RE SILVER BASE INTERNATIONAL DEVELOPMENT CO LTD (銀基國際發展有限公司) (THE “COMPANY”)

HCCW 328/2021

[2022] HKCFI 1793

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 328 OF 2021

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J U D G M E N T

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1.  By petition presented on 7 September 2021 (“Petition”) the petitioner, Techian International Development Limited (“P”), seeks a winding-up order against Silver Base International Development Co. Limited (“Company”) on the ground that it is unable to pay its debts.

2.  In the Petition, P relies on the Company’s failure to:

(1) comply with a statutory demand served upon it on 16 August 2021 (“SD”) requiring it to pay HK$43,922,031.30 (“Debt”). The Debt comprises HK$37,798,650, being refund of deposit paid by P on 14 December 2020 (“Deposit”) and interest accrued thereon at 2% per month from 14 December 2020; and

(2) honour a post-dated cheque in the amount of HK$37,798,650 drawn in favour of P (“Cheque”) but was dishonoured when presented for payment on 31 August 2021.

3.  P and the Company both seek leave to file further evidence:

(1) the Company applies by summons dated 3 May 2022 for leave to file and serve the 2^nd Affirmation of Liang Guoxing (“Liang”) dated 3 May 2022 to refute P’s point about inability to trace the products and to expose the flaws and incompleteness in P’s evidence on sale of the products to Singapore and Vietnam, both raised only in P’s reply evidence; and

(2) P applies by summons dated 12 April 2022 for leave to adduce a report made by the provisional liquidators of “ListCo” (as defined in §5 below) which became available to P on 14 February 2022.

4.  I dismissed both summonses with costs as I do not see any justification for the Company or P to file further evidence at the eve of the hearing when the parties were required to file all their evidence by 7 February 2022. Nor do I think that the new evidence assists the determination of the Petition, given that it is not in dispute that the Debt was owed and the only issue is whether the Company has demonstrated a serious cross claim against P and, if so, whether such claim is sufficient to defeat the Petition. If the Company is not able to demonstrate this in Liang’s affirmation (and the voluminous exhibits) already filed in opposition to the Petition, I do not see how the position would be improved by allowing the Company to file yet another affirmation.

Background

5.  The Company was incorporated in Hong Kong in 1997 and is an indirectly wholly-owned subsidiary of Silver Base Group Holdings Limited, a listed company in Hong Kong (“ListCo”). ListCo itself is under financial difficulty and provisional liquidators were appointed by the court in the Cayman Islands on 8 December 2021.

6.  The Company has since 2000 been appointed the exclusive distributor of “Wuliangye (五糧液) 52% Vol. 500ml (1x6)” (“Products”) by 四川省宜賓五糧液集團進出口有限公司 (Sichuan Yibin Wuliangye Group Import and Export Co., Ltd) (“Sichuan Wuliangye”) pursuant to 2 agreements dated 18 May 2020 (“Distributorship Agreements”). Clause 2.4 of the Distributorship Agreements (as translated) provides that:

“[the Company] shall strictly comply with the terms of the contract entered into by both parties, to ensure that the sale of goods to the specified international markets and to prohibit re-sale to the Mainland China” (“Prohibition”)

7.  P engages in the business of exporting wine, Chinese liquor and tobacco manufactured in the Mainland to the rest of the world. Until the dispute arising from the Debt, P was the largest customer of the Company and contributed to over 90% of its turnover.[1]

8.  Since around 2000, P has been purchasing the Products from the Company for resale to its customers and the modus operandi is as follows:

(1) P would issue a purchase order setting out the quantity and unit price of the Products it offered to purchase from the Company.

(2) The Company would then issue a sales confirmation (written in Chinese) (“SC”) to P which set out the quantity, unit price and total price of the Products and with the following terms (as translated):

“1. For all good, the buyer must guarantee that they will only be supplied to overseas markets (excluding Mainland China) which are taxed or duty-free markets.

2. The Buyer guarantees to apply on its own accord to the Customs and Excise Department of Hong Kong for all documents for export and to bear all the export freight and insurance.

3. Upon re-sale of its products, the Buyer is to ensure compliance with the important regulations of the market to which the goods are imported and pay all necessary fees or taxes.”

(3) The SC would be signed by the Company (as seller) and P (as buyer).

(4) The parties would enter into a supplemental agreement (“SA”) to set out their agreement on the terms governing delivery of the Products, payment of the price and arrangement for refund.

(5) P was not provided with copies of the Distributorship Agreements.

9.  On 13 August 2019, the Company received a notice from Sichuan Wuliangye (“1^st Complaint”) stating that the Products sold to the Company under a sales contract (no. W17HK02-01C/01D) were found to have been re-imported into the Mainland. The Company asserts that the re-imported Products were traceable to those sold to P under a SC dated 22 September 2017 (“2017 Products”).[2]

10.  It is the Company’s case that when confronted with the 1^st Complaint, Mr Ng Ma Mui (“Ng”) of P admitted to the re-importation of Products and undertook to Liang that such re-importation would not occur again in the future.[3] As a result, the Company reduced the quantity of Products sold to P, from 643,998 bottles (in 2018-2019) to 448,002 bottles (in 2019-2020), and further to 228,000 bottles (in 2020-2021) to mark its disapproval of P’s actions.[4]

11.  Following the above modus operandi, the Company and P executed:

(1) a SC dated 11 December 2020 (“Subject SC”) whereby P agreed to purchase 18,666 cartons of Products at HK$75,597,300 (“Subject Products”); and

(2) a SA dated 11 December 2020 (“1^st SA”) which states, inter alia, that (a) the Subject Products shall be delivered by 31 January 2021; (b) P shall pay 50% of the price to the Company as deposit, and the Company must provide P with proof of delivery by 31 January 2021; (c) if the Company fails to deliver the Subject Products by 31 January 2021, the Company shall repay the amount paid by P together with interest at 2% per month within 14 days of confirmation of the matters giving rise to the refund.

12.  P paid the Deposit to the Company on 14 December 2020, but the Company failed to deliver the Subject Products by 31 January 2021.

13.  On 6 May 2021, the Company provided P with the numbers of 2 letters of credit (together “LCs”) issued by Bank of China (Hong Kong) Limited (“BOC”) to show that it had purchased the Subject Products from Sichuan Wuliangye.[5]

14.  On 20 May 2021, following P’s complaints, the Company provided the Cheque (post-dated to 31 August 2021) to P.[6]

15.  The LCs expired on 14 June 2021, and the Company said that it needed to provide Sichuan Wuliangye with a new letter of credit to secure the supply of the Subject Products but did not have sufficient cash flow to do so. It requested P to provide a letter of credit in favour of the Company so as to enable the Company to apply for a back-to-back letter of credit in favour of Sichuan Wuliangye. P agreed to co-operate since it still wished to secure the shipment of the Subject Products.[7]

16.  By a 2^nd Supplemental Agreement dated 15 June 2021 (“2^nd SA”) the Company and P agreed, inter alia, that (1) the Deposit would be returned to P no later than 15 July 2021; and (2) if the Subject Products were not delivered by 31 August 2021, and the Deposit not refunded, P could cash in the Cheque.

17.  On 16 June 2021, BOC issued a letter of credit to P with the Company as beneficiary for HK$75,597,300 under LC number 267A21LC004094.

18.  On 19 July 2021, P through its solicitors referred to the cancellation of the LCs, the fund returned by BOC to the Company and the Company’s obligation to repay the Deposit pursuant to clause 4 of the 2^nd SA, and requested the Company to repay the Deposit within 7 days.

19.  In response, the Company through its solicitors’ letter dated 28 July 2021 (“July 2021 Letter”) referred to the Subject SC and stated that “the most important foundation for [the trade between P and the Company] is that [P] cannot re-sell [the Products] purchased from [the Company] to [the Mainland]” (as translated). As the Products sold to P appeared in the Mainland, it proves that P acted in breach of the “essential terms” of the SC. This, in turn, led to Sichuan Wuliangye stopping the supply of the Products to the Company, and rendered the Company unable to deliver the Subject Products by 31 January 2021.

20.  By a further letter dated 13 August 2021 the Company’s solicitors referred to the Subject SC and requested P to provide the names of the subsequent purchasers of the Products, the dates and quantities of the Products purchased and the relevant documents including the sales contract, purchase order, warehouse list and delivery orders, and reiterated that P’s resale of the Products to the Mainland had caused Sichuan Wuliangye to suspend supply to the Company, and the Company suffered loss of profits from the Subject SC and other sales in 2021-2022 which exceeded the Deposit. P was requested not to cash in the Cheque.

21.  On 16 August 2021, P served the SD on the Company.

22.  By letter dated 30 August 2021, P’s solicitors pointed out that (1) the Company’s allegations were not supported by any documents, (2) the July 2021 Letter amounted to a repudiatory breach of the Subject SC and the 1^st SA, and (3) under the 2^nd SA, the Company was obliged to return the Deposit to P which was secured by the Cheque. Notice was given to the Company that the Cheque would be presented for payment and a petition would be presented if the SD remained unsatisfied.

23.  On 1 September 2021, upon presentation, the Cheque was dishonoured. This was followed by the presentation of the Petition on 7 September 2021.

24.  On 3 September 2021, the Company received another notice from the Hong Kong branch of Sichuan Wuliangye (“2^nd Complaint”) stating that the Products sold to the Company under a sales contract (no. W20HK-HK02-01C) were found to have been re-imported into the Mainland. The re-imported Products were traceable to those supplied by the Company to P under a SC dated 28 October 2020 (“2020 Products”).[8]

25.  On 6 September 2021, the Company issued a writ in HCA 1346/2021 against P (“Action”) seeking damages of no less than HK$180 million for breach of:

(1) An agreement made partly orally and partly in writing between P and the Company in about 1999 that “[P] shall take all reasonable steps to ensure that the [Products] would not be directly or indirectly imported or re-imported into the Mainland China” (“1999 Agreement”);

(2) Clause 1 of the SC and/or implied term thereof signed by P and the Company including (a) the SC dated 22 September 2017, (b) the SC dated 16 October 2020, and (c) the SC dated 28 October 2020 (collectively “2017 & 2020 SCs”);

(3) An undertaking given by Ng on behalf of P in August 2019 that despite a prior breach of the aforesaid agreements, P would ensure that re-importation of the Products into the Mainland would not occur again in future; and

(4) Duty of care in failing to take all reasonable steps to prevent re-importation of the Products into the Mainland “on divers occasion [sic] between 2017 and 2020”.

26.  The Company filed a statement of claim on 23 December 2021. On 15 March 2022, P filed its defence essentially denying all the allegations made by the Company. The Company has yet to file its reply.

Discussion

27.  In the affirmation of Liang, the Company opposes the Petition on the following grounds:

(1) there is a bona fide dispute on substantial grounds in respect of the Debt;

(2) the Company has a genuine and serious cross-claim of a sum which exceeds the Debt, and extinguishes it;

(3) the Debt had not yet arisen as at the date of the SD (16 August 2021) because the scheduled delivery of the Products had been extended to 31 August 2021; and

(4) the SD did not mention the Cheque, and there is no basis to include it in the Petition.

28.  At the hearing, Mr Victor Dawes SC (leading Ms Astina Au), counsel for the Company, very sensibly abandons the grounds stated in §27(1), (3) and (4) above which seems to me to be demurrable and fall to be rejected in limine. The only point advanced by Mr Dawes is that the Company has a genuine and serious cross-claim of a sum which exceeds the Debt, and factual dispute between the parties on the cross-claim should be resolved in the Action.

29.  Mr Dawes puts the Company’s cross-claim in this way:

(1) The Company’s appointment as exclusive distributor of the Products has been subject to a condition that it had to ensure that the Products are sold to designated international and tax-free markets, and that there shall be no re-importation of the Products into the Mainland.[9] Liang informed Ng of the Prohibition and showed him the sale contracts entered into between the Company and Sichuan Wuliangye.[10]

(2) P and the Company entered into the 1999 Agreement.[11]

(3) The SC contained an implied term to the like effect of the 1999 Agreement (“Implied Term”).[12]

(4) P acted in breach of the 1999 Agreement and the Implied Term to the 2017 & 2020 SCs by allowing the 2017 & 2020 Products to be re-imported into the Mainland. This led to:

(a) Sichuan Wuligngye suspending delivery of Products to the Company from January 2021;[13] and

(b) the Company being unable to deliver the Subject Products pursuant to the Subject SC. It is unconscionable of P to seek to wind up the Company based on its own wrongful conduct.[14]

30.  On the other hand, Mr Jin Pao SC (leading Mr Vincent Chen), counsel for P, submits that the Company has admittedly retained the Deposit but refused to return it to P. The cross-claim is not a genuine or serious cross-claim and, in any event, does not constitute a defence to a claim based on the dishonoured Cheque.

31.  I shall first consider counsel’s arguments on the dishonoured Cheque which seems to me to be determinative of the Petition.

Dishonoured Cheque

32.  Mr Pao submits that as a matter of principle, the Company’s cross-claim is no answer to its liability on the Cheque for the following reasons:

(1) A cheque, being a bill of exchange, is a separate contract from the underlying transaction. An unliquidated cross-claim under the underlying agreement is no defence to an action on the bill, and it is to be treated as the equivalent of cash generally (T v W [2022] 1 HKLRD 610 at §26 per G Lam JA; C. A. Pacific Forex Limited v Lei Kuan Ieong [1999] 1 HKLRD 462, 463J-464D, per Seagroatt J).

(2) The Companies Court consistently held that the failure on the part of the company to pay the amount due under a cheque was a sufficient ground to wind up the company; and a cross-claim for unliquidated damages does not constitute a valid ground in opposition to a winding up petition:

(a) In Golden City Electronic Industries Company Ltd v RCR Electronics Manufacturing Ltd [1996] 2 HKLR 257, Rogers J (as he then was) held that in accordance with the standard O.14 rules, the petitioner is entitled to payment on that cheque and any counterclaim by the respondent should be dealt with separately. Where there is no legitimate dispute on the debt, “a winding up petition is a perfectly proper remedy for enforcing payment of a just debt” (at 259A-C).

(b) In Re Kwong Yuen Construction Co Ltd, HCCW 336/2001, 22 June 2001, §30, Kwan J (as she then was) held that a cheque is a separate contract and oral evidence to quality the nature or tenor of the cheque is inadmissible (§25). Even if the company is able to establish its cross-claim to some extent, “a free-standing cross-claim would not have constituted a reason why the petitioner should not be paid on the cheques. If there are valid cross-claims against the petitioner, they may still be pursued by the company in liquidation”. There are no exceptional circumstances for the court to grant a stay of execution of judgment on the cheques, pending determination of the cross-claim (§30).

(c) Recently this court in Re EUREKA Manufacturing Company Ltd, [2020] HKCFI 2032 considered the principles governing a bill of exchange and held that the cheque constituted a contract separate from the underlying contract of sale and purchase of the goods; and the burden is on the company to displace the presumption that there was unconditional delivery of the cheque and total failure of consideration for the cheque (§§33-39). As the amount represented by the cheque exceeded the statutory minimum, and the cheque was referred to in the statutory demand and the petition, the failure to pay the amount represented by the cheque was sufficient for the court to make a winding up order against the company (§§46-47).

33.  The consistent approach adopted by the Hong Kong court, as illustrated by the above cases, is that where the petition is based on the company’s failure to pay the amount under the cheque issued in favour of the petitioner, the fact that the company has a genuine or serious cross-claim for unliquidated damages is not a valid ground in opposition to the petition.

34.  Mr Dawes submits that the authorities showing the approach of the court in dealing with a cross-claim do not speak with one voice. The authorities show that where the company has a cross-claim closely connected with the petition debt which, if established, would give rise to an equitable set off against the debt, it would not be unjust for the court to take that claim into account. Reliance is placed on Re Standard Kitchen Cabinets Engineering Company Ltd, HCCW 45/2008, 6 May 2009; In re Bayoil S.A. [1999] 1 WLR 147, 150D-E, 155B-G; Re Sinom (Hong Kong) Ltd [2009] 5 HKLRD 487, §13; Marchands Associates LLP [2004] EWCA Civ 878, §46; and French, Applications to Wind Up Companies, 4^th ed., §§7.544, 7.546.

35.  Amongst the authorities cited, only Marchands and French are concerned with dishonoured cheque. Mr Dawes places heavy reliance on Marchands, where Peter Gibson LJ said (§46):

“… In the cross-claim cases, it matters not that the petition debt is undisputed or the subject of a judgment or based on a cheque or other bill of exchange (see, for example, Re LHF Wools Ltd [1970] Ch 27, where the petition debt was a judgment debt based on a dishonoured bill of exchange). It matters not that the debt is one for which summary judgment would have been obtained or on which execution could be levied notwithstanding the cross-claim. A winding up order has more serious consequences and the Companies Court is entitled to adopt a different approach.”

36.  In Marchands, Mr Shaw, a former partner of the partnership, sought a winding up order against the partnership on the ground that it was unable to pay the debt under a dishonoured cheque for GBP14,000. Lloyd J dismissed the partnership’s application for an injunction to restrain advertisement of the petition and ordered the partnership to pay 80% of the costs, which amounted to GBP30,000. At the time of the appeal, the amount due under the cheque had been paid and the petition dismissed. The Court of Appeal set aside the costs order on 3 grounds: (a) the petitioner knew that the money to pay the debt was safe in the client account of the partnership; (b) the reason for non-payment was that the petitioner would have been shown in proper completion accounts to be a debtor in a substantial amount; and (c) it was unfair for the petitioner to seek a winding up order when he (and another partner) had not provided proper completion accounts to the partnership (§45).

37.  I do not think that Marchands assists the Company as it is a case where the Court of Appeal interfered with the judge’s exercise of discretion in awarding costs of the application for an injunction against the partnership (which failed in the application) in circumstances where (1) there was no basis for the petitioner to seek a winding up order against the partnership; and (2) the petition debt existed as a result of the petitioner’s own wrong. In the passage relied on by Mr Dawes, the court explained the nature of the discretion exercised by the Companies Court when dealing with winding up petition, which is a wide and flexible one, and the Court would take into account all relevant circumstances and is not confined to a strict application of the legal principles applicable to an ordinary civil action.

38.  The passages in French do not take the point any further as they merely repeated or referred to the same passage in Marchands insofar as they concern with a claim based on an unpaid cheque or bill of exchange.

39.  Mr Pao submits that the passage in Marchands, insofar as it concerns dishonoured cheque or bill of exchange, has not been followed or referred to in cases concerning winding up petition, whether in England or in Hong Kong.

40.  In my judgment, the principles expounded in the cases discussed in §32 above are well established and should be applied in the present case. Although the Companies Court has wide discretion when dealing with winding up petition and may take into account all relevant circumstances, where as here P relies on the fact that the Company has failed to pay the amount due on the Cheque, the Company has to satisfy the court that there is a bona fide dispute on substantial grounds to P’s claim based on the dishonoured Cheque or any special circumstances sufficient for the court to deny P’s entitlement to receive payment on the Cheque. The Company has not been able to do so.

41.  In any event, I do not consider that the mere fact that the Company has a cross-claim for unliquidated damages against P arising out of separate contracts is a valid ground for refusing to repay the Deposit.

(1) In many of the cases in which the court has to consider whether the company has a serious cross-claim, the claim arose out of the same contract which gave rise to the petition debt. One can see that it would be unjust or inequitable to allow the petitioner to seek a winding up order against the company when the company has a serious cross-claim against the petitioner under the same contract. However, it seems to me that the same consideration does not apply, at any rate with the same force, when the cross-claim arose out of separate contract and has nothing to do with the debt in question.

(2) In Re Hongkong Bai Yuan International Business Co., Ltd, [2022] HKCFI 960, §40, I held that even if the company has a serious cross-claim against the petitioner for breach of other contracts (Honesty Contracts) entered into between them, it does not provide a valid basis for the company not to pay the petitioning debt admittedly owed to the petitioner pursuant to the subject contracts (Clarity Contracts) until after determination of the company’s cross-claim. There are 2 reasons for this: (a) it would be tantamount to conferring a right on the company to retain the petitioner’s money as a security for the company’s cross-claim; and (b) the cross-claim arose out of different contracts and had nothing to do with the contract which gave rise to the debt.

(3) It seems to me that the same reasons stated in §40 of Re Hongkong Bai Yuan apply to the present case. The Company is in effect asking the court to allow it to retain the Deposit as security pending determination of its cross-claim even though the Subject SC did not give such right to the Company. The Company’s cross-claim is based on P’s breach of 1999 Agreement and the 2017 & 2020 SCs, which are separate contracts and have nothing to do with the Subject SC (see §22 above).

42.  For the above reasons, I hold that there is no valid ground for the Company not to return the Deposit to P and its failure to pay the amount due on the Cheque shows that it is unable to pay its debts. It follows that P is entitled ex debito justitiae to a winding up order against the Company.

No genuine or serious cross-claim

43.  In view of the above conclusion, it is unnecessary to consider the other arguments advanced by the parties on the Company’s cross-claim. Nevertheless, I will deal with the merit of the cross-claim in case this matter goes further.

44.  Where, as here, a company opposes the petition on the ground that it has a cross-claim against the petitioner which is greater than or equal to the petition debt, it bears the burden of establishing that the cross-claim is genuine, serious and of substance. There must be supporting relevant details to demonstrate that the cross-claim is based on substantial ground (Re Sinom, §§11-12). The court is not required to make any findings but needs to be satisfied that the evidence demonstrates that the company has “a credible case that … should go to trial” (Re China Shanshui Investment Co Ltd, HCCW 398/2015, 28 September 2016, §7, per Harris J). Where oral evidence is required to decide a real and substantial dispute of fact, the court will generally dismiss the petition (Re Leung Cherng Jiunn [2016] 1 HKLRD 850 at §27(5), per Kwan JA).

45.  In my judgment, the Company fails to discharge the burden of showing that it has a genuine or serious cross-claim against P for an amount which exceeds the Debt.

46.  First, there is no credible evidence before the court to show that the 1999 Agreement existed.

(1) There is no contemporaneous document evidencing the existence of the 1999 Agreement despite its professed importance.

(2) The 1999 Agreement was not referred to in any of the correspondence exchanged between the parties even after P had formally demanded for payment of the Debt.

(3) Had the 1999 Agreement existed, it is inconceivable that the parties would not have referred to it in the course of their dealings for over 20 years.

47.  Second, contrary to the Company’s suggestion, clause 1 of the 2017 & 2020 SCs does not contain any Prohibition or impose any obligation on P to ensure that the Products sold by P would not be re-imported into the Mainland. Instead, clause 1 merely states as follows:

“所有貨品，買方必須保證只供應予海外 (不包括中國大陸) 的有稅或免稅市場”

(English Translation: “For all goods, the buyer must guarantee that they will only be supplied to overseas markets (excluding Mainland China) which are taxed or duty-free markets”)[15]

48.  Third, there is no proper basis to suggest that the 2017 & 2020 SCs were subject to the Implied Terms:

(1) It is well established that a term can only be implied into a contract if the 5 conditions discussed in BP Refinery (Westernpoint) Pty Ltd v Shire of Hastings (1978) 52 ALJR 20 at 26, as approved by the Court of Final Appeal in Kensland Realty v Whale View Investment Ltd (2001) 4 HKCFAR 381, §59, are satisfied: (a) it must be reasonable and equitable; (b) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (c) it must be so obvious that “it goes without saying”; (d) it must be capable of clear expression; and (e) it must not contradict any express term of the contract (see also Lo Yuk Sui v Fubon Bank (Hong Kong) Ltd [2019] HKCA 261, §32; Nazir Ali v Petroleum Co of Trinidad and Tobago [2017] UKPC 2 at §7).

(2) In the present case, the Implied Term is inconsistent with the clause 1 of the 2017 & 2020 SCs, which only requires P to “guarantee” that the Products will be supplied to overseas markets excluding Mainland.

(3) The Implied Term is neither obvious nor necessary to give business efficacy to the 2017 & 2020 SCs. The fact that the parties were able to carry on the sale and purchase of the Products without any reference to the Implied Term militates against the suggestion that the 2017 & 2020 SCs would not be effective without such Implied Term.

(4) It is also not reasonable or equitable to impose an onerous obligation on P in terms of the Implied Term.

49.  Fourth, the alleged breach, whether in respect of the 1999 Agreement or the Implied Term, is not supported by sufficiently precise factual evidence.

(1) Other than the 1^st & 2^nd Complaints, there is no correspondence between Sichuan Wuliangye and the Company showing that the Products re-imported into the Mainland emanated from the 2017 Products or the 2020 Products.

(2) Contrary to the Company’s allegation (Liang 1^st §25) that Ng admitted the breach during a WeChat call with Liang, P has produced the relevant WeChat record which shows that the alleged call did not take place.

(3) The alleged breach does not sit well with the fact that in response to P’s demand for refund of the Deposit dated 18 May 2021, the Company did not refer to any alleged breach and, instead, reassured P that the Subject Products ordered under the Subject SC would be delivered between mid-June and mid-August 2021.

50.  Fifth, the Company has not produced a single document to show that the suspension of supply was caused by re-importation of the Products purchased by P under the 2017 & 2020 SCs. To the contrary, in ListCo’s interim results for the period ended 30 September 2021, the stated reasons for suspension of supply had nothing to do with re-importation of the Products sold to P.

51.  Lastly, the quantum of the Company’s claim is grossly exaggerated in that:

(1) The so-called loss is based on the gross profit of all the Products sold by the Company during from April 2016 to March 2021. It fails to take into account (a) the costs which the Company incurred in operating its business; (b) the fact that the supply of Products by Sichuan Wuliangye to the Company has been declining since April 2019 and further during COVID-19; and (c) the financial difficulty of ListCo which, in turn, has affected the operation of the Company.

(2) The suggestion that the business of the Company has been profitable is contradicted by its audited financial statements for the year ended 31 March 2021, which shows that the Company suffered a loss of HK$34,320,000 in 2020 and a loss of HK$32,649,000 in 2021.

Disposition

52.  For the above reasons, the Company fails to demonstrate that there is any valid ground for not paying the amount under the Cheque. I am not satisfied that the Company has a genuine or serious cross-claim against P, let alone for an amount which exceeds the Debt. It follows that P is entitled to seek a usual winding up order against the Company.

53.  Nevertheless, the Company asks for 14 days after the date of this judgment to pay the Debt, should the court finds against the Company. Mr Pao does not oppose giving one last opportunity to the Company to pay the Debt. I therefore order that the Petition be adjourned to the first Monday callover before the Companies Judge after expiry of 14 days for the Company to pay the Debt. If no payment is made, a usual winding up order will be made against the Company.