Re Fully Well Investment Ltd
Read the full judgment text of HCCW 1056/2002 on BabelCite. This High Court CFI judgment was delivered on 17 June 2003.
1. I have before me a petition for the winding-up of Fully Well Investment Limited ("the Company"). The petition was presented on 18 September 2002 by Japan Leasing (Hong Kong) Limited ("Japan Leasing"), which is itself in Creditor's Voluntary Liquidation, having gone into liquidation on 29 September 1998. The petition is based on the Company's inability to pay its debts, having regard to its failure to comply with a statutory demand dated 24 July 2002 for the payment of a debt owing to Japan Le
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HCCW001056/2002 HCCW 1056/2002 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE COMPANIES WINDING-UP PROCEEDINGS NO. 1056 OF 2002 ____________
____________ Coram: Deputy High Court Judge Barma, S.C. in Court Dates of Hearing: 2, 4 and 25 April 2003 Date of Handing Down Judgment: 17 June 2003 ______________ J U D G M E N T ______________ Introduction 1.I have before me a petition for the winding-up of Fully Well Investment Limited ("the Company"). The petition was presented on 18 September 2002 by Japan Leasing (Hong Kong) Limited ("Japan Leasing"), which is itself in Creditor's Voluntary Liquidation, having gone into liquidation on 29 September 1998. The petition is based on the Company's inability to pay its debts, having regard to its failure to comply with a statutory demand dated 24 July 2002 for the payment of a debt owing to Japan Leasing of HK$17,305,835.87. 2.It appears from the petition and the statutory demand that this sum represents the outstanding amount of a judgment debt (excluding costs) and interest on it, which is due from the Company to Japan Leasing. The judgment debt was obtained in earlier proceedings between Japan Leasing and the Company (HCMP 4359 of 1998), following an appeal to the Court of Appeal (in CACV 83 of 2000). The amount demanded in the statutory demand was arrived at after giving credit for the sum of HK$31,345.07 recovered by Japan Leasing under a garnishee order. In HCMP 4359 of 1998, Japan leasing had claimed against the Company in respect of loan instalments and interest due on loans and advances made under a facility letter dated 23 September 1992, a loan agreement dated 23 September 1996 and a further loan agreement dated 16 April 1997, all of which were entered into between Japan Leasing and the Company. 3.The making of a winding-up order is opposed by the Company, on the basis of the material set out in two affirmations of Mr Wong Shun ("Mr Wong"), one of its directors. At the hearing before me, Japan Leasing was represented by Mr Kenneth Ng and the Company by Mr John J E Swaine. 4.Mr Swaine did not suggest that there was any irregularity in relation to the judgment debt on which the petition was founded. However, he said that the Company had a claim against Japan Leasing (which I will consider in more detail below), in respect of which it had commenced proceedings (HCA 752 of 2000) against Japan Leasing, seeking an award of damages. Mr Swaine submitted that while this would ordinarily have been a cross-claim, so that there would still have been an undisputed debt due to Japan Leasing in respect of the judgment debt, the position here was different, since Japan Leasing was in liquidation - because of this, the statutory set off in respect of mutual dealings arising under section 35 of the Bankruptcy Ordinance (Cap. 6), which applies to the winding-up of Japan Leasing by virtue of section 264 of the Companies Ordinance (Cap. 32), came into play, so that there was, from the moment that Japan Leasing went into liquidation, only a single debt, in respect of one net balance, as between Japan Leasing and the Company. In these circumstances, Mr Swaine submitted that the debt on which Japan Leasing relied in support of its petition is disputed, and that the Court should accordingly decline to make any order for the winding-up of the Company, leaving it to Japan Leasing and the Company to litigate the Company's action in order to establish whether or not there is in fact any debt due from the Company to Japan Leasing, and thus to establish which way the balance lies. 5.I did not understand Mr Ng to dispute that the statutory set off was applicable, or that its effect would be as Mr Swaine suggested, assuming that the Company did indeed have a good claim against Japan Leasing. Mr Ng's position was that, having regard to the statutory set off, the Company's claim against Japan Leasing stood in a similar position to a defence of set off to Japan Leasing's claim based on the judgment debt in its favour, so that it was necessary for the Company to satisfy me that the debt relied on by Japan Leasing was bona fide disputed on substantial grounds by showing that there was substance to its claim against Japan Leasing. Mr Ng submitted that the Company could not show this, and that a winding-up order should therefore be made against it. The factual background 6.It is necessary first to set out certain background facts. The Company was a property holding company, owning Flat 10A and two carparking spaces at Stubbs Villa, 2 Shiu Fai Terrace, Hong Kong. This property was let by the Company to Shun Kai Finance Company Limited ("Shun Kai"), and was used as the residence of Mr Wong, who was, in addition to being a director of the Company, a director of Shun Kai. Mr Wong appears to be the person principally responsible for the business and operations of both the Company and Shun Kai. 7.On 10 December 1992, Japan Leasing lent some HK$4,800,000.00 to the Company. This loan was secured by a legal charge over the Stubbs Villa property. Further loans, also secured by this charge, were subsequently made between 1995 and 1997. 8.Shun Kai is or was a licensed money lender, which operated a money lending business in the course of which it offered mortgage finance to various persons and other companies. Japan Leasing, which was also a money lender, had a business relationship with Shun Kai, in the course of which it lent money to Shun Kai, on the terms of an agreement dated 19 May 1993 ("the Governing Agreement"). The arrangement under the Governing Agreement envisaged that in respect of each loan made by Japan Leasing to Shun Kai, Shun Kai would on-lend the proceeds by a loan ("a sub-loan") to one of its own customers ("a sub-borrower"). It seems to have been envisaged that Shun Kai would or might lend a sub-borrower by way of a sub-loan more than the amount of the loan to it from Japan Leasing, the difference being made up from Shun Kai's own resources. Shun Kai would obtain a mortgage of landed property from the sub-borrower as security for the sub-loan, and would in turn give Japan Leasing a sub-mortgage in respect of such property. It seems that Shun Kai would also assign the sub-loan in question to Japan Leasing as further security for the loan it had received from Japan Leasing. Shun Kai presumably earned its income and profits from the interest which it earned on the sub-loan on which it had employed its own funds, and also (in respect of the portion of the sub-loan funded by Japan Leasing) from such difference as there might have been between the rate of interest it charged the sub-borrower, and the rate of interest it was obliged to pay to Japan Leasing. 9.The Governing Agreement contained provisions by which Japan Leasing authorised Shun Kai to be its exclusive agent to demand, sue for recovery of, collect and receive from sub-borrowers the monthly repayment instalments of sub-loans (which had been assigned to Japan Leasing) as long as Shun Kai was not in default under the terms of its loan from Japan Leasing. This authorisation could be revoked in respect of a particular sub-loan on seven working days' prior notice, if Shun Kai was in default of repayment of the loan to it by Japan Leasing. It was also provided that so long as there was no default by Shun Kai, Japan Leasing would not enforce the security under the sub-mortgage, or give notice of assignment of the sub-loan to the sub-borrower. 10.According to the evidence of Japan Leasing, in about January 1998, the Company defaulted in repayment of the loans which had been made to it, and in about March 1998, Shun Kai defaulted in repayment of the loans which Japan Leasing had made to Shun Kai. These allegations do not appear to be challenged by Mr Wong in the affirmations which he has made in opposition to the petition. 11.It appears that on 22 June 1998, Shun Kai being still in default, Japan Leasing notified the sub-borrowers with outstanding loans of the assignment of the sub-loans, and requested that repayments under the sub-loans be made directly to Japan Leasing in future. On the same date (and again on 1 and 23 July 1998) Japan Leasing gave notice to Shun Kai of its revocation of Shun Kai's appointment as its collection agent under the Governing Agreement. 12.Shun Kai has complained that by doing this, Japan Leasing has breached the terms of the Governing Agreement and has caused substantial loss to Shun Kai. This is the subject matter of proceedings brought by Shun Kai against Japan Leasing in HCA 13826 of 1998, in which Shun Kai seeks damages from Japan Leasing in respect of such alleged breaches by it of the Governing Agreement. 13.On 28 August 1998, the Company being still in default under the various loans made to it, Japan Leasing commenced HCMP 4359 of 1998 against the Company, seeking repayment of the outstanding amounts of the loans and interest on them, and possession of the Stubbs Villa property under the mortgage. 14.Apart from the actions and proceedings which I have already mentioned, the relationship between Japan Leasing and Shun Kai has engendered a considerable amount of further litigation between the parties, with no less than nine other actions or proceedings having been commenced. The litigation between the Company and Japan Leasing 15.I shall deal next with the proceedings between the Company and Japan Leasing. These consist of HCMP 4359 to which I have just referred, and HCA 752 of 2000, in which the Company asserts the claims which it considers it has against Japan Leasing, as this is relevant to one of the arguments which Mr Ng advanced in support of his case that the Company had failed to show that the debt was bona fide disputed on substantial grounds. 16.As I have noted, the proceedings in HCMP 4359 of 1998 were commenced on 28 August 1998. Thereafter, Japan Leasing took out an application for judgment, and Shun Kai sought to be joined as an intervener in the proceedings, on the basis that it was a lawful tenant of the Company and in occupation of the Stubbs Villa property. The Company resisted the application for judgment, but apparently only in relation to the amount of interest claimed (it being contended that provisions for overdue interest to be paid were unenforceable on various grounds, and that on the proper construction of the loan agreements, overdue interest was payable only on the outstanding and overdue instalment amounts, and not on the entire amount of the outstanding loan). Both these applications were heard by Master B Kwan, and on 9 October 1999, she dismissed Shun Kai's application to intervene, and gave judgment in favour of Japan Leasing for principal and interest under the three loans relied upon against the Company, in the amounts claimed by Japan Leasing, thus rejecting the Company's arguments as to interest. She also ordered delivery up of vacant possession of the Stubbs Villa property to Japan Leasing. 17.Both the Company and Shun Kai appealed against this judgment. The appeal was heard by Suffiad J on 4 January 2000. At the beginning of the appeal, Shun Kai's position was resolved by agreement between itself and Japan Leasing, by amending Master B Kwan's order in relation to delivery up of vacant possession so as to provide only for possession to be delivered by the Company to Japan Leasing, without prejudice to the rights of any alleged tenants of the Stubbs Villa property. At this hearing, Shun Kai was represented by Mr Swaine, the Company being represented by different counsel. On 11 February 2000, Suffiad J dismissed the Company's appeal, and affirmed the money judgment entered against it by Master B Kwan. 18.Before Suffiad J delivered his judgment, the Company brought its claim against Japan Leasing in HCA 752 of 2000. The Statement of Claim in this action was dated 21 January 2000. Mr Wong has said that the Company was not advised as to the possibility of pursuing this claim until after the order of Master B Kwan on 9 October 1999, by which judgment against the Company had been entered. It seems that such advice was received after Mr Swaine was instructed to advise the Company. Although Mr Wong says that the Company was advised to bring its claim in separate proceedings as judgment had already been entered against it by Master B Kwan, he does not indicate precisely when any of the advice it was given was obtained, and when it was decided to pursue the claims which the Company considered (or was advised) that it had against Japan Leasing. 19.Also before Suffiad J delivered his judgment, Japan Leasing managed to obtain a garnishee order in respect of money owing to the Company. However, this eventually produced only HK$31,345.07 by way of recovery. 20.The Company appealed to the Court of Appeal against Suffiad J's order upholding the terms of the money judgment entered against it by Master B Kwan. The appeal (CACV 83 of 2000) was, like the hearings before Master B Kwan and Suffiad J limited to the question of the amount of interest payable. This appeal (CACV 83 of 2000) was heard on 13 July 2000, and judgment in the Company's favour, varying the amount of interest payable under the judgment, was given on 18 July 2000. The Company's appeal was conducted by Mr Swaine. There is no reference in the judgment of the Court of Appeal to the Company's proceedings against Japan Leasing in HCA 752 of 2000. 21.Thereafter, no further steps were taken by the Company in relation to its claim against Japan Leasing. Nor has any proof of debt been filed by the Company with the liquidators of Japan Leasing. Mr Wong says that it was (and remains) the Company's intention to have its claim in HCA 752 of 2000 dealt with after Shun Kai's claims against Japan Leasing in HCA 13826 of 1998 have been dealt with. 22.In its Statement of Claim in HCA 752 of 2000, the Company's case against Japan Leasing is put in this way:-
The applicable legal principles 23.I turn now to consider the applicable legal principles. Given the fact that Japan Leasing is in liquidation, the statutory set off clearly applies, so that there is, as between Japan Leasing and the Company only a single balance that can be claimed, by one side or the other (see e.g. Stein v Blake [1996] 1 AC 243, per Lord Hoffman at 255F-G; Japan Leasing (Hong Kong) Ltd v Shun Kai Finance Co. Ltd (unreported, HCMP 3604 and 4999 of 1999, Mr Recorder Edward Chan S.C., 28 March 2001, at 13G-15N)). The position here is therefore one in which the Company disputes the debt on which the petition is based, rather than one in which it does not do so, but relies on a cross-claim that is said to be greater in amount than the petitioning creditor's debt. 24.It is well established that the appropriate test to be applied in disputed debt cases is for the court to ask whether the petitioning creditor's debt is bona fide disputed on substantial grounds (see, e.g., Re ICS Computer Distribution Ltd [1996] 1 HKLR 181 and Periwin Development Ltd v Grandfield Pacific Hotel Ltd (unreported, HCCW 29/2001, Kwan J, 3 January 2002). In this context substantial grounds means grounds of substance. In my view, this must involve that there is both legal and factual substance to the dispute that is raised. 25.So far as factual substance is concerned, it is clear from both of these cases that while the test bears some similarities to that which would apply to an application for summary judgment under RHC Order 14 rule 3, the analogy is not a complete one. As in applications for summary judgment, it is not sufficient for the company simply to assert the existence of a dispute, or to baldly assert the existence of a claim which is said to be available as a set off. Similarly, the court will ask itself whether the evidence put forward by the company is believable (as distinct from whether or not it should be believed). However, there are also differences - whereas a defendant will be entitled to leave to defend if he can show that he has a fair probability of establishing a bona fide defence, a company resisting a winding-up petition must go further, and establish that it actually has a substantial defence (meaning a defence of substance), and not just a fair probability of one. Moreover, it is also necessary for the company to put forward sufficiently precise evidence from which such a defence can be demonstrated. 26.In both the ICS and Periwin cases, reference was made to the fact that there was no injustice in requiring a company faced with a winding-up petition to meet a test that was in some respects more stringent than that applicable under an application for summary judgment, since whereas a successful application for summary judgment would be the end of the matter, the making of a winding-up order would not deprive the company of any claim it might have against the petitioner, since such a claim could be pursued by the liquidator if he thought it appropriate to do so. 27.While this is a factor in cases in which the nature of the dispute arises out of a set off or counterclaim, I do not see that it is a critical factor, since there will be many cases in which the defence asserted to the debt relied on by the petitioner will not give rise to the possibility of any counterclaim by the company. There is nothing in the authorities to which I was referred to suggest that the test in such a case is any different. 28.Mr Swaine suggested that the test to be applied should be regarded as similar to that applicable on a striking out application. However, the onus on an applicant seeking to strike out a claim or defence is an extremely high one - it is necessary to show that the claim or defence in question is unarguable. Just as there is recognised to be a difference between applications for summary judgment and petitions to wind up, it seems to me that there is a similar difference between applications to strike out and winding-up petitions, in that a claim, while not perhaps completely unarguable, could, I think, be said nonetheless to lack substance. This may be so because the claim itself is extremely weak, or it may appear from the surrounding circumstances of the claim, and the way it has been advanced, that it is lacking in substance. 29.In applying the test in this case, it is pertinent to bear in mind that, so far as the evidence supporting the underlying claims in HCA 752 of 2000 is concerned, the Company's evidence consists solely of a statement by Mr Wong in his affirmation that the matters pleaded in the Statement of Claim and the further and better particulars provided by the Company are true. It is also relevant to note that Japan Leasing has not put forward any evidence to contradict the allegations of knowledge that are made against Mr Leung. Japan Leasing's submissions 30.Mr Ng submitted that the Company could not show that Japan Leasing's debt was bona fide disputed on substantial grounds because:-
31.For present purposes, I shall assume (without deciding) that Japan Leasing was in breach of its obligations to Shun Kai, particularly since it was not suggested that I should try to decide this question in the absence of Shun Kai, and there (in any event) is no material on which I could do so. The question that remains is whether, notwithstanding this, it is or could be liable to the Company, on the bases alleged. The negligence claim 32.So far as the claim in negligence is concerned, Mr Ng submitted that as the nature of the loss which the Company claims to have suffered is purely economic in nature, a duty of care on the part of Japan Leasing to avoid the infliction of such loss on the Company could only arise if the Company could bring itself within the bounds of the liability for negligent misstatement established by Hedley Byrne & Co. Ltd v Heller & Partners Ltd [1964] AC 465. He said that this followed from the decision of the House of Lords in Murphy v Brentwood District Council [1991] 1 AC 398, where Lord Keith explained (at 468D-E) that, prior to the decision in Anns v Merton London Borough [1978] AC 728:-
Lord Keith went on to hold (at 471B-C) that the Anns case did not proceed on any basis of established principle, but introduced a new species of liability governed by an indeterminate principle which could cover a wide range of situations in which it had never been previously thought that the law of negligence had any proper place, and concluded that Anns was wrongly decided, should no longer be followed, and cases decided on the basis of it regarded as overruled. The other members of the House of Lords in the Murphy case agreed with these views. 33.Mr Ng submitted that so far as I was concerned, this approach was one which I was bound to take, having regard to the decision of the Court of Final Appeal in Bank of East Asia Ltd v Tsien Wui Marble Factory Ltd (1999) 2 HKCFAR 349, in which Litton and Ching PJJ, with whom Nazareth NPJ agreed, held that in the light of the decision in Murphy, economic loss was only recoverable on the basis of the Hedley Byrne principles involving a special relationship or assumption of responsibility for the making of a statement or performance of a service, coupled with reliance on the part of the plaintiff on the defendant's statement or performance of services (see the Bank of East Asia case at 374D and 419A). 34.While Mr Swaine did not dispute the correctness of the Murphy and Bank of East Asia decisions, he suggested that the question of liability for negligently inflicted economic loss was still in the process of development, so that it would not be appropriate for me to dismiss the possibility of the negligence claim advanced by the Company eventually succeeding. 35.In my view, in the current state of the law, it is clear that in order for the Company to succeed on a claim against Japan Leasing for pure economic loss (which is the nature of any loss that it might have suffered), it is necessary for the Company to plead and prove facts which would show that it stood in a special relationship with Japan Leasing, whereby Japan Leasing voluntarily assumed responsibility to the Company in respect of its actions (in this case, the way in which it conducted its relationship with Shun Kai), and that it relied on Japan Leasing to do so. 36.Apart from the fact that the pleading is not couched in terms that are apposite to a claim of this type as it mentions neither any assumption of responsibility on the part of Japan Leasing, nor any reliance on the part of the Company, it seems to me that there are insuperable difficulties that stand in the way of a successful negligence claim by the Company against Japan Leasing in respect of the loss which it has allegedly suffered. 37.First, it seems to me that the fact that the Company and Japan Leasing were themselves in a contractual relationship in respect of the various loans made by Japan Leasing to the Company is itself a matter that militates against the existence of any such tortious duty on the part of Japan Leasing. The Governing Agreement was entered into before all except the first of the loans to the Company was advanced. It would therefore have been possible for the parties to have agreed that its terms (or terms similar to them) should govern the relationship between them. There is no evidence that this was done. Nor is there any suggestion, either in the pleadings or the evidence that there was any representation or other indication by Japan Leasing that it would so conduct its affairs with respect to Shun Kai so as not to affect the Company adversely. 38.Further, it seems to me that there is nothing else to indicate that Japan Leasing are to be regarded as having undertaken any responsibility to the Company in respect of the way in which it conducted its relationship with Shun Kai. I do not consider that the allegations that the Company was aware, when the loans were entered into, that the Stubbs Villa property was to be let to Mr Wong, either directly or through Shun Kai, that Shun Kai was a licensed moneylender and that Mr Wong derived his substantial livelihood from Shun Kai's business, and that the Company intended to on lend the loan proceeds to Mr Wong or Shun Kai to form part of Shun Kai's operating capital take the matter any further. These would, at best, indicate that it may have been foreseeable that an interruption to Shun Kai's business might have an impact on the Company. However, it seems to me that foreseeability alone is not enough. If it were, it would seem to follow that any person who stands in a contractual relationship to another could find himself liable to third parties for economic losses which he can foresee might be caused to them by reason of the way in which he conducts his affairs in relation to the contract. This is a potentially wide-ranging basis of liability, which is not, in my view, recognised by the law as it presently stands. 39.Similarly, there is no suggestion in the pleading or evidence to suggest that the Company relied on Japan Leasing to conduct its business with Shun Kai in a particular way. 40.Further, it seems to me that to accept the possibility of a liability for negligence of the type asserted by the Company in HCA 752 of 2000 would involve serious inroads into established principles of contract law relating to privity of contract, since it would open up the possibility of persons who are not parties to a contract being able to seek damages for losses occasioned to them by a breach of it. 41.Finally, I would also observe that a duty of care of this type would seem to render superfluous the recognised economic torts which are based on intentional interference with economic interests. 42.For all of these reasons, I am of the view that the Company has not demonstrated the existence of a substantial dispute as to the debt which it owes to Japan Leasing, so far as that dispute is based on the alleged claim it has against Japan Leasing on the basis of negligence at common law. The claim for unlawful interference with business 43.Turning to the claim for unlawful interference with business, Mr Ng submitted that it was fundamentally defective, since there was no pleading of an intention to injure. He submitted that it was not sufficient simply to assert the existence of such an intention, but that it was necessary to plead facts which would justify the court in finding that such an intention in fact existed, and no sufficient facts were pleaded in the Statement of Claim or particulars thereof. He said that it was not open to the Company simply to plead a breach by Japan Leasing of its contract with Shun Kai and invite the court to infer that such a breach was deliberate and intended to injure the Company. 44.Mr Ng also submitted that there was a fundamental inconsistency between what he described as the Company's primary claim of negligence, and the claim of intentional interference. 45.Mr Swaine, for his part, submitted that there was nothing inconsistent in the two claims, and that even if there was, there was no bar to a party pleading inconsistent alternative bases of claim. He also submitted that sufficient facts had been pleaded to make out the claim. 46.So far as the alleged inconsistency with the negligence claim is concerned, I agree with Mr Swaine. It seems to me that there is no necessary inconsistency between the two claims. The negligence claim, if it were a good one, would proceed on the basis that Japan Leasing should have realised that its actions would have certain effects on the Company. Japan Leasing would be liable to the Company even if it did not in fact subjectively realise this. It does not seem to me to be any the less a breach of a duty of care where the party in breach positively realises and intends the consequences of his actions, which fall short of the standard of care to be expected of a reasonable person. Moreover, even if there were an inconsistency, I see no reason why it should not be open to the Company, like any other litigant, to advance inconsistent alternative cases. I do not see any reason to attach any significance to the order in which such alternatives are pleaded. By contrast to the Statement of Claim, the unlawful interference claim is mentioned first in Mr Wong's affirmations. 47.So far as the substance of the claim is concerned, both parties referred me to passages in Clerk & Lindsell on Tort (18th edition) dealing with unlawful interference with economic and other interests. At paragraph 24-89, it is stated that:-
48.The learned authors also point out that "the move from intentional to foreseeable injury is not a step but a leap" (ibid.), and make the point that desire to injure, and motive, are not required, but that deliberate action, appreciating the probable consequences, will be sufficient (see n.3 to paragraph 24-89, and n.12 to paragraph 24-90). 49.It seems to me that paragraphs 17(ii) and (iii) of the Statement of Claim in HCA 752 of 2000 do (although not perhaps very clearly) allege that Japan Leasing interfered with the Company's business by breaching its contract with Shun Kai, knowing and intending the consequences, including injury to the Company. However, as the Company has particularised its claim, and has stated the facts on which it relies, it seems to me that it is necessary to consider, whether on the basis of those facts, it can be said that the Company has demonstrated the existence of a bona fide and substantial basis for such a claim, and thus for disputing the debts owed to Japan Leasing. 50.It is necessary, I think, to bear in mind that the tort of unlawful interference is based on intention, and not negligence or foreseeability. While it is not necessary to demonstrate any motive on the part of the defendant, it is necessary, I think, at least to demonstrate not just that his actions were deliberate (and not accidental), but that he knew or appreciated that injury would be caused to the plaintiff. 51.It seems to me that the facts which have been pleaded in relation to the Company's knowledge, which are not in any way expanded on or fleshed out in its evidence, would at most indicate that Japan Leasing should perhaps have been aware that its actions as against Shun Kai might have an adverse impact on the Company. I do not think that they go so far as to demonstrate that Japan Leasing in fact appreciated this or must have done so. Although it is suggested that Mr Wong earned his livelihood from Shun Kai's business, it does not follow from this that he had no other source of funds or income from which to meet his obligations or fund those of the Company. Similarly, while it is said (at paragraph 10 of the Statement of Claim) that the making of the sub-loans constituted the major part of the business of Shun Kai, it does not appear to me that it is suggested that Japan Leasing knew this, or (more pertinently) that it was so wholly dependent on this business that it could not meet its obligations to the Company without it. The evidence filed by the Company does not take matters any further, since it simply consists of a confirmation of the matters pleaded, without any elaboration. 52.Moreover, given that the situation at the time of the alleged breach by Japan Leasing of its contract with Shun Kai was that both Shun Kai and the Company were already in default of their obligations to Japan Leasing (a fact which, as I have noted, is not controverted by any evidence from the Company), it seems to me that it is at least as likely, if not more so, that Japan Leasing would have had in mind the protection of its own interests rather than any damage or injury to those of the Company. 53.In these circumstances, I do not consider that the Company is at all likely to be able to establish any claim against Japan Leasing in respect of the alleged deliberate or intentional interference with its business. That being so, it seems to me that this basis for suggesting that its debt to Japan Leasing is substantially disputed is also not made out. 54.I do not regard the reliance that is placed by Mr Wong in his evidence on other decisions in the litigation between Japan Leasing and Shun Kai to be particularly helpful. In neither of the cases that he relied on does there seem to have been any decision or view expressed on the merits of Shun Kai's case that Japan Leasing was in breach of contract as against it. Nor, apparently, was any attack made by Japan Leasing on the bona fides of such claims. In any event, for the reasons which I have set out above, I do not consider that the Company has demonstrated a bona fide dispute of substance between itself and Japan Leasing even assuming (without deciding) that Shun Kai has a good claim for breach of contract against Japan Leasing. Lack of evidence of loss and damage 55.Mr Ng also took the point that damage is of the essence of either of the tort claims, and that no sufficient evidence of damage had been put forward by the Company. Given the manner in which the Company has chosen to deal with the petition, by simply asserting by affirmation that the matters pleaded are true, it seems to me that this point, too, is made out, in that the Company has failed to put forward any evidence of a precise nature to explain what the losses are which it claims to have suffered, and how it is that these are said to arise as a result of the alleged breach of contract by Japan Leasing vis-a-vis Shun Kai. Alleged abuse of process 56.In these circumstances, it is not necessary for me to express any concluded view on the contention advanced by Mr Ng to the effect that, not having raised its claims by way of counterclaim in the course of HCMP 4359 of 1998, it is barred from doing so in separate proceedings. 57.That said, however, I would confess to having doubts as to whether this would necessarily have been the case here. This argument is based on the decision of the Privy Council in Yat Tung Investment Co. Ltd v Dao Heng Bank Ltd [1975] AC 581. In that case, Lord Kilbrandon said (at 590E-F) that the power to shut out a "subject of litigation" was limited to cases where reasonable diligence would have caused a matter to be earlier raised, and that negligence, inadvertence or accident would not suffice to excuse the failure to raise such matters. However, he went on (at 590H-591A) to refer with approval to the description of such matters as being matters which "went to the root of the matter on the prior occasion" by Lord Shaw of Dunfermline in Hoystead v Commissioner of Taxation [1926] AC 155 at 171. 58.In the Yat Tung case, the claim that was shut out as an abuse of process was one which the Privy Council held could and should have been raised in prior proceedings, since the defendant bank in Yat Tung had made a counterclaim for the balance due to it, after the realisation of security which it held, and the proposed claim, as to the propriety of the realisation, and whether it had been at a serious undervalue, was clearly a matter that went to the question of whether there was any balance due to the bank at all. This was, as Suffiad J pointed out in Tang Kin Wah v Cheng Choy Kam Chee [2002] 1 HKC 552, clearly something which went to the root of the counterclaim by the defendant bank. 59.In this case, while it is fair to say that the size of the claim for damages in HCA 752 of 2000 has been asserted to be such as would wipe out the debt that is relied upon as the basis of Japan Leasing's petition, it seems to me that the issues (both factual and legal) that would be raised in HCA 752 of 2000 (if it raised, contrary to the view which I have come to, a bona fide dispute of substance) would be quite distinct from those which would have arisen in HCMP 4359 of 1998. While no doubt it would have been open to the Company to have counterclaimed in those proceedings, I would hesitate to say that it should necessarily have done so on pain of being shut out from litigating them elsewhere, particularly as it seems to me that they would have operated by way of cross-claim and not as a defence of set off, not being connected with the subject matter of Japan Leasing's claim, so that it might well have been that Japan Leasing would have been entitled to judgment in any event. History of litigation between the parties 60.Finally, Mr Ng suggested that the history of the litigation between the parties shows that the claim in HCA 752 of 2000 is such as to show that it is not one that is bona fide or substantial. He drew attention to the following matters:-
61.Mr Swaine responded that an explanation had been given by Mr Wong as to the reasons for failing to raise the claims advanced in HCA 752 of 2000 in the other proceedings, and that it was thought that there was little point in pushing on with the action while other actions, in particular the claim between Shun Kai and Japan Leasing, were pending. 62.While I accept that there might be sense in not pushing on with HCA 752 of 2000, pending the resolution of Shun Kai's claims against Japan Leasing, this does not of itself indicate that the claims in HCA 752 of 2000 are of substance. As I have noted, Mr Wong's evidence as to the timing of the realisation of the existence of a potential claim by the Company is rather imprecise and lacking in concrete detail. Moreover, there is no explanation for the failure to lodge a proof of debt with the liquidators of Japan Leasing. Although I do not base my decision on these points, it seems to me that they do not inspire confidence in the existence of a belief on the part of the Company in a genuine claim against Japan Leasing. 63.Finally, I was also referred by both counsel to the decision of the English Court of Appeal in Re Bayoil SA [1999] 1 All ER 374. That case dealt with the position where the company could not dispute the debt on which the petition was founded, but asserted a cross-claim which was said to exceed the amount of the debt. Given the effect of the statutory set off arising on Japan Leasing's liquidation, I do not consider that that decision is strictly applicable. However, it does not seem to me that the test is significantly different from that which applies in the case of disputed debts, and I do not think that its application would have led to any difference in the result. Conclusion 64.I therefore conclude that the Company has failed to demonstrate that the debt on which the petition is based is bona fide disputed by it on substantial grounds. Accordingly, I shall make the usual winding up order against the Company. Costs 65.I should add that Mr Ng sought an order for costs against the Company on an indemnity basis in respect of the petitioner's costs of the second day of the hearing before me, which proved to be abortive due to the indisposition of Mr Swaine. Mr Ng sought this order on the basis that this was the fifth occasion in the various actions between Japan Leasing and the Company, Shun Kai and Mr Wong that there had been delay to proceedings as a result of counsel being indisposed, and also because Japan Leasing's solicitors were not informed of the problem until late the afternoon before, when it was too late to effect any saving in costs. While it is unfortunate that there should have been such delay and costs, it does not seem to me to be appropriate to visit the consequences of this on the Company by ordering a higher basis of taxation, as Mr Swaine confirmed that he had been feeling unwell, that he informed those instructing him once that was realised, and they informed those representing Japan Leasing immediately thereafter. Mr Swaine also accepted that had I found for the Company, it should not be entitled to the costs of that day - in the result, however, this does not arise.
Representation: Mr Kenneth Ng, instructed by Messrs Baker & McKenzie, for the Petitioner Mr John Swaine, instructed by Messrs Fan Wong & Tso, for the Company |
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