Re LUEN YICK WATER & DRAINAGE WORKS LTD.

HCCW 209/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 209 OF 2002

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REASONS  FOR  JUDGMENT

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1. This is a petition to wind up Luen Yik Water & Drainage Works Limited ("the Company") presented by Bun Kee (International) Limited on 22 February 2002. The petition was based on the outstanding amount of a judgment debt obtained by the petitioner against the Company in HCA No. 3072 of 2001. The judgment was given by a Master on the petitioner's application for summary judgment against the Company and 3 others who had provided guarantees to the petitioner in respect of the Company's indebtedness. There was no appeal by the Company from the judgment of the Master. The 3 defendants who had provided guarantees lodged an appeal against the Master's judgment and the appeal was allowed by Jackson J. on 11 January 2002 on the ground that there are triable issues regarding the meaning, terms and effect of the guarantees signed by them.

2. I should mention that the judgment against the Company granted by the Master was based on 5 dishonoured cheques issued by the Company to the petitioner for goods sold and delivered. The total amount of the judgment debt, with interest calculated up to 23 January 2002, is in the sum of HK$787,432.08. There being no appeal from the judgment and no dispute of the judgment debt, the only ground raised by the Company in opposing the petition is that it has a genuine cross-claim in damages against the petitioner for defective goods and late delivery in the sum of HK$3 million.

3. The burden is on the Company to adduce sufficiently precise factual evidence that it has a genuine cross-claim in an amount not less than the petitioning debt. Having considered the evidence adduced on behalf of the Company by Mr Wong Sik Fai (he is a director of the Company and one of the defendants in HCA No. 3072 of 2001), I am of the view that the Company has failed to discharge that burden. I say this for the following reasons.

4. Firstly, the allegation of defective goods and late delivery was raised by the Company in its evidence filed to oppose the summary judgment sought by the petitioner. Mr Wong made two affirmations in the High Court Action in August 2001 and October 2001. All that he was able to say in his affirmations was that "part of the goods" to which the dishonoured cheques related was defective and/or delivered late and he produced a letter of complaint from the principal contractor of the project, Hyundai Engineering & Construction Co. Ltd ("Hyundai") dated 11 October 2000 in support of this. I shall deal with the letter of Hyundai later. Mr Wong also said that the Company would have a good claim for damages against the petitioner for defective goods and/or late delivery, which the Company would be entitled to set off against any judgment for the price of the goods concerned. No indication was given in Mr Wong's affirmations in the High Court Action of the probable amount of this claim for damages against the petitioner. Indeed, it would appear from the tenor of his affirmations that no such claim for damages had ever been raised by the Company against the petitioner until the affirmations in opposition were filed. Mr Wong further stated that he was informed by one Ms Cheng Lai Hing, who was the 4th defendant in the High Court Action, that she had made complaints on behalf of the Company to the petitioner on several occasions regarding the goods. Again, no particulars were given by Mr Wong in his affirmation precisely what those complaints were, when they were made, to whom they were made and any alleged response of the petitioner.

5. Secondly, the only documentary evidence adduced by the Company in support of its allegation of defective goods and late delivery, being the letter from Hyundai, is no support at all for the allegation. The letter merely complained about slow progress of installation works due to the shortage of materials delivered to the site for a considerable time. I do not know what reply, if any, was made by the Company to Hyundai's letter. If it were the Company's position that the progress of work was delayed due to defective goods and late delivery of goods supplied by the petitioner, one would have expected the Company to say so in its letter in reply to Hyundai. The Company has not put forward any letter in response to Hyundai's letter whether in the High Court Action or in these winding-up proceedings.

6. Thirdly, on the basis of the above evidence, Jackson J. in his judgment took the view that the allegations of late delivery and/or defective goods are "moonshine", in the sense that they are "inventive, speculative and very lately introduced into proceedings, and they bear the hallmarks of no more than a contrived method of debt avoidance". I respectfully agree.

7. Fourthly, in these proceedings, Mr Wong has filed an affirmation to oppose the petition on behalf of the Company and he dealt with the allegations of late delivery and defective goods in merely one sentence, stating that late delivery and defective goods have caused the Company loss and damage in the region of HK$3 million. No details are provided in his affirmation as to how the claim of HK$3 million, which is quantified for the first time, is arrived at. Mr Wong went on to say that it is intended by the Company to instruct solicitors to draft a claim against the petitioner for damages. However, no particulars are given as to what precisely are the goods with defective quality, what are the defects alleged, what are the goods which were not delivered on time, and what was the delay in delivery for the goods in question.

8. It is obvious that the evidence adduced by Mr Wong on behalf of the Company is wholly inadequate to support the allegation that the Company would have a valid and genuine cross-claim against the petitioner, let alone a cross-claim in the region of HK$3 million. At the hearing of the petition, Mr Bernard Man, who appeared for the Company, sought a further adjournment for the Company to file further evidence to answer the court's concern on the lack of particulars regarding the alleged cross-claim. Accordingly to counsel, the Company has to wait for Hyundai to supply further and better particulars of its Defence and Counterclaim in another High Court Action commenced by the Company against Hyundai, before the Company could give details as to the defective goods and late delivery. I do not accept this. I have read the Statement of Claim in that High Court Action being HCA No. 3544 of 2001 brought by the Company against Hyundai for damages for alleged wrongful termination of a construction contract. I have also considered the Defence and Counterclaim filed by Hyundai denying wrongful termination and alleging that it was entitled to terminate the Company's sub-contract due to, inter alia, late delivery and/or shortage of materials and equipment, and materials and equipment not in compliance with the sub-contract. Hyundai's Defence and Counterclaim was filed in September 2001 and it gave particulars of the correspondence exchanged between Hyundai and the Company on those matters in 2000. It seems to me that the Company should have documents in its possession relating to the matters alleged by Hyundai, assuming that these allegations of Hyundai would have formed the basis of the Company's allegations against the petitioner of defective goods and late delivery. Besides, the loss and damage allegedly suffered by the Company in the sum of HK$3 million is the Company's own loss. I cannot see why the Company was unable to give details on the quantification of its own loss until Hyundai has supplied further and better particulars in other proceedings.

9. I therefore reject the reasons given by the Company as to why it was unable to give sufficiently precise details and evidence of the alleged cross-claim before the hearing of this petition. I have ascertained from Mr Man what further documentary evidence, if any, would be produced if the Company should be given an opportunity to file further evidence. Mr Man informed me that the only document that the Company would be able to produce is the sub-contract between the Company and Hyundai. Apart from that and Hyundai's letter of complaint that I referred to earlier, the Company would have no documentary evidence in support of its claim for damages of HK$3 million. Mr Man is unable to give me precise details of the evidence sought to be adduced by the Company. Without any contemporaneous documents or records, I cannot see how the Company would be in a position to do that. I would regard it as inherently improbable that there would be no contemporaneous documents to substantiate a claim of this nature and amount if there were indeed a genuine and bona fide claim for defective goods and late delivery.

10. For the above reasons, it does not appear to me that any useful purpose would be served by giving a further opportunity to the Company to file evidence to substantiate the alleged cross-claim. I therefore refuse the Company's application for a further adjournment.

11. In Mr Wong's affirmation in opposition, he has also asserted that the Company is able to pay its debts in that it has filed a claim against Hyundai for HK$10 million (and Hyundai has counterclaimed for HK$18 million) and that the Company anticipated that it would receive payment from another contractor in the sum of HK$600,000.00 within 6 weeks. I do not think these matters are of relevance. If the Company does have a good case to recover its debts from others, these claims would be pursued by the liquidator in due course. As I am satisfied that the Company is unable to pay its debts, I have made a winding-up order against the Company and awarded costs to the petitioner, to be paid out of the Company's assets.