Re Ocean Jet Development Ltd

HCCW 440/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 440 OF 2005

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Before: Hon Kwan J in Court

Dates of Hearing: 27 June 2006

Date of Judgment: 27 June 2006

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J U D G M E N T

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1.This is the hearing of an amended petition presented by Zhong Shan Zhang Jia Bian Enterprise Group Company Limited (“ZJB”) against Ocean Jet Development Limited (“the Company”).  The petitioning debt is HK$6,430,166.27, being loans advanced by ZJB to the Company on 19 December 2000 with interest at 7% p.a. calculated up to 10 June 2005.

2.On 9 February 2006, I made an order on the application of ZJB to be substituted as petitioner in these proceedings in lieu of Hong Kong Win Mode Industries Limited (“HK Win Mode”).  I also dismissed an application by the Company to strike out the petition.  Full reasons were given in my decision of the same date.  In summary, I held against the Company that the matters raised by it on affidavit are sufficient to raise a bona fide dispute of the debt alleged to be owed to ZJB on substantial grounds.

3.The amended petition was restored before me for directions on 27 February 2006.  Directions were given for the filing of further evidence.  The Company has failed to file any further evidence.  On 20 June 2006, I made an order that the solicitors on record are to cease to act for the Company.  The Company has not obtained leave from the court for any director to represent it in these proceedings, so it is not represented at the hearing today.

4.The evidence before me is the same as the evidence when I heard the application for substitution as petitioner and the Company’s cross application for striking out.

5.The background giving rise to the petitioning debt, taken from documents that are not in dispute, may be stated shortly as follows.

6.In December 1998, ZJB and the Company entered into a joint venture agreement to set up a joint venture company known as Zhong Shan Ocean Jet Shipbuilding Company Limited (“Zhong Shan Ocean Jet”).  The joint venture was to design, manufacture and sell catamaran passenger ferries.  The parties agreed to share in the profits and losses of Zhong Shan Ocean Jet in the ratio of 40% to ZJB and 60% to the Company, which was the ratio in which they were to contribute to the capital.  It was agreed that the total investment was to be US$2.5 million, with an actual or registered capital of US$1.75 million.  So the investment ZJB was required to contribute was US$700,000 and the amount the Company was required to contribute was US$1.05 million.  ZJB was to contribute by providing the right to use existing factory premises on its land.  The Company was to contribute by purchasing machinery and equipment approved by the board of directors.

7.At the meeting of ZJB and the Company on 13 November 1999, it was agreed and confirmed that ZJB had made its asset contribution to Zhong Shan Ocean Jet, and whilst the Company had provided a valuation report for its investments in assets such as equipment and materials, those assets had not been injected into Zhong Shan Ocean Jet.  It was recorded in the minutes that ZJB had agreed to make a loan of HK$2.5 million to the Company for contingency use.

8.A loan agreement dated 10 December 1999 was signed between ZJB and the Company.  Reference was made in the agreement to the minutes of the meeting on 13 November 1999 and that ZJB had provided funds for Zhong Shan Ocean Jet to open a letter of credit in Hong Kong of HK$3 million for the purchase of materials and had agreed to make available to the Company a loan of HK$2.5 million for contingency use.

9.By an agreement dated 19 December 2000 made between ZJB and the Company, the parties agreed to change their method of co-operation in Zhong Shan Ocean Jet from a joint venture enterprise to a “co-operation enterprise”.  By this mode of co-operation, ZJB would allow the Company the use of its factory premises at a fee and ZJB would have no further responsibility for the liabilities of Zhong Shan Ocean Jet after 20 December 2000.  It was provided in paragraph 2 of the agreement that the loan of HK$5.5 million (made up of the amounts of HK$3 million and HK$2.5 million aforesaid) should have an annual interest of 7% as from 20 December 2000, with an annual repayment of HK$1 million on 30 December of each year until the loan was repaid in full.  The amount of the loan of HK$5.5 million was revised to HK$5,471,724.79 after an audit by the accountants of the parties, as stated in the supplementary agreement dated 20 December 2000 signed by the Company and HK Win Mode, which was the agent appointed by ZJB to enforce its rights under the loan agreement.

10.The co-operation between ZJB and the Company was terminated completely on 27 November 2003, as evidenced by the agreement on termination of co-operation signed by ZJB and the Company on the same date.  It was provided in that agreement that as from that date, Zhong Shan Ocean Jet was to change from a sino-foreign co-operative enterprise to a sole investment enterprise owned entirely by the Company.  Also on the same date, a tenancy agreement was made between ZJB and Zhong Shan Ocean Jet by which ZJB let to the latter land and factory premises at the rent stated for a 5-year term commencing 16 December 2003.

11.On 16 February 2004, the Company and ZJB signed a supplemental charter in respect of Zhong Shan Ocean Jet confirming again the change of Zhong Shan Ocean Jet to a sole investment enterprise operated by the Company and that the Company was to be responsible for all debts of Zhong Shan Ocean Jet before and after it became a sole investment enterprise.

12.Against these documents, the Company raised the defence denying the petitioning debt on the allegation that there was an oral agreement on 27 November 2003, when the written agreement on termination of co-operation was signed and the tenancy agreement was executed, that ZJB had agreed to discharge the Company from its liability to pay the loan of HK$5.5 million.  As submitted by Mr Chain for ZJB, the alleged oral agreement was wholly inconsistent with all the surrounding circumstances and it made no commercial sense.  The allegations are simply not believable.  I see no reason to change my view that the Company has failed to raise a bona fide dispute of the petitioning debt on substantial grounds, for the reasons given in paragraphs 10 and 11 of my decision on 9 February 2006.

13.The other ground of opposition raised by the Company is that ZJB had wrongfully repossessed or had interfered with possession of the factory premises leased to Zhong Shan Ocean Jet and it has a cross claim for loss of profits on 3 contracts for the manufacture of ships estimated at HK$2.5 million, loss of profits on a boat building partnership to manufacture 20 luxury yachts a year estimated at HK$16.5 million, and damages for loss of use of its plant and machinery of the value of HK$17.1 million and materials in the factory premises.

14.It seems to me that the figures for the alleged cross claim are grossly inflated and speculative, to say the least.  No evidence has been adduced by the Company at the time of the strike out application to refute the assertion of ZJB that no rent was ever paid to it under the tenancy agreement.  In my decision on 9 February 2006, I have queried if such cross claim should be pursued by Zhong Shan Ocean Jet, and not by the Company.  I hold that the Company does not have a genuine and substantial cross claim which would exceed the petitioning debt.

15.For the above reasons, I make a winding-up order against the Company.  The costs of ZJB are to be paid out of the assets of the Company.

Mr Benjamin Chain, instructed by Messrs Yung, Yu, Yuen & Company, for the Petitioner

The Company, Ocean Jet Development Limited, unrepresented