RE LABOUR BUILDINGS LTD

HCCW 721/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 721 OF 2009

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D E C I S I O N

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1.  On 17 December 2009 Lin Pai Ching (“Lin”) presented a petition for the winding up of the Company.  Lin relied on a debt for HK$28,000,000 in respect of which she had obtained a default judgement.  The debt was incurred at a time when she was a director of the Company.  Ms Lin is married to Chan Hon Tsang who through various corporate vehicles is a shareholder of the Company.  He is the brother of David Chan, who is a solicitor.  Mr Chan has represented the Company at a number of hearings in these proceedings and other associated proceedings.

2.  Mr Chan has told me at previous hearings that the Company is insolvent and that it does not object to being wound up.

3.  On 23 February 2010 Winland Mortgage Limited (“Winland”) applied to be substituted as the petitioner on the grounds that Ms Lin was not entitled to present a petition as the Company has a defence to her claim.  It says that it has the right to present a petition.  It relies on a debt arising under a loan agreement dated 7 August 2008 for HK$104,000,000.  The loan was secured by a fixed and floating charge over, amongst other things, a property at Changsha Street, Kowloon (“Property”).  The Company defaulted on its repayments and on 26 November 2009 it appointed Receivers.

4.  The Receivers had difficulty in obtaining control of the Property.  On 2 December 2009 Winland obtained an injunction from Chu J. in HCA 2406/2009 requiring the Property to be handed over to the Receivers.  At a hearing on 22 January 2010 in HCMP 2944 of 2009 Yam J. held that the Company was still indebted to Winland at the date of the hearing and made orders that the Receivers be empowered to defend Ms Lin’s petition and appeal or apply to set aside her default judgment.  In both those proceedings the Company was represented by Mr Chan.

5.  The default judgment was set aside by Master Lung on 9 March 2010.  Ms Lin appealed unsuccessfully to Poon J.  In his judgment dated 7 May 2010 Poon J. observed that Ms Lin’s claim was bound to fail.

6.  I would by way of further background information mention 2 other matters.  Ms Lin apparently does not speak or write English.  She did not, however, experience any difficulty in preparing the petition with, so she told me at an earlier hearing, the help of a solicitor other than her brother-in-law.  The Company indicated at its first hearing of the petition (through Mr Chan) that it did not intend to contest the petition.  Despite this Ms Lin applied for legal aid shortly before 26 January 2010.  It is a reasonable inference that this was done in order to obtain a stay of the proceedings under section 16 of the Legal Aid Ordinance and, in particular, interfere with an application issued on 11 January 2010 by the purchaser of the Property, Star Rainbow Limited, for a validation order in respect of the assignment of title to it on 17 December 2009.  I granted its application, which was opposed by the Company, through Mr Chan, apparently because of a concern that a validation order might ratify the validity of the assignment which the Company was contesting by proceedings it had commenced on 19 January 2010.

7.  At the hearing Mr Patrick Fung S.C., who appeared for Star Rainbow Limited, accepted that the granting of a validation order did not of itself prevent the Company obtaining an order declaring the assignment void or voidable and I so found in my judgment.  Despite this the Company appealed my decision.  The appeal was heard on 26 April 2010.  It was not argued because the Company, represented by Mr Chan, did not instruct counsel.  Rogers V.P. in giving judgment said this:

“7. Be that as it may, the simple point in this case is that this appeal was launched.  In my view, it was a hopeless appeal from the start.  The notice of appeal is perfunctory and raises no real ground of appeal at all.  The façade was kept up, right until the hearing commenced, that it was an appeal which would go ahead.  Mr Chan, who is the proprietor of the solicitors’ firm acting on behalf of the Applicant, well knew it was not going ahead and costs could clearly have been saved, even if the appeal were abandoned towards the end.”

8.  Mr Chan was ordered to pay the costs of the appeal personally.

9.  The way in which these and associated proceedings have been conducted strongly suggest that Mr Chan engineered the commencement of the winding-up petition and has conducted these proceedings largely to interfere with the sale of the Property and the attempts of Winland to investigate the affairs of the Company, which it believes has involved syphonying off the Company’s assets.

10.  I asked Madam Lin today why she said that she should be allowed to continue with her winding-up petition and she repeated details of her claim that the Company owed her HK$28,000,000 pursuant to an agreement for the assignment of a hotel management licence in respect of a hotel at the Property.  During this exchange I asked her if she had a copy of the agreement she was referring to and she produced the original, which is dated 11 June 2008.  This was shown to counsel for Winland and the Receivers, who said that their respective clients had not previously seen it.  What is striking about it is that the agreement is between the Company and China States Limited.  Madam Lin is not a party.  Nowhere does it state that she has any rights or obligations under the agreement.  Clause 4 of the agreement quite clearly states that the consideration of HK$28,000,000 is to be paid by the Company to China States Limited.  Madam Lin’s statement of claim in HCA 363 of 2009 pleads in paragraph 3 that Madam Lin “as the Attorney and the Representative signed personally on the agreement .…….”.  The agreement, however, states that she signed as a director for and on behalf of China States Limited.  In paragraph 4 it pleads that “It is agreed between the Plaintiff and the Defendant that the Plaintiff is agreed (sic) as the agent for receipt of such money in her dual capacities of the Attorney and the Representative”.  Quite what this is meant to mean is unclear to me, but I note that there is no allegation that China States Limited agreed to this arrangement and no documents evidencing such an agreement.

11.  I asked Mr Chan if he had seen the agreement before.  Initially he said yes, and then subsequently decided that he had only previously seen a draft.  He reluctantly agreed that it demonstrated that it was not Madam Lin who was owed HK$28,000,000 and that she was the wrong petitioner.  On Saturday the Company filed an affidavit of Mr Chan and a lengthy skeleton argument contesting the application for substitution and Winland’s substantive claim.  Serving evidence and arguments at the last minute is typical of Mr Chan’s modus operandi.  Apparently at a hearing on 17 May before Master Levy in HCA 62 of 2010, an action by the Company against Winland, on an application by the Company for an extension of time for service of the Reply and Defence to Counterclaim Mr Chan told the Master about the hearing of the application for substitution and the petition and said that the Company would not contest the application for substitution to save costs.  However, today Mr Chan sought to argue that Winland should not be substituted on the grounds that Poon J. had misunderstood the factual position and that Madam Lin was owed HK$28,000,000.  As I have already mentioned on being reminded of the terms of the agreement Mr Chan was forced to concede that this was wrong.  It is difficult to believe that Mr Chan was not fully aware of the difficulty with Madam Lin’s claim and has chosen not to tell the court about it and by this omission has misled the court.

12.  I am satisfied that Madam Lin is not entitled to present her petition.  I am also satisfied that in the light of Yam J’s judgment Winland has locus to present a petition and I therefore grant its application dated 23 February 2010 under Rule 33 of the Winding-up Rules for it to be substituted as the petitioner.

13.  This brings me to the petition itself, which I had listed to be heard immediately after the application for substitution.  Winland claim that after the sale of the Property they are still owed approximately HK$29,000,000.  The details of its claim is given in evidence filed in February.  In the affidavit filed on Saturday Mr Chan argues that the Company does not owe anything to Winland.  In short his argument is that Winland has been paid all it is owed.  The basis for arguing this is that Yam J. in his judgment calculated the sum owed to be HK$134,080,000, which is less than the redemption monies on the sale of the Property of HK$138,374,154.  I do not read paragraph 8 of Yam J’s judgment as holding that only HK$134,080,000 is payable.  Although not entirely clear I read the judgment as finding that as at 17 December 2009 the amount owed was HK$138,250,666.67 on the basis that simple interest at the rate of 2% per month was payable and in order to see whether anything was owing at the time of the application on assumptions most favourable to the Company.  It was not purporting to be a definitive determination of how much was payable.  Clause 5.2 of the loan agreement provided that if repayment was made late interest was payable at 4% per month from the date payment was due until actual payment.  Mr Chan advanced no reason why this rate of interest was not payable other than a passing reference to an argument that failed before Yam J., namely, that a settlement agreement had been entered into on 10 July 2009 in which Winland agreed to accept HK$133,830,000 in settlement of its claims.  This agreement related to a sale of the property to Year Harvest Investments Limited.  Yam J. rejected the argument on the grounds, if I read the judgment correctly, that to the extent that clause 3 of the settlement agreement provided that Winland would accept HK$133,080,000 in settlement of the sums due to it the agreement ceased to be of any application once the sale and purchase agreement to which it related fell through.  Mr Chan did not explain why this was wrong.  It also seems to me that in the light of clause 6 of the settlement agreement that it is clear that clause 3 was specifying how the proceeds of sale was to be distributed not that Winland was agreeing to accept HK$133,830,000 in settlement of all sums owed to it under the loan agreement.  In other words the settlement agreement was intended to ensure a smooth completion of the sale and purchase agreement and distribution of the proceeds of sale to all interested parties including the professionals who had unpaid fees.  It was not an agreement to settle the final amount owed by the Company to Winland.  I, therefore, am not satisfied that the Company has demonstrated that it has a bona fide defence on substantial grounds to Winland’s claim and I order that it be wound up.