RE HOMEFIELD INTERNATIONAL DEVELOPMENT LTD.

HCCW214/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO.214 OF 2000

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REASONS FOR JUDGMENT

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1. By a petition dated 3 March 2000, the petitioner seeks a winding-up order against Homefield International Development Limited ("the Company") based on the ground that it is unable to pay its debt to the petitioner pursuant to section 177(1)(d) of Cap.32. The alleged debt is for $12,731,149.02 being the balance of monies due to the petitioner from the Company for goods sold and delivered.

Legal principles

2. There has been no dispute about the legal principles applicable to this case. The petition will fail if the debt is "bona fide disputed on substantial grounds". The onus is on the Company to demonstrate a prima facie case. The court must be satisfied that there is something which ought to be tried either before the court itself or in an action or by some other proceedings. In this case, the court has heard evidence from the principal parties of each of the petitioner and the Company. There would be no material difference between the evidence heard in this winding-up petition and the evidence adduced in a civil action for the debt.

3. The test to be applied is as approved by Le Pichon J (as she then was) in An Feng International Trading Ltd v. Honour Link International Development Ltd [1999] 3 HKC at 122 :

"To fall within the general principle the dispute must be bona fide in both a subjective and an objective sense. Thus it must be honestly believed to exist and must be based on substantial or reasonable grounds. 'Substantial' means having substance and not frivolous and which the court should therefore ignore."

4. The onus on a respondent Company seeking to resist a winding-up order is marginally higher than the onus on a defendant who is defending Order 14 proceedings. This is demonstrated by the cases in which a winding-up order has been made notwithstanding the fact that the Company had been given unconditional leave to defend in Order 14 proceedings.

5. Finally, it is not challenged that the fact that the petitioner has commenced its own voluntary liquidation proceedings does not prevent these proceedings continuing.

The issue in this case

6. The Company contends that the liability to pay the sum due is on one Chow Wai Ling ("Chow") and not on it. The cumulative effect of all the following matters is that the Company's contention is without foundation. The Company's attempt to persuade the court that its dispute on to liability is bona fide and on substantial grounds was forlorn.

(1) Facts not in dispute

(a) The two parties to the written sale and purchase contracts were the petitioner and the Company. All, bar one, were signed by Tam Kai Hing ("Tam") for the Company together with the Company's chop.

(b) The Company issued cheques for payment.

(c) The Company received the goods. A Company representative signed and chopped the delivery notes.

(d) Some of the cheques issued by the Company were cleared. Part payment was made. The debt relates to the dishonoured cheques for the unpaid balance.

(e) Tam and his co-shareholder and director of the Company gave a personal guarantee for $12 million in respect of the price of the good on 27 January 1999. The guarantee expressly refers to the Company as being to whom the goods should be supplied and delivered.

(f) A draft agreement was prepared, which was amended by Tam to his satisfaction, which confirmed that the Company owed the petitioner $12.88 million. It further stated that Chow was one of the Company's staff in China who had embezzled the money.

(2) Further findings of fact

7. Having heard the witnesses, the court is able to make further findings of fact, the effect of which is that the petitioner has proved that the money is due and owing, as if it were a civil trial, to a standard higher than that of a balance of probabilities.

(a) I accept Mr Lam's (the petitioner's witness) explanation for the fact that one of the six contracts was not signed by the Company. The documents show that the 30% deposit for that particular consignment was paid by the Company almost immediately. Mr Lam felt there was no need to get a signature after the deposit had been paid.

(b) The respondent Company produced, at trial, copies of the contracts to which "Chow's" signature had been added as evidence that the petitioner regarded Chow and not the Company as the party responsible for payment. Lam's explanation was entirely credible and acceptable. He said that Tam had told him he would not pay and that if he wanted payment he would have to get it from Chow. He, therefore, had meetings with Chow and others in Shenzhen on 20 July and 20 August 1999 to clarify which goods she had sold on and been paid for and seeking a timetable as to when she would pay the monies she had received. It was clearly in Lam's interest to get paid, even if by a third party. Such an arrangement did not affect the Company's liability to the petitioner on the contracts between them.

(c) Tam suggested in evidence that he had made part payment to the petitioner because Chow had paid some monies to him. There was no documentary evidence at all in support of this contention.

(d) Two of the payments to the petitioner were from Tam himself, not the Company. His explanation for this was that the petitioner company was in difficulty and it was a loan. I rejected this explanation. It was disingenuous particularly bearing in mind that Tam had never done business with the petitioner before, there was no security provided and again, no documentary evidence in support.

(e) Tam suggested the personal guarantee signed by him was not binding on him. He suggested it was signed both by himself and his co-director "to help Mr Lam". However, in the draft agreement, he agreed to pay $6 million under the guarantee. It is self-contradictory to agree to pay a sum under a guarantee which, it is claimed, is of no binding effect.

(f) The respondent Company placed considerable reliance on a document dated 20 July 1999, which purported to say that Chow was "Party B" to an agreement to pay the interest on the outstanding debt. Mr Kan, for the Company, submitted this document was the "crucial starting point". In fact, the starting point and the crucial documents were the contracts, delivery notes, invoices and personal guarantee and cheques to which reference has already been made.

8. I again accept Mr Lam's evidence concerning the 20 July 1999 document. It was not intended to substitute Chow as the responsible party. It does not say that and could not be so construed. Neither does it suggest that Tam's liability is excluded or subsumed. The evidence further shows that even after this date the Company continued to issue cheques to the petitioner in partial discharge of their liability.

9. In short, the totality of the documentary evidence and oral testimony lead the court to conclude that the petitioner's case is unanswerable.

10. I make an order as requested by the petition, namely that Homefield International Development Limited be wound up under the provisions of the Companies Ordinance, Cap.32 and that the costs of the proceedings be the petitioner's.