RE OCEAN JET DEVELOPMENT CO LTD

HCCW 440/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 440 OF 2005

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D E C I S I O N

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1.  I have before me two applications. The summons issued first in time on 4 August 2005 was by an entity in Zhongshan City, China known as Zhang Jia Bian (“ZJB”), seeking to be substituted as petitioner in place of Hong Kong Win Mode Industries Limited (“HK Win Mode”).  The summons was stated to be issued under rule 26 of the Companies (Winding-up) Rules.  The more appropriate provision is rule 33, under which the court may substitute as petitioner where the petitioner consents to withdraw his petition.  I have confirmation from Mr Benjamin Chain today that HK Win Mode does consent to withdraw its petition.

2.  A draft amended petition is annexed to the summons.  It is alleged in the draft amended petition that the subject company, Ocean Jet Development Limited (“the Company”), is indebted to ZJB in the sum of $6,430,166.27, being loans advanced by ZJB to the Company on 19 December 2000 with agreed interest at 7% per annum calculated up to 10 June 2005.  It is further alleged that ZJB had authorised HK Win Mode to demand and receive payment from the Company.

3.  It would appear from the draft amended petition that HK Win Mode had caused solicitors to serve a demand on the Company under section 178(1)(a) of the Companies Ordinance, Cap. 32 on 14 April 2005 for the debt aforesaid.  It is clearly stated in the demand that HK Win Mode made that demand as the authorised agent of ZJB, which had advanced the alleged loans.  So I do not think the Company could have been misled in any way as to the identity of the creditor, as submitted by Miss Lorinda Lau for the Company.

4.  ZJB’s application to be substituted as petitioner is opposed by the Company.

5.  The other application is the summons issued by the Company on 5 August 2005, after the summons for substitution was issued, to strike out the petition presented by HK Win Mode.  That summons was amended on 10 August 2005 to make clear what are the grounds for striking out.  It is contended by the Company that there is a bona fide dispute of the debt on substantial grounds, that HK Win Mode has no locus to present the petition, and in any event the petition is frivolous, vexatious, and/or an abuse of the process of the court.

6.  These two applications are two sides of the same coin.  The application to substitute should be considered on the basis whether the draft amended petition presented by ZJB is liable to be struck out.  It seems to me wholly pointless to consider whether the petition as it now stands should be struck out on the basis that the creditor of the alleged loan to the Company was ZJB and not HK Win Mode.  This has been overtaken by events as HK Win Mode has consented to withdrawal of its petition.

7.  The question I should ask here is whether the matters raised by the Company at present are sufficient to show a bona fide dispute of the debt allegedly owed to ZJB on substantial grounds so that the draft amended petition is liable to be struck out. 

8.  I do not propose to recite the evidence except to remark on some salient features.

9.  Firstly, it seems to me that ZJB’s case of loans made to the Company is well supported by documents.  For the purpose of the present application, I do not need to go into the circumstances under which the loans were made.  The documents supporting ZJB’s case are conveniently set out in the chronology prepared by Mr Chain.  They include the following:

(1 )  minutes of a meeting dated 13 November 1999;

(3 )  an agreement dated 19 December 2000 between ZJB and the Company.  By this agreement the parties agreed to change the nature of their co-operation in a Mainland joint venture known as Zhongshan Zhengyang Shipping Manufactory Company Limited (“ZZ”) from one of joint investment to one merely of co-operation in business.  It was stated in paragraph 2 of the agreement that ZJB had advanced to the Company $5.5 million and HK Win Mode is authorised to enforce repayment of the loan.  It was further stated that before 20 December 2000, ZZ’s liabilities are borne by both ZJB and the Company, and that ZJB would have no further responsibility for the liabilities of ZZ incurred after that date;

(4 )  a supplemental agreement dated 20 December 2000 between HK Win Mode and the Company.  This referred to the agreement in (3) and stated that the figure of the loan was amended to $5,471,724.79;

(5 )  a supplemental co-operation agreement dated 12 March 2002 between ZJB and the Company.  This again confirmed that the nature of co-operation in ZZ was changed to co-operation in business;

(6 )  an audit confirmation of HK Win Mode dated 13 June 2002, signed by a director of the Company, Lee Kwong Yin.  He confirmed that $5,610,611.75 was due to HK Win Mode by the Company as at 31 December 2001, being a long term loan;

(7 )  various letters of demand from lawyers in China for ZJB to the Company dated 14 May 2003, 29 July 2003, 13 August 2003, 2 September 2003 and 8 September 2003.  A draft repayment agreement to repay by instalments within the time stipulated was enclosed to one of these letters;

(8 )  an agreement dated 27 November 2003 by ZJB and the Company to terminate the co-operation agreement dated 12 March 2002 in ZZ and ZZ was to become wholly owned by the Company thereafter;

(9 )  a lease dated 27 November 2003 between ZJB and ZZ, by which ZJB let land and factory to ZZ for 5 years from 16 December 2003 at the  rent stated;

(10)  the supplemental constitution of ZZ made on 16 February 2004. This again stated that the Company was responsible for the debts of ZZ before and after ZZ became the wholly owned enterprise of the Company;

(11) a reminder letter for payment dated 29 March 2004 from ZJB’s lawyer in China to the Company;

(12) a faxed notice of HK Win Mode to the Company on 3 August 2004 stating that on 30 September 2003, HK Win Mode had agreed formally to transfer to ZJB the right to sue for repayment of the debt owed by the Company of $5.6 million odd;

(13) minutes of meeting between the Company and ZJB on 16 April 2005 prepared by ZJB’s lawyer in China; and

(14) draft repayment agreement with amendments allegedly made by the Company’s director Lee Kwong Yin on the proposed dates for instalment payment.

10.  As against the substantial body of documentary evidence adduced by ZJB in support of its debt, no contemporary documentary evidence has been adduced by the Company to support its case that ZJB had agreed orally to waive the debt owed by the Company on 27 November 2003, notwithstanding that on the same day, the parties had entered into two agreements in writing - an agreement to terminate the co-operation agreement in March 2002 and a lease.  There was no response in writing to any of the various demand letters and the notice of assignment of debt from HK Win Mode.  The matters now raised by the Company to dispute liability for the alleged debt would appear to have been raised for the first time in writing.

11.  I am not able to say on this material that the Company has raised sufficient evidence to show a bona fide dispute of the petitioning debt on substantial grounds.  I have considered the submissions made by Miss Lau on behalf of the Company, I would agree with Mr Chain that most of the issues she formulated as factual disputes are either of little relevance or that the Company is quite unable to surmount the hurdle that the documentary evidence is against its case.

12.  The other matter raised in the Company’s evidence is a purported counterclaim on the basis that ZJB had wrongfully repossessed factory premises leased to ZZ causing substantial loss in profits estimated at over $19 million and damages for conversion in depriving ZZ of the use of the plant and machinery in the factory premises.

13.  I have reservations if this counterclaim would avail the Company.  If there is a claim against ZJB, it seems to me that this should be made by ZZ, which is a separate legal entity from the Company.

14.  Besides, there is no denial that ZZ had never paid rent to ZJB under the lease.

15.  I give leave for ZJB to be substituted as petitioner in place of HK Win Mode.  I order ZJB to file and serve an amended petition as per the draft annexed to the summons within 3 days hereof.  Advertisement of the amended petition is to be dispensed with. 

16.  The amended winding-up petition is to be restored for hearing on 27 February 9:30 a.m.  The summons to strike out the petition is dismissed.

17.  In respect of the costs for the striking out summons, I order the Company to pay the costs incurred by ZJB and HK Win Mode in any event, as it seems to me that the summons is entirely otiose, having regard to the fact that before the summons was issued, ZJB had already issued the summons to be substituted as petitioner in the place of HK Win Mode.

18.  For the summons of ZJB to be substituted as petitioner, I order the costs incurred by ZJB up to the hearing on 10 August 2005 to be costs in the cause of the amended petition.  As for the costs of today, I order the Company to pay the costs of ZJB in any event, as the Company’s opposition to that summons is unsuccessful.