Re Asia View Enterprises Ltd

HCCW 189/2020

[2020] HKCFI 2812

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING UP) PROCEEDINGS NO 189 OF 2020

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DECISION

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1.On 29 June 2020, Incomlend Pte Ltd (“Petitioner”) presented a petition to wind up Asia View Enterprises Limited (“Company”). The basis of the petition is that the Company is unable to pay its debts, which allegation is founded on the Company’s failure to respond to a statutory demand served on it on 4 May 2020 in respect of a debt of EUR2,093,000 which the Petitioner alleges is owing to it by reason of an assignment of the same by Phoenix Global DMCC (“Phoenix”), the vendor of certain cargo of rice pursuant to a sales contract dated 5 November 2019 (“Sale Contract”) whereunder the Company was the purchaser and the liability for the debt arose.

2.The Company applies to strike out the petition on the ground that it is an abuse of process, and contends that the alleged debt is disputed by it bona fide on substantial grounds.

3.By the orders of Deputy High Court Judge To dated 27 August 2020 and 28 August 2020, the Petitioner is restrained from publicizing the petition pending determination of the Company’s striking out application.

BACKGROUND FACTS

4.The Company is in the business of importing and exporting agricultural commodities.  Its sole shareholder and director is Mr Prashant Kumar Marutirao Vitankar (“Mr Prashant”).  The Company has been purchasing rice from Phoenix, part of the group of companies under Phoenix Commodities Pvt. Limited (“Phoenix Holdco”) that operated a global integrated food and agricultural business out of the United Arab Emirates, since 2018.

5.By the Sale Contract, Phoenix as vendor agreed to sell and the Company as purchaser agreed to purchase 6,500 MTS (±5% at purchaser’s option) Myanmar White Rice Emata 25% Brokens (“Goods”).

6.The Sale Contract is a 4-page document and contains (inter alia) the following terms:-

“5) PRICE:

EUR 322.00 PMT CIF[1] Douala, Cameroon

…

7) SHIPMENT:

I. Within November 2019

II. Partial shipment allowed

8) INSURANCE:

To be covered by the Seller

…

10) PAYMENT:

120 days from invoice date

11) DOCUMENTS:

I. Seller’s Commercial Invoice in 3 originals

II. Full Set Of 3/3 original Bill of lading 3/3 Non-Negotiable.

III. Certificate of origin issued by the Chamber of Commerce in 3 originals and 3 copies.

IV. Fumigation Certificate issued by Independent Public Surveyor appointed by the Buyer in 3 originals and 3 copies.

V. Certificate of inspection of weight, quality, quantity, and packing issued by Independent Public Surveyor appointed by the Buyer in 3 originals in (sic.) 3 copies.

VI. Phytosanitary Certificate Issued by the official authorities in 3 originals and 3 copies.

VII. Health Certificate issued by the competent authority in 3 originals and 3 copies.

All bank charges in Buyer’s country for the Buyer’s account, and all bank charges in Seller’s country for the Seller’s account.

…

14) DEFAULT:

If the Buyer refuses or fails to receive deliveries of rice confirming to this agreement specification within the time specified, or any extension thereof, or to perform faithfully any contractual conditions, the Seller, without prejudice to the other right of the Seller resulting from the breach of this agreement may, by written notice, rescind this agreement or terminate the right of the Buyer to proceed with any or all of the remaining part to be performed. In the event of any such rescission or termination, the Seller may without prejudice to its other rights resulting from the breach or (sic) this agreement, sells rice elsewhere. In any event, the Seller reserves the right to recover from any money due or which may become due to the Buyer, for the above-mentioned excess costs and/or for any other losses to the Seller resulting from the Buyer’s default or the breach of this agreement.

…

15) CONTRACT PROCEDURES:

…

III. The contract will bind the successor’s assigns and heirs of the parties hereto.”

7.There is evidence, in the form of a bill of lading issued on 23 November 2019, indicating that the Goods had been shipped from Yangon, Myanmar on board MV Amira Mariam, with Douala, Cameroon as the port of discharge.

8.Phoenix issued a commercial invoice dated 3 December 2019 to the Company (“Commercial Invoice”) containing the following:-

(1) the Goods, quantity, price and price;

(2) the name of the vessel, the port of loading and discharge, as well as the number of the bill of lading in paragraph 7 above;

(3) “Payment Term” is stipulated to be “120 days from invoice date”;

(4) “Inco term” is stated to be “CIF Douala, Cameroon”; and

(5) payment is specifically directed to be made to an account in DBS Singapore under the account name “Amicorp Trustees-Incomlend PL Buyer”.

9.At this juncture it is convenient to explain the Petitioner’s involvement.  The Petitioner operates an online multi-currency invoice exchange platform that allows suppliers to sell their invoices online directly to individuals or companies willing to purchase them for cash at a discount.

10.Pursuant to an Accounts Receivable Purchase Agreement N RPA dated 22 March 2019 between Phoenix and the Petitioner (“Assignment Agreement”), Phoenix agreed to assign the “Accounts Receivable” payable in respect of goods and services provided by Phoenix pursuant to the “Underlying Contracts” between Phoenix and the “Buyers” to the Petitioner, which the Petitioner has full discretion whether to take up in any given case.  It is expressly stipulated that the assignment is only with respect to Phoenix’s right, title and interest in and to the amounts payable to Phoenix by the buyer in relation to the “Accounts Receivable”; none of Phoenix’s obligations thereunder would be assigned and Phoenix remains liable to perform those obligations.

11.The Company was specifically identified as a “Buyer” under the Assignment Agreement, and specific provisions as to the “Accounts Receivable” relating to the Company acceptable to the Petitioner have been set out in Schedule 1 to the Assignment Agreement, including (inter alia) the documents to be submitted for invoice sale as well as the Incoterms acceptable to the Petitioner (in the Company’s case, CIF and FOB).

12.Pursuant to a Buyer Notification Letter sent on 3 April 2019 and countersigned by Phoenix as well as the Company (by Mr Prashant on its behalf) (“BNL”), the Company was notified that:-

(1) Phoenix and the Petitioner had entered into the Assignment Agreement, whereunder the Petitioner would provide funding to Phoenix for the sold and assigned invoices provided that the following conditions would be met and verified:-

(a) the Petitioner becoming the new owner of the invoices between Phoenix and the Company;

(b) the Company confirming directly to the Petitioner the details of the invoices issued by Phoenix;

(c) the Company confirming that goods and/or services have been shipped, delivered and/or rendered in a matter appropriate and acceptable to the Petitioner;

(d) the Company being notified of the change of invoice ownership; and

(e) the Company would pay the Petitioner directly for invoice settlement when the invoice is due;

(2) the Company was asked to assist by responding to the Petitioner’s email request for confirmation of the invoices assigned from then on;

(3) the invoices referred to under the BNL would be free from and not subject to any right of set-off or counterclaims, and the Company was asked to confirm to the Petitioner whether there was any agreement for the right to set-off or counterclaim on any current or future liability with Phoenix;

(4) in this regard, it is specifically provided that “[p]lease notice that by failing to inform or communicate to us the existence of any agreement of this type, at this opportunity, you are waiving the right to, later on, raise against [the Petitioner], any settlement right between your company and [Phoenix] in respect of invoices that from now on will be assigned to us under the [Assignment Agreement]”;

(5) further, it is stated that “… it shall be the duty of [the Company] to notify [the Petitioner] of any contingent or confirmed dispute between [the Company] and [Phoenix], regarding any quality, late delivery or shipment issue, among others, that may be upheld as an excuse to fulfil the payment”; and

(6) the Company was directed to make payment for invoices assigned by Phoenix to the Petitioner’s bank account, namely the one set out in paragraph 8(5) above.

13.Returning to the narrative concerning the Company, after the Commercial Invoice was issued, on 16 December 2019 the Petitioner sent the following email to the Company addressed to Mr Prashant (“Email”):-

“Dear Mr Prashant,

As you may be aware, we have received a request from [Phoenix] to assume responsibility for the sale and assignment of the following invoice(s) for Myanmar White Rice Emata 25% Brokens:

- Invoice [being the number of the Commercial Invoice]

- Issued 03/12/2019

- Purchase Order [being the number of the Sale Contract]

- Date 01/04/2020

- Total amount of $2,093,000.000 EUR

In order to finish verification of the invoice(s), could you please confirm the following information:

- The orders for the named goods were made by [the Company].

- The goods were received / shipped according to the mentioned above Purchase orders and Invoices.

- The orders for the named goods were absent of any credit / debit notes applicable to this / these invoice(s).

A simple “Yes, confirmed” reply to this email will be sufficient.

Could you please revert to us by today?”

Attached to the Email is a copy of the Commercial Invoice, which the Company claims it only received on 16 December 2019 with the Email.

14.According to the Company, on 16 December 2019 Mr Prashant received a number of telephone calls from Phoenix requesting the Company to confirm an “invoice verification email” from the Petitioner, as well as copies sent by email of the bill of lading referred to in paragraph 7 above, a certificate of original, a phytosanitary certificate, and certificates for fumigation, health, and inspection of weight, quality, quantity and packing for the Goods. 

15.Later on 16 December 2019, Mr Prashant replied to the Email that “We confirm on the below”.

16.On 17 December 2019, a notice of assignment with respect to the Commercial Invoice dated 16 December 2019 (“Notice of Assignment”) was emailed by the Petitioner to the Company.  It is expressly stated in the Notice of Assignment that Phoenix had assigned to the Petitioner absolutely all its rights, title, interests, benefits and remedies in the Commercial Invoice including but not limited to the monies payable to Phoenix thereunder, and that Phoenix should remain solely liable to perform its obligations under the relevant contract or in connection with the Commercial Invoice and the Petitioner would not assume any obligation to perform any of the obligations imposed on Phoenix thereby.  It also provides that in the event of any dispute as to quantity, quality or otherwise, notification must be given to Phoenix and the Petitioner in writing within 5 days of receipt of goods.

17.Following that, on 18 December 2019, the Petitioner released funds to Phoenix for the assignment of the Commercial Invoice.

18.The Company’s evidence as to what happened thereafter is not very clear and is the subject of criticism by the Petitioner.  At one point the Company claimed that it had been informed by the Phoenix that the original of the documents set out in clause 11 of the Sale Contract had been given to the Petitioner.  It was said that throughout the second half of December 2019 Mr Prashant had been in communication with Phoenix to arrange for delivery of the Goods.  Then it was said that thereafter Phoenix informed the Company that it was unable to perform the Sale Contract, which the Company said it did not accept and continued to press for performance on multiple occasions, to which Phoenix replied that it could not deliver on the Sale Contract.

19.Whatever might have been the communication between Phoenix and the Company (for which there is no documentary evidence before the court), it does not appear to be disputed that the Goods were never delivered to the Company.  There is some evidence to suggest that MV Amira Mariam did discharge the Goods at Douala, Cameroon, but the Goods had been collected by Phoenix relying on a letter of indemnity dated 23 December 2019.

20.It is also common ground that despite the Company being allegedly informed by Phoenix that there would be no delivery pursuant to the Sale Contract, the Company never notified the Petitioner of the same.  There is also no documentary record of the Company complaining about the non-delivery of the Goods to either Phoenix or the Petitioner.

21.The Commercial Invoice stipulated that payment would be due on 1 April 2020.  On that day the Petitioner sent an email to the Company reminding the Company that the Commercial Invoice was overdue.

22.Following that there was telephone communication between the Petitioner and the Company.  The Petitioner in its emails dated 7 and 13 April 2020 recorded that the Company had advised that it was checking its accounts for the funds and would pay the same, which is disputed by the Company.  In the Company’s email dated 15 April 2020, the Company stated that it did not have such a payable and asked the Petitioner to liaise directly with the “drawer” (likely a reference to Phoenix).

23.Meanwhile, on 20 April 2020, Phoenix Holdco was placed into compulsory liquidation.

24.On 4 May 2020, a statutory demand for the sum due on the Commercial Invoice was issued by the Petitioner and served on the Company.

25.By a letter dated 23 May 2020 (ie just before the expiry of the 21-day period after service of the statutory demand), former solicitors for the Company wrote to former solicitors for the Petitioner denying that the Company owed Phoenix any money given the “non-existence of the payable relating to the alleged Commercial Invoice in [the Company’s] books and records” or that it had placed any orders with Phoenix, and demanding that copies of various documents be disclosed to the Company.  The Company claimed to be a victim of suspected fraud and needed time to investigate into the matter, and asked the Petitioner to withhold from initiating legal proceedings in the meantime.

26.There followed a series of correspondence between the former solicitors of the Petitioner and the Company in May and June 2020, whereby some of the documents sought by the Company had been disclosed to it, and the Company asserted that it never received the documents set out in clause 11 of the Sale Contract or take delivery of the Goods, denied that the Petitioner could rely on Mr Prashant’s response to the Email to mount a case of estoppel by representation, and claimed that since the Company was a victim of fraud it should be Phoenix, instead of the Company, who should be liable to the Petitioner for sum paid in connection with the Commercial Invoice.

27.On 29 June 2020, the Petitioner presented a petition to wind up the Company relying on the unsatisfied statutory demand.

LEGAL PRINCIPLES

28.The applicable legal principles are not in dispute:-

(1) A petitioner who is owed an undisputed or indisputable debt is entitled to a winding up order ex debito justitiae.

(2) In order to successfully oppose a petition on the basis of a bona fide dispute to the debt on substantial grounds, the debtor has to adduce sufficiently precise evidence which is believable, and must establish that it has a defence of substance, not just a fair probability of one.

(3) Winding-up proceedings are summary in nature and are not meant to be used for the purpose of debt collection.  If the court is satisfied that there is a bona fide dispute on the debt, it will not usurp the function of a civil court and decide the disputes between the parties. 

(4) The burden is on the company to establish that there is a genuine dispute of the debt on substantial grounds.  In this context, “substantial” means having substance and not frivolous.

(5) The court should look at the company’s evidence against so much of the background and evidence that is not disputed or not capable of being disputed in good faith; in other words, the evidence is not to be approached with a wholly uncritical eye.

(6) The court should caution itself against unsubstantiated and unparticularized assertions.  It is incumbent on the company to put forward sufficiently precise factual evidence to substantiate his allegations.

(7) The court does not try the dispute on affidavit but is to determine whether a substantial dispute exists.  In so doing, the court necessarily has to take a view on the evidence, to see if the company is merely “raising a cloud of objections on affidavits” or whether there really is substance in the dispute raised by the company.

See Re Hong Kong Investments Group Limited [2018] HKCFI 984, HCCW 63/2017 (unrep., 21 May 2018), §§11-14. 

THE PARTIES’ RESPECTIVE CASES

29.The Company’s case is that the Sale Contract being a CIF contract, given the nature of a CIF contract and on its proper construction, no payment obligation arises thereunder unless the documents relating to the Goods had been delivered.  Since the documents and the Goods had never been delivered in this case, the Company never came under any obligation to pay Phoenix under the Sale Contract, and hence there was no debt that could be or had been assigned to the Petitioner that could be relied upon to found the petition.

30.The Petitioner disputes that:-

(1) The Petitioner submits that although the Sale Contract was on CIF terms, express provision had been made by Phoenix and the Company therein that payment would be due and payable 120 days from the date of the Commercial Invoice regardless of whether the title documents or the Goods had been delivered.  As such the amount under the Commercial Invoice was due and payable by the Company, notwithstanding the Company may have a separate claim against Phoenix for non-delivery of the Goods.

(2) The Petitioner further argues that even if the Company could raise a bona fide defence on its liability to pay under the Sale Contract and the Commercial Invoice, it is estopped by representation or convention from denying that it had not received the Goods, relying on Mr Prashant’s response to the Email (see paragraphs 13 to 15 above).

DECISION

31.In the premises, it seems to me that the present application should be approached as follows:-

(1) First, on the proper construction of the Sale Contract, when did the payment obligation of the Company arise?

(2) Second, how does the answer to the first question impact (if any) the nature of the right assigned to the Petitioner by Phoenix pursuant to the Assignment Agreement?

(3) Third, assuming the answers to the first two questions are favourable to the Company, has a sufficiently strong case on estoppel been shown such as to debar the Company from contending that it had not received delivery of the Goods?

32.In considering the above questions, I bear in mind that the Company’s burden is only to show a bona fide dispute on substantial grounds; and it is not necessary for me to come to any determinative finding on fact or on law for such purpose.

33.On the first question:-

(1) The Company’s reliance on the CIF nature of the Sale Contract has only become clear in its reply submissions, filed the day before the hearing.  In essence, Mr Lung, counsel for the Company, relies on 2 textbook authorities[2] (Goode on Commercial Law, 5^th edn (2017), §§34.20-34.21, 34.27; McKendrick, Sale of Goods (2000), §13-054) to argue that there is a distinction between risk and title, and under a CIF contract, while risk is presumed to have moved to the buyer as from the time of shipment, title is only presumed to pass upon delivery of the shipping documents to the buyer.

(2) In my view, the risk / title distinction is not directly relevant to the first question.  Rather, the relevant issue is when does the obligation to make payment arise in the context of a CIF contract, and whether that “default” position has been varied in the Sale Contract.

(3) In Benjamin’s Sale of Goods, 10^th edn, §19-076 (cited by Mr Lai, counsel for the Petitioner), the learned authors stated that in the case of a CIF contract, the duty to pay prima facie arises on tender of shipping documents, but the parties can vary this rule.  It is said that such duty to pay arises from the nature of a CIF contract, and that stronger words (than “payment against documents on arrival of steamer”, being the example cited) are needed to negative the duty to pay against documents.  It is also stated, at §19-086, that although normally payment under a CIF contract is due on tender of documents, the time of payment may be deferred by the terms of the contract, for example until arrival of steamer.

(4) In other words, on the basis of the authorities cited to me, it appears that in the nature of a CIF contract, (i) the default position is that the obligation to pay would only arise upon tendering of shipping documents, although that can be varied by clear words, and (ii) there is a difference between obligation to pay and the time for payment, and the latter can also be deferred by the terms of the contract.

(5) The material terms of the Sale Contract are set out in paragraph 6 above.  Mr Lai relies on clause 10 to argue that the parties had expressly varied the “default” rule such that the obligation to pay arises 120 days from the date of the Commercial Invoice and such obligation is not conditional upon delivery of the shipping documents in clause 11 or delivery of the Goods.

(6) Having regard to the totality of the terms of the Sale Contract, and bearing in mind the guidance in the authorities that it is possible to separately provide for the obligation to pay and the time for payment, and strong words are required to displace the “default” position that the obligation to pay would only arise upon delivery of shipping documents in a CIF contract, I am satisfied that the Company has raised a substantial argument that clause 10 does not have the effect contended for by the Petitioner and is just a provision for deferring the timing of making payment but not altering the circumstances in which the obligation to pay would arise.

(7) Although the Sale Contract is a relatively simple document, the parties have made specific and fairly detailed provision to provide for additional rights to Phoenix in the event of the Company’s default (clause 14), indicating that they were perfectly capable of varying the default contractual position had they wanted to.  There is no suggestion that Phoenix and the Company were not aware of what CIF terms entailed – it would appear from their respective line of business that they would be familiar with that – and their adoption of clause 10 without more would in these circumstances indicate (at least for the purpose of a dispute on substantial grounds) that clause 10 was merely intended to defer the timing of payment and not to change the obligation to pay arising only upon delivery of shipping documents.

(8) I should mention that in coming to the above view, I have not taken into account the subjective understanding of Mr Prashant based on the Company’s alleged trade practice which Mr Lung has urged me to consider.  It is trite that interpretation of contract is an objective exercise and the subjective belief or understanding of one party is inadmissible for such purpose.

34.The second question can be disposed of quickly, because Mr Lai accepts that the nemo dat quod non habet rule applies to the Assignment Agreement, such that the Petitioner could only obtain whatever rights Phoenix had under the Sale Contract and no more.  In other words, if Phoenix’s right to be paid under the Sale Contract had not yet arisen by reason of the non-delivery of shipping documents, the Petitioner’s rights vis-à-vis the Company (which are wholly derived from Phoenix) would be equally limited.

35.This means that, subject to the third question, the Company would have established a bona fide defence on the petitioning debt on substantial grounds.

36.On the third question:-

(1) There is no dispute between parties on the requirements for estoppel by representation, or for that matter estoppel by convention which the Petitioner seeks to rely on in the alternative.

(2) The parties’ dispute centres on whether the representation said to be made by the Company in its response to the Email was sufficiently clear and unequivocal for such purpose.

(3) Mr Lai submitted that I should consider the Company’s response to the Email in the context of the BNL.  I agree; that being the relevant context to which the Email was sent, which the Company was aware of (as evidenced by Mr Prashant’s signature to the BNL).

(4) However, I do not consider that reading the Company’s response together with the Email and against the context of the BNL, the Company could be said to have made a clear and unequivocal representation that it had already received the Goods, or (as Mr Lai contended) that Phoenix had discharged its duties under the Sale Contract (which goes beyond receipt of the Goods and is a tall order for the Petitioner).  The BNL informed the Company that it would be asked to confirm the goods in a relevant contract “have been shipped and/or delivered … in a manner appropriate and acceptable to the Petitioner” (emphasis added).  Against that context the Email was sent asking the Company to confirm that the Goods “were received / shipped” according to the Sale Contract and the Invoices.  As pointed out by Mr Lung, “received” and “shipped” are different concepts and there is a material difference between them for present purposes.  The Petitioner was clearly aware of the nature of a CIF contract (it being part of its stipulated terms under the Assignment Agreement, see paragraph 11 above), and it deliberately adopted the wording in the Email and asked the Company to respond by a mere “Yes, confirmed”. In the premises, I am not persuaded that the Company’s response, read in context, comes anywhere close to the representation asserted by Mr Lai, or even a representation that the Goods had already been received by the Company.

37.I should mention that Mr Lai has also drawn my attention to the inconsistent assertions made by the Company in the evidence as to what it learnt from Phoenix and what it allegedly discussed with Phoenix after 16 December 2019, and submitted that in the circumstances the Company’s assertions should not be accepted.  While I agree that the Company’s evidence on its communication with Phoenix may not be wholly consistent, as can be seen from the above those issues do not pertain to the key questions arising for analysis, and in carrying out the assessment on the 3 questions above this specific aspect of the evidence does not feature at all.  Accordingly I do not consider that the inconsistencies identified is capable of affecting my conclusions above.

38.In the premises, I am satisfied that the Company has discharged its burden of showing a bona fide dispute of the petitioning debt on substantial grounds.  I would accede to the Company’s application and strike out the petition.  As the petition has not yet been advertised, I will also dismiss the petition.

39.I will make an order nisi that the Petitioner pays the Company's costs of the strike out application and the Petition, including costs reserved, to be taxed if not agreed, and that the Official Receiver's costs be deducted from the Petitioner's deposit.

Mr Adrian Lai, instructed by Stephenson Harwood, for the Petitioner  

Mr Vincent Lung and Mr Benjamin Lam, instructed by S.K. Lam, Alfred Chan & Co, for the Respondent

The attendance of Official Receiver be excused