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HCCW 242/2007
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
COMPANIES (WINDING-UP) NO. 242 OF 2007
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IN THE MATTER of ASIA TELEMEDIA LIMITED |
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(previously known as Mansion House Group Limited) |
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and |
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IN THE MATTER of the Companies Ordinance, Cap. 32 |
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Before: Hon. Barma J. in Court
Date of Hearing: 21 February 2008
Date of Judgment: 18 March 2008
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J U D G M E N T
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1. This was the trial of a creditor’s winding up petition presented on 5 June 2007 by Goodpine Limited (“the Petitioner”) against Asia Telemedia Limited (“the Company”). The basis of the petition was a debt of HK$70,682,649, in respect of which a statutory demand, which was not complied with, had been served on 26 April 2007.
2. The debt on which the petition was based was acquired by the Petitioner by assignment from a Madam Liu Lien Lien (“Madam Liu”) on 1 February 2007, notice of which was given to the Company on 5 February 2007.
3. The Company resists the making of a winding up order against it. It disputes the debt relied on by the Petitioner.
4. There were a number of other applications which were made at the hearing. These were:-
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(1) |
An application by the Petitioner seeking to set aside a writ of subpoena that had been issued by the Company against the Securities and Futures Commission (“the SFC”), seeking the production by the SFC of a substantial quantity of documents relating to an SFC investigation into the conduct of a former director of the Company, Ms Irene So (“Ms So”). This application was heard and dealt with at the beginning of the hearing, and I granted the application and set aside the subpoena for the reasons which I gave in the ruling which I delivered during the hearing. |
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(2) |
An application by the Company seeking to adduce further evidence in opposition to the petition, in the form of an affirmation from an employee of the firm of solicitors instructed by it, exhibiting a note of a meeting which he had had with a Ms Shirley Tam, a former employee in the accounts department of the Company. This application was made in the course of the hearing, after Mr Shieh S.C., who represented the Petitioner, had concluded his submissions in support of the petition. I dismissed the application and refused leave to adduce this further evidence for the reasons which I gave in my ruling on the application which was also delivered during the hearing. |
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(3) |
An application by the Company seeking to strike out parts of the affirmations and exhibits filed on behalf of the Petitioner, on the grounds that they referred to and exhibited without prejudice correspondence, which should not be received in evidence. I permitted the evidence and documents in question to be referred to de bene esse at the hearing, and will deal with this application later in this judgment. |
5. The Company was incorporated under the Companies Ordinance (Cap. 32) on 4 August 1982. It has been listed on the Hong Kong Stock Exchange since 17 July 1987. It was formerly known as Mansion House Group Limited. It was part of a group of companies (“the MH Group”) which were, at the times material to the events underlying the Petitioner’s claim, involved in securities trading, futures trading, bullion trading, underwriting, fund management, margin financing for the purchase of shares and property development. Among its subsidiaries were Mansion House Securities Limited (“MHS”) and Mansion House Capital Limited (“MHC”). Both of these subsidiaries were engaged in securities trading, and MHC also held a money-lender’s licence. Until about 2002, its main shareholder was a Mr Evans Lowe (“Mr Lowe”). As I mentioned in paragraph 4(1) above, one of its directors was Ms So, who was head of its equities broking operations and a dealing director of MHS.
6. Madam Liu was a client of MHS and MHC from about 1996 onwards. Her accounts with them were handled for the most part by Ms So, who was the person within the Mansion House Group who had most contact and dealings with her.
7. The Petitioner’s position is that between about 1998 and 2001, Madam Liu placed substantial amounts of money with the Company, apparently under the belief (induced by Ms So) that the Company would be placing the sums paid by her on deposit with a financial institution at very favourable rates of interest. In fact, the money was not placed with any financial institution, but was used by the Company for its own purposes, and was not repaid to Madam Liu, resulting in a liability on the Company’s part to repay Madam Liu somewhat in excess of HK$40 million. In addition to this amount, Madam Liu lent to the Company a quantity of shares in Jardine Matheson Holdings Ltd and Mandarin Oriental International Ltd pursuant to a written share loan agreement dated 14 March 2001. The loan may have been renewed for a further period of six months from 21 September 2001 (there is an unsigned written renewal agreement of this date), but whether or not it was, the Company failed to return any of the borrowed shares to Madam Liu, having pledged them to its bankers who sold them in order to reduce the Company’s indebtedness to them. The value of the shares that Madam Liu lost because of this was just under HK$43 million.
8. The Petitioner says that following negotiations between Madam Liu and the Company, the Company entered into a settlement agreement (“the 1st Settlement Agreement”) with Madam Liu on 29 July 2002, under which the Company agreed to pay Madam Liu a total of HK$83,388,308.61 to settle its liabilities to her in respect of her money and shares which it had made use of and had not returned to her.
9. Following the Company’s failure to honour the terms of the 1st Settlement Agreement, Madam Liu served a statutory demand on the Company on 11 October 2002. However, this was not pursued. Instead, after negotiations, a further settlement agreement was entered into on 18 December 2002 (“the 2nd Settlement Agreement”).
10. Thereafter, there were further defaults by the Company, resulting in yet further settlement agreements being entered into between the Company and Madam Liu on 16 October 2003 (“the 3rd Settlement Agreement”) and 27 April 2004 (“the 4th Settlement Agreement”).
11. Each of the four Settlement Agreements was drafted by solicitors, signed by Ms So in her capacity as a director of the Company, and authorised by a board resolution of the Company.
12. The petition in the present proceedings is based on the 4th Settlement Agreement.
13. The 4th Settlement Agreement expressly acknowledged and admitted a liability on the part of the Company to Madam Liu in the amount of HK$58,583,992.133, with interest at the rate of 7% per annum (see Recital (1) and Clause 1 of the 4th Settlement Agreement). It provided for repayment by the Company in three instalments, only the first of which (for HK$500,000) was paid, leaving some HK$58 million outstanding.
14. Madam Liu caused a further statutory demand to be served on the Company on 30 April 2005 following its default in honouring the terms of the 4th Settlement Agreement. However, once again, no further steps were taken in relation to the statutory demand.
15. Thereafter, on 1 February 2007, Madam Liu assigned the debt due to her from the Company under the 4th Settlement Agreement to the Petitioner.
16. It was common ground that in order for the Company to resist a winding up order, on the basis that it disputed the debt, it would be necessary for it to satisfy the court, by sufficiently precise factual evidence, of the existence of a bona fide dispute of substance in relation to the debt (see Re ICS Computer Distribution Ltd [1996] 3 HKC 440 at 444B-C, per Rogers J (as he then was)).
17. In this case, it is necessary to bear in mind that the debt relied upon is not the original liability of the Company to Madam Liu in respect of the monies and shares belonging to her which may have been misapplied by it. Rather, the debt is the debt arising out of the 4th Settlement Agreement. This was, as I have noted, the last in a series of settlement agreements dealing with the claims of Madam Liu against the Company, by which the Company acknowledged that it was indebted to Madam Liu and agreed a repayment schedule (which was revised and rescheduled in the successive settlement agreements) in respect of its indebtedness to her.
18. Thus, it is important to note that any dispute that the Company might be able to establish as regards the underlying debts or obligations that were compromised, or payment of which were rescheduled, by the settlement agreements would be nothing to the point. The Petitioner does not rely on such underlying or original debts or obligations of the Company to Madam Liu. In order to establish a bona fide dispute in respect of the debt on which the petition is based, the Company must, in my view, establish, by adducing evidence that possesses the necessary degree of precision, a basis for attacking the 4th Settlement Agreement itself. It would have to show that the 4th Settlement Agreement was not binding on it, and should be set aside, leaving it open to the Company to dispute the debts or obligations which it purported to settle. In order to do so, it seems to me that the Company would have to establish that the settlement agreement was itself vitiated in some way, either by fraud on the part of Madam Liu, or because it was entered into in bad faith by Madam Liu. Either of these grounds would seem to require evidence that the underlying debts were, to the knowledge of Madam Liu, non-existent or without foundation for some other reason.
19. With this in mind, I turn first to consider the evidence that has been adduced by the Company, for it is from this evidence that the Company must establish the existence of the bona fide and substantial dispute that it needs to demonstrate if it is to resist the petition against it.
20. The Company’s evidence consisted of two principal affirmations. These were an affirmation of its Chairman and Chief Executive Officer, Mr Lu Rui Feng (“Mr Lu”), and the first affirmation of Mr Chow Pok Man (“Mr Chow”), its Chief Operating Officer. Mr Chow also made two further affirmations, one in support of the Company’s application to strike out parts of the Petitioner’s affirmations and exhibits, to which I have referred in paragraph 4(3) above, and one explaining the reasons why the Company had caused the subpoena against the SFC to be issued. The latter affirmation contains one or two statements which are also relevant to the issues arising on the petition, which I shall deal with below.
21. Mr Lu’s affirmation deals principally with his involvement in the affairs of the Company, while Mr Chow’s first affirmation is, I think, the main source setting out the Company’s case as to the basis on which it disputes the debt on which the petition is based. Mr Lu agrees with, and effectively adopts, what is said by Mr Chow, and confirms the accuracy of what Mr Chow says in relation to his (Mr Lu’s) acts.
22. Mr Lu’s evidence can be summarised as follows:-
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(1) |
He is a Mainland Chinese businessman, whose main focus is on internet infrastructure. |
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(2) |
In about 2002, he wanted to take over a listed company in Hong Kong in order to venture into the Hong Kong market. |
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(3) |
He was introduced to Mr Lowe by a Mr Arthur Lai (“Mr Lai”), and, with the assistance of Mr Lai, in whom he reposed considerable trust and confidence, entered into an agreement to subscribe for shares in the Company. In doing this, he did not have the benefit of legal advice or representation, having accepted Mr Lai’s assurances that this was unnecessary. |
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(4) |
As most of his and his own company’s business interests were based on the Mainland, he did not spend much time in Hong Kong, and left the operation of the Company, MHS and MHC in the hands of the incumbent directors, who included Ms So, as he had confidence in them. |
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(5) |
A disclosure letter given in connection with the subscription for shares in the Company did not fully disclose Madam Liu’s claim. It first came to his attention in May 2002, shortly before the subscription was to be completed (this being about two months before the 1st Settlement Agreement was entered into). When he asked them about it, Mr Lowe and Ms So told him that they would deal with it. Mr Lu must have accepted these assurances, as the subscription agreement proceeded to completion shortly after the 1st Settlement Agreement was entered into. |
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(6) |
Following completion, although he was briefed on the MH Group’s business from time to time by Ms So and other directors, he was never given the full picture in relation to Madam Liu’s claim, in that he was not apprised of the matters which Mr Chow discovered and to which he deposes. Although he tried to arrange to meet Madam Liu to learn more about her claim, he did not succeed in doing so, and thus had to rely on Ms So and the other directors to deal with her claim. He was told that the claim had to be paid, but that they should be able to negotiate terms of settlement with Madam Liu, and he left them to do so. He did not see any problem with leaving Ms So to deal with the claim, as he thought she was most familiar with it. |
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(7) |
He focussed on his China business and projects, some or all of which he was planning to inject into the Company. He was told by Mr Lai that once this was done, Madam Liu’s claims would fade into insignificance. |
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(8) |
He was not informed of the various questionable features of the claims which have now been identified by Mr Chow, and was unaware of them when the various settlement agreements were made. |
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(9) |
He became concerned upon learning of the petition, and approached Mr Chow for assistance. Mr Chow was then appointed to investigate the claim, and it was only following his investigation that wrongdoings by Ms So were discovered. |
23. Mr Lu concluded his evidence by saying that the Company had reported the matter to “the relevant authorities” and asked for time for the Company to put in further evidence once consent to disclose details of the investigations by such authorities was forthcoming. However, although Mr Lu’s affirmation was made on 6 October 2007, no further evidence had been forthcoming by the time of this hearing, more than four months later.
24. Mr Chow’s first affirmation was also made on 6 October 2007. He says that he was appointed to be the Company’s Chief Operating Officer on 14 June 2007. At the hearing, Mr Aiken S.C., appearing for the Company, confirmed that he had not previously been employed by the Company. Thus, Mr Chow had no personal knowledge of the matters to which he deposes, and was reliant upon documents of the Company which he had reviewed, which he described in paragraph 4 of his affirmation. He deals with Madam Liu’s claims from paragraph 13 of his affirmation onwards. His evidence was as follows:-
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(1) |
Madam Liu had first become a customer of MHS and MHC in 1996. Ms So was the person in the MH Group who handled her account and had contact with her. |
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(2) |
He then describes the settlement agreements, and identifies the two claims by Madam Liu which they dealt with. |
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(3) |
In relation to the claim in respect of the debt of about HK$40 million, he says that he has caused a search to be made for any documents that might throw some light on this claim. |
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(4) |
Between 1998 and 2001, it appeared that Madam Liu had been asked to advance “loans” to MHC and later the Company. Documents described as loan confirmations were located, although their authenticity was not admitted. Although these loan confirmations appeared to show total advances of over HK$58 million, Mr Chow discovered that there had only been four advances, totalling HK$20 million odd, from Madam Liu to the Company. No other advances were identified in all the “available” accounting documents and bank statements of the Company. Moreover, the Company had repaid a total of HK$33 million odd to Madam Liu, so there should not have been any balance in Madam Liu’s favour, and thus nothing to assign to the Petitioner. |
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(5) |
The loan confirmations were procured by Ms So, most likely for her own benefit and not that of the Company, as Mr Chow’s investigations had revealed that Ms So and members of her family had sustained very substantial losses in securities trading on margin through three British Virgin Islands companies controlled by Ms So. This trading had been financed by advances from the Company, and because of the losses, the advances remained outstanding. Mr Chow suggests that the loan confirmations were procured by Ms So to “balance the accounts” and to generate paper entries to “make the accounts of the MH Group look good” by levelling off MHC’s margin ratios and avoid enforcement action by the SFC. |
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(6) |
Mr Chow goes on to say that Ms So’s conduct was in breach of her fiduciary duties to the Company, that any borrowings constituted by the loan confirmations were not for the purposes of the Company, and that the Company rescinded these transactions (presumably by Mr Chow’s affirmation, as there is no other evidence of the repudiation by the Company of them). |
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(7) |
In relation to the share loan agreement, all that Mr Chow says is that nothing is known by the Company’s present management about it, that no admissions are made as to it, and that it is unclear why this agreement was entered into, and how it could have benefited the Company. He asserts that the entry into the share loan agreement was a breach of duty by the directors of the Company. |
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(8) |
Mr Chow then deals briefly with the settlement agreements, reiterating Mr Lu’s evidence that the disclosure letter provided in connection with the subscription agreement did not properly disclose Madam Liu’s claims, and repeating Mr Lu’s evidence that he left matters to Ms So to deal with, and that the settlement agreements were entered into without knowledge on Mr Lu’s part of the matters which Mr Chow’s investigations had unearthed. He stressed that some of the more important documents which he had considered, such as the loan confirmations and share loan agreement were only discovered in the course of his investigations and so would not have been known to Mr Lu. |
25. Finally, Mr Chow also referred to matters having been referred to the relevant authorities for investigation, and indicating that further evidence on the status of this investigation would be made available later if possible.
26. On this basis, Mr Chow contended that there were no genuine obligations to be compromised by the settlement agreements, and thus no debt capable of assignment to the Petitioner.
27. In Mr Chow’s third affirmation, he refers to notes of an interview of Madam Liu by the SFC, which were exhibited by the Petitioner, and draws attention to two statements by Madam Liu:-
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(1) |
A statement that Ms So told her that “her money would be placed to another bank so that the money can earn more interest and not a loan to [the Company]”; and |
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(2) |
A statement that the shares were on loan to Ms So herself to help her out when there was no legitimate reason why the Company or MHS should need to borrow the shares. |
28. Mr Shieh submitted that none of this amounted to the sufficiently precise evidence that was needed to establish the existence of a bona fide dispute of substance by the Company.
29. I agree. As I have already observed, it is necessary to bear in mind that, as the Petitioner is relying not on the underlying claims of Madam Liu, but on the debt arising under the 4th Settlement Agreement, the Company needs to demonstrate the existence of some basis for impeaching that agreement. To do so, it needs, I think, to demonstrate at least that Madam Liu was aware that she had no good claim against the Company when she made the settlement agreements with it. The evidence that the Company has put forward falls well short of doing this.
30. There are a number of difficulties with the case, so far as it is possible to discern it, being put forward by the Company.
31. First, there is no real reference in the Company’s evidence to Madam Liu’s state of knowledge in relation to the claims which she had made against the Company. Although Mr Chow suggests that Ms So’s actions were not in the Company’s best interests, and constituted breaches of the fiduciary duties which she, as a director, undoubtedly owed to the Company, there is nothing to suggest that Madam Liu was aware of any such breaches of duty on Ms So’s part in causing the Company to obtain money from her, or to borrow the shares which were the subject of the share loan agreement from her. Given the necessity to establish knowledge on Madam Liu’s part that the claims that she was making were without foundation, the Company’s evidence as to this does not come near doing so.
32. The only part of the Company’s evidence that begins to suggest that Madam Liu may have been aware that the claims which she was making were not good ones, is on the basis of the two statements extracted from the notes of her interview with the SFC that are set out in Mr Chow’s third affirmation.
33. But as to these, it is necessary to look at what she is actually recorded as having said against the background of the nature of the SFC investigation.
34. The SFC investigation was an investigation into the conduct of Ms So as the dealing director of MHS and an executive director of the MH Group. The matters being looked into related to the circumstances in which she had caused funds to be obtained from clients of MHS to fund the activities of the Company without making it clear to them that MHS and the Company were facing financial and regulatory difficulties. A press release by the SFC dated 1 March 2005 makes it clear that Madam Liu’s claims were a part of this investigation.
35. In paragraph 10 of his third affirmation, Mr Chow described Madam Liu’s statement to the SFC as having said, in relation to the part of her claim dealing with the money advances, that that Ms So told her that “her money would be placed to another bank so that the money can earn more interest and not a loan to [the Company]”. If this was intended to suggest that Madam Liu was aware that she had not made a loan to the Company, a closer look at the notes of Madam Liu’s interview with the SFC shows that such a suggestion was not justified. What was actually said was as follows:-
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“[Q4] |
Please tell us under what circumstances you “lent money” to [the Company”] |
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[A4] |
About 3 years ago, Irene So once told me that I could put money in another bank to earn a higher sum of interest. To my understanding, it meant So would save those money on my behalf but not ‘lending money’ to [the Company] |
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[Q5] |
Did she tell you into which company or bank they would put your money? |
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[A5] |
Not at all. |
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[Q6] |
If So did not mention where she put your money, did you receive any documents from her from which you knew where she had saved your money? |
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[A6] |
I have once received a pile of documents called “Confirmation Loan” issued by [the Company]. I did sign a portion of the documents and sent them back to So. However, I could not recall when I signed the last confirmation loan sheet. But [the Company] should have the relevant record.” |
36. Far from indicating that Madam Liu was accepting that she had not made any loans to the Company, all that those answers can properly be understood as saying is that she was led to believe that the money which she was providing was not to be used as a loan to the Company, but was to be deposited by it on her behalf, so as to obtain a better interest rate. They show only that she did not regard herself as having made a loan to the Company that it was free to use for its own purposes, and not that she accepted that she had not placed any money with the Company. There is nothing in her answers to suggest that what she had provided was not to be repaid. I therefore do not think that this material assists the Company. It certainly does not demonstrate any awareness or acceptance by Madam Liu that she had no valid claim against the Company for the sums which she had provided to it.
37. So far as the share loan agreement is concerned, the suggestion based on Mr Chow’s third affirmation was that the loan was a matter that was personal to Madam Liu and Ms So, and therefore, to Madam Liu’s knowledge, not a matter for which the Company should be liable. However, this too, is based on a misreading of Madam Liu’s statement to the SFC, where she dealt with this matter in the following way:-
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“[Q7] |
Now I show you a loan document “LIU-2”. Please describe under what circumstances you signed this document. |
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[A7] |
Before 14th March, 2001, I lent two groups of blue chips shares to So. She told be [the Company] was in need and wanted to borrow the shares for 6 months. She sent me this document by fax after our telephone conversation and I signed it. |
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;… |
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[Q11] |
Why didn’t you [consult any third party before signing the document]? |
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[A11] |
I lent her shares mainly because I wanted to help her and it was only for 6 months. That is reason why I did not consult any third party for advice.” |
38. This does not establish that Madam Liu knew that the loan of shares was not to the Company, or not for its benefit. Although Mr Chow referred in his third affirmation to the second of the answers which I have set out above, which might in isolation appear to support the Company’s contentions, the first of the answers, which introduced the whole discussion of this subject, makes it clear that Ms So was seeking to borrow the shares, not for herself, but for the Company, and that she told Madam Liu that the Company was in need of assistance, and wanted to borrow the shares from her.
39. Thus, I am satisfied that the Company’s evidence does not contain any sufficient material to demonstrate that Madam Liu was aware that the claims which were apparently compromised by the various settlement agreements were unfounded, so as to provide it with the beginnings of a basis for impeaching the settlement agreements.
40. Further, I have to say that the Company’s evidence provides little in the way of a concrete basis for suggesting that the underlying debts were without basis.
41. So far as the advances of money are concerned, it is far from clear whether the records of the Company which Mr Chow says he has reviewed constitute a full record of all receipts and payments by the Company over the relevant period. I am therefore not satisfied that there is sufficiently clear or precise evidence to show that there was in fact no outstanding loan owing to Madam Liu.
42. At the hearing, Mr Aiken suggested that it was possible that money had been lent to MHS or MHC rather than the Company. However, this does not assist in the absence of some basis for suggesting that Madam Liu was aware, when entering into the settlement agreements with the Company, that she was dealing with the wrong company, and that she had in fact no claim against the Company that it should be settling. No such basis has, however, been demonstrated.
43. But even if this were the case, it would appear unquestionable that the share loan was in fact made, and that the shares lent were lost to Madam Liu, resulting in the Company coming under an obligation to recompense her for such loss. Nothing in Mr Chow’s evidence suggests that this did not occur. All that he says is that the arrangement was not for the Company’s benefit. But this is not good enough unless Madam Liu was aware that this was so, and there is nothing (apart from the matters mentioned in Mr Chow’s third affirmation, which, as I have shown, do not fairly state the position) to suggest that this was the case.
44. Thus, even if the Company were in a position to impeach the settlement agreements, and even if it were able to demonstrate the absence of liability in relation to the money advances (neither of which is, in my view, the case), it would still remain under a substantial liability in relation to the share loan, to which it would appear to have no defence.
45. Further, I should add that I do not consider that Mr Lu’s professed ignorance of the matters which are now raised provides any basis for the Company to dispute the debt on which the petition is based. First, these take the Company no further in relation to the key point that it has to establish, namely that Madam Liu knew her claims were unfounded. But more importantly, I do not see that the professed ignorance of a single director of the Company (even if he were its Chairman and Chief Executive Officer) could mean that it were free to disregard obligations which it had entered into pursuant to apparently proper board resolutions – all the settlement agreements having been the subject of such resolutions.
46. Thus, I do not consider that the Company’s evidence demonstrates the existence of a bona fide dispute of substance in relation to the debt on which the petition is based.
47. However, the position of the Petitioner is in fact much stronger. As Mr Shieh demonstrated, there is in fact ample evidence to show that the Company has repeatedly recognised Madam Liu’s claims against it under the settlement agreements. This includes the following:-
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(1) |
The settlement agreements themselves, which were executed on behalf of the Company pursuant to apparently regular board resolutions, themselves contain admissions of indebtedness on the part of the Company to Madam Liu. |
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(2) |
The Company’s Annual Reports and audited financial statements for the period between 2001 and 2006 clearly record the original debt, and later the debt as constituted by the various settlement agreements. The recording of the original debt in the 2001 accounts would appear to suggest that the Company’s auditors were satisfied of its existence. |
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(3) |
There are numerous audit confirmations which were sent by the Company to Liu seeking her confirmation of the amounts owed to her. These extend up until 16 April 2007, just two months prior to the presentation of the petition. |
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(4) |
The many “loan confirmations” sent by the Company to Madam Liu also support the Petitioner’s case. |
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(5) |
A number of public announcements by the Company over the years lend considerable support to the Petitioner’s case. For example:- |
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(a) |
Following the service of the first statutory demand on 11 October 2002, the Company made an announcement of this fact, stated that it had set up a committee to verify that the amount claimed was due by it to Madam Liu, and indicated that the “new” board of the Company (this being after the subscription agreement had been completed) would, if satisfied that the debt was due, take steps to raise capital to deal with it, but would resist the claim if it were felt to be unfounded. In the event, the Company did not resist the claims at all, but entered into the 2nd Settlement Agreement. |
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(b) |
A further announcement was made on 16 October 2003 in relation to the conclusion of the 3rd Settlement Agreement. This announcement admitted the Company’s liability to Madam Liu. |
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(6) |
The announcement by the SFC of 1 March 2005 also suggests that there was no dispute that the debts in question were due from the Company to Madam Liu. |
48. The Petitioner also sought to rely on various correspondence leading up to the settlement agreements. As I have noted, the admission of such correspondence in evidence was resisted by the Company, on the grounds that it was either marked “without prejudice” or was of a without prejudice nature.
49. It is perhaps not strictly necessary to deal with this point, in the light of my conclusion that the Company has not, on its own evidence, established the existence of a bona fide dispute of substance in relation to the debt on which the petition is based, a conclusion which is, I think, confirmed by the matters referred to in paragraph 47 above. However, as I have noted more than once, the nature of the case that the Company has to make out in order to challenge the petition debt is that it is in a position to impeach the settlement agreements. It is clear that the Company can rely on without prejudice material to impeach a settlement which has been entered into (see Unilever v Procter & Gamble [2001] 1 All ER 783). It follows, I think, that the Petitioner must similarly be in a position to rely on such material to defend the settlement that it relies upon, and I would therefore regard such material as admissible for the purpose of showing, not that the claims which were settled were good ones, or that the Company had in the course of negotiations made admissions or concessions, but to show that the claims were genuinely asserted, and were not bogus, and that there was nothing to suggest that Madam Liu thought otherwise. I would therefore dismiss the Company’s summons to strike out the parts of the Petitioner’s evidence of which it complains.
50. This material contains ample evidence to demonstrate that the claims were put forward as serious claims, and nothing to suggest that they were known to be clearly bad. They therefore reinforce the conclusions that I have already reached.
51. Moreover, so far as Mr Lu’s professed ignorance of the situation regarding Madam Liu’s claims which resulted in the settlement agreements being entered into is concerned, the following matters cast considerable doubt as to this:-
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(1) |
As Chairman of the Company, he signed the Chairman’s statement in every annual report of the Company from 2002 onwards, and must be taken to have been aware of its contents, including the audited accounts which made reference to the debt due under whichever of the settlement agreements was current at the time. |
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(2) |
Ms So ceased to be a director of the Company from about 2004. However, Mr Lu continued to sign off on annual reports and financial statements thereafter, when he could no longer have been under any misapprehension arising from what he was being told by Ms So. |
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(3) |
As Chairman of the Company, it would be very surprising if he were not aware of the public announcements that it had made, in which it effectively acknowledged its liability to Madam Liu. |
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(4) |
Similarly, he must have been aware of the outcome of the SFC investigation, in which reference was also made to Madam Liu’s claims. |
52. The correspondence leading up to the settlement agreements also call his assertion of ignorance of the circumstances giving rise to the claims by Madam Liu into question, as exemplified by the following matters:-
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(1) |
The company through which he was to subscribe for shares in the Company was required by the SFC to demonstrate how it could repay the Company’s indebtedness to Madam Liu. This was a significant matter impacting on his proposed investment, and suggests that the existence of Madam Liu’s claims must have been known to him at that stage. |
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(2) |
He wrote to Madam Liu personally in July 2003, acknowledging that she was the Company’s largest creditor, thus implicitly affirming the settlement agreement then in being. |
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(3) |
In letters in April 2004 from the Company’s solicitors to Madam Liu’s solicitors (just days before the 4th Settlement Agreement was concluded) a personal guarantee from Mr Lu was offered to Madam Liu. This cannot have been done without his knowledge and agreement. |
53. However, although he has had the opportunity to do so, Mr Lu has not sought to deal with any of these matters in the course of these proceedings. I therefore consider that his protestations of ignorance must be viewed with scepticism, and cannot be taken at face value. In any event, as I have pointed out, Mr Lu’s personal position so far as his knowledge, or lack of it, is concerned does not assist the Company materially where it has repeatedly acknowledged its indebtedness to Madam Liu, both in relation to the underlying claims, and in relation to the various settlement agreements.
54. Finally, I should deal with the suggestion that has been advanced in the Company’s evidence, and in submissions made on its behalf, that it should be afforded time to further investigate these matters. There is no basis for such an indulgence to be granted to the Company. It has had some eight months since the presentation of the petition in which to come up with evidence to demonstrate the existence of a bona fide and substantial dispute in relation to the debt, and has failed to do so. It would not, I think, be a proper exercise of discretion to give it yet further time to seek to do so.
55. Further, it is, to my mind, extraordinary that it should have been suggested by Mr Lu that it was only on receipt of the petition that he became concerned about Madam Liu’s claims. The claims were advanced many years ago. A statutory demand was served in 2002, and again in 2005 by Madam Liu, and a further statutory demand was served, as a precursor to the petition in April 2007. There is, quite simply, no excuse for the failure to treat the claims with the seriousness that they deserved, having regard to the consequences that might otherwise befall the Company. This reinforces my view that it would not be proper to grant any further time to the Company to investigate further, in the hope that something might turn up.
56. For all of the foregoing reasons, I am satisfied that there is no basis on which the Company can resist the petition, and shall therefore make the usual winding-up order with costs against the Company, such costs to include any previously reserved costs and the costs of the Company’s application to strike out parts of the Petitioner’s evidence.
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(Aarif Barma)
Judge of the Court of First Instance
High Court |
Mr Paul Shieh, SC leading Mr Jin Pao, instructed by Messrs Woo, Kwan, Lee & Lo, for the Petitioner
Mr Nigel Aiken, SC leading Mr Anthony Chan, instructed by Messrs Johnny K.K. Leung & Co, for the Company
Mr William Wong, for the Securities and Futures Commission
Attendance excused for the Official Receiver
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