RE RAD SOURCE TECHNOLOGIES ASIA LTD

HCCW 253/2017

[2018] HKCFI 610

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 253 OF 2017

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D E C I S I O N

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1.  I have before me an amended petition originally issued on 24 August 2017 seeking the winding up of the Company of which the petitioner is a 60% shareholder on the grounds of insolvency relying on a statutory demand dated 19 July 2017. The debt is said to arise in the following circumstances.

2.  The petitioner is based in the USA and manufactures and supplies irradiators.  It has over recent years supplied irradiators to the Company on approximately 19 occasions.  The Company placed two purchase orders for irradiators with the petitioner in April and July 2016.  The debt relied on is in respect of payment of the purchase price for those two items.  For present purposes it is only necessary, in my view, to focus on the purchase order dated 6 May 2016 in respect of an irradiator model no “RS2000 pro-350 kv” which was to be delivered to the Mainland by 4 July 2016 for a total purchase price including crating of US$159,500.  The irradiator was delivered on 10 August 2016 and the petitioner submitted an invoice no 122861 dated 3 August 2016 for the irradiator.  Although partial payment has been made in respect of the other irradiator, the irradiator to which invoice no 122861 relates has not been paid and the full amount is said to be outstanding. 

3.  There is no dispute that the irradiator was delivered.  The reason the Company opposes the petition and says that the payment is not due is as follows.  The Company says that when a test was carried out on the irradiator on 13 April 2017, it showed that there was radiation leakage in excess of the national standard. However, at that time the irradiator was not installed in its final location as that had not been constructed.  The Company says that on 13 April 2017, an oral agreement was reached between Mr Zhao Xi, on behalf of the Company, and Mr William Hartman, on behalf of the petitioner, in a conversation with Dr Sun of the end-user, China Educational Instrument & Equipment Corporation (“CEIEC”), that payment for the irradiator would be deferred until it could be installed in its final location in early 2018.  The implication of that agreement seems to me to be that it was recognised that the irradiator would need further adjustment to ensure it met the required standards.  But there was no material reason at that time to think that it would not do so.  Indeed, this would appear to be consistent with the unchallenged evidence of Mr Hartman on behalf of the petitioner that given the nature of the devices, it was common for them to need adjustment after they had been shipped and installed.

4.  Section 37 of the Sale of Goods Ordinance, Cap 26, deals with acceptance of goods:

“(1) Subject to subsection (2), the buyer is deemed to have accepted the goods—

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(b) when the goods have been delivered to him and he does any act in relation to them which is inconsistent with the ownership of the seller.

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(4) The buyer is also deemed to have accepted the goods when after the lapse of a reasonable time he retains the goods without intimating to the seller that he has rejected them.

(5) The questions that are material in determining for the purposes of subsection (4) whether a reasonable time has elapsed include whether the buyer has had a reasonable opportunity of examining the goods for the purpose mentioned in subsection (2).”

5.  There is nothing from the Company, either in the form of contemporaneous emails or letters, or affirmation evidence, which indicates, and indeed I do not understand it to be the Company’s case, that it has rejected the irradiator.  It seems to me to be quite clear that the Company has had ample opportunity and time to decide whether or not such problems as may have been identified on 13 April 2017 were sufficiently serious to justify rejecting the irradiator, and having not done so, the Company must be treated as having accepted the irradiator and therefore is, on the face of the matter, liable to pay the contract price.

6.  The second ground for arguing that the debt is not payable is that the alleged oral agreement to which I have referred.  Mr Hartman in his affidavits denies that any such agreement was ever reached. There is no reference to it in anything written during the material periods by either the petitioner or the Company.  It seems to me to be inherently unlikely that the petitioner would have agreed simply to leave such an expensive device in the Mainland without requiring at least partial payment.  There is an additional matter which, it seems to me, calls into question both the likelihood of such an agreement ever having been reached and the bona fides of Mr Zhao’s evidence in this regard, namely, that it is the undisputed evidence of the petitioner that it has been told that CEIEC has paid 90% of the contract price.  Although the petitioner does not know when payment took place, it seems to me that this being the case is inconsistent with the suggested agreement advanced by the Company as a ground for deferring payment. 

7.  In conclusion, it seems to me that a bona fide defence on substantial grounds, which is the criteria that needs to be satisfied by the Company in order to successfully oppose the petition, has not been demonstrated.  As a consequence, there is clearly more than the statutory minimum required to support the petition, and I will therefore make the normal winding-up order which will include an order that the Company pays the petitioner’s costs.  I understand that on 23 February 2018 the petitioner paid HK$250,000 into court by way of security for costs.  I order that that sum be paid to the petitioner.