drafted the 2^nd Chinese Documents but denied having made the representations.

35.As for the signing of tenancy agreement with Fully Fortune and the letter requesting Matrix Wealth to pay the rental for him, Tin’s case is that at first he refused to sign as that would be contrary to his right to live in his flat rent free under the 2^nd Chinese Document.  However, he and So weres persuaded to sign on Wong’s representation that if they did not enter into the tenancy agreements, it would be difficult to obtain bank financing for their construction projects. 

36.Wong’s case is that Tin and Pong represented to him that they were rich businessmen with partners in Hong Kong and the People’s Republic of China (the “PRC”) where they had construction projects of over RMB100 million worth.  They said that they were, respectively, the chairman and a member of the Owners’ Committee of Kwun Tong Mansion with authority to discuss with others and to approve redevelopment of Kwun Tong Mansion and other projects.  They offered to do business with Wong in financing and referring financial institutions to lend them over RMB100 million for their projects and to solicit Wong to pay them referral fees of over RMB10 million.

37.Wong denied having made the various representations alleged.  While admitting that he drafted the 1^st and 2^nd Chinese Documents, he said that he had given them to Tin and Pong for them to consider, seek legal advice and make amendments several weeks or one week before the respective meetings.  The Companies’ case is that under the 2^nd Chinese Document, it was Tin’s obligation to transfer his flat with vacant possession to Fully Fortune.  Fully Fortune was therefore entitled to lease the flat to Tin and to collect rent from him under the tenancy agreement.  Furthermore, Fully Fortune was also entitled under clause 19(c) of the 2^nd Chinese Document to mortgage the flat with Tin bearing the obligation of repaying the mortgage loan.  The Companies’ counterclaim is essentially for the mortgage payments, rent, maintenance fees and costs etc.

The issues in relation to the counterclaim

38.Wong raised a list of 15 issues.  They are principally directed at the main action and Tin’s dishonesty in deceiving CSSA payment and Tin’s misrepresentations about his, Pong’s and Chan’s wealth for the purpose of inducing him to enter into the 1^st and 2^nd Chinese Documents. 

39.In my view, whether it was Tin or it was Wong who by misrepresentation induced the other party to enter into the 1^st and 2^nd Chinese Documents is not relevant, or at best only marginally so, for the counterclaim.  The Companies are not claiming or counterclaiming damages for Tin’s breach of the 1^st and 2^nd Chinese Documents as result of his misrepresentation.  The Companies’ counterclaim is founded on Tin’s obligation under the terms of the 2^nd Chinese Document, the sale and purchase agreement and the assignment to deliver vacant possession of his flat and to repay the mortgage loan raised by a third party using the flat as security; and his obligation under the tenancy agreement to pay rent and other related fees and charges.  Thus, the only issue raised by the Companies’ counterclaim is whether Wong had represented to Tin that despite the transfer of his flat, Tin may retain possession and continue to use it as his residence.  If Tin could prove Wong’s misrepresentation, Tin will succeed in the main action.  The 2^nd Chinese Document and the transfer of Tin’s flat to Fully Fortune will most likely be set aside.  There will be no legal basis for any counterclaim.  If Tin could not prove the misrepresentation, Tin’s main action will fail and the Companies will have valid counterclaims against Tin.  The question which next follows is whether the Companies’ counterclaim would be equal to or would exceed the petitioning debt.  Thus, whether Tin had misrepresented to Wong about his wealth and whether Tin had induced Wong to enter into the 1^st and 2^nd Chinese Documents are wholly beside the point. 

The other issues and Tin’s credibility

40.There are other issues raised by Wong which are basically attacks on Tin’s credibility.  For the purpose of dealing with Wong’s attack on Tin’s credibility and for the purpose of considering the Companies’ counterclaim, it sufficient to deal with only two of these issues.  It is not the function of this court to try the main action on affidavit evidence and still less to do so in a one-day hearing.  Once I formed a provisional view on these two sides issues one way or the other, I shall be able to test the parties’ case on Wong’s misrepresentation against my provisional view, the documentary evidence and the incontrovertible or undisputed evidence.

41.First, Wong portraits Tin as a dishonest and greedy person seeking to invest in his asset management company and to induce him into lending funds to E-pacific and to pay Tin referral fees of RMB10 million. Wong referred to a letter dated 22 August 2007 issued by Tin on behalf of E-pacific to Wong, in which Tin represented that E‑pacific has two plots of land in Zhangjiajie in the PRC of 2,000 acres and 100 acres valued at RMB200 million and RMB15 million respectively.  As I have said, who induced the other party to enter into 2^nd Chinese Document is immaterial.  But I think, it takes little to convince this court that an owner of landed property and co-owner of an on-going business of the magnitude as undisputedly having been represented by Tin in his letter could have obtained CSSA from the Social Welfare Department without dishonestly withholding material information as to his wealth. 

42.Second, I also find Tin’s allegation that he signed a bundle of documents in the office of DSC on 17 March 2008 without having been explained what they were and without knowing what they were until he had the help of his present solicitors long afterwards utterly incredible. Though a man of senior age, he is a seasoned businessman and chairman of the board of director of what he represented to Wong to be an asset rich company, managing ten construction projects in the PRC with PRC partners. He is conversant in English and signed a number of documents in English.  It stretches one’s imagination to its limits to accept that he simply signed all those documents just as he was told, without reading and knowing what they were and without asking for an explanation if he did not understand them, but only on the belief that they were documents relating to the transfer of his flat to Matrix Wealth pursuant to the terms of the 2^nd Chinese Document.  The nature of the documents was what they purported to be and what he knew they were meant to be.  His allegation is highly incredible.  Besides, he would have a very difficult task to free himself from the liability created by his signing of those documents.  This cannot be a case of non est factum.

43.I accept fully Wong’s criticism of Tin’s credibility.  My provisional view of Tin is that he is an extremely unreliable witness.  He is ready to tell lies and to make false accusation against others to advance his cause.  I shall bear this in mind when testing his evidence against the contemporaneous documents and undisputed and incontrovertible evidence and repeatedly caution myself before forming any unfavourable views about Wong’s evidence and his Companies’ case. Wong has fully achieved what he wanted to achieve by his criticisms.

Wong’s misrepresentation

44.Tin bears the burden of proving Wong’s misrepresentation.  He asserted in his affirmation that during the course of negotiation for the 1^st and 2^nd Chinese Documents, Wong represented to him and Pong that his scheme under the 2^nd Chinese Document was for them to inject their flats into an asset management company while retaining their possession and continuing to live there.  Further, before signing the 2^nd Chinese Document, Pong had raised the question about the absence of any provision about their right to retain possession of their respective flats.  It was only on Wong’s assurance that they would retain possession of their flats, that he signed the 2^nd Chinese Document.  His case is solely based on his oral testimony without any documentary support whatever.

45.The Companies’ case on the counterclaim is based on the terms of the 2^nd Chinese Document, the sale and purchase agreement of Tin’s flat, the assignment, the tenancy agreement and Tin’s letter requesting Matrix Wealth to pay rent on his behalf.  The documents fully support Wong’s case that Tin freely entered into the 1^st and 2^nd Chinese Documents with him, thereby agreeing to transfer his flat with vacant possession to a company nominated by him in exchange for shares in a company, which turned out to be Matrix Wealth and on the clear understanding that he will not be receiving any cash.  The Companies’ case is fully documented.  However, Tin tries to escape liability for what he had signed by alleging breach of professional duty on the part of DSC in failing to explain the documents to him.  This a very serious allegation against a solicitors’ firm acting in the course of provision of its professional services to its client which is just slightly short of an allegation of conspiracy with Wong in his fraudulent design. 

46.On the facts, some of the documents were written in Chinese which Tin has no difficulties reading and understanding.  In respect of the English documents, Tin appeared to be conversant in English and he had signed other documents in English.  There is nothing to suggest he did not know or understand the content of these documents.  Having regard to his proven dishonesty, I form a provisional view that his accusation against DSC is only a desperate attempt to save himself from his own foolishness by making false accusation against his solicitors.  His accusation against DSC only damages his credibility but does not advance his case against the Companies.  However, whether the documents signed in the office of DSC had been explained to Tin is only a side issue.  In fact, the documents signed at the office of DSC are not inconsistent with Tin’s case as to how he came to be induced, if not deceived, into transferring his flat to Wong’s nominee.  The crucial issue remains whether the 2^nd Chinese Document was signed as result of Wong’s misrepresentation before signing the other documents in the office of DSC. 

47.Given my adverse finding on Tin’s credibility, he would have great difficulties proving Wong’s misrepresentation.  However, clause 13 of the 2^nd Chinese Document gives a glimpse of where the truth lies.  It provides that Tin undertakes to pay all utility charges, maintenance and management fees in respect of the flat.  It further unequivocally stipulates that Tin shall pay the fire and third party risk insurance in respect of the flat for each and every year.  If the transfer were a simple outright sale or transfer of the flat without Tin remaining in possession, it would make no sense for Wong to require Tin to pay all those fees and charges forever for a flat which he would have to sell and transfer to a third party and which he would have no possession of.  This provision is illogical when tested against the Companies’ case.  It speaks volumes of the misrepresentation made by Wong about Tin’s retaining possession of his flat and his right to continue residing in it.

48.In a dispute of this nature, the parties’ contemporaneous conduct is very telling. It is significant that Tin actually retained possession of his flat after executing the assignment and that it was not until six months later that he was asked to enter into the tenancy agreement.  Had there been no representation that Tin was to retain possession, in the normal course of business Fully Fortune would have promptly initiated action to recover possession or to enter into a tenancy agreement with Tin.  Wong offered no credible explanation.  Fully Fortune’s inaction together with clause 13 of the 2^nd Chinese Document strongly support Tin’s case of misrepresentation.  When tested against the parties’ respective case, these speak much louder than the tenancy agreement and all the other documents relied on by Wong put together.  These documents are more supportive of Tin’s case of misrepresentation and being induced by Wong than of the Companies’ simple case of bona fide transfer for value without notice. 

49.Wong relies on the entire agreement clause in the sale and purchase agreement and the 2^nd Chinese Document.  He argues that Tin has no right to retain possession and was in breach of the sale and purchase agreement.  An entire agreement clause has the effect of superseding any previous agreement or representation.  But it cannot prevent an agreement from being set aside for fraud or misrepresentation and is worthless if the agreement is set aside.

50.Furthermore, the devil of the 2^nd Chinese Document lies in its terms.  This agreement, properly understood, is so ridiculously devoid of common sense and business sense that no reasonable person would have entered into it like Tin did, if he had not been seriously misrepresented as to misunderstand its true effect.  I have set out the more salient terms of this document in paragraph 17 above.  There are three aspects which deserve consideration: firstly, the consideration for Tin to transfer his flat; secondly, his obligation to pay fees and charges for the flat which he had transferred to a third party and would not have possession of; and thirdly, his obligation to repay the mortgage loan raised by a third party using the flat as security.  The second of these aspects has already been discussed in paragraph 47 above.  The third of these aspects actually forms part of the basis of the Companies’ counterclaim.

51.Properly understood, the effect of this document is to transfer Tin’s flat to Wong or his nominee, which is described as “the said limited company” which turned out to be Matrix Wealth for 8% of its issued shares; which Wong has the option to exchange for 8% of the issued share of another company and, very importantly, Tin has no right to object.  When Tin and Full Pacific transferred their flats to Matrix Wealth in exchange for 8% of its issued shares, it must have been in the contemplation of the party, or at least Tin, that Matrix Wealth would have among its assets Tin’s and Full Pacific’s flats worth $800,000 each and other assets worth $8,400,000 making up the asset management company of $10 million net worth as what Wong had allegedly told Tin.  I should add, the devil lies in what is unspoken.  By a confirmor transaction, the flats were assigned to Fully Fortune instead, resulting in the flats not forming part of the assets of Matrix Wealth and depriving Tin’s shares of the value of the flat he transferred into Matrix Wealth. Further, by swapping Tin’s shares in Matrix Wealth with shares in Mega City in the exercise of his option, Wong further dissociated himself and Matrix Wealth from the flat.  There is no information about the net asset value of Mega City.  In the main action, Wong rigorously resisted Tin’s application for discovery of the financial statements of Mega City and succeeded.  If Mega City is just a shell company, Tin transferred his flat valued at $800,000 for just a piece of paper.  The 2^nd Chinese Document is devoid of common sense and business sense.  In response to this comment from the bench, Wong said it was a matter of agreement. Though a pepper corn does not cease to be good consideration, this clause is so devoid of common sense and business sense that it evinces the fact that the 2^nd Chinese Document was intended to be a fraud and Tin entered into it as result of misrepresentation.     

52.Furthermore, clause 19(c) which Wong relies on as the basis for the Companies’ counterclaim for mortgage repayment is ambiguous and problematic, apart from being devoid of common sense and business sense.  The agreement gives Wong and “the said limited company” certain rights.  By clause 1, Matrix Wealth is described as “the said limited company”.  On the other hand, Tin’s flat was in fact assigned to Fully Fortune through Matrix Wealth as confirmor.  The problem then arose in clauses 15 and 19(c).  Clause 15 gives Wong the right to mortgage the assets of “the said limited company”, but Tin’s flat was not an asset held by “said limited company”.  Clause 19(c) provides that during the first 12 months of incorporation of “the said limited company”, the mortgage interest shall be borne by “the said limited company”.  It then goes on to provide that thereafter, the mortgage repayment (not just the interest alone) shall be paid by Tin.  Whatever “the said limited company” means under clause 19(c) that clause is fatal to the Companies’ counterclaim.  On a strict and literal interpretation, “the said limited company” means Matrix Wealth.  While Tin is a shareholder of Matrix Wealth, Matrix Wealth is not the owner of the flat and has no mortgage interest or repayment to pay.  If “the said limited company” means the asset management company to be set up, there is no evidence that it has been set up.  Even if Tin is under an obligation to pay, the obligation has not yet arisen.  In either event, Tin has no obligation to make repayment.  Tin’s flat is being held by Fully Fortune.  On an objective view, Tin and Wong as parties to the 2^nd Chinese Document, could not have intended Fully Fortune should receive a windfall 12 months after its incorporation.  It is not Wong’s argument that Fully Fortune is the asset management company set up pursuant to the 2^nd Chinese Document.  Even if it is, Tin is not a shareholder of Fully Fortune, he would not have agreed to assume responsibility for its mortgage payment.  This clause is ambiguous and does not make sense.

53.On the face, those documents are supportive of Wong’s case, they are also equally consistent with Tin’s case of misrepresentation.  But when the parties’ respective case is tested against these documents and the incontrovertible evidence, particularly their conduct and the terms of the 2^nd Chinese Document, these documents speak volume of Tin’s case of misrepresentation. The terms of the 2^nd Chinese Document are so peculiar, so lacking in business sense and common sense and so unfavourable to Tin that his signature on the document could not be explained unless on the basis that he had been induced by misrepresentation of the kind he alleged.  On the other hand, Wong could not put forward any explanation.  All that he could say was that those were the terms of the contract Tin had entered into; that by reason of the entire agreement clause all oral representation, if any, are superseded; and that it was Tin who misrepresented to him to induce him to enter into the 2^nd Chinese Document.  None of these could explain this peculiar agreement.  I am mindful that Tin bears the burden of proof and of the very high standard of proof required in proving misrepresentation.  I am also mindful of his dishonesty and incredibility. But documents do not lie.  After having cautioned myself of Tin’s incredibility and dishonesty, and after testing the parties’ respective case against the documents, the undisputed evidence and the parties’ conduct, I am satisfied that Tin has made out a strong prima facie case of misrepresentation which Wong and the Companies have failed to answer. The scheme of transferring of Tin’s flat for shares appears to me to be a fraudulent design in which an old man guilty of petty dishonesty in deceiving CSSA fell prey to his own greed and to someone who is more sophisticated, skilful and has greater appetite than himself.

Counterclaim

54.Having reached the above conclusion, it must necessarily follow that most likely the 2^nd Chinese Document, the sale and purchase agreement of Tin’s flat, the assignment to Fully Fortune and the tenancy agreement will be set aside.  As the Companies’ counterclaim is founded on these documents, it must also mean they have failed to show a bona fide counterclaim on substantial ground, except for some minor reimbursements.  I now deal with the counterclaim for what it is worth.

55.In the Re-re-amended Counterclaim dated 29 July 2014 settled by Wong personally for himself and his Companies, he set out 14 items of claims.  In his affirmation dated 26 April 2017, he enlarged these claims to the total amount of $6,191,142.93.  The most significant amounts are the claim for damages for loss of the legal right over Tin’s flat in the amount of $3,250,000; estimated legal fee in the amount of $1,400,000; and outstanding mortgage repayment and interest in the amount of $1,541,142.93.  The other claims are outstanding rent, rental deposit, stamp duty in respect of the assignment and some miscellaneous payments made in respect of the flat.  Except for the miscellaneous expenses, which are of the nature of reimbursements, all the other items of the counterclaim are founded on the documents which will most likely be set aside at the main trial.  Though there is no need for me to deal with these items of counterclaim, I shall nevertheless make a few observations on the bigger items.

56.Wong did not elaborate on how the damages for loss of the legal right over Tin’s flat was arrived at.  If the 2^nd Chinese Documents, sale and purchase agreement and assignment are set aside, Fully Fortune has no right to mortgage Tin’s flat and has no legal basis to make this item of counterclaim.

57.As for the counterclaim for mortgage interest and loan repayment, Fully Fortune was the borrower and mortgagor.  It was its duty to make the repayments and to pay interest and bank charges.  Wong relies on clause 19(c) of the 2^nd Chinese Document as the basis of Fully Fortune’s counterclaim for the mortgage repayments.  A quick answer to this argument is that Fully Fortune is not a party to the 2^nd Chinese Document.  Besides, for reasons as already explained in paragraph 52, this clause is ambiguous and could not have the effect contended by Wong.

58.Wong made many items of counterclaims for legal costs. One of these items is the costs order he and his Companies obtained before Deputy High Court Judge Kent Yee in respect of a costs appeal.  The learned judge has disallowed counsel’s certificate.  The costs have not been taxed and are unlikely to be substantial.

59.Another item is the costs order Wong obtained when the Court of Appeal dismissed Tin’s and Full Pacific’s application for security of costs against Wong in respect of his appeal in CACV 160/2016.  Wong was acting in person.  That application was a short matter.  Those costs could not be substantial.  More importantly, the costs order was awarded to Wong personally.  It cannot amount to a counterclaim for the purpose of setting off the petitioning debt owed by his Companies.

60.Wong also counterclaims for the likely costs which he will be awarded upon his successful appeal against Anthony Chan J’s order dismissing his application to set aside the statutory demand.  The appeal has not been heard.  It is not for this court to assess the likelihood of his chances of success.  Furthermore, any costs order he will obtain will be awarded to him personally, which for the reason as stated in the preceding paragraph cannot amount to the Companies’ counterclaim for the purpose of setting off the petitioning debt they owed.

61.Another item is the costs and legal fees incurred in HCMP 78/2017 in respect of Dah Sing Bank’s mortgagee action against Fully Fortune.  Those costs were incurred as result of Fully Fortune failing to perform its obligation under the loan agreement.  For reasons as given above, Fully Fortune cannot rely on clause 19(c) of the 2^nd Chinese Document to require Tin to make the mortgage payments.  Besides, as the Companies have failed to show a bona fide counterclaim on substantial ground, there is no basis for Fully Fortune to counterclaim for the costs incurred in HCMP 78/2017.

62.The Companies also claim legal fees incurred in all the legal actions.   In respect of the costs which had been awarded, the taxed costs are what he and his Companies are entitled to.  Insofar as the legal fees incurred in proceedings in which the Companies were awarded costs are concerned, the Companies are only entitled to the taxed costs. Insofar as all other legal fees are concerned, for the same reason as given above, there is no basis for the counterclaim.

63.In my view, the Companies are only entitled to counterclaim in respect of some minor reimbursements paid by them in respect of Tin’s flat.  These items include government rent and rates, building management fees, building renovation fee and insurance in the total amount of $131,851.70. Even together with the likely costs in respect of the costs orders in the Companies’ favour, these costs and disbursements would be far short of the petitioning debt.  The Companies do not have any bona fide counterclaim which would be equal to or would exceed the petitioning debt.

Abuse of process

64.Wong also argues that the petitions are abuse of proceedings as they were taken out for the ulterior purpose of preventing him and his Companies from pursuing the counterclaim against Tin.  Even if that is Tin’s motive of taking out the petition, the petitioning debt is indisputable, there is bona fide counterclaim equal to or exceeding the petitioning debt. Admittedly, the Companies are unable to pay the petitioning debt.  The Companies are insolvent.  Fully Fortune has failed to pay the mortgage repayments and judgment has been entered against it by Dah Sing Bank under HCMP 78/2017.  Wong has withheld financial information of the Companies.  If the Companies are not insolvent, they should pay the petitioning debt and continue their counterclaim.  If the Companies are insolvent, they should be wound up in the face of an indisputable debt to which they have no defence or counterclaim of an equal or greater amount.  If Wong genuinely believes that the Companies have a genuine counterclaim, he can persuade the liquidator to pursue the counterclaim or to assign the cause of action to him.

65.Next, Wong argues that it was DSC’s negligence which resulted in Tin’s signing the sale and purchase agreement and assignment and Tin is pursuing legal action against DSC.  He submits that it is unfair for Tin to commence the main action against him and his Companies because if Tin succeeds in proving professional negligence, he could have his remedy against DSC and has no claim against him and the Companies in the main action.  His submission is totally misleading.  As I have said, the main action is founded on Wong’s misrepresentation and whether DSC was negligent in not explaining the documents to Tin is wholly beside the point.  Such breach of duty also took place after the misrepresentation.  It was therefore appropriate to commence the main action against Wong and his Companies.  In any event, the main action was raised by Wong in the context of his defence of bona fide counterclaim.

Conclusion

66.As a fall back, Miss Yu proposes to adjourn the hearing until after the Court of Appeal’s decision in CACV 160/2016, which would have decided the same issue of whether on precisely the same fact Wong has a bona fide counterclaim equal to or exceeding the petitioning debt.  It would have been most tempting to take that course.  This is a case which cries out for an winding up order to be made.  This court will be failing in its duty if it does not make an order.

67.I am fully aware of the principles that winding up proceeding is only to be invoked for plain and obvious cases and that where there are genuine disputes on facts, it is not appropriate to issue a winding up order.  It is also not the court’s function to try a case on affidavit evidence.  It is unusual for the court to embark on an analysis of disputes of facts on affidavit evidence only, particularly as it involves allegations of fraud and misrepresentation which require a very high standard of proof.  However, for reasons as already explained, despite an extremely cautious approach, I come to the provisional view that Tin has made out a strong case that he was induced into executing the documents by reason of Wong’s misrepresentations.  Tin is entitled to a winding up order.

68.Besides, the facts of this case cry out for a winding-up order to be made. Tin was induced into transferring his flat for 8% shareholding in Mega City, which most likely is nothing but a piece of paper.  Wong strongly resisted disclosure of the financial documents of Mega City.  Tin’s flat was transferred to Fully Fortune, which was almost immediately mortgaged.  There is no evidence about the business of that company and its assets.  What is known is that Fully Fortune has been repeatedly mortgaging the flat for the past ten years and received the proceeds of the mortgage in a huge lump sum but has been unable to pay the small instalments.  Now Wong has openly admitted that he and his Companies are unable to pay even a small petitioning debt.  Where has the mortgage loan gone and who else but Wong could have pocketed it? Coincidentally, when Tin commenced legal action, Fully Fortune stopped making repayments.  Dah Sing Bank has obtained judgment against Fully Fortune and will sell Tin’s flat to recover the mortgage loan.  The net result would be that Tin will lose his flat with Wong pocketing the mortgage loan.  This is a case which cries out loud and clear of fraud or misrepresentation.  All that is said is about the main action which on the face has nothing to do with this petition.  But, if the Companies are insolvent, why should they   be allowed to continue their business incurring further costs for themselves in pursuing a hopeless counterclaim and causing their victim to incur more legal costs for what would most likely turn out to be an empty judgment.

69.For the reasons I have given, I come to the conclusion that the Companies have failed to show a bona fide counterclaim on substantial ground which would be equal to or would exceed the indisputable petitioning debt.  In the circumstances, the proper course is for the Companies to be wound up.  I therefore make the usual winding up order with costs to the petitioner, while the petitioner’s own costs shall be taxed in accordance with Legal Aid Regulations.

Mr Michael Liu, instructed by Joseph Li & Co, assigned by Director of Legal Aid, for the petitioner

Miss Andrea Yu, instructed by Eva Wong & Co, for the respondent (in HCCW 250/2016)

Respondent (in HCCW 251/2016), Matrix Wealth Limited:
Mr Wong See Yin, appeared in person (leave be granted by Master R Yu on 15 September 2016 to represent the respondent company)