Re Hyundai Engineering & Construction Co. Ltd.

HCCW001299/2001

HCCW 1299/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 1299 OF 2001

____________

____________

Coram: Hon Kwan J in Chambers

Date of Hearing: 21 February 2002

Date of Decision: 21 February 2002

Date of Handing Down Reasons for Decision: 27 February 2002

__________________________________

REASONS FOR DECISION

__________________________________

1.On 3 December 2001, the petitioner Full Winning Trading Ltd. ("FWT") presented a petition to wind up Hyundai Engineering & Construction Co., Ltd. ("the Company") on the ground that the Company is unable to pay its debts under section 177(1)(d) of the Companies Ordinance, Cap. 32. The debt pleaded in the petition is in the sum of HK$1,526,129.00, "representing the outstanding plant hire charges for the period from 1 March 2001 to 30 August 2001 payable by the Company to [FWT] in respect of the Company's hire of [FWT's] plant and equipment pursuant to two plant hire agreements both dated the 1st day of March 2001."

2.On 5 December 2001, on the ex parte application of the Company, I granted an injunction to restrain FWT from taking any further steps in the prosecution of the winding up petition and from publicizing or advertising the presentation of the petition until the determination of the inter partes summons for the striking out of the petition or further order. On 21 February 2002, I heard the summons of the Company to strike out the petition. At the conclusion of the hearing, I made an order to strike out the petition on the ground that the petition is an abuse of the process of the court, having been satisfied that there is a bona fide dispute of the debt on substantial grounds. These are the reasons for my decision.

The background

3.The matters not in dispute leading to the presentation of the petition may be set out as follows.

4.The Company was and is at all material times the principal contractor for works under Contract No. NL9/98 relating to the Tung Chung Development Phase 3A, Reclamation for Areas 51, 52 (Part) to 56 ("the Works"). By a subcontract ("the Subcontract") made between the Company as the main contractor and North Lantau Dredging Ltd. ("NLD") as the subcontractor on 26 April 1999, NLD agreed to execute certain dredging and dumping works of the Works. It was a condition of the Subcontract that NLD was to execute a mortgage of two hopper barges in favour of the Company as a continuing security for the due performance by NLD of all its obligations under the Subcontract. Two mortgages were duly executed on 10 May 1999 and it was provided in each that upon NLD's fulfilment of all its obligations, the Company should release the mortgages and deliver the mortgaged vessels to NLD.

5.On 1 March 2001, the Company entered into two plant hire agreements with FWT ("the Plant Hire Agreements") and an agreement called the "Mortgage Discharge Agreement" with NLD. The effect and the material terms of these agreements may be summarised as follows.

6.Under the Plant Hire Agreements, FWT, which is described as the registered owner or agent of certain marine plant vessels as described therein, agreed to hire the vessels to the Company on bare boat charter for the Works. In respect of one agreement, the charter period was fixed for seven months commencing 1 March 2001 to 30 September 2001. The charter period for the other agreement was fixed on a month to month basis, also commencing 1 March 2001, subject to termination of seven days' notice issued by the Company. It was provided that FWT would not be allowed to withdraw any of the vessels hired out without the consent of the Company, that the Company was obliged to pay the plant hire at the specified rates to FWT, and that FWT should issue an invoice to the Company at the end of each hiring month requesting payment at the respective hire rates.

7.Clause 1.4 of each of the Plant Hire Agreements provided for the mode and time of payment of the plant hire. Clause 1.4.1 stated that the plant hire was payable in arrears on the 20th day of each calendar month. By clause 1.4.2, FWT "hereby confirms that ... it has assigned the Hire Rate payable under this Plant Hire Agreement, together with another plant hire agreement signed separately with [the Company], to the extent of HK$2.31 Million to NLD and agree [sic] that the mode of payment of the Hire Rate within the aforesaid sum shall be as follows:- i) prior to any amount payable by [the Company] to [FWT] pursuant to this Plant Hire Agreement, [FWT] shall issue a Notice of Assignment in the form and substance as appended herein as Appendix C; and ii) procure the issuance by NLD an authorization letter to [the Company] in the form and substance as appended herein as Appendix D". By clause 1.4.3, the Company agreed to "discharge the mortgage of two hopper barges ... upon the settlement by NLD of its partial indebtedness to [the Company] to HK$2.31 Million or when HK$2.31 Million is accumulated from the plant hire rate payable, whichever is the earlier." Under clause 1.4.4, FWT warranted and confirmed to the Company that it had full authority to effect the payment mode as therein provided and undertook to indemnify the Company for its losses and damages in the event that any amount of the hire rate settled pursuant to clause 1.4.2 should be avoided or reduced by virtue of any legislation relating to bankruptcy or liquidation.

8.Pursuant to clause 1.4.2 of each agreement, FWT issued two Notices of Assignment to the Company dated 1 March 2001 and they were copied to NLD. It was stated in each notice that FWT had assigned all of its rights, interests and benefit in "all charterhire and other receivables (present and future) in respect [of ] the Hired Vessels to NLD", that "such assignment includes all moneys, whatsoever payable by [the Company] to [FWT] relating or pursuant to [the Plant Hire Agreement]", and that "it was also agreed that all such charterhire, plant hire and earnings would be appropriated as NLD may direct."

9.FWT also procured NLD to issue to the Company two letters of authorization both dated 1 March 2001 stating that the letters were issued in the context of and in conjunction with the Mortgage Discharge Agreement and the Notices of Assignment and that NLD authorized the Company, as the hirer in the Plant Hire Agreements, to "use the respective plant hire income (as and when they become due and payable by [the Company] under the Plant Hire Agreement) to set off any outstanding amount that [NLD] is currently indebted to [the Company] to HK$2,310,000." It was expressly stated that the letters of authorization were issued to the Company "by way of security for the partial settlement of [NLD's] indebtedness to [the Company]" and was "irrevocable once issued". Further, in consideration of the above authorization of NLD, the Company was to release the mortgage of the two hopper barges upon full receipt of the relevant plant hire income so assigned by FWT when the aggregate sum should have reached HK$2,310,000.00. The letters of authorization were copied to FWT.

10.In the recitals of the Mortgage Discharge Agreement, reference was made to the Plant Hire Agreements and the assignment by FWT of the relevant plant hire income in full to NLD. It was further stated that "in turn, NLD shall use the same amount of plant hire income, so assigned from [FWT], to settle the same amount due to [the Company] under this Mortgage Discharge Agreement" and the amount to be so settled would be HK$2,310,000.00. By that agreement, prior to any amount payable by the Company to FWT pursuant to the Plant Hire Agreements, NLD agreed to procure the issuance by FWT to the Company of the Notices of Assignment and itself to issue the letters of authorization. Upon receipt of the Notices of Assignment and the letters of authorization, the Company agreed to set off the amount payable to FWT against the outstanding amount due from NLD to the Company and upon the aggregate sum of the outstanding amount being set off reaching HK$2,310,000.00, the Company should arrange for the discharge of the mortgage of the vessels.

11.The Mortgage Discharge Agreement also contained a provision which was signed by FWT and it provided as follows:

"[FWT] hereby confirms its agreement to the terms herein provided and further confirms that it will derive commercial benefit from the transaction stipulated hereunder and [the Company] shall not concern itself as to whether or not [FWT] will in fact derive such benefit."

12.In the beginning, a total of four vessels were provided to the Company under the Plant Hire Agreements, one of these was a hopper barge of which NLD was the registered owner and it was mortgaged to the Company as mentioned before.

13.Not long after the three agreements were made, NLD wrote to the Company on 17 April 2001 enclosing an updated account for the Subcontract and stating that it would "consider" that it had "back-to-back rights to [the Company's] probable entitlements for the claims for the Public Fill Works at least to the extent of the net deficit of the Subcontract Account" and it would "consider" its entitlement to reimbursement under the Public Fill Claim to be HK$23,799,761.83. The letter was copied to, among others, Mr Leung Yat Tung, who is the major shareholder of NLD and until he was made bankrupt on 1 March 2001, a director of NLD. The other shareholder of NLD is Mr Leung's wife. It is alleged by the Company that Mr Leung was the person that the Company had dealt with all along and that he was in control of both NLD and FWT, although he has never been a director or shareholder of FWT. FWT denies that Mr Leung has any control over it.

14.FWT then wrote to the Company on 19 April 2001 referring to NLD's letter of 17 April 2001 and stating that at the time of the negotiation and signing of the Plant Hire Agreements, the Company had informed FWT that NLD had an outstanding amount due to the Company in the region of HK$16 million and it was on that understanding that FWT had agreed to assign the plant hire income to NLD. The letter went on as follows: "Now it seems that both [the Company] and NLD had a dispute on their relative outstanding positions against each other and might have to take quite some time to resolve. It is therefore only prudent for us [i.e. FWT] to withdrawal [sic] the said Notice of Assignment and revert the payment of plant hire to cash payment." The Company was asked to pay the plant hire for March 2001 in cash. This letter was copied to NLD and Mr Leung.

15.The Company responded to FWT's withdrawal of the Notice of Assignment by a letter to FWT dated 21 April 2001, stating that it did not see why FWT should be concerned with NLD's letter of 17 April 2001 as to what should be the correct outstanding amount between NLD and the Company. The Company asserted that the Notice of Assignment was in compliance with section 9 of the Law Amendment and Reform (Consolidation) Ordinance, Cap. 23 and accordingly, the legal right in the charterhire was already transferred from FWT to NLD from 1 March 2001 and that FWT had no right to withdraw the Notice of Assignment, as that would be in breach of the Plant Hire Agreements and the Mortgage Discharge Agreement.

16.FWT then sought to withdraw the vessels under hire from the Company and served two notices in writing on the Company to that effect dated 26 April 2001 and 4 May 2001. These notices were copied to Mr Leung and in the second notice, reference was made to a conversation between the Company and Mr Leung in which the Company stated that it had no intention to pay the hire charges to FWT. On 5 May 2001, FWT served a written notice on the Company to terminate the Plant Hire Agreement alleging that the refusal of the Company to pay hire charges to FWT constituted an event of default. The notice was likewise copied to Mr Leung.

17.The next thing that happened was a meeting between Mr Leung and Mr Kim Jong Hun, the project manager of the Company, on 7 May 2001. In the affirmation filed by FWT, the deponent alleged that at that meeting, "the Company finally agreed that as there was nothing to be set-off, it would pay the plant hire direct to [FWT's] designated bank account" and that the letter of the Company to FWT dated 11 May 2001 "records an acceptance to [FWT's] proposal on 7 May 2001." In the affirmations filed by the Company, it is alleged that although the letter of the Company dated 11 May 2001 "suggested" a compromise to the dispute, at the end, "nothing came out of it" and "while the Company, intent on honouring its contractual obligations, was prepared to negotiate further there was never any concluded agreement that the Company would pay Plant Hire to the Petitioner."

18.The letter of the Company to FWT dated 11 May 2001 was captioned "payment of plant hire" and was in these terms:

"We write further to our meeting between your Mr Y.T. Leung and our Mr J.H. Kim on 7 May 2001.

The Plant Hire Agreement and the Mortgage Discharge Agreement were reached after series of negotiations between the parties and after immense efforts and resources being spent.

You would surely understand how frustrated we are to know that you are asking this and that contrary to the agreements made.

As we will have along [sic] way to cooperate with each other, we have so far try [sic] our best to keep the rapport between us for one single reason: to get our job done.

As regards the above-mentioned meeting on 7 May 2001, it seems that we have no choice but to accept your proposal.

We confirm that:

1. [The Company] shall pay the plant hire for use of the Vessels to the designated bank account as informed by you.

Subject to [the Company] in performing the above:

2. Both parties shall withdraw the Plant Hire Agreement and the Mortgage Discharge Agreement agreed on 1 March 2001.

3. Both parties shall make a new Plant Hire Agreement between [the Company] and [FWT]."

19.From March 2001 to August 2001, FWT issued six invoices to the Company for the plant hire of vessels during that period. The Company did not make any payment to FWT.

20.On 30 August 2001, an agreement in writing was entered into between FWT and the Company ("the August Agreement"). FWT did so as agent for the registered owners of three vessels on hire to the Company, being UDL Equipment, Bugsy Development Co. Ltd. and NLD. This agreement contained, inter alia, the following provisions:

"2. In consideration of [the Company] agreeing to pay the sum of HK$200,000.00 to [FWT], [FWT] agrees and hereby agreed to waive all [the Company's] obligations under the said Plant Hire Agreement [relating to the hiring of the three vessels, being the subject of one of the Plant Hire Agreements] during the Charter Period ... Should the Charter Period be extended, the Company shall not be liable to FWT for any obligation whatsoever stipulated in the two Plant Hire Agreements, save for the plant hire for the extended period to be agreed by both parties.

3. The above settlement amount shall be payable in two tranches, each of HK$100,000.00, on 31 August 2001 and on 30 September 2001.

4. For the avoidance of doubt and without prejudice to the generality of Clause 2, upon receipt of the settlement amount in full, [FWT] hereby expressly confirms as follows:

(i) that [FWT] have no claims whatsoever against [the Company] in the Plant Hire Agreement relating to the hiring of FPS 49.9-1 [being the subject of the other Hire Plant Agreement], either current or contingent;

(ii) the sum of HK$200,000.00 shall be full and final settlement of [the Company's] obligation and duties under the said Plant Hire Agreements, save for the plant hire during the Charter Period and for the extended period;

(iii) it shall waive [the Company's] obligations under Clause 1.5 of the said Plant Hire Agreement for the repairs and maintenance (including unusual damages, if any) of [the three vessels];

(iv) in respect of the Plant Hire Agreement [relating to the three vessels], it shall waive [the Company's] obligations under Clause 1.6 of the said Plant Hire Agreement for the repairs and survey necessary to have [the three vessels] re-licensed ...;

(v) in respect of the Plant Hire Agreement [relating to the three vessels], it shall waive any claim for damages against [the Company] for termination of the hire of individual vessels or all of the vessels prior to the expiration dated of the Charter Period;

(vi) it shall waive all other sums, claims and damages against [the Company] which may arise from or in connection with the two Plant Hire Agreements."

21.The effect of the above provisions in the August Agreement is a matter in dispute. What is not in dispute is that the Company made two payments of HK$100,000.00 each to FWT on 31 August and 29 September 2001 and the receipt issued by FWT for the second payment stated that it was "the final tranche payment of settlement amount."

22.On 12 September 2001, FWT's solicitors wrote to the Company stating that the Company had failed to pay FWT outstanding hire charges under the Plant Hire Agreements and demanding payment of HK$1,526,129.00. On 12 October 2001, FWT issued a writ against the Company in High Court Action No. 4472 of 2001. The only agreements pleaded in the Statement of Claim as founding a cause of action are the two Plant Hire Agreements dated 1 March 2001. It is alleged that the Company was in breach of these agreements in that it had failed and refused to pay plant hire charges to FWT being the amount of the six invoices issued by FWT to the Company in the total sum of HK$1,526,129.00.

23.On 7 November 2001, the Company filed a Defence and Counterclaim pleading clauses 1.4.2, 1.4.3 and 1.4.4 of the Plant Hire Agreements, the two Notices of Assignment and the letters of authorization and alleging that (1) FWT has assigned the hire rate payable under the agreements in the amount of HK$2.31 million to NLD; (2) NLD is in breach of its obligations under the Subcontract; (3) NLD is still indebted to the Company; (4) FWT is not entitled to payment of the hire charges; and (5) FWT had wrongfully terminated the Plant Hire Agreements. The Company counterclaimed for damages for breach or repudiation of the agreements.

24.On 21 November 2001, FWT filed a Reply and Defence to Counterclaim. It is averred that NLD was not indebted to the Company at the time of the agreements, there was therefore no debt owing from NLD to the Company which was capable of being set off against the hire rate as provided in the Notices of Assignment and on receiving NLD's letter to the Company dated 17 April 2001, FWT was entitled to and did on 19 April 2001 validly withdraw the Notices of Assignment. Further, as NLD is not indebted to the Company, NLD is entitled to require the Company to discharge the two mortgages. It is averred that it is the Company, not NLD, which is in breach of the Subcontract. Two letters from NLD to the Company dated 26 and 29 October 2001 are pleaded. In these letters, NLD demanded the Company to pay HK$3,989,705.50 in respect of the dredging works for Kwai Chung Container Port Terminal 9 Development and HK$17,509,538.24 for the work done under the Subcontract. The Reply also contained these averments:

"13(b) In consideration of acknowledgment of the plant hire obligations by [the Company] on or about 7 May 2001, it was agreed between [the Company] and East Coast Towing Limited (acting on behalf of FWT), that [FWT] would withdraw the notice of termination dated 5th May 2001.

...

14. Further, by an agreement dated 30th August 2001 ... made between [FWT] and [the Company], it was expressly agreed inter alia that to make payments for inter alia, plant hire under [the Plant Hire Agreements] to FWT on the terms and conditions therein contained and FWT will refer at trial to [the August Agreement] for its full terms and effect."

25.NLD is not a party to the High Court Action.

26.On 3 December 2001, by another firm of solicitors, FWT presented this petition to wind up the Company on the basis of the debt as pleaded in the Statement of Claim.

The solvency of the Company

27.I propose to deal with this first before I resolve the question whether there is a bona fide dispute on substantial grounds. The issue of whether the Company is solvent is canvassed at some length in the affirmation filed by FWT. In the written submission of Mr William Wong, who appeared on behalf of FWT, he submitted that it would be incumbent on the Company to produce "unequivocal evidence" to prove that it is now solvent. Mr Wong, however, did not touch upon this issue in his oral submissions.

28.I accept the submissions of Mr Winston Poon, SC, leading counsel for the Company, that it is unnecessary for the Company to answer the allegation of FWT that it is insolvent because this is irrelevant at this stage. The crux of the matter is whether FWT has locus standi to present a petition as a creditor, as an application to wind up the company shall be presented by "any creditor or creditors (including any contingent or prospective creditor or creditors)", as provided in section 179(1) of Cap. 32. In Mann v. Goldstein [1968] 1 WLR 1091, it was held by Ungoed-Thomas J. that even though it appeared from the evidence that the companies in question were insolvent, as the debts were substantially disputed, the defendants should be restrained from proceedings on their petitions. The learned judge had this to say in his judgment:

"Of course, a person not named in section 224 [of the Companies Act 1948, i.e. equivalent to our section 179] as a person entitled to present a winding-up petition, does not become so named because the company is insolvent. Therefore, so far as material to our case, if the defendants are not creditors they are not entitled to present or advertise their petitions or apply for a winding-up order; they have no locus standi, and their petitions are bound to fail even though the company be insolvent." (at 1094D)

"To enable the Companies Court to make the winding-up order itself, not only must the petitioner have been shown to be entitled to present the petition, but one of the grounds specified in section 222 of the Companies Act [i.e. equivalent to our section 177] must be established: and the only such ground relied on in the petition and before me was that the company is unable to pay its debts. This requirement is additional to the pre-condition of presenting the petition, that the petitioner must be a creditor, and is not alternative to it. But the insolvency requirement, unlike the creditor requirement, is only a prerequisite of the order and not a prerequisite of the presentation of the petition. So if a person is entitled to present a petition, then the company's inability to pay its debts is the very matter which it is appropriate for the Companies Court to enquire into and decide in the exercise of its jurisdiction to make a winding-up order." (at 1095D to F)

29.I refer also to Re Lympne Investments Ltd. [1972] 1 WLR 523 at 527G to 528A. Thus, the issue of the solvency of the Company would not become relevant unless and until I have come to the view that the Company has failed to establish a bona fide dispute of the debt on substantial grounds and that FWT should be allowed to proceed with the petition. I also agree with the following dicta of Yuen J. in Re Shenhua Sheng Yu Coal and Energy Corp. Ltd. [2201] 2 HKLRD 452 at 457E, which were said in the context when an order was made for a petition to be struck out:

"As a matter of completeness, I would add that whilst the parties made submissions before me on the financial state of the Company, it seems to me that if there is a substantial dispute on the Petitioner's locus standi at this stage, the Court need not and should not embark on an examination of the Company's financial position in vacuo. To do so would mean that any officious person could present a baseless petition and yet put a company to the expense and anxiety of proving its solvency before the court."

Bona fide dispute on substantial grounds

30.I have borne in mind the guidance given in the authorities. The onus is on the Company to adduce "sufficiently precise factual evidence" to satisfy the court that it has a bona fide dispute on substantial grounds (Re ICS Computer Distribution Ltd. [1996] 1 HKLR 181 at 182J to 184B). On an application like this, the court necessarily has to "take a view whether, on the evidence, there really is substance in the dispute which is raised" (Re Claybridge Shipping Company SA [1997] 1 BCLC 572 at 578b, per Oliver LJ; Re a Company No. 006685 of 1996 [1997] BCC 830 at 835G and 837B, per Chadwick J.; Re Shenhua Sheng Yu Coal and Energy Corp. Ltd., supra. at 454C to 455C). Further, as stated by Chadwick J. in the case aforesaid at 838D:

"... the Companies Court should not seek to resolve issues of fact without cross-examination where there is credible affidavit evidence on each side. But I do not accept that the court is bound to hold that there is a need for a trial in circumstances in which, on a full understanding of the documents, the evidence asserted in the affidavits on one side is simply incredible."

31.Central to the dispute between the Company and FWT and the latter's claim for the hire charges as stated in the Statement of Claim and the petition are two matters. The first is the indebtedness, if any, of NLD to the Company at the time the various agreements were made on 1 March 2001. It is FWT's position, as pleaded in the Reply and reiterated in paragraph 15 of the affirmation filed by FWT that at the time the agreements were made, there was no debt owing from NLD to the Company, hence there was no debt which was capable of being set off against the hire charges assigned to NLD by FWT and the Notices of Assignment were validly withdrawn by FWT on 19 April 2001. The second matter is whether a binding compromise was reached between FWT and the Company on 7 May 2001 and what were the terms of the compromise.

32.For completeness, I should mention that it was also raised in argument whether the assignment by FWT to NLD of the hire charges was a legal or equitable assignment and if it were the latter, whether it was a valid assignment in equity. These are matters of lesser importance. Assuming that it is an equitable assignment being an assignment for part of the debt, I am inclined to think that there is at least a serious dispute as to the validity of the assignment notwithstanding Mr Wong's submission that there was no consideration as between NLD and FWT, in view of the confirmation by FWT in the Mortgage Discharge Agreement that FWT "will derive commercial benefit from the transaction".

The indebtedness of NLD

33.I would deal with the issue of NLD's indebtedness first. Mr Poon has drawn my attention to the relevant provisions in the Mortgage Discharge Agreements between the Company and NLD and the letter of authorization given by NLD. These documents all contained direct acknowledgment by NLD that on the day of the signing of these documents, NLD was indebted to the Company at least to the extent of HK$2.31 million, being the amount of the hire charges agreed by the three parties to be set off against NLD's indebtedness to the Company. As stated in the letter of the Company to FWT dated 11 May 2001, the agreements on 1 March 2001 were reached by the three parties "after series of negotiations between the parties and after immense efforts and resources being spent." This is not disputed by FWT.

34.What happened subsequently were unilateral assertions made by NLD as to its state of indebtedness to the Company at the time of the agreements and subsequently. There were the letters from NLD to the Company dated 17 April 2001, 26 and 29 October 2001. It is true that the Company has not produced in evidence any reply to these letters and I do not know whether any response had in fact been made by the Company at the time. It is however pertinent to note these matters.

35.Firstly, as appeared from the letter of FWT to the Company on 19 April 2001, even FWT had recognised at the time that the dispute between the Company and FWT on "their relative outstanding positions against each other ... might have to take some time to resolve". Secondly, from that letter, it would appear that the Company had informed FWT at the time of the negotiations (presumably also NLD who was a party to the tri-partite arrangement arrived at on 1 March 2001) that NLD's outstanding debt to the Company at that time was in the range of HK$16 million. It is an extraordinary thing that instead of NLD being indebted to the Company in the sum of HK$16 million, no debt should have been owed and it was the Company that was indebted to NLD to the extent of HK$23 million. Thirdly, it is apparent from NLD's letters to the Company that vast sums were involved in the works sub-contracted by the Company to NLD and as mentioned by NLD in their letters dated 26 and 29 October 2001, there were "complicated contractual ramifications" with allegations on each side that the other party was in breach of contract. Fourthly, NLD is not a party to the High Court Action and I have no evidence from NLD in these proceedings except for the letters exhibited by FWT that I have mentioned.

36.In the circumstances, I am firmly of the view that there is a bona fide triable issue on the state of NLD's indebtedness to the Company at the time of the agreements in March 2001.

Compromise on 7 May 2001

37.I understand from Mr Wong in his oral submissions that FWT's case on its entitlement to be paid the hire charges is as follows. FWT relies on the Plant Hire Agreements as varied by the "settlement" agreement arrived at on 7 May 2001. It is alleged that on 7 May 2001, it was agreed between the parties, i.e. Mr Kim Jong Hun for the Company and Mr Leung for FWT (notwithstanding that he held no position in FWT and did not control it, as asserted by FWT), that the mode of payment of the hire charges was to be varied in that the Company was to make payments to FWT directly and save as aforesaid, the Plant Hire Agreements would remain intact.

38.It is a curious feature that the Plant Hire Agreements as varied by the "settlement" agreement in the manner as stated by counsel were not pleaded in the Statement of Claim or the Reply in the High Court Action (see paragraph 13(b) of the Reply), nor were they mentioned in the petition. The debt of FWT in the Statement of Claim and in the petition was founded solely on the Plant Hire Agreements.

39.Further, in Mr Wong's written submissions, he relied heavily on a compromise reached between the Company and FWT on 7 May 2001 that the Company was to pay the hire charges directly to the designated account of FWT and submitted that because of this compromise, the dispute of the parties as to the validity of FWT's withdrawal of the Notices of Assignment, as raised in the Defence and Counterclaim in the High Court Action, "has become historical by then". As the unimpeached compromise "represents the end of the dispute or disputes from which it arose", the Company cannot "resurrect" its argument of the validity of the withdrawal of the assignment to say that the debt in the petition is substantially disputed. This argument is apparently advanced to get round the difficulty that there may well be a substantial dispute regarding the effect of clauses 1.4.2 and 1.4.3 of the Plant Hire Agreements and the validity of the purported withdrawal of the assignment by FWT. After Mr Poon has complained that the alleged compromise did not form any part of FWT's case as stated in the petition so that FWT cannot rely on a new head without amending the petition (see Re Wear Engine Works Company (1875) 10 Ch. App. 188 at 191; Re Fildes Bros. Ltd. [1970] 1 WLR 592 at 597G to 598C), nor could FWT have amended its pleadings in the High Court Action to enforce the compromise as the original claims cannot be revived once they were effectively compromised so that it is necessary for FWT to bring a fresh action to enforce the compromise (see Luk Por v. Chau Kim Hung [2001] 1 HKC 674 at 676I to 677D; Supamarl Ltd. v. Federated Homes Ltd. [1987] 9 Con LR 25), Mr Wong shifted his stance and relied on there being a variation of the Plant Hire Agreements on 7 May 2001 in the manner that I have stated.

40.As I have stated earlier, conflicting versions have been put forward by FWT and the Company as to whether any agreement was reached on 7 May 2001. Mr Wong submitted that the Company's version is unbelievable in view of its letter dated 11 May 2001 in which it was stated that it had "no choice but to accept [FWT's] proposal". I do not agree that the letter must necessarily be read in the manner as suggested by Mr Wong. Besides, paragraphs numbered 2 and 3 in that letter (i.e. that both parties should withdraw the Plant Hire Agreements and the Mortgage Discharge Agreement and make a new Plant Hire Agreement) simply do not bear out the case of FWT that there was to be a variation of the Plant Hire Agreements as put forward in the oral submissions of Mr Wong.

41.The August Agreement is another peculiar document. It is pleaded in the Reply that it was expressly provided in this agreement to make payments for plant hire under the Plant Hire Agreement. This does not appear to be the effect of the terms in the agreement. The agreement makes no mention that the Plant Hire Agreements had been varied by an oral agreement on 7 May 2001 in the manner as now alleged. Instead, what clause 2 would appear to provide is a complete waiver of all the Company's obligations under the Plant Hire Agreement relating to the hiring of the three vessels (that would arguably include the obligation to pay plant hire for these vessels during the charter period, which was to expire on 30 September 2001) except for the plant hire during the extended period to be agreed by the parties, in consideration of the Company paying HK$200,000.00, which was fulfilled. It is arguable that in so far as clause 4(ii) provided that the sum of HK$200,000.00 "shall be full and final settlement of [the Company's] obligation and duties under the said Plant Hire Agreements, save for the plant hire during the Charter Period and for the extended period" and would appear to be inconsistent with clause 2 above, clause 4 should be read subject to clause 2 because it was stated in the opening words of clause 4 that the latter provision is "for the avoidance of doubt and without prejudice to the generality of Clause 2". Mr Wong has submitted that the effect of the August Agreement is merely to provide for waiver of the Company's obligations towards repairs and maintenance of the barges being the subject of the Plant Hire Agreements and does not affect the Company's obligation to pay hire charges during the charter period. I am unable to come to that view on the face of the wording in the document.

42.In my view, the Company has raised a substantial dispute whether there was a binding agreement reached with FWT on 7 May 2001 that the payment obligation of hire charges was to be varied in the manner as alleged and that all other terms and conditions of the Plant Hire Agreements would remain intact. I do not agree that the subsequent documents, i.e. the letter of 11 May 2001 and the August Agreement, have shown the Company's case that there was no concluded agreement on 7 May 2001 to be unbelievable. Further, there are serious issues to be tried if the variation was supported by consideration and whether the Plant Hire Agreements as allegedly varied were superseded by the August Agreement.

43.For the above reasons, I have ordered the petition to be struck out because there is a bona fide dispute of the debt in the petition on substantial grounds and FWT does not have locus standi to present the petition. FWT would have to establish its entitlement to the debt in an action before it makes any move to petition for the winding up of the Company. I will hear the parties on costs.

Representation:

Mr William Wong, instructed by Messrs Poon & Cheung, for the petitioner.

Mr Winston Poon, SC and Mr James Thomson, instructed by Messrs Ng & Shum, for the Company.