Re Yuen Chak Construction Co Ltd

HCCW 378/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 378 OF 2004

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Before: Hon Kwan J in Court

Date of Hearing: 2 December 2004

Date of Judgment: 2 December 2004

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J U D G M E N T

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1.This is a petition presented by Madam Cheng Ying Hung, trading as Po Shing Company, to wind up Yuen Chak Construction Company Limited (“the Company”).  The petitioner is a judgment creditor, having obtained judgment against the Company in HCA No. 411 of 2001 on 12 June 2003, after a four-day trial before Deputy Judge Muttrie, in the sum of HK$928,397.85.

2.The Company seeks an adjournment of the petition pending its application to reinstate its appeal against the judgment.  It has lodged an appeal for this purpose in CACV No. 202 of 2003.  This was dismissed in its absence on 12 March 2004.  I understand the application for reinstatement has been fixed to be heard on 11 March 2005.

3.There are three supporting creditors.  They are all former employees of the Company and all are judgment creditors.  The total amount due to them is in the region of HK$850,000.00.

4.I will first set out the relevant background matters.

5.The petitioner’s claim against the Company in the High Court Action was for the balance of the price of petroleum products sold and delivered by the petitioner at the request of the Company between July 2000 to December 2000, in the amount of HK$928,397.85.  The Company counterclaimed against the petitioner for damages for delay in the delivery of goods of HK$3.9 million odd.  On 12 June 2003, judgment was given in favour of the petitioner and the counterclaim was dismissed.  The judgment is primarily on findings of fact.

6.On 10 July 2003, the Company applied for a stay of execution of the judgment pending an appeal to be brought.  A notice of appeal with 19 grounds of appeal was filed on 23 July 2003.

7.The application for stay pending appeal was heard by Deputy Judge Muttrie on 10 October 2003 and was dismissed.  In his Reasons for Judgment, the judge noted that the appeal is mainly on questions of fact and would appear to be a difficult one to pursue.  He did not think the grounds of appeal are so strong as to justify a stay on their own.  As for the Company’s contention that it would be forced into liquidation if a stay were not granted and would thereby suffer loss which could not be compensated if its appeal should succeed, the judge did not think this contention would tally with the Company’s accounts that had been placed before the court, given that the judgment sum was less than HK$1 million and the Company would appear to have HK$9.8 million worth of assets according to its accounts.  He was not satisfied that a good cause for stay pending appeal had been made out.  The Company had failed to demonstrate that the appeal would be rendered nugatory without a stay.

8.The Company filed a notice of appeal against the dismissal of the stay application pending appeal.  This is CACV No. 315 of 2003.  No steps have been taken to set down the hearing of this subsequent appeal.

9.On 1 March 2004, the former solicitors of the Company wrote to the Company referring to the appeal in CACV No. 202 of 2003 to be heard on 12 March 2004 and stating that as they had not received any instructions from the Company in relation to the settlement of the appeal, they had issued a summons to cease to act.  The summons and the supporting affirmation were served on the Company with the letter.  The application for the solicitors to cease to act was granted on 5 March 2004, the Company was absent at this hearing.  It was notified of the order for discharge by a letter of the court of the same date.

10.On 8 March 2004, the Company applied to a Master for leave to act without a solicitor.  It is not entirely clear if the application was for leave to act in the appeal or merely for leave to act in an application to adjourn the appeal.  The application was refused by the Master on 9 March 2004.  On 8 March 2004, the Company by its director Ho Kwok Wa (“Mr Ho”) made an affirmation to apply for an adjournment of the appeal on the ground that its solicitors had “resigned” since 1 March 2004 and that it needed time to look for a suitable lawyer.  On 9 March 2004, the clerk of Rogers VP wrote to the Company referring to its letter dated 6 March 2004 and informed the Company that the Court of Appeal was not disposed to grant any adjournment of the appeal.

11.On 10 March 2004, the Court of Appeal informed the parties by letter that the appeal would be heard at 9:30 a.m. instead of 10 a.m. on 12 March 2004.  That letter was sent to the Company by fax on 10 March 2004 at 3:38 p.m. and by post, in the same way as previous letters dated 5 March 2004 and 9 March 2004 were sent to the Company.  Mr Ho however claimed that the Company did not receive this letter.  He did not arrive in court on time.  The appeal was dismissed in the absence of the Company.

12.Mr Ho wrote to the court on 12 March 2004 requesting the appeal be “rescheduled” for hearing, as he had no notice that the time for the hearing of the appeal had been put forward by half an hour.  The Court of Appeal replied by letter on 15 March 2004 refusing the request, as there was no notice that any solicitors had been appointed to act for the Company and no leave was given for any director to represent the Company in the Court of Appeal.  It is quite clear it would be of no avail even if Mr Ho had attended court in time, as the Court of Appeal has no jurisdiction to entertain an application for leave for a director to represent a company or to entertain any appeal from a Master’s refusal of leave (Kone Elevator (HK) Ltd v Senfield Ltd, CACV No. 216 of 2002, 24 February 2003, paras 2 to 11).

13.On 25 March 2004, this petition was presented.

14.The present solicitors filed a notice to act for the Company in CACV No. 202 of 2003 on 17 April 2004, and a notice to act for the Company in these proceedings on 31 May 2004.

15.On 19 June 2004, Mr Ho filed an affirmation on behalf of the Company in CACV No. 202 of 2003, in support of an application for reinstatement of the appeal under the inherent jurisdiction of the court.  He claimed that the Company had only a week, from 5 to 12 March 2004, to look for new solicitors to act for the Company in the appeal.  That is not correct.  The Company had notice since 1 March 2004 of the former solicitors’ application to cease to act, as acknowledged in the affirmation of Mr Ho on 8 March 2004.  Mr Ho also claimed that the Company had a reasonable excuse for not attending the appeal on 12 March 2004.

16.On 22 July 2004, the Company filed another notice of appeal in CACV No. 202 of 2003, containing “perfected” grounds of appeal of 15 paragraphs.  It is not entirely clear if the perfected grounds are to be advanced in substitution of the grounds in the first notice of appeal.

17.Mr Ho has filed three affirmations in opposition to the petition.  He produced an advice of counsel who, having reviewed part of the transcript of proceedings, expressed the view that there is “some merit in reviewing the original appeal in more detail to properly assess the possibility, or probability, of success”.  Counsel also advised that the Company should provide an undertaking in respect of the full amount outstanding on the judgment and costs.  In the affirmation of Mr Ho made in CACV No. 202 of 2003 on 16 June 2004, he mentioned that he was so advised and asserted he is able to give an undertaking on behalf of the Company to pay to his solicitors’ account a sum representing the judgment debt plus interest and a reasonable sum on costs, so that the petitioner would not be prejudiced by the application to reinstate the appeal.  No steps have been taken for five months to give effect to the proposed undertaking.

18.At the hearing today, counsel for the Company, Mr Edward Ng, offered a revised undertaking to the court that the Company is to pay into court the full amount of the judgment debt plus interest and a sum of HK$300,000.00 towards the petitioner’s costs within 7 days hereof, such sum to remain in court pending the outcome of the Company’s application to reinstate the appeal in CACV No. 202 of 2003 and pending the outcome of the appeal if the application for reinstatement were successful.

19.Mr Richard Khaw appearing for the petitioner informed the court that the primary position of the petitioner is to seek a winding-up order today, but if the court were minded to adjourn the petition, as a fall back position, he would accept the undertaking offered by the Company’s counsel.  I will deal with the question of the undertaking offered by the Company subsequently.

20.The Company has a number of hurdles in its application for an adjournment. 

21.Firstly, the petitioner is a judgment creditor and is prima facie ex debito justitiae entitled to a winding-up order.

22.Secondly, the Company had applied for a stay pending appeal and that application has been refused, for the reasons summarised above.  Although the Company has appealed against the order refusing a stay, the Company has not pursued that appeal seriously.  If I were to adjourn the petition today pending the determination of the Company’s application to reinstate the appeal, I would practically be granting a stay on the judgment pending appeal, an application already refused by the court (Re Amalgamated Properties of Rhodesia (1913) Ltd [1917] 2 Ch 115 at 123).  In Re Sky Talent Properties Ltd, HCCW No. 892 of 2003, 9 December 2003, Barma J refused an application to stay a winding-up petition pending appeal against the judgment which founded the petitioning debt.  There was in that case no application to stay the execution of the judgment debt pending appeal.  Barma J exercised his discretion by applying in effect the same test as a court considering an application for stay of execution pending appeal, there being no reason why the level of strength required to resist a winding-up order should be any lower.  The present case is stronger than Re Amalgamated Properties and Re Sky Talent Properties, as the application for stay of execution pending appeal was made and refused (see Ataxtin Pty Ltd v Gordon Pacific Developments Pty Ltd, 102 ALR 245 at 249, line 45).

23.Thirdly, there is no indication on the available evidence how the Company might be able to provide security for the judgment debt with interest and costs as proposed in the revised undertaking offered today.  There is no up-to-date information on the financial position of the Company.  The audited accounts were only made up to March 2002, and there was exhibited only the management accounts for the year ended March 2003.  As commented upon by Deputy Judge Muttrie in his reasons for refusing a stay pending appeal, Mr Ho’s claim that the Company would be forced out of the business if the petitioner was to enforce the judgment would not accord with the picture disclosed in the financial statements that the Company chose to place before the court. 

24.I also bear in mind there was a history of the petitioner seeking security from the Company and her attempts were unsuccessful.  On 15 July 2003, the petitioner’s solicitors wrote to the Company’s former solicitors with an offer not to oppose the application for stay pending appeal, on condition that the Company was to pay into court the judgment sum.  That offer was rejected by the company on 16 July 2003.  On 4 and 26 November 2003, the petitioner’s solicitors wrote to the Company’s former solicitors seeking security for costs in the two appeals lodged by the Company.  There was no reply to these letters.

25.Fourthly, the Company’s appeal has been dismissed in its absence.  Leave would first have to be sought from the Court of Appeal to reinstate the appeal.  In deciding whether leave should be granted, the Court of Appeal would take into account these factors:

(1)     whether the applicant has reasonable excuse for failing to attend the first hearing;

(2)     any relevant prejudice to the respondent; and

(3)     whether there is sufficient merit in the appeal to justify reinstatement (Hong Kong Civil Procedure 2004, vol. 1, para. 59/1/56).

26.I am sceptical if there was reasonable excuse of the Company for failing to attend the appeal on 12 March 2004.  The Company has not made full and frank disclosure why its former solicitors had written on 1 March 2004 giving notice of their application to cease to act.  This might well be because of the failure to pay the fees of the solicitors, as it was recited in the order granting leave for the solicitors to cease to act that they should file an affirmation confirming non-receipt of costs of a certain amount.  I note that detailed grounds of appeal had been lodged in CACV No. 202 of 2003 seven months ago. 

27.In two other court proceedings brought by the Company, the Company had the same difficulty in arranging for legal representation and had sought adjournment shortly before the hearing.  In its application for leave to appeal against a Labour Tribunal award in favour of Chan Hei Tor, one of the supporting creditors, the Company did not appear at the hearing on 23 February 2004, and the application was dismissed in its absence.  The Company then wrote to the court requesting to restore the application, this was granted and the matter was adjourned to 10 May 2004.  On 10 May 2004, as the Company was again absent, its application was dismissed.  In respect of another supporting creditor, Lee Heung Chung, the Company appealed against the Labour Tribunal award, the appeal was fixed to be heard on 23 September 2003.  On 18 September 2003, the Company applied for 3 months’ adjournment for it to look for a suitable lawyer.  The appeal was re-fixed to be heard on 22 October 2003.  On 21 October 2003, the Company again applied for adjournment, and the appeal was re-fixed to 12 March 2004.  On 23 December 2003, the solicitors obtained an order to cease to act for the Company in its appeal.  After two adjournments had been granted, the Company again sought an adjournment on 5 February 2004 and 3 March 2004, this application for further adjournment was refused.  Eventually, the Company’s appeal came up for hearing on 12 March 2004.  It had no legal representation and the appeal was dismissed.

28.It would appear that the Company had on quite a number of occasions failed to arrange for legal representation, notwithstanding it had known full well it must be represented by solicitors and the hearing dates were fixed well in advance.  In the case of CACV No. 202 of 2003, the hearing date of 12 March 2004 was fixed in September 2003.

29.The court has not been provided with any explanation why the Company had repeatedly had to suffer last minute changes in legal representation shortly before a scheduled court hearing.

30.As to the merits of the appeal, if this were reinstated, applying the same test as in an application for a stay pending appeal, the court must be satisfied of very strong prospects of the appeal succeeding to justify an adjournment or stay of the winding-up petition.  The mere fact that there are reasonable prospects of success or arguable grounds of appeal would not be good enough (Re Sky Talent Properties, paras 11 to 13).  This is an exercise that had already been gone into by Deputy Judge Muttrie when he refused a stay of execution pending appeal, and he did not think the grounds of appeal advanced at that time were strong enough to justify a stay on their own.

31.New grounds have been put forward by the Company in the perfected grounds of appeal in July 2004.  In the main, the appeal is against findings of primary fact and the judge’s evaluation of evidence.  The law on this is clear, the appellant would have to cross a high threshold to successfully challenge the findings of primary fact.  The Court of Appeal would have to be satisfied that the judge’s conclusion on the facts is plainly wrong and the appellate court should defer to the trial judge’s conclusion even if it may be in some doubt as to the correctness (Ting Kwok Keung v Tam Dick Yuen & Ors [2002] 1 HKC 601 at 613H to 614B).  And for the appellant to succeed, he would need to show there was either no evidence to support the findings of primary fact, or that the finding was contrary to documents or other incontrovertible evidence which the judge had overlooked.  It is not enough to show there was little evidence to support the judge’s finding, or that the finding was against the weight of evidence, as the weight of evidence is a matter for the trial judge (Tang Kwok Ming v Daxprofit Scaffolding Ltd [1999] 1 HKC 657 at 663F to I).

32.Here, the judge has made findings of fact on these crucial issues:

(1)    the petitioner did not delay in delivering goods in 1999 as alleged by the Company;

(2)    the parties did not enter into a fresh supply agreement orally on 2 January 2000, as alleged by the Company;

(3)    the quantity of goods delivered was not overstated as alleged by the Company;

(4)    there was agreement between the petitioner and the Company that the Company would pay for goods ordered by the Company’s subcontractor Pui Kee, whether delivered at the Company’s sites or otherwise;

(5)    the Company’s complaint that the petitioner had charged for goods delivered to other companies, apart from Pui Kee, was not made out; and

(6)    the Company had made full settlement for the goods delivered between January 2000 and June 2000, these payments were not payments on account as alleged by the Company.

33.The judge has found the two witnesses for the petitioner credible.  He rejected the evidence of Mr Ho, and criticised the Company for not calling material witnesses, such as Mr Ho’s father, the authors of various letters of complaint written on behalf of the Company the authenticity of which was disputed by the petitioner, and the Company’s employees who had made declarations claiming that they did not inspect the goods delivered to verify the contents of the petitioner’s delivery notes.  The judge has found many unsatisfactory aspects to the Company’s case, generally and specifically (see paras 33, 43, 56, 57 and 67 of the judgment).

34.I turn to the new grounds advanced in the second notice of appeal filed by the Company.

35.The first ground is a complaint that there was no admissible evidence from which the judge could find that the goods delivered to the account of the Company were in the sum as claimed by the petitioner.  Specifically, the inadmissible evidence alleged relates to the invoices and delivery notes issued by the petitioner.

36.As I understand from Mr Khaw, who conducted the case for the petitioner before Deputy Judge Muttrie, a hearsay notice had been served in respect of these documents.  Further, no notice was served by the Company to challenge the authenticity of these documents disclosed by the petitioner.  It seems to me that this complaint really goes to the weight attached by the trial judge to these documents, not to their admissibility.

37.The second complaint is that the judge was wrong in law to exclude evidence relating to an allegation of forgery and had erred in thereafter admitting in evidence the same delivery notes which the Company alleged to have been forged.  I have difficulty in understanding this ground of appeal.  What the judge had excluded, as appeared from the relevant parts of the transcript exhibited to Mr Ho’s 3^rd affirmation, was a document described as appendix 6 in which the Company set out a table of the invoices it alleged were forgeries.  The judge disallowed the Company to raise an allegation of forgery because this was not properly pleaded in the defence and that the allegation in appendix 6 did not contain sufficient particulars to support that allegation.  This does not appear to me to be a ground of substance.

38.For the third and fourth grounds, it is complained that the judge had misdirected himself on the evidence relating to the alleged supply agreement, and that he had failed to give consideration to certain matters or had failed to draw inference from certain matters.  It does not appear to me that the Company would go very far with these grounds on appeal.

39.In the fifth ground, it is claimed that the judge was wrong on facts and in law to find an agreement between the parties regarding the goods ordered by Pui Kee.  This is clearly an attack on a finding of fact.  The judge preferred the evidence of the petitioner’s witness to Mr Ho where there was conflict between them.

40.For the sixth ground, it is claimed that the judge was wrong to reject letters of complaint allegedly sent by the Company, the authenticity of which was in dispute.  The judge had given reasons for so doing, and I am quite unable to see any misdirection.

41.The seventh ground is a complaint that the judge rejected documents adduced by the Company but accepted documents adduced by the petitioner.  Again the judge had given his reasons for so doing, and this does not appear to be a complaint of substance.

42.For the eighth ground, a complaint is made that the judge failed to draw inferences favourable to the Company from certain facts that had not been disputed.  I cannot see how that could be a ground for complaint.  It is up to the judge to evaluate the evidence and draw such inference as may be appropriate with regard to the totality of the evidence and his assessment of the whole case.

43.In the ninth ground, it is claimed that the judge was inconsistent in his approach as to how he evaluated the evidence of the petitioner’s witness and Mr Ho.  The judge is perfectly entitled to form his view on the credibility of witnesses.

44.The remaining five grounds in the perfected grounds all relate to the counterclaim, I do not propose to deal with them separately.  The counterclaim was founded on the allegation that there was delay in delivery.  This was rejected by the judge who preferred and accepted the evidence of the driver called by the petitioner.

45.I am firmly of the view that the Company has failed to demonstrate strong prospects of success on appeal, if it were allowed to reinstate its appeal.

46.The appeal that the Company is minded to pursue would not be rendered nugatory if the Company is wound up, as it would be open to the liquidator to prosecute the appeal if he forms the view that this is in the interest of the Company, or the contributories or even creditors could put the liquidator in funds to pursue the appeal, with a full indemnity for the liquidator’s liability for costs if an adverse order should be made against the Company on appeal (Re Sky Talent Properties, para. 12).

47.All the above reasons I have canvassed militate against granting an adjournment in this situation.  I come to consider the revised undertaking offered at the last minute by the Company.  I do not regard this undertaking as satisfactory.  For the reasons I have given above, I have reservations as to the ability of the Company to honour this undertaking. 

48.Also, there is the position of the supporting creditors who are all judgment creditors.  It would appear from the facts I have recited that the Company has exhausted every avenue to challenge the awards made by the Labour Tribunal in favour of these supporting creditors.  The total amount due to them is in the region of HK$850,000.00.

49.I have asked Mr Ng whether the Company would be able to come up with a suitable offer or undertaking in relation to the judgment debts due to these supporting creditors.  Counsel informed me that the Company can only raise funds to cover the judgment debt of the petitioning creditor with interests and a sum towards costs and no more. 

50.Mr Joseph Lo who appeared for two of the supporting creditors informed the court that the supporting creditors have legal aid to apply to be substituted as petitioner, if for any reason the petitioner should not proceed with the petition.  All the supporting creditors have filed detailed evidence in these proceedings as to the debts due to them and no dispute has been raised by the Company to their affirmations. 

51.Given that the Company is in no position to pay these supporting creditors and there would not appear to be any dispute as to their debts, I do not think this is a suitable case to adjourn the petition.  I find for the petitioner on the primary position of the petitioner, which is to seek a winding-up order today.  The application for adjournment is refused and I order the Company to be wound up.

52.I further order that the petitioner’s costs and one set of costs for the supporting creditors are to be paid out of the Company’s assets.

Mr Richard Khaw, instructed by Messrs Lee, Chan & Cheng, for the Petitioner

Mr Edward Ng, instructed by Messrs Lau, Lee & Tang, for the Company

Mr Joseph Lo, of Legal Aid Department, for the Supporting Creditors