RE J & M EVA WORLD LTD

HCCW 830/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 830 OF 2002

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REASONS FOR JUDGMENT

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1. This is a petition to wind up J & M Eva World Limited ("the Company") on the ground that it is unable to pay its debts. The petitioner is a Mainland company known as Dongguan Hewang Rubber Plastic Manufacturing Company Limited ("the petitioner"; its name in Chinese is 東莞市合旺橡塑製品有限公司). The debt in the petition is in the sum of RMB155,611.57, being the amount outstanding on 2 invoices dated 22 August 2001 and 24 November 2001 for goods supplied to the Company.

2. On 19 June 2002, the petitioner served a demand for payment of the debt by leaving the same at the registered office of the Company. As no payment was made by the Company, the petition was presented on 30 July 2002.

3. On 23 August 2002, the Company issued a summons to strike out the petition under Order 18 Rule 19, on the ground that the petition was frivolous, or vexatious or an abuse of the process of the court. Two grounds were relied on by the Company. Firstly, when the demand for payment was served by the petitioner on 19 June 2002, the Company had changed its registered office. Secondly, it is denied that the Company is indebted to the petitioner as claimed because the Company "has no business or monetary transaction with the petitioner at all". The Company's application was dismissed by Recorder Kwok, SC on 7 November 2002. He held that the point relating to the change of the Company's registered office fails in fact and in law, there being no evidence of the giving of a notice under section 92(2) of the Companies Ordinance, Cap. 32 to the Registrar of Companies of the change of the registered office. As for the Company's contention that there was no business or monetary transaction with the petitioner, the Recorder referred to the evidence filed by the petitioner exhibiting contemporaneous documents evidencing the contractual relationship between the parties and observed that there was no affidavit evidence in reply filed by the Company, notwithstanding that it had more than two months before the hearing to put in evidence. On the evidence before him, the Recorder held that the dispute of the debt was neither bona fide nor substantial.

4. The petition came before me on 10 February 2003. I adjourned the petition to 10 March 2003 because the Company indicated that it would wish to file further evidence in opposition to establish that the debt was disputed on bona fide grounds. I also gave leave to the petitioner to file evidence in reply.

5. At the adjourned hearing, counsel for the Company, Mr Harold Ng, did not seek to rely on the point that the demand for payment was not served on the registered office of the Company. His main submission was that there is a bona fide dispute of the debt in that the seller of the goods in question was not the petitioner but a separate entity known as Dongguan Hexing Rubber Plastic Factory ("Hexing Rubber"; its name in Chinese is 東莞市合興橡膠製品廠). The petitioner's case is that Hexing Rubber is an "associated factory" of the petitioner and there ought to be no dispute that the petitioner was the seller of the goods in question.

6. I was taken by Mr Ng to the documents disclosed by the petitioner showing that it was the seller of the goods in question. They are as follows:

(1) three purchase orders no. 01-002, 01-003 and 01-004.

The three purchase orders were dated 11 July 2001 and 10 September 2001. They were on the purchase order forms of the Company showing that the Company was the buyer. All three purchase orders were addressed to Hexing Rubber. Mr Ng submitted that these documents clearly established that the seller of the goods in question was not the petitioner but Hexing Rubber.

(2) two commercial invoices no. JH-02 and JH-03.

The two invoices were dated 22 August 2001 and 24 November 2001. Both were on the invoice form bearing the name of the petitioner. Invoice no. JH-02 was for the goods covered by purchase orders no. 01-002 and 01-003. At the bottom of invoice no. JH-02, the following words appeared: "seller: Dongguan Hexing Rubber Plant". This was different from invoice no. JH-03, as the words at the bottom of the later invoice were follows: "seller: Dongguan Hewang Rubber Plastic Manufacturing Company Limited". Mr Ng could offer no or no satisfactory explanation as to why the invoice forms of the petitioner were used if the seller of the goods in question was indeed Hexing Rubber and that Hexing Rubber and the petitioner are two entirely separate entities. Further, it is not in contention that the invoices were received by the Company, and no objection was ever raised by the Company to these invoices when they were received.

(3) A statement of account.

This was dated 28 December 2001 bearing the name of the petitioner. It was issued to the Company. This statement showed that in respect of the two invoices no. JH-02 and JH-03, a part payment of JH-02 was made on 5 December 2001 in the amount of RMB70,254.67. Hence, the amount due and owing from the Company was RMB155,611.57, which is the debt in the petition. Again, it is not in contention that the statement of account was received by the Company, and that it had raised no objection to this when it was received from the petitioner.

(4) A letter dated 12 September 2001 from the Company in respect of delivery instructions.

The letter was addressed to "Hewang Factory", which, as conceded by Mr Ng, is a reference to the petitioner. The delivery instructions were in respect of the three purchase orders which covered the goods in question for which payment was not made. Mr Ng contended that this letter merely showed that the goods in question were to be manufactured by the petitioner and does not establish the relationship of buyer and seller between the petitioner and the Company.

(5) Product quality report of the Company.

This was in relation to one of the purchase orders being 01-002 with an inspection date of 19 September 2001. According to this document, which is the Company's own document, the manufacturer of the goods was the petitioner and the supplier was also the petitioner. Mr Ng made the same submission that this document merely showed that the petitioner was the manufacturer of the goods.

7. In my judgment, the above documents must be looked at in their totality. There is no justification for singling out the purchase orders. The commercial invoices, the statement of account, the Company's own documents being the letter dated 12 September 2001 and the product quality report, all demonstrated clearly in my view that the Company was in no doubt as to which party it was dealing with for the transactions in question. As I understand Mr Ng's submission, the Company is not disputing that Hexing Rubber is a factory associated with the petitioner. Indeed, if they are not associated, there could have been no explanation for the fact that all the above mentioned documents, with the exception of the purchase orders, were issued by or bore references to the petitioner. There is, however, no evidence to support the Company's contention that the petitioner is a legally separate entity distinct from Hexing Rubber.

8. The Company had exhibited some documents in its latest affirmation to support its contention that in the past, purchase orders had all along been placed with Hexing Rubber and that payment was made to Hexing Rubber or to one of the accounts designated by Hexing Rubber, namely one Mr Yin Shujian (who is a director of the petitioner and who owned and operated Hexing Rubber, on the admission of the Company) or to a company incorporated in Hong Kong known as Hexing Industry Limited (of which Mr Yin is a 50% shareholder and a director). The point was made by the Company that it could be seen from these documents between June and November 2001 that payment had been made to one of these designated parties but not to the petitioner. I do not attach any significance to these past instances as to the party to whom payment was made. They do not detract from the petitioner's case that in respect of the transactions for which payment was not made, it was the petitioner that was dealing with the Company and the Company was in no doubt as to the identity of the seller as evidenced by the Company's own documents.

9. For the above reasons, I reject the submission of Mr Ng that there is a bona fide dispute about the locus of the petitioner as a creditor of the Company. I also reject the submission that there was a deliberate ploy by Mr Yin to use the petitioner to bring the petition against the Company instead of using Hexing Rubber to bring the petition so as to preclude any counterclaim likely to be raised by the Company against Hexing Rubber. The documents that I have considered, the commercial invoices, the statement of account and the Company's own documents, are contemporaneous documents, and they all indicated that it was the petitioner that had manufactured and supplied the goods to the Company. As stated earlier, these contemporaneous documents were sent to the Company and the Company had not raised any objection or even query as to the apparent involvement of the petitioner in the transactions.

10. I turn to consider the counterclaim relied on by the Company. The counterclaim arose out of the transactions between the Company and Hexing Rubber. The 1st head of counterclaim may be disposed off quickly. This related to unliquidated damages allegedly suffered by the Company due to loss of orders from its major client, Imagiix Limited Partnership ("Imagiix"), an importer based in the United States. It is alleged by the Company that in January 2002, the Company had discovered that at a trade fair in Hong Kong, some of the models of the goods ordered by the Company from Hexing Rubber were displayed in an exhibition booth of Hexing Industry Limited and that these goods were "meant to be supplied solely to [the Company]". There is no explanation as to the basis upon which it is alleged that the goods were meant to be supplied solely to the Company. Be that as it may, upon this discovery in January 2002 by a director of the Company, Mr Cheung Tsz Yin Bang, Mr Cheung was "enraged" because these goods were sold by the Company "essentially" to Imagiix (this would seem to suggest that the goods were sold not only to Imagiix but also to other customers). Soon afterwards, Mr Cheung received a complaint from Imagiix and they put pressure on him to "clear the mess" (no detail was given in Mr Cheung's affidavit as to what Imagiix had asked the Company to do), otherwise Imagiix would not place orders with the Company in future. Mr Cheung went on to say that he "tried at once" to contact Mr Yin by telephone with the view of suggesting to Mr Yin that if the situation was not remedied, the trade relations between the Company and Hexing Rubber would be terminated and the Company would also seek compensation of HK$40,000.00, which was paid by the Company in respect of defective goods supplied by Hexing Rubber. Mr Cheung did not manage to speak to Mr Yin because the employees of Mr Yin refused to direct his telephone call to Mr Yin after learning from Mr Cheung the purpose of his call. As a result, Mr Cheung has not been able to communicate with Mr Yin on the matter ever since.

11. I find the above allegation incredible and wholly insufficient to raise a genuine cross claim. If there were indeed a genuine claim against Hexing Rubber and this had arisen in January 2002, one would have expected the Company to follow up the matter with a demand in writing, particularly when Mr Cheung was unable to get through to Mr Yin on the telephone, notwithstanding his "numerous" telephone calls to the Company which were all intercepted by Mr Yin's employees. No particulars are given as to the basis on which there was any agreement or understanding between the Company and Hexing Rubber that the goods on display in the trade fair were meant to be supplied solely to the Company. No evidence has been furnished to substantiate the allegation of any loss of orders from the customer in the United States as a result of any wrong-doing on the part of Hexing Rubber.

12. As for the other head of claim raised by the Company against Hexing Rubber, this relates to the compensation allegedly paid by the Company in respect of defective goods supplied by Hexing Rubber in the sum of HK$40,000.00. No evidence has been adduced by the Company that any such payment was made. The defective goods would appear to have been supplied in 2001. Prior to the Company's affirmation made in February 2003, there was no demand made by the Company to Hexing Rubber or to the petitioner for payment of HK$40,000.00, except a feeble explanation of Mr Cheung that he had intended to ask Mr Yin on the telephone to pay the said sum in respect of defective goods but was not able to speak to Mr Yin because his "numerous" telephone calls were all intercepted by Mr Yin's employees. In my view, there is no genuine claim by the Company for this head of claim either. Further, even if there is a genuine cross claim against the petitioner, the amount of the claim falls far short of the amount of the petitioning debt.

13. Lastly, Mr Ng submitted that the court should exercise its discretion not to make a winding-up order because there is evidence adduced by the Company showing that it has total bank balances of over HK$190,000.00 and this meant that the Company would have been able to pay in full the petitioning debt without any difficulty. I do not see why the discretion of the court should be exercised in that manner. To avoid any misunderstanding, I have ascertained from Mr Ng and he has confirmed that he has clear instructions that the Company would refuse to make payment and would take the chance of the court ruling against its contention that it has a bona fide dispute of the petitioning debt on substantial grounds. As I have ruled against him on this, and as the Company has refused to pay a debt which is due, I do not see any basis for declining to make a winding-up order.

14. For the above reasons, I have made a winding-up order against the Company. I have also ordered that the petitioner's costs are to be paid out of the Company's assets.