RE SUNLINK LTD

HCCW 1285/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 1285 OF 2002

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J U D G M E N T

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1. This is a petition to wind up Sunlink Limited ("the Company") by a trade creditor, Fonkwang Development Limited ("the petitioner") for a debt of HK$853,888.80.

2. The Company is represented by solicitors, who remain solicitors on record, although they have written to the court on 10 July 2003 stating that they have no further instructions to act for the Company. The Company has appeared by Mr Simon Yip of counsel this morning and Mr Yip informs me that he has no submissions to make, as his solicitors have received no instructions.

3. I understand that an application has been made by the Company to the Practice Master yesterday for it to be represented in the petition by one of its directors and that application was refused.

4. Four other creditors have given notice of intention to appear, they all support the petition and two of them have appeared today.

5. The grounds of opposition raised by the Company, as appeared from the two affirmations filed on its behalf, are that there is a genuine dispute to the petitioning debt owing to short delivery of goods and that the Company has a genuine cross-claim for defective goods.

6. The debt in the petition arose in this way.

7. By an agreement made between the Company and the petitioner on 3 August 1999, it was agreed that the Company was to supply raw materials being H piles, steel plates and steel rods to the petitioner for fabrication at the factory of the petitioner's subsidiary in the Mainland. After fabrication, the finished goods would be delivered by the petitioner to the Company for construction works at a site in Ma On Shan. It was provided in clause 2(3) of the agreement that during the process of fabrication, the Company was to send someone to inspect the goods and if the goods were not of the quality required, the petitioner was to be responsible for rectifying any defect. It was provided in clause 4 that the price for the fabrication was HK$1,100 per ton calculated according to the weight of the finished goods.

8. The first lot of raw materials was fabricated and the finished goods were delivered to the Company on or about 30 September 1999. The next three lots of finished goods were delivered to the Company on or about 7 October 1999, 16 October 1999 and 10 November 1999. Four invoices were issued by the petitioner to the Company on each of the dates of delivery as mentioned, and the total sum was HK$3,485,681.22. Part payments were made by the Company over a two-year period from 7 October 1999 to 9 October 2001, after repeated demands by the petitioner. The balance outstanding is HK$853,888.80, being the subject of a demand served on the Company by the petitioner's solicitors on 19 September 2002. As the demand was not complied with, the petition herein was presented on 25 November 2002.

9. The debt in the petition was admitted by the Company for quite some time.

10. On 17 March 2000, there was a letter from the Company to the petitioner admitting that the then outstanding balance of the debt was HK$1,253,888.80. The Company sought indulgence from the petitioner of one month to pay, as the Company had transferred funds to its parent company in the United Kingdom and was temporarily short of funds. This was agreed to by the petitioner.

11. No payment, however, was made. On 25 July 2000, the Company again requested for time to pay the balance of HK$1,253,888.80, this time by six instalments from August 2000 to January 2001.

12. Eventually, the petitioner by its solicitors wrote to the Company on 24 November 2000, giving notice that if the balance of HK$1.2 million odd was not paid, legal proceedings would be instituted without notice.

13. After this demand letter, the Company provided several cheques to the petitioner in part payment from January 2001 to July 2002, some of which were dishonoured when presented for payment. After the demand was served on the Company on 19 September 2002, the Company proposed to pay the balance outstanding being HK$853,888.80 by monthly instalments of HK$80,000 each. This proposal was rejected by the petitioner.

14. In all these letters that I have mentioned above, there was no dispute by the Company of its liability to pay the outstanding sum to the petitioner, nor did the Company at any time raise with the petitioner that it has a cross-claim of any kind that could be set off against the petitioner's claim, let alone a cross-claim that would exceed the petitioner's claim.

15. The allegation of short delivery and the cross-claim arising out of defective goods were raised for the first time in the Company's affirmation in opposition to the petition failed on 28 January 2003.

16. In respect of short delivery, it was alleged that the Company had delivered raw materials of 4,176.41 tons (revised to 3,976.938 tons in a subsequent affirmation filed on behalf of the Company on 8 March 2003) and that the petitioner had only delivered finished goods of 3,835.56 tons as stated in the petitioner's invoice (this figure was revised to 3,792.1154 tons in the subsequent affirmation but without any explanation as to how this new figure was arrived at). Hence, it was alleged that there was a short delivery of goods being the difference in weight between the raw materials and the finished goods. The claim for short delivery being 184.8226 tons is in the sum of HK$406,609.72.

17. This does not appear to me to be a bona fide cross-claim or set- off.

18. According to the petitioner's evidence, which has not been disputed by the Company, the process of fabrication carried out by the petitioner necessarily involved the chipping off of bits and pieces of raw materials under high temperature, in the course of which there was bound to be some wastage. The alleged shortage of weight only amounted to 4.6% of the total weight of the raw materials. There is no evidence that this wastage is unduly high or out of the ordinary, and according to the evidence of the vice manager of the petitioner, Mr Ou Zhi Min, who has over 30 years' experience in the trade, he would regard it as an efficient working of the materials to yield a wastage of this percentage.

19. Besides, the four invoices issued to the Company between September 1999 to November 1999 had clearly set out the weight of the finished goods and it was on this basis that the Company was charged. If there was any substance in this allegation of short delivery, the Company could not have failed to notice the difference in weight of the finished goods and waited for over three years before alleging short delivery.

20. The cross-claim for defective goods is just as unsatisfactory. The claim was not even quantified in the first affirmation filed on behalf of the Company in January 2003. It was quantified for the first time in an affirmation made by the Company's solicitor on 8 March 2003. The claim was put at HK$1,521,630, the bulk of it is a claim for liquidated damages of HK$1.2 million made up of HK$60,000 per day for twenty days. The solicitor has merely deposed that he was instructed that due to defective works rendered by the petitioner this had caused twenty days' delay to the project. This is simply not good enough. This does not constitute sufficiently precise factual evidence in support of the Company's allegations. No evidence at all was adduced to substantiate the allegation that the Company had been exposed to such liability for liquidated damages, let alone that such liability was attributable to any defect in the finished goods supplied by the petitioner. The final account adduced in the first affirmation of the Company, which was in draft form, does not show how the adjustment proposed to be made by the architect was related in any way or attributed to the finished goods supplied by the petitioner. It is unnecessary to consider the lesser items of claim that made up the claim for defective goods. There is no explanation at all why the substantial claim for defective goods of over HK$1.5 million was not made against the petitioner for three years.

21. The Company has failed to satisfy the court there is a genuine dispute of the petitioning debt. I also find that the cross-claims raised by the Company are not genuine claims made bona fide on substantial grounds.

22. There being no valid ground of opposition, I make a winding-up order against the Company. I order that the petitioner's costs are to be paid out of the Company's assets.