J.E. Taylor Co Ltd v. The Official Receiver (Liquidator of Crawley Investments Ltd)

HCCW000168/1985

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

COMPANIES WINDING-UP NO. 168 OF 1985

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Between

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Coram: Hon. Jones J. in Chambers

Date of hearing: 4th April 1989

Date of handing down judgment: 13th April 1989

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J U D G M E N T

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1. This is an appeal against a decision of the Official Receiver rejecting a proof of debt submitted by the applicant J.E. Taylor Company Limited (Taylor Ltd) for payment of the sum of $82,600 or alternatively $176,350 claimed to be due for company secretarial and accounting services rendered to Crawley Investments Limited (Crawley Investments) during the period from the 1st April 1982 to the 31st March 1985. At all material times Mr W.A.T. Crawley and his wife were the only directors of Taylor Ltd and Crawley Investments.

2. Crawley Investments was wound up by an order made on the 18th June 1985 and the official receiver is the liquidator. In August 1985, Taylor Ltd submitted a proof of 'debt for $82,600, but this sum has now been increased to $176,350.

3. Crawley Investments was originally named Franken's Dental & Medical Supplies Company Limited (Franken) but the name was changed to Crawley Investments Limited on the 11th May 1982 after the business was sold to Jardine Danby Limited (Jardine) by an agreement dated the 2nd March 1982 and a supplemental agreement of the 18th March 1982. By these agreements the goodwill, agency agreements, book debts and other debts, were transferred to Jardine with effect from the 31st January 1982. Following the transfer the business was continued by Jardine under the name Franken's Division - Jardine Danby Limited.

4. Mr Crawley in his affirmation of the 20th December 1988 states that although the business was transferred with effect from the 31st January 1982, further work had to be done after that date with regard to the inspection and counting of stock, inventories and other assets of Franken as well as the reconciliation of accounts between the parties before the transfer could be finally effected. As Franken did not have any staff for this purpose, for they had joined Jardine, Taylor Ltd was instructed to carry out this work. In addition, Taylor Ltd was instructed to conduct negotiations with the Hong Kong Government with regard to a dispute in which Franken had alleged that they had purchased radio photographic fixing solution that did not correspond to sample. Mr Crawley also stated that Taylor Ltd was required to deal with annual returns, correspondence, keeping, records and files and to receive company visitors. He chose Taylor Ltd to do the work because it was an office management and services company which was able to provide office accommodation, management and secretarial services. Although Taylor Ltd performed the secretarial work and conducted negotiations with the Hong Kong Government no bills were submitted to Crawley investments until May 1985 because of the close relationship between the directors of the two companies.

5. On the 22nd May 1985 which was one day after the presentation of the winding-up petition, Miss Blair, an executive employed by Taylor Ltd said that she received a memorandum from Jacinta Lee of the accounts department informing her that no bill had been charged to Crawley Investments. This led to the preparation of an invoice dated the 23rd May 1985 by Miss Blair amounting to $82,600 for secretarial and accounting work for the period from the 1st February 1982 until 1985. In fact fees were calculated up to January 1986. According to Miss Blair, she had to prepare the invoice in a hurry so she adopted a flat rate charge that had been used for several other companies instead of calculating the fees upon an hourly basis for the actual work that had been done. The invoice was confirmed by Mr Crawley, but later he said that as it did not reflect the correct fees that should have been charged he prepared the second invoice which shows a figure of $176,350. This invoice included an additional fee of $90,000 for office space for a director on a minimum basis including one desk and chair at the rate of $2,500 per month for 36 months. Mr Crawley conceded that the presentation of the winding-up petition may have reminded his staff that a bill had not been rendered before.

6. By the agreement for the sale of the business, it was provided that Franken was entitled to keep the proceeds of any claim against the Hong Kong Government lodged before the date of the agreement but settled and paid afterwards. In the result, the clam against the Hong Kong Government proved to be unsuccessful.

7. Miss Blair confirmed the evidence of Mr Crawley that Taylor Ltd performed secretarial services for the company which were carried out by senior and junior staff. Mr McLane gave evidence that he worked for Taylor Ltd during the latter part of 1982 for two or three months to reconcile the sales and stock accounts with Jardine at a fee of between $5,000 and $10,000. Taylor Ltd alleged, by a letter to the official receiver of the 5th September 1988, that the work for Crawley Investments was carried out as a result of an oral agreement that was later confirmed by a memorandum between Mr Crawley and Miss Blair. No memorandum was however produced.

8. From 1982 until 1985, the accounts of Crawley Investments reveal that the company had ceased trading while it had no contracts of any significance. However, for the year 1985 reference was made in the accounts to company secretarial work carried out by Taylor Ltd. Both Mr and Mrs Crawley, in a questionnaire relating to the affairs of the company said that the company had not traded for a period of 2½ years before the winding-up order. In the same questionnaire, the causes of failure of the company were given as follows :-

"The Company sold its assets to Jardine Danby on 31st January 1982. At the time of the sale, a Notice appeared in the Government Gazette. Government was owed HK$381,000, and sufficient assets were retained to pay this. Unfortunately, Government did not agree this figure and claimed HK$778,000.

The Company did not feel worthwhile to dispute the claim. Hence, the winding up is a direct cause of Government pressing their unreasonable claim."

9. Under the sale agreement, Jardine at its own expense agreed to instruct accountants, Price, Waterhouse & Co., to prepare an audit of the net assets of Franken while Jardine gave an indemnity against all expenses of operating the business from the 1st February 1982 to the date of completion.

10. It is abundantly clear from the evidence that Franken ceased to trade after the sale of the business in 1982. Accordingly, the only reason for the continuation of the company after the sale was the conduct of the dispute with the Hong Kong Government. No reference to this work, however, appeared in Miss Blair's invoice nor was any record, file or any other evidence produced to show what work was done or who was involved in the negotiations. Mr Crawley merely sets out a figure for this work in his invoice of $10,000 to cover a senior member of his staff for 30 hours at $300 per hour and a secretary for 10 hours at $100 per hour. Neither person was identified or was called to give evidence. A figure of $14,000 has been charged to prepare annual accounts for three years, the first being described as very complicated. Yet there was no evidence to justify this charge. $52,000 has been charged for staff to negotiate with Jardine with regard to stock, but no evidence was produced to justify this amount, nor was any explanation given as to why the work, if it was done, was, necessary when Price, Waterhouse & Co. had been engaged by Jardine to prepare an audit. The fee of $90,000 can only be described as a remarkable piece of impudence on the part of Mr Crawley which was made without the slightest justification. Exactly why it was necessary for Mr McLane to carry out the stock-taking exercise was not entirely clear, but I reject his evidence that if it was performed, it was not at the latter part of 1982.

11. The evidence of Mr Cheung and Miss Blair did not provide any assistance for Mr Cheung had left Franken before the transfer of the business while Miss Blair's evidence was merely to the effect that Taylor Ltd performed secretarial work. Apart from being aware of the dispute with the Hong Kong Government, she was unable to give any details.

12. Upon a consideration of all the evidence, I am not satisfied that there was an agreement by Taylor Ltd with Crawley Investments to provide secretarial services. However, even if I had accepted that there was such an agreement, I am of the opinion that the proof of debt should have been rejected in its entirety for it was not established that any of the work for which it claimed payment was carried out. On the assumption that any work was done, which I reject, the charges made were, in any event, excessive and unreasonable. Indeed Mr Crawley claimed, without the benefit of any documentary evidence to assist him, that he was able to remember all the details set out in the invoice that he had prepared from his own memory. I found Mr Crawley to be an unsatisfactory witness who was lacking in candour. I am therefore unable to place any reliance upon his evidence.

13. As a result the appeal will be dismissed. There will be an order nisi for costs to the official receiver on the common fund basis.

Representation:

Mr S. So (Lo & Lo) for Applicant.

Mr E. Knos for Official Receiver.