Wing Kei Structural Metalworks Company Ltd v. Wah Fai Construction and Engineering Company Ltd

HCCW 128/2022

[2024] HKCFI 255

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING UP)  NO 128 OF 2022

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DECISION

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A.  INTRODUCTION

1.This is the hearing of the Re-Amended Petition presented against the Respondent (the “Company”), a company incorporated in Hong Kong.  These winding up proceedings arose out of a sub-sub-contract dated 13 March 2019 (the “Sub-Sub-Contract”)  made between the Company and the Petitioner, under which the Company engaged the Petitioner to carry out certain construction work at a project in Tuen Mun, the New Territories.

2.Pursuant to the Order of Master J Wong made on 7 December 2022, the Petitioner was substituted as the petitioner and the Re-Amended Petition was later filed on 14 December 2022.

3.For the purpose of the hearing of the Re-Amended Petition, the Petitioner and the Company respectively filed the following affirmations:

(1)  Chan Kam Kei’s Affirmation filed for the Petitioner verifying the Re-Amended Petition;

(2)  Lee Chu’s 2^nd Affirmation filed for the Company in opposition to the Re-Amended Petition; and

(3)  Chan Kam Kei’s Affirmation for the Petitioner in reply. 

4.At the hearing of the Re-Amended Petition on 9 November 2023 (the “November Hearing”), Mr Danny Fung appeared for the Petitioner and Mr Timothy Lam appeared for the Company. 

5.After the November Hearing, the Company took out a summons on 1 December 2023 for leave to file further evidence, namely, Lee Chu’s 3^rd Affirmation dated 1 December 2023 (“New Evidence”).  The Company’s Summons was heard on 15 December 2023 (the “December Hearing”).  Whilst the Petitioner was still represented by Mr Danny Fung, Mr Jason Ko appeared for the Company.

6.In this Decision, I shall first set out the relevant factual background (see Section B below).  As I shall elaborate below, the Company has failed to raise any bona fide disputes to the Debt[1] on substantial grounds or any genuine cross-claims that exceed the Debt (see the parties’ arguments summarized in Section C; the legal principles in Section D and my analysis in Section E).  The Company’s Summons has absolutely no merits and must be dismissed (see Section F below).

B.  BACKGROUND

7.The undisputed factual background may be summarized as follows.

B1.  The Project

8.Green Island Cement Co Ltd was the employer (“Employer”)  in respect of the construction of a slag pre-grinding plant and single-storey steel frame storage for slag at No.7, Lung Yiu Street, Tap Shek Kok, Tuen Mun, the New Territories, Hong Kong (the “Project”).

9.On 13 August 2018, the Employer awarded to China Geo-Engineering Corporation (“CGE” or “Main Contractor”)  the main contract.

10.On 15 August 2018, CGE awarded to the Company a sub-contract (the “Sub-Contract”)  for the construction of the superstructure works of the Project.  The works under the Sub-Contract generally comprised of, inter alia, the structural steel frames, single-storey steel frame storage and plant rooms, etc for a total sum of HK$76,000,000.

B2.   The Sub-Sub-Contract

11.On 5 March 2019, the Company awarded to the Petitioner the works for the supply, fabrication and installation of the structural steelwork for the proposed slag pre-grinding plant and the single-storey steel frame storage for the slag at the site for HK$30,325,151.20.

12.On 13 March 2019, the Petitioner and the Company entered into the Sub-Sub-Contract, the terms of which are contained in the letter of the Company dated 5 March 2019.  For present purposes, it is pertinent to note Clause 11 (“Clause 11”)  thereof, which reads as follows:-

“ 11.   The payment terms should be on “Back to Back” basis as follows:-

70% for fabrication and delivery to site

30% for installation

Percentage of certified value to be retained 10% with limit of retention

5% of subcontract sum”

13.On 8 July 2020, the Petitioner wrote to the Company informing it of the completion of the works under the Sub-Sub-Contract.

B3.   Company’s confirmation of the final outstanding payment

14.On 1 February 2021, the Company issued to the Petitioner a letter of the same date confirming that the outstanding payment of the Sub-Sub-Contract would be paid as follows:-

“ Outstanding Payment Arrangement

The anticipated final cost of completed

Sub-contract works

(subject to re-measurement)  31,000,000.00

Less Retention Money 1,516,257.00

Less Previous Payments 23,087,638.00

Outstanding Payments as at to date 6,369,105.00

We commit to pay [the Petitioner] the above amount in instalments detailed as follows and [the Petitioner] would furnish us all necessary certificates and documents for the submission of BA 13 and BA 14 purposes to the Building Authority on or before 10 February 2021.

First instalment $3,000,000 10 February 2021

Second instalment $1,000,000 15 April 2021

Third Instalment $1,000,000 15 May 2021

Fourth instalment $1,369,105 15 June 2021

The Retention Money will be released as follows:

50% upon issuance of Practical Completion Certificate

Residue 50% to be settled 12 months from the date of Issuance of Practical Completion Certificate”

15.However, apart from the payment of the first instalment of HK$3,000,000 on 10 February 2021 and another sum of HK$200,000 on 30 June 2021, the Company made no further payment to the Petitioner.  Further, the Company did not release the Retention Money to the Petitioner.

16.For the purposes of settling the outstanding sums under the Sub-Sub-Contract, the Company had provided to the Petitioner 13 post-dated cheques for a total sum of HK$4,640,197.85.  Nevertheless, the first six of them were dishonoured.  Later, on 22 April 2022, a winding up petition was presented by another creditor against the Company.

17.On 24 June 2022, solicitors for the Petitioner served upon the Company a statutory demand for the payment of the sum of HK$4,640,197.85 (the “Debt”).  Yet the Company still failed to settle the same.

B4.   Open offer dated 5 October 2022

18.In support for the winding up of the Company, the Petitioner also relies upon an open letter from the Company dated 5 October 2022, in which the Company offered to settle the Debt as follows:

“ After deeply (sic)  discussion and mutual agreement, we propose to make payment to settle the outstanding balance (HK$4,640,197.85)  with you.

HK$300,000 on 15 January 2023;

50% of the outstanding amount on 10 April 2023; and

Remaining outstanding amount on 10 June 2023.

In addition, the amount of outstanding amount will be personally guaranteed by Mr Lee Chu and Mr Ip Wan Chung …”

C.  THE PARTIES’ ARGUMENTS

19.In resisting the Re-Amended Petition, the Company advances two arguments.

20.First, it is contended for the Company that the Debt is not due, when Clause 11 provides that the payment should be “back to back”; and, that on its proper interpretation, it meant that the Company was not under any obligation to pay the Petitioner until after the Company had been paid by the Main Contractor.  Such interpretation of Clause 11 is disputed by the Petitioner. 

21.Second, it is contended that the Company has a cross-claim and set-off against the Petitioner. According to the Company, there was delay on the part of the Petitioner in completing the works under the Sub-Sub-Contract.  As a result, “the Main Contractor had informed the Company that the Company was liable to it for HK$50,065,000 as liquidated damages”.  As such, it is the Company’s case that the Petitioner is liable to the Company for the same amount of liquidated damages in the sum of over HK$50,065,000.  Nonetheless, from the factual background set out in Section B above:

(1)  The Company all along had been proceeding on the basis that it would settle the Debt. 

(2)  Whilst the Company alleges that it has a cross claim against the Petitioner for HK$50,065,000 (being liquidated damages that the Company is liable to pay to the Main Contractor)  as a result of the Petitioner’s delay in completing the works under the Sub-Sub-Contract, from the exchange of correspondence set out above, it is clear that the Company has never made any such complaint against the Petitioner.. 

(3)  Further, as confirmed by Mr Timothy Lam, Counsel for the Company at the November Hearing, the allegation of delay was raised for the very first time at the hearing of the Re-Amended Petition before Madam Justice Linda Chan on 27 February 2023, viz., almost 3 years since the Petitioner’s letter dated 8 July 2020 informing the Company of the completion of the work.  It is against such context that Mr Danny Fung for the Petitioner argues that the Company raises no bona fide dispute on substantial grounds.

D.  APPLICABLE PRINCIPLES RELATING TO THE WINDING UP PETITION

22.The parties have no dispute on the applicable principles.  The relevant ones may be summarized as follows.

23.In Re Hong Kong Construction (Works)  Limited (unrep)  HCCW 670/2002, 7 January 2003, Kwan J (as she then was)  said this at §6:

“(1)  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.  An honest belief in an insubstantial ground of defence is not sufficient to avoid a winding-up order. 

(2)  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. 

(3)  The court would caution itself against unsubstantiated and unparticularised assertions, especially where particulars and information have been sought by the other side.  It is incumbent on the company to put forward ‘sufficiently precise factual evidence’ to substantiate its allegations. 

(4)  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.  Even where the company has obtained unconditional leave to defend in an application for summary judgment, the Companies Court is not precluded from examining the evidence and taking a view on whether the debt is disputed on substantial grounds. 

(The above principles are taken principally from Re ICS Computer Distribution Ltd [1996] 3 HKC 440; Re Welsh Brick Industries Ltd [1946] 2 All ER 197; Re Claybridge Shipping Co. S.A. [1997] a BCLC 572; Re a Company No. 006685 of 1996 [1997] BCC 830). 

(5)  If there is a debt which in part above the statutory minimum is indisputable, a petition can validly be presented even if the debt as claimed in the petition is for a larger sum, part of which is bona fide disputed.  The court would not as a general rule strike out a petition or restrain its advertisement even though the petition also refers to sums claimed by the petitioner in relation to which there is a dispute (Re Tweeds Garages Ltd [1962] Ch. 406 at 411 to 414; Re Taylor’s Industrial Flooring Ltd [1990] BCC 44 at 48H; Re Pendigo Ltd [1996] BCC 608 at 610B to D). 

(6)  Where a company does not or cannot dispute the petitioning debt, but puts forward a counterclaim which is disputed, on an application to strike out the petition or to restrain its advertisement, it could not be said that the petition is an abuse of the process of the court, even though the existence of the cross-claim may be relevant to the exercise of the court’s discretion on the hearing of the petition.  After advertisement of the petition, the views of all the creditors who appear on the petition will be a material consideration to be taken into account (Re a Company No. 006273 of 1992 [1992] BCC 794 at 795B to 796B; Re Pendigo Ltd, supra. at 610F).”

24.It would be harder for a company to satisfy the court that it has a bona fide defence on substantial grounds if it has conducted itself in a way which suggests that the debt is payable.  As a matter of practicality, once a debt is acknowledged, the evidence and argument relied on to establish a substantial defence will have to be compelling: Re Yueshou Environmental Holdings Ltd (unrep.), HCCW 142/2013, 16 July 2014, at §10, per Harris J.

25.On cross-claim and set-off, the court will look at the evidence adduced by the company and reach a conclusion whether the set-off or cross-claim had substance.  If it did and it exceeded the amount of the debt on which the petition is based, the court will ordinarily dismiss or stay the petition.  Essentially, the approach involves a consideration of the overall relationship between the parties to see whether there is, at the end of the day, an undisputed or undisputable debt that is or will be due to the petitioner, so as to make it appropriate for the court to make a winding up order against the company: Re City Top Engineering Ltd [2006] 2 HKLRD 562 at §21, per Kwan J (as she then was), quoting with approval the judgment of Barma J (as he then was)  in Re Jade Union Investment (unrep, HCCW 400/2003).

E.  DISCUSSION

E1.   Clause 11

26.Dealing with the arguments on Clause 11 first, it is the Company’s case that the Petitioner is not entitled to the Debt, for the clause makes it clear that that the payment is to be made on “back to back” basis.

27.On the interpretation of the meaning of “back to back basis”, neither of the parties argues that the phrase “back to back” has any special usage in the industry. 

28.Counsel for the Company relies heavily upon the decision of Recorder Ambrose Ho SC in Tim Lee Construction Engineering Co Ltd v Kwong Wah trading as Super King Engineering Co (unrep)  HCCT 18/2010, 20 April 2012.  In that case, the contract in question provided that “the agreement made … for the supply / installation of the following works in a back to back payment basis with deduction of 26% to the 2004 schedule of rate …”.  It was held, on the facts of that case, that the natural meaning of the phrase “back to back payment basis” meant that the sub-sub-contractor would be paid when the sub-contractor had received payment from its superior contractor for the relevant works.

29.Relying upon Tim Lee Construction (above), it is argued for the Company that Clause 11 constitutes a “pay when paid” clause, meaning that the legal obligation of the Company to pay the Petitioner would only arise after the Company had received full payment from the Main Contractor.

30.However, I do not see how Tim Lee Construction would assist the Company, when it is trite law that each contract has to be separately construed: Massford (HK)  Ltd v Wah Seng General Contractors Ltd [2006] 1 HKC 58, at §§11 and 13, per Rogers VP.  The meaning found by the court in any case is just dependent on the facts of the case; and cannot be rigidly followed in another case when the facts may be different: Sze Fung Engineering Ltd v Trevi Construction Co Ltd [2023] HKCFI 419, at §41, per M Chan J.

31.Similarly, in Tim Lee Construction (above)  at §33, the learned Recorder made it abundantly clear that, absent special usage in the trade, the interpretation of any term used in a particular contract must depend on the circumstances in which the agreement is made; and ultimately the task of the Court is to ascertain, objectively, what the parties had meant by the use of that expression in the circumstances of the agreement; and thus each case would therefore be different.

32.In the premises, in ascertaining the meaning of Clause 11, I see no basis to compare it with the clauses in Tim Lee Construction (above)  and other cases cited to me, especially when the exact wordings involved and the factual matrix in the other cases are different.  

33.When I asked counsel for the Company as to the factual matrix in the present case that is relevant to the interpretation of Clause 11, my attention was drawn to Clause 5 of the Sub-Contract between CGE and the Company, which reads as follows:

“`5. Special Conditions

(b)  Payment Terms

(I)  …

(II)    The Main Contractor shall certify and pay the Sub-Contractor within 14 days upon receipt of the corresponding payment from the Employer and receipt of the original payment application from the Sub-contractor after deducting the following charges …”

34.Mr Lam for the Company submitted that this is relevant, for the factual matrix in this case involved a chain of contracts, under which the obligation to pay on the part of a contracting party only arose when it has been paid by its superior contractor higher up in the chain.

35.I am not persuaded by the Company’s arguments:

(1)  First, I do not see how Clause 5(b)(II)  of the Sub-Contract would assist the Company, when it is apparent that  its wordings are very different from Clause 11. 

(2)  Further, I also find it difficult to see why this would form part of the factual matrix for the purpose of the interpretation of the Clause 11, when the Petitioner is not even a party to the Sub-Contract.  Further, there is no allegation, let alone credible evidence, that the Petitioner was aware of Clause 5(b)(II)  of the Sub-Contract when it executed the Sub-Sub-Contract.

36.Instead, on the interpretation of Clause 11, the underlying principle is that summarized in Wo Hing Engineering Ltd v Pekko Engineers Limited (unrep), HCA 5561/1996, 7 September 1998.  After referring to various authorities from Australia, New Zealand and the United States, Suffiad J said this:

“ The underlying principle from all these cases seems clear enough – that when having to construe a clause in a sub-contract that the sub-contractor will only be paid when the main contract is paid, commonly called a ‘pay-when-paid’ clause, sufficiently clear words will have to be used before a court will be prepared to construe that such a clause imposes as a condition payment to the main contract which had to be fulfilled before the sub-contractor had the right to be paid as opposed to a clause limiting the time for payment. This principle is readily illustrated in the words of Master Towle in the New Zealand case of Smith & Smith v. Winstone [1992] 2 NZLR 473 where he said at page 481:-

‘ While I accept that in certain cases it may be possible for persons contracting with each other in relation to a major building contract to include in their agreement clear and unambiguous conditions which have to be fulfilled before a subcontractor has the right to be paid, any such agreement would have to make it clear beyond doubt that the arrangement was to be conditional and not to be merely governing the time for payment. I believe that the contra proferentem principle would apply to such clauses and that he who seeks to rely upon such a clause to show that there was a condition precedent before liability to pay arose at all should show that the clauses relied upon contain no ambiguity.

… For myself I believe that unless the condition precedent is spelled out in clear and precise terms and accepted by both parties, then clauses such as the two particular ones identified in this proceedings do no more than identify the time at which certain things are required to be done, and should not be extended into the ‘if’ category to prevent a subcontractor who has done the work from being paid merely because the party with whom he contracts has not been paid by someone higher up the chain’ ”

37.Applying the aforesaid principles to the present case, I am of the view that the wordings in Clause 11 are not sufficiently clear that the Company’s obligation to pay the Petitioner would only arise after the Company had been paid by the Main Contractor.  On this basis, I reject the Company’s interpretation of Clause 11.

E2.   The allegation of delay and the Company’s counterclaim for damages

38.The Company’s second argument is that the Petitioner had substantially delayed in its work under the Sub-Sub-Contract.  As a result, according to §§27 and 28 of Lee Chu’s 2^nd Affirmation filed for the Company, “the Main Contractor had informed it that [the Company] was liable to the Main Contractor in liquidated damages for HK$50,065,000”; and “by reason of the incorporation of the Main Contract documents, I do verily believe that the Petitioner is liable to the Company for the same amount of liquidated damages in the sum of HK$50,065,000”.

39.I am not satisfied that the Company has adduced sufficiently precise factual evidence to substantiate its cross-claim and set-off against the Petitioner.  Apart from a bare assertion in Lee Chu’s 2^nd Affirmation §§27-28, the Company has not been able to substantiate its case that there was delay on the part of the Petitioner in the completion of the work under the Sub-Sub-Contract, let alone that it had a cross-claim and set-off against the Petitioner that exceeds HK$50 million:

(1)  When the Petitioner first issued to the Company the letter dated 8 July 2020 confirming that the works had been completed, the Company has never complained about any delay on the part of the Petitioner.  There was never any allegation of delay, let alone any demand made by the Company to the Petitioner to indemnify it for the payment of liquidated damages to the Main Contractor.

(2)  Given the substantial amount involved, as a matter of common and commercial sense, one would expect that there should have been contemporaneous documents, such as letters from the Main Contractor to the Company demanding for the payment of such liquidated damages, especially when, on the Company’s case, the alleged liquidated damages of HK$50,065,000 amounted to more than 68% of the contract price under the Main Contract between the Main Contractor and the Company.  However, the Company has not been able to produce a single piece of contemporaneous document to substantiate the same.  Neither is there any evidence from the Company as to when and how it was informed by the Main Contractor that the Company had to pay the Main Contractor such liquidated damages.

(3)  Instead, the Company repeatedly acknowledged the Debt and made proposal for its payment.  On 1 February 2021, the Company issued to the Petitioner a letter confirming that the outstanding balance in the sum of HK$6,369,105.00 would be paid in four instalments.  As late as 5 October 2022, the Company still offered to settle the Debt without any allegation of delay on the part of the Petitioner.

(4)  The Company’s allegation of delay is wholly devoid of merits and does not stack up against the undisputed factual background.  This is especially when it is not disputed that the Company had already paid the Petitioner a sum of HK$23,087,638.00 under the Sub-Sub-Contract without any suggestion of delay or any claim for the liquidated damages.

(5)  As confirmed by Mr Lam for the Company at the November Hearing, the allegation of delay was only raised for the very first time at the first hearing of the Re-Amended Petition before Madam Justice Linda Chan on 27 February 2023, almost 3 years since the Petitioner had informed the Company of the completion of the works in July 2020.  The Company has not provided any explanation, let alone a reasonable one, as to why the allegation of delay was never raised before.

(6)  The Company fails to adduce any sufficiently precise factual evidence to substantiate its cross-claim and set-off.  The figure of liquidated damages of HK$50,065,000 was not particularized.  When I raised this at the November Hearing, counsel for the Company could not even provide the breakdown to explain how the HK$50,065,000 was arrived at. 

40.In my judgment, the Company fails to demonstrate any arguable cross-claim and set-off on substantial grounds. 

41.I shall now deal with the Company’s Summons; and see if any of the new evidence is admissible and would have changed my conclusions that the Company has failed to raise any bona fide dispute on substantial grounds or genuine cross-claims.

F.  THE COMPANY’S SUMMONS

F1.    Applicable principles

42.After the November Hearing, the Company took out the Summons seeking leave to adduce Lee Chu’s 3^rd Affirmation, which exhibits the following documents:

Exhibit	Description
LC-21	Audited financial report for the Year ended 31 March 2022 dated 26 September 2022
LC-22	The Company’s latest bank statement as of 31 October 2023
LC-23	Back-to-back payment records from 22 May 2019 to 30 June 2021 amongst the Main Contractor and the Company and the Company and the Petitioner
LC-24	Engagement letter dated 23 November 2023 for the audited financial statements for the year ended 2023.
LC-25	A memorandum of understanding dated 24 November 2023 from one “white knight” investor
LC-26	Pre-action letter dated 24 November 2023 to the Petitioner for damages arising out of the alleged delay in completion of works undertaken by the Petitioner under the Sub-Sub-Contract.

43.On the court’s power to admit new evidence after the hearing and before any order is drawn up, the principles are helpfully summarized by Deputy High Court Judge Winnie Tsui in Alpha & Leader Associates Ltd v Citory Mega Trading Ltd [2023] HKCFI 2322 at §§183-184:

“`183. Post-hearing, the court retains the discretion to admit new evidence and even to reverse its decision at any time before an order is drawn up and perfected if there are exceptional circumstances or strong reasons for doing so. Leave to file further evidence would not be granted in the absence of genuine extenuating circumstances, meaning circumstances that would normally fall within the rule in Ladd v Marshall. In exercising its discretion, the court is bound to have regard to the underlying objectives of the Civil Justice Reform set out in Order 1A, rule 1 and to seek to promote the attainment of such objectives: see Lui Wai Yee Eunice v Sun David Tse Chien [2022] HKCFI 2585 paras 23 to 24, citing Jose Miranda Da Costa Junior v Lorenzo Yih HCA 156/2010, 28 April 2014 at paras 9 to 10.

184.    Furthermore, there must be a strong public interest in finality of litigation.  Prima facie to allow the adducing of fresh evidence too readily after a hearing was concluded goes against that public interest. See the remark made by the Court of Appeal in the context of an application to adduce fresh evidence at an appeal in Chong Hing Bank Ltd v. Fairview City Ltd [2019] HKCA 1033 at para 19.”

44.In Ladd v Marshall [1954] 1 WLR 1489 at 1491, it was held that leave to adduce further evidence on appeal would only be granted if the following conditions can be satisfied:

(1)  First, it must be shown that the evidence could not have been obtained with reasonable diligence for use at the trial;

(2)  Secondly, the evidence must be such that, if given, it would probably have an important influence on the result of the case, though it need not be decisive; and

(3)  Thirdly, the evidence must be such as is presumably to be believed, or in other words, it must be apparently credible, though it need not be incontrovertible.

45.It is not disputed that the burden is on the Company to show that each of the three conditions is satisfied.

F2.    Discussion: the New Evidence fails to satisfy Ladd v Marshall

46.I do not see how the Company satisfies the conditions in Ladd v Marshall (above). 

47.Exhibit LC-21 is the audited financial report of the Company dated 26 September 2022 for the year ended 31 March 2022.  Exhibit LC-22 is the Company’s latest bank statement as of 31 October 2023.  They can be considered together:

(1)  In Lee Chu 3^rd, the Company argues that such evidence could not have been produced with reasonable diligence at the November Hearing.  The Company puts the blame on its former legal representatives for failing to advise it to produce these documents.

(2)  But irrespective of whether the first condition of Ladd v Marshall is satisfied, I am of the firm view that the second condition in Ladd v Marshall is not satisfied.  I am not satisfied that the financial report and the bank statement would have any important influence on this case, for it is trite that a creditor is entitled to serve a statutory demand in respect of a debt to which he believes there is no defence; and if the debt is not satisfied, the creditor has locus to present a petition to wind up the company.  If the company is found to have no defence, the creditor will normally be entitled to a winding up order ex debito justitiae.  Thus, even when the Company is known to be solvent, the Petitioner as creditor who has an unanswerable debt can still petition to wind up the company: Re Yueshou Environmental Holdings Ltd (above), at §§11-12, per Harris J.

(3)  Further, the bank statement exhibited as LC-22 has no important influence either, for it only shows how much cash that the Company had.  It does not tell whether Company is solvent or not.

(4)  Thus, the question remains whether the Company can demonstrate any bona fide dispute on substantial grounds or any cross-claims that exceed the Debt stated in the Re-Amended Petition. But in light of the discussion herein, the Company just fails in limine.

48.As to the Payment Records from 22 May 2019 to 30 June 2021 exhibited at LC-23, Mr. Ko for the Company argues that they support the Company’s argument that there is a back-to-back “paid when paid” arrangement between the Company and the Petitioner.  Such argument is misconceived. The Company has failed to satisfy the second condition in Ladd v Marshall:

(1)  I do not see how they would have an important result on the hearing of the Re-Amended Petition, when Mr Jason Ko for the Company fairly accepts that (a)  the meaning of the phrase “back-to-back” payment in the Sub-Sub-Contract is a matter of contractual interpretation; and (b)  it is well settled that subsequent conduct of the parties is inadmissible to the interpretation of the contract: James Miller v Whitworth [1970] AC 583, HL. 

(2)  In the circumstances, on the interpretation of Clause 11, those Payment Records exhibited in Exhibit LC-23 are inadmissible.  They could not have any important result in the hearing of the Re-Amended Petition.  The Company fails to satisfy the second condition in Ladd v Marshall (above). 

49.Exhibit LC-24 and LC-25 can be addressed together:

(1)  According to Lee Chu 3^rd, the prospect of the Company becomes much more promising with the potential investment of the “white knight” known as Sunrise Bright Construction Materials Company Limited (旭盛建築有限公司)  (“Sunrise Bright”).  It is alleged that negotiation with Sunrise Bright commenced in the beginning of November 2023; and that after rounds of negotiation, Sunrise Bright showed interest in acquiring the shares of the Company; and that they agreed to have the auditors instructed to prepare the financial report of the Company.

(2)  Exhibit LC-24 is an engagement letter dated 23 November 2023, which shows that the Company has engaged CAN (HK)  CPA Limited for the preparation of its audited financial statements. 

(3)  Exhibit LC-25 is a memorandum of understanding dated 24 November 2023 (“MOU”)  concluded between the two shareholders of the Company on the one hand and Sunrise Bright on the other hand, under which HK$16,000,000 would be paid by Sunrise Bright for the acquisition of the shareholding of the two major shareholders of the Company. 

50.They do not satisfy the conditions in Ladd v Marshall:

(1)  First, as reflected from the terms of the MOU, the acquisition of shares of the Company by Sunrise Bright is conditional upon the due diligence to be carried out at the Company; and yet the due diligence is to be carried out only if this Court is to dismiss the Re-Amended Petition.  Therefore, the MOU simply does not have any impact on the result of the winding up proceedings, let alone an important one.

(2)  Further, it is argued by the Petitioner, which the Company does not dispute, that under the MOU, the proceeds of HK$16,000,000 would not be injected into the Company but would be paid over to the two controlling shareholders of the Company.  There is no suggestion that such HK$16,000,000 would be made available to the Company.  In the circumstances, the MOU would not have any important impact on the result of these winding up proceedings.  

51.Finally, Exhibit LC-26 is a pre-action letter dated 24 November 2023 issued by the Company’s new solicitors to the Petitioner, alleging that there was delay in the completion of the works and that penalty should be paid by the Petitioner to the Company at a daily rate of HK$15,000.   In the said letter, the Company claims against the Petitioner for a total sum of HK$36,090,000, being the penalty for a delay of 2,406 days.  However, in my judgment, it fails to satisfy the Ladd v Marshall conditions:

(1)  First, the information contained in the said letter were all available by July 2020 the latest.  Thus, the Company with reasonable diligence could have and yet failed to have adduced such claims at the November Hearing.  In the circumstances, the Company fails to satisfy the first condition in Ladd v Marshall. 

(2)  Second, it also fails to satisfy the third condition in Ladd v Marshall.  As elaborated in paragraph 39 above, the Company’s allegation of delay was only raised for the very first time in 2023.  Such allegation is wholly devoid of merits and does not stack up against the undisputed factual background.  This is especially so when the Company had already paid the Petitioner a sum of HK$23,087,638.00 under the Sub-Sub-Contract without any suggestion of delay or any claim for the liquidated damages. 

(3)  The claims now put forward by the Company are very different from the claims for liquidated damages that it first alleged at the November Hearing (viz, an indemnity for the penalty claimed by the Main Contractor for a sum over HK$50 million). There is no explanation for the discrepancies (viz, in Exhibit LC-26, there was no mention of any indemnity of the liquidated damages claimed by the Main Contractor).  This letter with new and different claims made at the eleventh hour just raises further doubts on the bona fide and genuineness of the alleged cross-claim of the Company against the Petitioner.  In the circumstances (and in light of the analysis in Section E above), such claims are not apparently credible and therefore the third condition in Ladd v Marshall is not satisfied.  

(4)  For the same reasons, I do not see how these allegations made at the eleventh hour would have any important result on these winding up proceedings.  Thus, I hold that the second condition in Ladd v Marshall is not satisfied.

52.Finally, in Lee Chu’s 3^rd, it is alleged for the very first time that the parties were in without prejudice negotiation from 2021 to 2022 and that the correspondence between the parties from 2021 to 2022 I referred to are without prejudice negotiations. Specifically, Lee Chu 3^rd alleges that the cheques drawn were specifically requested by the Petitioner in the course of the negotiation.  I have great difficulties in accepting the Company’s allegations.  First, none of the correspondence was marked “without prejudice” and yet Mr Jason Ko for the Company has not been able to identify which or why any particular exchange was made in the course of negotiation so as to attract the without prejudice privilege. Neither did he identify any surrounding circumstances so as to demonstrate that any such exchange was made with a view to negotiating the settlement.  Second, even if I were to accept that they were “without prejudice correspondence”, counsel for the Company was not able to demonstrate why the Ladd v Marshall conditions could be met in this regard.   Amongst other things, I do not see how Lee Chu 3^rd in this regard would have any important impact on the result of the winding up proceedings:

(1)  In the light of the analysis in paragraphs 26 to 37 above, the interpretation of Clause 11 as contended by the Company is misconceived.  Further, as already explained in paragraph 39 above, the Company also fails to adduce any sufficiently precise factual evidence to substantiate its cross-claim arising out of any alleged delay.

(2)  In the circumstances, even if I were to ignore the exchange of correspondence between the parties between 2021 and 2022, I would still have concluded that the Company has failed to demonstrate any bona fide disputes on substantial grounds or any genuine cross-claims that exceed the Debt.

G.  DISPOSITION

53.In the premises, the Company’s Summons is dismissed with costs against the Company.

54.At the end of the November Hearing, relying upon Re Silver Base International Development Co Ltd [2022] HKCFI 1793 at §53, Mr Lam for the Company asked for 14 days after the date of the judgment to pay the Debt should the Court find against the Company. 

55.However, the circumstances in Re Silver Base International Development Co Ltd are very different from the present case, as the petitioner in that case did not oppose to giving the company one last opportunity to pay.  But at the November Hearing, the Company’s proposal was rejected by the Petitioner.

56.In the premises, I shall make the usual winding up order against the Company.

Mr Danny Fung, instructed by CMY Lawyers, for the petitioner

Mr Timothy Lam, instructed by Fung Wong Ng & Lam, for the respondent (on 9 November 2023 only)

Mr. Jason Ko, instructed by Lennon & Lawyers, for the respondent (on 15 December 2023 only)

Kenworth Engineering Limited and City Concrete Pump Limited, Supporting Creditors, attendance excused

Official Receiver, attendance excused