Asahi Iwasawa & Associates Management Consultants Ltd v. Sec (Hong Kong) Co Ltd

HCCW 215/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 215 OF 2013

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J U D G M E N T

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Introduction

1.This is the substantive hearing of the winding-up Petition presented by the Petitioner (“AIA”) against SEC (Hong Kong) Company Limited (“the Company”) pursuant to sections 177(1)(d) and 178(1)(a) of the Companies Ordinance, now renamed Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap. 32 (“CO”).

2.According to the Petition, AIA is solely relying on the ground that the Company has failed to meet a Statutory Demand and is therefore deemed to be unable to pay its debts under section 178(1)(a) CO.  There is no reference to section 178(1)(c) CO in the Petition and there is no attempt on the part of AIA to adduce evidence to independently prove that the Company is insolvent, other than by reference to the unpaid invoices referred to below and non-compliance with the Statutory Demand.

3.What in fact happened was that the Company has been served with two Statutory Demands – the first dated 5 July 2013 for HK$736,650 and another Statutory Demand dated 8 July 2013 for HK$647,000. The Petition only refers to the second one and in the course of the hearing, Mr. Lau, for AIA, confirmed to this court that he was solely relying on the second Statutory Demand. From now on, when this court refers to the Statutory Demand, it is a reference to the second one.

4.No breakdown of the sum of HK$647,000 was given in the Statutory Demand, the Petition or AIA’s affidavits.

5.After clarification by counsel on both sides at the hearing, it is now common ground that this figure represents the sum total of eight invoices issued by AIA to the Company as follows:

(1) Invoice dated 21 March 2013 for $2,500 for company secretarial services.

(2) Invoice dated 1 May 2013 for the agreed monthly fee of $10,000 in May 2013 under AIA’s Quotation dated 28 March 2013 as per item 7 therein viz “Litigation Agency Consultation Fee”. The litigation referred to is HCA492 of 2013 in which the Company is a defendant. As there is no dispute that the Quotation correctly reflects the agreement between the parties at the time, they both refer it as the Retainer Agreement (“Retainer Agreement”).

(3) Invoice dated 1 May 2013 for $150,000 for additional court attendance, consultancy and interpretation/translation services provided in relation to HCA492 of 2013 from 12 to 30 April 2013 plus meetings in February and March 2013.

(4) Invoice dated 20 May 2013 for $200,000 for additional court attendance, consultancy and interpretation/translation services in relation to HCA492 of 2013 provided from 29 April to 15 May 2013.

(5) Invoice dated 22 May 2013 for $30,000 for additional consultancy and interpretation/translation services in relation to HCA492 of 2013 provided on 21 May 2013.

(6) Invoice dated 3 June 2013 for $142,500 for additional court attendance, consultancy and interpretation/translation services provided in relation to HCA492 of 2013 from 24 May 2013 to 31 May 2013.

(7) Invoice dated 3 June 2013 for $10,000 for the agreed monthly fee of $10,000 in June 2013 under the Retainer Agreement.

(8) Invoice dated 10 June 2013 for $102,000 for the preparation of monthly management accounts from April 2012 to March 2013 as per item 6 under the Retainer Agreement viz. “Monthly processing fee” at the rate of $8,500 per month.

6.On 25 November 2013, after the 1^st call over hearing of the Petition, the Company admitted liability for and made payment of $172,500 to AIA, leaving an outstanding balance of $474,500 (“Outstanding Balance”). Again, after clarification by counsel on both sides at the hearing, it is now common ground as to which invoices were paid in November 2013 and which remain outstanding:

(1) the payment of $172,500 covers:

(a) AIA’s invoice for the sum of $2,500 for company secretarial fees;

(b) AIA’s invoices for the agreed monthly fees for May and June 2013 in the sum of $20,000 in total;

(c) $150,000 in respect of AIA’s invoice dated 1 May 2013 pursuant to a Letter of Consent dated 29 April 2013 (“Letter of Consent”) signed by both parties.

(2) the Outstanding Balance of $474,500 represents the following unpaid invoices:

(a) Invoices dated 20 May 2013 for $200,000, dated 22 May 2013 for $30,000 and dated 3 June 2013 for $142,500 for additional court attendance, consultancy and interpretation/ translation services in relation to HCA492 of 2013 totalling $372,500; and

(b) Invoice dated 10 June 2013 for $102,000 for the preparation of monthly management accounts.

Background

7.AIA has provided accounting, auditing, company secretarial support, and tax services to the Company since 2010. Its director, Mr. Isoo Iwasawa (“Mr. Iwasawa”) was at all material times the person responsible for dealing with the Company on behalf of AIA.

8.Mr. Sato Yukio (“Mr. Sato”) and Mr. Masaru Furuta (“Mr. Furuta”) were at all material times up to about mid-October 2013 directors of the Company. Thereafter, Mr. Sato ceased to be a director and became the general manager of the Company.

9.On 21 March 2013, Acbel, a supplier of the Company, commenced HCA 492 of 2013 against the Company and obtained an ex parte Mareva Injunction against it. On 25 March 2013, the Company approached AIA for assistance as neither Mr. Sato nor Mr. Furuta spoke or read English. Mr. Iwasawa promised to assist the Company for the duration of the litigation where he would essentially act as translator of documents and interpreter in conferences and in court. Mr. Iwasawa also strongly recommended Robertsons to the Company.

10.AIA then sent the Quotation dated 28 March 2013 to the Company setting out its fees for the translation and interpretation services for the litigation under item 7, as well as for other services, including the preparation of management accounts for the Company under item 6. It is common ground that this is the Retainer Agreement.

11.As far as translation and interpretation services for the litigation are concerned, the fees set out in the Retainer Agreement are $10,000 per month. As far as the preparation of management accounts are concerned, the fees are set at $8,500 per month. In response to questions from the court, Mr. Lau indicated that the fees for the latter are not payable monthly, but only at the end of the year, which this court takes it to mean the end of the Company’s accounting year.

12.It is pertinent to note at this juncture that, also on 28 March 2013, AIA issued an invoice to the Company for $10,000 for “Management Consulting Retainer Fee during the course of Court Hearings …on HCA 492/2013 for March”. On 15 April 2013, AIA issued another invoice to the Company for $10,000 for “our retainer fee in relation to [HCA 492/2013] in respect of “Providing consultancy and coordinating with Lawyers - Robertsons” for the month of April 2013.

13.I mention this because it is common ground (according to an Agreed Chronology of Events ordered by this court) that on 5 April 2013, a staff of AIA, Miss Yuki Otsuka, attended a court hearing in HCA 492/2013 with Mr. Sato, and, from a subsequent invoice dated 1 May 2013, there were four meetings between AIA and the Company in February and March 2013 in relation to the possibility of litigation against the Company, which ended up as HCA492/2013. If, as AIA now contends, Mr. Sato and Mr. Furuta were at all material times aware that, save for some occasional exceptions, all works by AIA were to be charged on time basis, the 28 March and 15 April invoices should also have included items charged on a time basis. Instead, they only contain the monthly fee of $10,000.

14.On 27 April 2013, AIA sent by email a draft of the Letter of Consent to the Company. The Letter of Consent was countersigned by Mr. Sato on behalf of the Company on 29 April 2013. On AIA’s case, the Company was at all material times aware that AIA would (save that occasionally, AIA would agree to a fixed fee arrangement) charge for individual work items on time basis at Mr. Iwasawa’s usual hour rate of $5,000 although AIA would sometimes offer special concessions on the charges. AIA contends that the Company’s signature on this Letter of Consent serves to acknowledge this practice. Whether this is so will be examined in the “Discussion” section of this Judgment.

15.From March to June 2013, AIA sent various invoices to the Company. As a result of the Company’s failure to pay most of them, on 7 June 2013, AIA sent a letter of final reminder to the Company (“Final Reminder”). I shall refer to the Final Reminder in greater detail in the “Discussion” section. Suffice it to say, at this point, that at the top right hand corner of the Final Reminder, Mr. Sato has written words in Japanese to the effect that, on AIA’s translation, the Company “shall make the payment” of $162,500 by 10 June 2013. There is a dispute as to the correct translation of the written words. According to Miss Cheung for the Company, the words should be translated as the Company “shall inform the payment schedule” of the $162,500 on 10 June 2013. Nothing  particularly important turns on the difference in translation. What is more important is which AIA invoices this $162,500 is intended by the Company to settle.

16.On 10 June 2013, AIA issued the last of the disputed invoice to the Company for $102,000 for the preparation of monthly management accounts from April 2012 to March 2013. The timing of this invoice is slightly odd since it is Mr. Lau’s submissions that the fees for preparing monthly management accounts are payable at the end of the Company’s accounting year ie end of March. Instead, the invoice for such fees was only issued after AIA has issued its Final Reminder.

17.On 13 June 2013, the Company sent a letter to AIA offering to make a “payment of appreciation” in the total sum of $130,000 ie $110,000 plus outstanding monthly fees of $10,000 each for April and May (“Letter of Appreciation”). AIA denies having received this. There is a dispute between the parties as to the true nature of this payment. Again, this will be canvassed in the “Discussion” section of this Judgment.

18.Shortly afterwards, in June 2013, AIA stopped the provision of all services to the Company. In July 2013, AIA served the Statutory Demand on the Company and then presented the Petition in these proceedings.

The Issue

19.As can be seen from the above, the Outstanding Balance consists of two categories of claims by AIA ie (1) fees said to be calculated at the rate of $5,000 an hour for additional court attendance, consultancy and interpretation/translation services in relation to HCA 492 of 2013 (“Additional Fees”); and (2) fees for the preparation of monthly management accounts at the rate of $8,500 a month (“Management Accounts Fees”) as per item 6 of the Retainer Agreement.

20.Regarding AIA’s claim for AdditionalFees, they are set out in the invoices dated between 1 May and 3 June 2013 for the total sum of $522,500: see paragraph 5(3) – (6) above.  Given the payment of the 1^st May 2013 invoice pursuant to the Letter of Consent, the unpaid invoices are those stated in paragraph 6(2)(a) above. 

21.The Company’s case is that there is no agreement between the parties on the charging of court attendance, consultancy and interpretation/translation services over and above the $10,000 a month and there is certainly no agreement that AIA is entitled to charge at the hourly rate of $5,000 for such services. The only agreement reached between the parties was the monthly fee of $10,000 for AIA’s “Litigation Agency Consultation” services as per item 7 of the Retainer Agreement.

22.Regarding AIA’s claim for Management Accounts Fees, the agreement of the parties is partly set out in the Retainer Agreement. I say partly since the Retainer Agreement only sets out the monthly fee of $8,500. The Retainer Agreement does not spell out whether it is payable monthly or yearly or only upon delivery of the management accounts to the Company. As I said earlier, Mr. Lau accepts it is only payable yearly. The Company’s case is that according to the past practice of the parties, it is payable only when AIA has also completed the preparation of the annual audited accounts, a separate item (item 4) in the Retainer Agreement.  

23.The sole question for this court to determine is whether the Company can demonstrate that there is a bona fide dispute on substantial grounds over the disputed Outstanding Balance.

Applicable principles

24.Winding up proceedings are not intended for the purpose of debt collection. A winding up order has serious consequences on a company. The most obvious one is the freezing of its bank accounts which undoubtedly would disrupt the day-to-day affairs of the company and adversely affect its goodwill and operation. The jurisdiction is a summary one and will only be exercised in very clear cases: per To J in Re First Dragon Fashion (Hong Kong) Limited unrep., HCCW 41/2010, 14 February 2011 and quoted by Deputy Judge Pow SC in Abdul Aziz Essa v. Capital Globe Ltd unrep., HCCW422/2010, 8 July 2011 at [21].

25.The court’s approach where a debt is said to be bona fide disputed on substantial grounds is well‑settled and, judging from the parties’ written submissions, not controversial.

(1) The burden is on the company to establish that there is a genuine dispute of the debt on substantial grounds.  In this context, “substantial” means having substance and not frivolous.  An honest belief in an insubstantial ground of defence is not sufficient to avoid a winding-up order.

(2) The court should look at the company’s evidence against so much of the background and evidence that is not disputed or not capable of being disputed in good faith; in other words, the evidence is not to be approached with a wholly uncritical eye. 

(3) The court would caution itself against unsubstantiated and unparticularised assertions, especially where particulars and information have been sought by the other side.  It is incumbent on the company to put forward “sufficiently precise factual evidence” to substantiate its allegations.

(4) The court does not try the dispute on affidavit but is to determine whether a substantial dispute exists.  In so doing, the court necessarily has to take a view on the evidence, to see if the company is merely “raising a cloud of objections on affidavits” or whether there really is substance in the dispute raised by the company... 

(5) If there is a debt which in part above the statutory minimum is indisputable, a petition can validly be presented even if the debt as claimed in the petition is for a larger sum, part of which is bona fide disputed. 

The above principles are taken from Re Hong Kong Construction (Works) Ltd. unrep. HCCW 670/ 2002,7 January 2003, Kwan J (as she then was) at [6].

26.The fact that the full amount of the statutory demand may not be proved to be owing does not invalidate a demand or render the company involved any less insolvent so long as a debt which exceeds the statutory limit is due and admitted or not bona fide disputed: per To J in Re First Dragon Fashion (Hong Kong) Limited unrep., HCCW 41/2010, 14 February 2011, quoted by Deputy Judge Pow SC in Abdul Aziz Essa v. Capital Globe Ltd unrep., HCCW422/2010, 8 July 2011 at [21].

27.If the Company contends that the statutory demand has been overstated, the correct procedure for the company to follow, to avoid the statutory presumption of insolvency, is to comply with the demand as to the amount which is not bona fide disputed, and then contest the remainder: per Hoffman J (as he then was) in In re a Debtor (No. 490-SD-1991) [1992] 1 WLR 507, at 509H-510A, quoted by Deputy Judge Pow SC in Abdul Aziz Essa v. Capital Globe Ltd unrep., HCCW422/2010, 8 July 2011 at [22].

Discussion

Additional Fees

28.First and foremost, it is important to note that, apart from (1) a general assertion in paragraph 5 of Mr. Iwasawa’s 3^rd affidavit that Mr. Sato and Mr. Furuta were at all material times aware that, save for some occasional exceptions, all works done by AIA were to be charged on time basis and that Mr. Iwasawa’s hourly rate was $5,000, and (2) two other paragraphs in Mr. Iwasawa’s 3^rd affidavit, there is no evidence before this court that, other than the Retainer Agreement, the parties had reached another agreement, whether written or oral, for the payment of Additional Fees calculated at the rate of $5,000 per hour.

29.The two paragraphs read as follows:

“11. On 28^th March 2013, the Petitioner issued a quotation or audit estimate to the Respondent listing out the charges. There is now produced and shown to me marked “II-3-2” copies of the said quotation and the proper English translation thereof. In particular, it was understood and agreed by the Respondent and the Petitioner that item 7 of the said retainer, namely, “Retainer Fee for Consultation regarding the Litigation” at HK$10,000.00 per month, would cover only casual consultancy services in relation to the Legal Action.”

“12. It was further understood and agreed by the Respondent and the Petitioner that all other specific works done by the Petitioner in relation to the litigation, including but not limited to translation of the English court documents abovementioned and real time oral translation services, would be calculated and charged on time basis at my hourly rate of HK$5,000.00.” (emphasis added)

30.In response to questions by the court in the course of the hearing, Mr. Lau confirmed that his primary case is that, prior to the Letter of Consent, the parties had already reached an agreement that additional services, whatever that may mean, would be charged at the hourly rate of $5,000, as reflected in the 4^th paragraph of the Letter of Consent. Mr. Lau also frankly admitted that it is not in AIA’s evidence in these proceedings as to how or when such an agreement was reached.

31.Mr. Iwasawa, at paragraph 6 of his 3^rd affidavit, also appears to suggest that, in settling all of AIA’s previous invoices dated from February 2011 to October 2012, the Company must be taken to accept AIA’s practice of charging on a time basis. This court has examined those invoices and it must be pointed out that (1) most of the invoices exhibited are related to accounting and tax services and none of them are for translation/interpretation services or litigation support and (2) none of them refer to the hourly rate of $5,000.

32.Mr. Lau’s alternative case is that the Letter of Consent is the parties’ agreement to pay on a time basis. Further, AIA relies on the Letter of Consent plus three other written acknowledgements by the Company which, he contends, amount to admission of liability for the Additional Fees. 

33.First, the Letter of Consent. The relevant parts read as follows:

“It is hereby mutually agreed that while there is there exhist [sic] a “Retainer Fee” agreement between the two parties concerned, and AIA has invoiced for the month of March and April, which restricts to a [sic] casual consultations in relation to a HKHC#492-2013. In addition to the casual consultations AIA has provided consultations to SEC attended by Mr. Masaru Furuta, Mr. Sato and Mr. Yuji Furuta on four separate occasions in February and March, 2013, each time spending in excess of 2.5 hours.

Since then, HC#492-13 was brought to our attention. Since then we discussed and mutually agreed that SEC shall pay a sum of HK$10,000 per month as the “Retainer fee” to AIA. Over and above the normal consultations AIA has been requested to assist and coordinate and further provide Consultations with reference to the discussions with your lawyers – ROBERTSONS. These additional consultations included translations of Letters from Japanese into English, attending meeting with your lawyers and attending High Court to interpret correctly the proceedings at the court.

As of this writing, our time charges is [sic] now exceed far beyond HK$150,000.00. However, understanding the business position of SEC, perhaps more than anyone else, with your consent AIA will issue an invoice to SEC dated the 1^st of May 2013 in the amount of HK$150,000.00together with May portion of the retainer fee for May, 2013, total of which shall be $10,000.00 + $150,000.00, or a total sum of $160,000.00.” (emphasis added)

34.AIA submits that the Company, by signing the Letter of Consent, has clearly acknowledged 2 main matters:

(1) That consultation services during meeting with lawyers, attendance of court hearings, and translation of court documents/letters in relation to the litigation were in addition to the services provided under the Retainer Agreement.

(2) That those additional consultation services were chargeable on a time basis, based on the usual hourly rate ie $5,000 of the person providing the services within AIA viz.  Mr. Iwasawa.  

35.The Company, not surprisingly, invites this court to look at the Letter of Consent in a very different light.

36.In the view of this court, the Letter of Consent lends support to the following submissions in favour of the Company.

(1) First, it shows there was no prior agreement between the parties as to the payment for Additional Services in relation to the litigation on an hourly basis. This is because (i) there is no reference in the letter to any such agreement; (ii) had there been such an agreement, there would have been no need to seek the Company’s consent before issuing the invoice dated 1 May 2013 for $150,000 – AIA could just invoice the Company for the Additional Services right away.

(2) Second, it does not mention anything about Mr. Iwasawa’s hourly rate of $5,000. Nor does it ask the Company for a “blanket” consent to AIA charging $5,000 per hour for any future services which AIA unilaterally considered to be over and above “normal” or “casual” consultation, whatever that may mean. The Company’s consent, signified by Mr.  Sato’s signature, was simply that AIA could invoice the Company extra for past services and that extra was capped at $150,000.

(3) Third, if, as AIA contended in the Letter of Consent, even  translation of documents and interpretation during discussions with lawyers and in court were to constitute “additional” services, it is unclear what the $10,000 monthly fees in the Retainer Agreement were supposed to include.

(4) Fourth, the Letter of Consent itself cannot be construed as a legally binding agreement between the parties that for all future services over and above “casual consultations”, the Company would be liable to pay AIA $5,000 per hour. This is because one of the most essential terms of this sort of service agreement ie the amount of the fees payable or at least how the fees should be calculated - whether by a lump sum all-inclusive fee or on an hourly basis, and if the latter, at what rate , is missing. Further, the term “casual consultations” is simply too vague.

37.The only thing clear is that, as at the date of the Letter of Consent ie 29 April 2013, AIA capped the “extra” charge at $150,000 and the Company, by signing it, expressed its agreement to pay this sum. This $150,000, encapsulated in the invoice dated 1 May 2013, had been settled on 25 November 2013 and is not part of the Outstanding Balance.

38.Second, the 5^th Affirmation of Mr. Sato dated 28 May 2013 filed in the litigation in support of the Company’s application to vary the Mareva injunction against it in order to increase the limit for legal expenses. Mr. Lau submits that it was expressly acknowledged by the Company at paragraph 41 of the 5^th Affirmation that, as at the date of the affirmation, a sum of $410,000 was due and owing to AIA. Mr. Lau further submits that the sum of $410,000 encompasses inter alia AIA’s invoices dated 20 and 22 May 2013 for the additional consultation services.

39.This court has read paragraph 41 carefully - the paragraph is capable of more than one interpretation and is not as clear cut as Mr. Lau suggests. Importantly, there is no mention in paragraph 41 as to which AIA invoices are supposed to be covered by the sum of $410,000.

40.Miss Cheung submits that paragraph 41 does not amount to an acknowledgment of liability at all, whether for those two invoices dated 20 and 22 May 2013 or otherwise. The interpretation of paragraph 41 she urges upon this court is that it is an acknowledgement that invoices for $410,000 have been issued by AIA and received by the Company but it does not mean that the Company unreservedly accepts liability to pay them.

41.In the course of the hearing, Miss Cheung produced to this court, without objection from Mr. Lau, the Company’s summons dated 28 May 2013 which shows that the Company was merely seeking the Court’s permission to pay 3 AIA invoices dated 28 March, 15 April and 1 May 2013 for $10,000 each ie the monthly retainer fee as well as 1 invoice dated 1 May 2013 for $150,000 which the Company has agreed to pay pursuant to the Letter of Consent.

42.Further, in support of her submission, Miss Cheung also referred this court to paragraph 37 of the 5^th Affirmation which reads as follows: 

“There are now produced and shown before me marked Exhibit “SY‑22”, copies of the invoices from [AIA] in the sum of $180,000 in relation to the [Company’s] necessary services and assistance provided in these legal proceedings.  Both myself and Mr. Masaru Furuta are …not able to read and/or write and/or speak English sufficiently well to be able to understand these proceedings ourselves without translation.  Since the Defendant Company received the Writ of Summons and Injunction Order from the Plaintiff’s Solicitors, the Defendant Company therefore has from time to time sought assistance from AIA (the accounting firm of the Defendant’s Company) in relation to translations and checking of translations from Japanese to English and vice versa also, understanding and translating documents received from the Defendant’s Solicitors or the Plaintiff’s Solicitors from English into Japanese and attending Court hearings and meetings with the Defendant’s Solicitors…”

43.The invoices exhibited as “SY-22” are those same 4 invoices I refer to in paragraph 41 above.

44.Third, the Final Reminder dated 7 June 2013 from AIA to the Company. In the Final Reminder, there was a reference by AIA to an outstanding sum of over $500,000 owed by the Company. Mr. Lau submits that this figure would include, inter alia, not just AIA’s invoices dated 20 and 22 May 2013, but also a further invoice dated 3 June 2013 in the sum of $142,500, all for additional consultation services.

45.Mr. Lau heavily relies on what Mr. Sato wrote down at the top right hand corner translated as follows:

“In regard to the payments of $162,500, I have obtained the approval from Mr. Furuta for that payment. However, based on the cashflow of our company, I hereby declare we shall make the payment by 10 June 2013”.

46.As I indicated earlier, the Company has put forward a slightly different translation but in my view the difference between the two is immaterial for the present purpose. This court is prepared to assume, in favour of AIA, that the handwritten words should be construed to mean the Company is prepared to make a payment of $162,500 to AIA. The critical question is what this figure represents.

47.On AIA’s case, the figure of $162,500 was intended to represent settlement of invoices dated 21 March 2013 for $2,500 and 1 May 2013 for $10,000 and the balance is for partial settlement of other invoices including invoices dated 20 and 22 May as well as 3 June 2013. In such circumstances, this again constitutes acknowledgment by the Company to pay for the additional consultation services.

48.Miss Cheung submits that there is no basis for AIA to suggest the figure of $162,500 was intended to represent partialsettlement of those three invoices which add up to $372,500. The handwritten words of Mr. Sato certainly do not refer to those invoices and it is unclear how Mr. Iwasawa was able to tell Mr. Sato’s subjective intention when he wrote down those words in the Final Reminder. AIA’s case is just too far‑fetched.

49.In the view of this court, there is force in Miss Cheung’s submission.

50.Simply as a matter of arithmetic, the figure $162,500 is consistent with being a reference to the two invoices dated 1 May 2013 for $10,000 (being the monthly fee for May 2013) and the $150,000 agreed pursuant to the Letter of Intent, as well as the invoice dated 21 March 2013 for company secretarial fee of $2,500. Hence, Mr. Sato’s handwritten words in the Final Reminder are not necessarily a blanket acknowledgment of the Company’s alleged liability for all the Additional Fees – they can also be construed as the Company’s acknowledgement of those invoices which we now know the Company has admitted liability and paid.

51.Fourth and last, AIA relies on the Letter of Appreciation as an acknowledgment of liability for the Additional Fees. The relevant part of the letter reads as follows:

“First of all, we are very grateful about the cooperation between the litigation of our company and ACBEL company. However, we are terribly sorry that our bank account has been frozen. On top of that, the fees from the Robertson Law Firm and also the costs from continuation of our business are leading us to a very serious financial situation. We are regretful for all the inconvenience and costs arose from this litigation to your company.

As to our company, we would like to pay for the fee as soon as possible, however, since our bank account is frozen, we would like to offer a payment of appreciation. We are definitely paying this amount and this is a letter of confirmation.” (emphasis added)

52.As I said earlier, the payment of appreciation is in the total sum of $130,000 ie $110,000 plus outstanding monthly fees of $10,000 each for April and May.

53.Mr. Lau relies on the words “we would like to pay for the fee as soon as possible” in the Letter of Appreciation and the absence of any denial of liability to pay and submits that, on a proper interpretation, “payment of appreciation” refers to partial settlement of the invoices then due. Hence, this again constitutes an acknowledgment of the Company’s liability to settle the Additional Fees at a later stage.

54.This court does not accept this constrained interpretation. It is unclear what the “fee” referred to in the sentence “we would like to pay for the fee as soon as possible” means. It is entirely conceivable that it is a reference to the $150,000 promised in the Letter of Consent which remained unpaid at the time of the Letter of Appreciation. Further, absence of denial of liability in the letter cannot amount to acceptance of liability to pay.

55.In Mr. Sato’s affirmations, the Company explains it did not accept any legal obligation to pay the Additional Fees since there was no agreement between the parties to that effect. However, Mr. Furata was minded to pay something extra for the effort AIA put into in the litigation.  His original idea was to pay $50,000, but then AIA demanded $150,000 in the Letter of Consent. The Letter of Appreciation was sent to AIA only at the request of Mr. Iwasawa. The payment of “appreciation” means what it says – it is not payment of fees due and owing.

56.All in all, having considered the evidence as a whole and the submissions of the parties, this court is satisfied that the Company has demonstrated a bona fide dispute on substantial grounds over AIA’s claim for Additional Fees in the sum of $375,000.

57.I shall now turn to the Management Accounts Fees.

Management Accounts Fees

58.According to the invoice dated 10 June 2013, AIA’s claim is for the services provided in preparing monthly management accounts for the period “from April 2012 to March 2013”. It is common ground that this is an item expressly agreed in the Retainer Agreement. It can also be immediately pointed out that “Consolidated Audit Report Fee” is a separate item in the Retainer Agreement (Item 4). To that extent, Mr. Lau is correct in his submissions that the compilation of the monthly management accounts is different from the annual audit of the accounts which would require additional efforts. This is of course common sense and should be well-known to businessmen and accountants alike.

59.However, the crux of the matter is this. The Retainer Agreement does not spell out whether the fees are payable monthly or yearly or only upon delivery of the management accounts to the Company. In the course of the hearing, Mr. Lau accepted they are not payable monthly and there is no evidence that AIA has sent monthly invoice to the Company for this item. While Mr. Lau says they are payable yearly (presumably at the end of the Company’s financial year ended 31 March), the evidence shows that AIA has not sent an invoice for them to the Company on 31 March 2013 or even shortly afterwards. The invoice for this item was only sent to the Company on 10 June 2013, after the Final Reminder.

60.The Company’s evidence in this regard is that in previous years, AIA would not invoice for the yearly accounting services until after it has completed the yearly audit as its fees would not be due until the work was completed. In Mr. Iwasawa’s 3^rd affidavit in reply, this crucial point is not answered.

61.What happened on AIA’s own evidence is that in June 2013, it asked for full or at least partial settlement of all outstanding invoices as well as costs on account before it was prepared to provide any further services to the Company. The Company did not do so. AIA therefore stopped all services to the Company.

62.According to the Company’s evidence, because AIA ceased all services, they had to instruct another CPA firm Messrs Chan Lau & Company to prepare the accounting records and carry out the annual audit for the Company. For such services, the Company had to pay $93,600 for the accounting records and $37,000 for the annual audit.

63.Miss Cheung submits that there is no evidence to show that AIA has done any work in relation to the preparation of the monthly management accounts. None has been exhibited. In response to questions from this court, Mr. Lau frankly admitted that there is no evidence that AIA has actually prepared the monthly management accounts.

64.There is also no evidence that AIA has supplied any monthly management accounts to the Company for the relevant year.I would add that this is likely to be the case – otherwise, the Company would not have to instruct another CPA firm to prepare the accounting records and pay $93,600 for them.

65.Lastly, Miss Cheung submits that it is not open to AIA to unilaterally alter the established practice whereby AIA would only invoice the Company after completing all the yearly accounting and auditing work. In these circumstances, it is not necessary for this court to decide whether it was reasonable for AIA to insist on full or partial settlement of all outstanding invoices as well as costs on account before it continued further accounting and auditing services to the Company. The crucial question is whether the invoice amount of $102,000 was due as at 10 June 2013.

66.Having considered the evidence as a whole and the submissions of the parties, this court is satisfied that the Company has also demonstrated a bona fide dispute on substantial grounds over AIA’s claim for the Management Accounts Fees in the sum of $102,000 as at the date of the invoice.

Disposition and costs order nisi

67.For the above reasons, this court has no choice but to dismiss the Petition.

68.It will be up to AIA’s legal advisers to advise their client whether and, if they see fit to do so, how best to pursue its claims for the Outstanding Balance.

69.This court will make an order nisi that costs of the Petition be to the Company, with certificate for counsel for the hearing on 12 March 2014.

Mr Kerby Lau, instructed by S T Cheng & Co, for the petitioner

Miss Janine Cheung, instructed by C W Chan & Co, for the respondent

Attendance of the Official Receiver was excused