KWONG FAT MOON EDKO v. THE OFFICIAL RECEIVER

1995, No. CWU627

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H E A D N O T E

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Application to stay winding-up order - limited stay of 6 weeks granted at prior hearing - extension of limited stay sought - extension refused and stay application dismissed.

Application for stay pending appeal refused - English practice of never granting a stay in such cases followed in Hong Kong

1995, NO. CWU 627

IN THE SUPREME COURT OF HONG KONG

COMPANIES (WINDING-UP)

NO. CWU 627 OF 1995

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J U D G M E N T

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1. This is the adjourned hearing of the application to stay the winding-up proceedings pursuant to the order made on 7 April 1997.

2. At the last hearing, I granted a limited stay (for a period of six weeks) of the winding-up proceedings only after considerable hesitation. The application would have been dismissed for the reasons set out in my judgment of 7 April 1997 ("the Judgment") but for the concern that the proposed sale by the Official Receiver might be considered unfair to the creditors as they have not had an opportunity of expressing their views as to how the liquidation was to proceed, having regard to Master Woolley's order for winding up in a summary manner ("the Order"). The adjournment and temporary stay were principally to enable an application to be made to set aside the Order but also to enable the Company to operate during the 6 week period as the Court was given to understand that all was ready for technicians to be sent for 4 week training in Italy, that the factory was on the point of going into production and that it was important that the stay be granted for that to go ahead.

3. By letter dated 9 April 1997, the Applicant was advised that for the purposes of the adjourned hearing, an up-to-date report of the joint venture and the status of the arbitration proceedings had to be filed.

4. The Official Receiver filed two reports dated 15 and 16 May 1997 respectively, exhibiting correspondence with the Beijing law firm acting for the Chinese party in the arbitration up to 28 April, setting out the position of the Chinese party which was to terminate its joint venture with the Company and a copy of the CIETAC award received by the Official Receiver late on 15 May from BKT.

5. The Plaintiff filed affirmations on 15 and 17 May to deal with two significant developments that occurred during the six week adjournment. First, CIETAC made its award in the arbitration on 28 April. This was dispatched to the parties on 5 May. Pausing here, having regard to the date of the adjourned hearing, I find it surprising that the Official Receiver should have been kept in the dark till 15 May especially when, as appears below, on 14 May the Company was apparently already engaged in discussions with the Chinese party. In any event, the arbitrators found that both parties had been in breach of the joint venture agreement and that the parties no longer had any mutual trust and co-operation which is the basis of the joint venture. The arbitrators also found that the Company had only contributed some 48% of the US$4.8 m it should have contributed within the first six months of the joint venture agreement which is contrary to the Applicant's representations to this Court that it has paid all or substantially all of the US$4.8 m into the joint venture. The award determined that the joint venture be dissolved and liquidated in accordance with PRC law.

6. Second, subsequent to CIETAC's award, meetings were held on 14 and 15 May between the Chinese party and Mr Li Yuk Kwong of the Company where "it was agreed that notwithstanding the tribunal's judgment the parties would continue to co-operate and operate [BKT]" . The Applicant exhibited a letter from a Mr Lo To Ting in support which is in Chinese with an uncertified English translation in the following terms :

"BEIJING KENNING TON TIRES CO. LTD.

HONG KONG KENNINGTON DEVELOPMENT CO. LTD.

Mr Kwong,

After lengthy discussion by our side, based on spirit of co-operation, both parties have had the basis of long period of co-operation, now it has been resolved and agreed to continue to co-operate and operate 'Beijing Kennington Tires Company Limited', and to support the difficulties faced by your company. Regarding the problem of arbitration, as far as the joint venture enterprise is concerned, no good can be done to both parties, will only obstruct the development of the joint venture enterprise in the long run, it is hoped that the friendly basis of co-operation will not have mutual ill-feeling.

[Chop of BKT]
Lo To Ting"

Suffice to say that I am unable to discern from that communication any agreement as is alleged. Moreover, there is no evidence as to who Mr Lo is or what authority he has to represent the Chinese party.

7. At the hearing, the Applicant produced a further letter to the Court dated 17 May 1997, again with BKT's letterhead, which leading counsel submitted went a little further than the first letter in as much as it evinced a desire to co-operate on the basis of the joint venture agreement notwithstanding the arbitration award and inviting Mr Kwong to Beijing as soon as possible for further discussions. It also stated the Chinese party's agreement to send the technicians to Italy for training by the end of June.

8. On the basis of the new developments, leading counsel for the Applicant sought a three to four week adjournment, during which the stay of the winding-up proceedings would continue. It was proposed that a management committee be set up consisting of the Applicant, a representative of Kincheng Bank which is a major creditor and an accountant to oversee the figures.

9. In my judgment, there are no valid reasons for continuing the stay of the winding-up order. First, the Order has now been set aside. If the creditors consider that the proposed sale by the Official Receiver would be at an undervalue, it is open to them to take steps to appoint a liquidator of their choice. Second, contrary to what the Court had been given to understand on 7 April 1997, (viz. that technicians would immediately be sent to Italy and in any event that production could start in the early part of May), it now transpires that the Applicant knew all along that nothing could be done pending the arbitration award and without the Chinese party's consent which he knew would not be forthcoming. I take an extremely serious view of this "lack of candour" on the part of the Applicant. Regrettably, half truth and distortions of the truth is a recurrent feature in the evidence filed by and on behalf of the Applicant. Third, taking the recent communications of 15 and 17 May at face value, the highest that can be said is that they evince an intention on the part of the writer to "co-operate", the finer points of such co-operation has not been settled remains to be negotiated. Moreover, having regard to the unreliability of the Applicant's evidence and the general lack of truthfulness that pervades the Application, the authenticity of the recent communications cannot be taken for granted. Fourth, it is not apparent whether and, if so, how, an award of CIETAC can be disregarded. Fifth, the matters referred to in the Judgment which caused misgivings and concerns remain unaddressed.

10. The adjournment sought serves no useful purpose : it would only exacerbate the problems if the stay is ultimately lifted. In any event, the factory cannot go into production for at least another few months and would inevitably mean a prolonged stay of the winding-up. Ultimately the question is whether the evidence is such that it is right to stay the winding-up proceedings. In my judgment, the Applicant has not discharged the burden of satisfying the Court that the winding-up order, made as long ago as February 1996, should be stayed. Accordingly, the application is dismissed.

11. At the last hearing, the question of costs was stood over. So far as the costs of and incidental to this application are concerned, including costs incurred at the last hearing, they must be borne by the Applicant.

12. Leading counsel sought a stay of my order pending appeal which was refused. The English practice is that a stay is never granted in such cases : see Re A & BC Chewing Gum Ltd. [1975] 1 WLR 579 at 592. The Court of Appeal has held that the English practice should be followed : see Bank Negara Indonesia 1946 v. Interarian Traders Finance Ltd. [1980] HKLR 622; Re Cirtex Co. Ltd.[1987] 3 HKC 21.

Addendum

13. On 21 May 1997, after I had completed writing the above Reasons, I received a letter dated 19 May 1997 from Mr John Ku of Messrs John Ho & Tsui. Although this letter has not been taken into account in my Reasons, it raises matters which may have serious consequences for the Applicant. In those circumstances, I thought it only right that the parties, particularly the Applicant, be accorded an opportunity to make submissions. Accordingly, the parties were supplied with a copy of the letter and were invited, as a matter of urgency, to attend my chambers on 22 May 1997 to make submissions.

14. At the hearing, leading counsel for the Applicant declined to make any submissions. His stance was that the court is now "functus".

15. Having regard to the seriousness of the matters contained in the letter which raise issues of perjury and contempt of court, they will be referred to the Attorney General for further action.