ABDUL AZIZ ESSA v. CAPITAL GLOBE LTD

HCCW 422/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 422 OF 2010

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J U D G M E N T

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Background

1.  This is the trial of the winding-up petition against Capital Globe Ltd. (“the Company”).  The Petitioner is a foreign national resident in Pakistan.  The Company (Respondent) is an investment company incorporated in Hong Kong. Mr. Brian Lee and Mr. Shaquil Haque (“Haque”) were the only directors and equal shareholders of the Company.  The Company is the holding company of a corporate group carrying on a range of businesses including business consultancy, assets portfolio management and property development.  The registered address of the Company in Hong Kong was and is also used as the address for the Company’s subsidiaries and affiliates.

2.  On 9 September 2010, the Petitioner served on the Company a statutory demand for payment of USD12 million payable pursuant to the terms of a series of time charter agreements and AUD14 million payable pursuant to an Australian property related agreement.  The time for compliance with the statutory demand was, at least as the Company understood, extended to until 7 October 2010.

3.  It is the Petitioner’s case that beginning in 2005, he and the Company entered into 7 time charter contracts (“TCCs”). Each TCC was concluded between the Petitioner and Haque, the latter acting for and on behalf of the Company. Each TCC related to vessels that the Company had charter-hired from Lion Shipping Ltd. (“Lion Shipping”). It is not in dispute that Lion Shipping is a Hong Kong company with Mr. Ng Ka Fai Johnny (“Ng”) as its sole shareholder and Haque as its sole director.  According to the Petitioner, Ng was one of the representatives of the Company whom he met at conferences held on 21 and 23 June 2010 during which the Petitioner’s claims against the Company were discussed.  According to company searches conducted on various Australian companies, it can be seen that Ng is a shareholder in a number of companies affiliated with the Company. 

4.  The Petitioner’s case is that under each TCC, he paid the Company a capital contribution representing a percentage ownership of that TCC.  In return, the Company promised to the Petitioner a set revenue stream and, upon expiry of the TCC, the return of the capital contribution. During 2005 to 2007, the Company did make some periodic payments to the Petitioners under the executed TCCs (TCC1 to TCC6). In 2007, at the suggestion of Haque, the Petitioner agreed to re-invest his TCC revenue streams with the Company with payments to resume in early 2009.  On 23 February 2009, the Petitioner further agreed to reinvest the revenue into TCC7 (Blue Sky) with payment of revenue to resume in September 2009. However, the Company defaulted in such payments and following pressure from the Petitioner, Haque sent an email dated 13 October 2009 (the “Haque email”) to the Petitioner setting out a “Revised Revenue Schedule” (the “RRS”).  The Company eventually defaulted in making payments as per the RRS and the Petitioner claims that as of the date of the statutory demand, the Company owed the Petitioner US$12 million under this limb.

5.  One of the Petitioner’s companies, Prezar Trade SA (“Prezar”) also signed an Australian Property Agreement dated 4 September 2007 with the Company (“APA”).  Pursuant to the terms of the APA, Prezar invested and paid A$15 million to the Company. The Company promised to repay capital and profit to Prezar pursuant to a schedule set out in the APA. The first payment of A$5 million was due on 30 September 2009. The second payment of A$4 million was due on 31December 2009.  The 3^rd payment of A$5 million was due on 31 July 2010.  The Company failed to make any of these payments. They thus form the A$14 million claimed in the statutory demand.

6.  By an assignment executed in August 2010, Prezar assigned all its rights and interests in the APA to Essa.  The purpose was to enable the Petitioner to claim all of the debts due from the Company. 

7.  As a short summary, the Petitioner’s statutory demand claims:- (1) US$12 million (basing on the 6 TCCs) which was agreed and quantified in the RRS; and (2) A$14 million in respect of the first 3 payments due under the APA.

Procedural background

8.  On or about 1 May 2010, Haque and one Mr. Charles Yeung (“Yeung”), the Chief Financial Officer of the Company, were murdered.  On 31 May 2010, the Petitioner’s solicitors issued a demand letter to the Company and Brian Lee.  In June 2010, the Plaintiff held meetings with Brian Lee, Ng and other representatives of the Company to discuss his claims. According to the Petitioner, the Company had, during such meetings, acknowledged the investments made by the Petitioner.  However, according to the Company, it denied having made such acknowledgement at those meetings.  This led to the issuance of the statutory demand on 9 September 2010 which was served on the same day.

9.  On 9 September 2010, a Schedule detailing the total amounts paid by the Petitioner to the Company was provided to the Company’s Australian lawyers, who in turn supplied the Schedule to Brian Lee. The Schedule listed out all of the payments made by the Petitioner to the Company. Despite the Schedule, the Company maintained that it had no record or knowledge of the TCCs or the APA.

10.  On 7October 2010, the Company made an ex parte application under HCMP 1937 of 2010 before Hon. Harris J. for an injunction order to restrain the Petitioner from presenting a winding-up petition.  The application was supported by the 1^st affidavit of Brian Lee, a director of the Company.  Harris J. granted the injunction.  Pursuant to the Company’s undertaking an inter parte summons was issued for its continuation returnable on 15 October 2010.

11.  In the late afternoon on 14 October 2010, the Petitioner’s solicitor, Watkins, filed an affirmation in opposition to the Company’s application.  At the hearing of the inter parte summons, Harris J. was sceptical of Brian Lee’s 1^st affidavit and thought there was insufficient evidence before the Court to demonstrate a bona fide dispute of the debt on substantial grounds or even a strong possibility of such a dispute existing.  Harris J. set aside the ex parte injunction order on the ground of material non-disclosure on the part of the Company and ordered the Company to pay the Petitioner’s costs on an indemnity basis.

12.  Then the Petitioner filed the petition on 18 October 2010.  On 19 November 2010, he filed an application for appointment of provisional liquidator.  Pursuant to the directions of Harris J., Brian Lee filed his 2^nd affidavit in opposition on 30 November 2010.  That application was, however, dismissed on 8 December 2010 by consent with costs in the cause of the petition.

13.  On 13 December 2010, the Petitioner filed his 3^rd affirmation in response to Brian Lee’s 2^nd affidavit.  Then Brian Lee filed his 3^rd and 4^th affidavits in opposition to the petition on 20 and 31 December 2010 respectively.

14.  On 31 December 2010, the Company applied for security for the Respondent’s costs.   

15.  On 3 January 2011, the parties appeared before Hon. To J. for directions.  To J. ordered that all evidence filed in the injunction application and the appointment of provisional liquidator application in HCMP 1937 of 2010 would stand as evidence in the winding-up petition. The Petitioner was also given leave to file an affirmation in reply to Brian Lee’s 3^rd affidavit in opposition to the winding-up petition.

16.  On 13 January 2011, the Petitioner applied for discovery of the Company’s audited accounts for the year ended 31 March 2009. The hearing took place before Hon. To J. on 17 February 2011.  The Company’s application for security for costs was also heard at the same hearing.  In his Decision dated 17 February 2011, To J. allowed the Petitioner’s discovery application.  The Company was ordered to produce, within 3 days, for inspection by the Petitioner’s solicitors a full set of the Company’s audited accounts for the year ended 31 March 2009. To J. also ordered the Petitioner to lodge security in the sum of HK$550,000 into Court which was effected on 23 February 2011.

17.  On 28 February 2011, the Company issued a summons seeking leave to appeal against the Order of To J. This application was heard and dismissed by To J. on 15 March 2011.  The trial of the Petition commenced on 17 March 2011. At the inception, I asked about the status quo in respect of the discovery issue. I was informed by Senior Counsel for the Company Mr. Leong, SC that the Company intended to apply to the Court of Appeal for leave to appeal against the discovery order made by To J. and the Company would not produce the 2009 audited accounts for inspection.  I pointed out to Mr. Leong that the Company was technically in contempt as there was no order of interim stay of execution of the discovery order.  I was informed by Mr. Leong that the Company was in the process of preparing all papers for the intended application to the Court of Appeal which would include a prayer for interim stay.  The position of Mr. Carolan, Counsel for the Petitioner, was that he would not like to see any postponement of the trial.  Accordingly, the Petitioner elected to proceed with the trial even without the benefit of seeing the 2009 audited accounts. Mr. Carolan however submitted that the Company’s refusal to produce the 2009 audited accounts despite so ordered by To J. was a factor from which the Court could infer insolvency.  Mr. Leong SC did not submit otherwise.  The trial proceeded accordingly and was part-heard on that day.  The trial resumed on 28 March 2011 and was completed at the end of that day.  Thereupon, I reserved my judgment.  

18.  In the meantime, on 18 March 2011, the Master assessed the indemnity costs ordered by Harris J. to be paid by the Company to the Petitioner in respect of the injunction proceedings, at HK$225,356.00.

19.  On 25 March 2011, the Company issued a summons seeking leave from the Court of Appeal to appeal against To J’s discovery order. By a Decision dated 13 May 2011, the Court of Appeal dismissed the Company’s application.  The Court of Appeal made the following observations relating to the relevance of the issue of solvency at the trial of the petition:-

“Relevance of solvency

24. I do not consider there is any merit in the contention that the solvency of the respondent is irrelevant at the trial of the petition since the only issue for the court is whether the petitioner can prove that the debts claimed under his statutory demand were due at the time of the making of that demand.

25. A petition under section 177(1)(d) of Cap. 32 is made on the basis of the company’s inability to pay its debts, i.e. on the basis of its insolvency. As Harman J observed in Cornhill Insurance v. Improvement Services [1986] 1 WLR 114, at 116H, “the fundamental allegation of insolvency … is the basis upon which a winding up order is made” . Reliance on the statutory demand mechanism is simply a convenient method by which a petitioner can demonstrate a company’s inability to pay its debts. Therefore, even if a statutory demand has not been properly served, the court may nevertheless be satisfied from other evidence that the respondent is unable to pay its debts and grant a winding up order accordingly: see e.g. re AuraSound Speakers Ltd. [2004] 3 HKLRD 502 per Tang J. (as he then was) at §50.

26.    It follows that the respondent’s solvency was a relevant issue at the trial of the petition and that it was open to To J. to conclude that discovery of its 2009 audited accounts were necessary for the fair disposal of that issue.”

Applicable legal principles

20.  The position of the Company is that the alleged debts as set out in the statutory demand are disputed by the Company bona fide on substantial grounds. Mr. Leong submitted that that is the only issue before the Court.  He submitted that “solvency of the company” was irrelevant for the determination of this petition. It can be seen from the Court of Appeal’s decision above that Mr. Leong’s submission was erroneous.  

21.  As to the principles governing the determination as to whether the Company can establish a bona fide dispute of the debts on substantial grounds, parties are in agreement that those principles have recently been succinctly summarized by To J. in his judgment in Re First Dragon Fashion (Hong Kong) Limited (HCCW 41/2010, 14 February 2011) as follows:-

“The applicable legal principles

13. The legal principles applicable to winding up of a company on the ground that it is unable to pay its debts are well settled. Winding up proceedings are not intended for the purpose of debt collection. A winding up order has serious consequences on a company. The most obvious one is the freezing of its bank accounts which undoubtedly would disrupt the day-to-day affairs of the company and adversely affect its goodwill and operation. The jurisdiction is a summary one and will only be exercised in very clear cases. The test which the court applies is whether the debt is bona fide disputed on substantial grounds or if the debt is not so disputed, whether the company has a bona fide counterclaim or set off exceeding the debt. If satisfied that it is the case, as a matter of practice, the companies court will not embark on a trial to determine the issue of the validity of the debt, counterclaim or set off, but will dismiss the petition.

14. Where the company disputes a debt or raises a counterclaim or set off, the onus is on the company to adduce sufficiently precise factual evidence to satisfy the court that it has a bona fide dispute of the debt or has a genuine counterclaim or set off. A bona fide dispute is not a trivial or insubstantial dispute but is one based on solid grounds disputable both in law and on the facts of the case. As recognized by Rogers J, as he then was, in Re ICS Computer Distribution Limited, [1996] 3 HKC 440 at 443C-444A, this is a higher standard than that required of a defendant in resisting an application under Order 14 rule 3 of the Rules of the High Court. His Lordship held at 444:

“Importantly for this case there is a distinction between a consideration of whether the Company has established a defence on substantial grounds and a consideration of whether the evidence is believable. Taken to the ultimate, the difference is between whether there is evidence and whether that evidence is believable. It seems to me that the onus must be on the company against which a petition is presented to adduce sufficiently precise factual evidence to satisfy the Court that it has a bona fide dispute on substantial grounds. This seems to me to be the proper approach which emerges both from the cases where the petition has been struck out and those for example as the Great Britain Mutual Life to which I have referred and the Janeash Ltd [1990] BCC 250. In that case Browne-Wilkinson V-C said at 252 “That huge weight of material has remained unanswered”. He went on to doubt the truth of such material as had been put in by the company, but that does not, in my view, detract from the basic point that the company's evidence must establish a substantial case. If the evidence fails to establish that case the company cannot satisfy the test by arguing hypotheses of fact on which it is said that such a case exists or could exist.”

Thus, the burden is on the company to show not only that its set off is believable but also that there is precise factual evidence in support of that set off, not just mere assertions. The court will look at the company’s evidence against so much of the background and incontrovertible evidence that is not disputed or not capable of being disputed. An honest belief that it has a substantial ground of defence is not sufficient to avoid a winding up order: Re Hong Kong Construction (Works) Limited, HCCW 670/2002.

15. In a winding up based on insolvency ground, a petitioner may invoke the deeming provision under section 178 of the Companies Ordinance, if the company failed to pay a debt within three weeks of a statutory demand. But this presumption is rebuttable. A statutory demand is merely a means of proof of insolvency but is not a sine qua non for the success of a petition on the ground of insolvency. The court would not order the winding up of a company unless it is satisfied that the company is in fact insolvent: Bozell Asia (Holding) Ltd and CAL International Ltd & Another [1997] 1 HKLRD 1 and Re IJ Langleb Ltd [1996] 4 HKC 68.

16. Non payment of the debt in the absence of a bona fide dispute of the debt on substantial ground or of a bona fide counterclaim or set off is very strong evidence on which the inference of insolvency could be raised: Re United Strength Ltd [1992] 1 HKC 386; Cornhill Insurance plc v Improvement Services Ltd [1986] 1 WLR 114 adopted in An Feng International Trading Ltd v Honour Link International Development Ltd [1999] 3 HKC 116. This is particularly so where there is no evidence showing the company’s liabilities: An Feng International Trading Limited v Honour Link International Development Ltd.

17.    Moreover, the fact that the full amount of the statutory demand may not be proved to be owing does not invalidate a demand or render the company involved any less insolvent so long as a debt which exceeded the statutory limit is due and admitted or not bona fide disputed: Bozell Asia (Holding) Ltd and Cardiff Preserved Coal and Coke Company v Norton (1867) LR 2 Ch App 405 at 410.  The rationale in the latter case was adopted by Kwan J, as she then was, in 有關華廈傢具城有限公司(清盤中)的事宜, HCCW 229/2007.  ”

22.  Adding to the above is the trite principle that if the Company contends that the statutory demand has been overstated, the correct procedure for the company to follow, to avoid the statutory presumption of insolvency, is to comply with the demand as to the amount which is not bona fide disputed, and then contest the remainder. See per Hoffman J. in In re a Debtor (No. 490-SD-1991) [1992] 1 WLR 507, at 509H-510A.

The Company’s arguments

23.  Mr. Leong summarized the Company’s arguments as follows:-

(i)      The Petitioner has not proven that he had paid under and performed the TCCs and the APA, so as to entitle him to the debts alleged in the statutory demand;

(ii)     Haque was not authorized by the Company to enter into any of the alleged contracts with the Petitioner;

(iii)    All the contract terms were so one-sidedly in favour of the Petitioner and outrageously unfair to the Company that they just strip the contracts of any business efficacy;

(iv)    Monies allegedly paid to the Company had in fact been paid to Haque personally or to the Petitioner’s company;

(v)     The Company has kept no record in its office systems of any of the alleged contracts or documentation expected from their execution;

(vi)    The Petitioner has not alleged any involvement of Brian Lee in the negotiation and execution of the alleged contracts;

(vii)   The Petitioner could not fix Brian Lee with personal knowledge of the alleged contracts; and

(viii)  By reasons of, inter alia, all of the above, there was collusion between Haque and the Petitioner to defraud the Company.

24.  In proper analysis, the Company is actually seeking to raise 3 defences: (1) strict proof of the debts; (2) lack of authority on the part of Haque; and (3) fraud and collusion on the part of Haque and the Petitioner.

Strict proof of the debt

(I)      The Time Charter Contracts

25.  Mr. Leong argued that the Company knew nothing about the alleged transactions and there was no record whatsoever pertaining to the existence of such transactions in the Company’s records at all.  Mr. Leong thus said that the Company has no way of verifying the genuineness of such transactions. Mr. Leong criticised the Petitioner for not providing proof other than the provision of the Schedule, which was self-serving. 

26.  Mr. Carolan referred me to the Schedule which was divided into 3 parts.  The first part was entitled “Funds Transferred from Credit Suisse to the Company”. It consisted of 18 payments evidenced by bank documents. The documents showed 3 payments totalling US$5,450,000.00 which were received by “Offshore Global Management Inc.” (“OGM”).  According to the website of the Company, OGM was described as the Company’s core division which provided portfolio management and investment advisory services to high net worth clients and corporations.   Mr. Carolan submitted that these 3 payments related to TCC1, TCC2 (part) and TCC3, all of which expressly stipulated that the Petitioner should make respective payments to OMG. The first of these 3 payments was US$1,750,000.00 which matched with the payment obligation of the Petitioner under TCC1. Furthermore, the deadline for remittance under TCC1 was 6 June 2005 which also matched the date of the remittance of US$1,750,000.00.  The third of these 3 payments was US$2,200,000.00 which matched with the payment obligation of the Petitioner under TCC3. On this occasion, the actual remittance was made just 4 days after the stipulated payment deadline in TCC3. In respect of the second of these 3 payments, Mr. Carolan explained that the sum of US$1,500,000.00 was part-payment under TCC2.  The terms of TCC2 required the Petitioner to pay US$2,200,000.00 by 3 August 2005. The bank document showed that US$1,500,000.00 was remitted by the Petitioner to OGM on 3 August 2005.  Mr. Carolan admitted that the balance of US$700,000.00 was not evidenced by any bank document. Mr. Carolan relied on the evidence of the Petitioner who said that he had paid this sum of US$700,000.00 to Haque via Mr. Gul Mohammed on 2 August 2005.  Mr. Carolan also relied on Haque’s email which constituted an implicit acknowledgement that promised revenues were due under TCC2, and hence the Petitioner must have already performed his payment obligation under TCC2. 

27.  According to the affidavits of Brian Lee, the Company’s case is that OGM was/is an entity totally unconnected with the Company.  I have previously mentioned the reference to OGM as the Company’s core division in the Company’s website. The contents of the website also stated that the Company had a dynamic shipping and logistics division which were consistent with the Company’s apparent involvements in the TCCs.  These were information available on the website as of 7 May 2010, prior to the service of the demand letter.  Then according to another website print-out made on 12 October 2010, the following changes were made:

(i)      references to the Company’s shipping and logistics business were removed;

(ii)     reference to provision of services to “high net worth individuals” was removed making it appeared that the Company would serve only corporations and multinational conglomerates;

(iii)    the entire section entitled “Where are we going” was removed. In this section, there were originally references to the Company’s fleet and Australian property developments as follows:-

“Shipping & Logistics:

To seek en bloc sale of the current fleet when market dictates the same in order to enhance profitability for the company and use the proceeds in other viable investment opportunity. Thereafter, to embark to grow fleet again with a view to possibly IPO the division, pending market sentiments”

“Property Development:

- To continuously identity and acquire development sites in Australia, focusing on Sydney and Cairns.

- To acquire a commercial site to build a GRADE A retail mall in an emerging market.

-     To begin civil works on a cement manufacturing plant with a capacity of 3000 tons per day stated to start production in second half of 2011.”

(iv)    The entire section formerly entitled “Finance” was removed. This was the section which contained detailed references to the role of OMG in the Company’s group.

(v)     The entire section formerly entitled “CG Wealth Management” was removed. This section previously contained references to CG Wealth Management Ltd. (“CGWM”) which provided services of managing its customers’ private banking accounts.

(vi)    The entire section formerly entitled “Logistics” was removed. This section previously referred to CG Shipping Ltd. (“CGS”) as follows:-

“CG currently owns and control CG Shipping Ltd (CGS). The administration and operation of the fleet of vessels is handled by CGS. This dynamic division has formed great synergies with our other divisions, creating better access and a new steady monthly stream of cash flow for the company.” [emphasis added]

28.  Mr. Carolan described the removal of the above information from the Company’s website after the service of the demand letter as most suspicious and I agree.  In the 2^nd affidavit of Brian Lee, he admitted that he was aware of Haque’s personal dealings with OMG but maintained his denial as to any business relationship between OGM and the Company.  Brian Lee purported to explain that prior to the murder of Haque and Yeung in Pakistan, Yeung was responsible for the maintenance of the Company’s website. After their demise, and when he took over their jobs and duties in the Company, Brian Lee became involved in the maintenance of the website and discovered certain inaccurate and misleading contents. He therefore caused those contents to be removed.  Brian Lee admitted that the business of the Company was all along managed by Haque and him. He and Haque were the Company’s only directors and shareholders.  It may well be that the maintenance of the website was handled by Yeung. It is however most surprising that Brian Lee was not hitherto aware of the contents of the website (as it originally appeared on 7 May 2010). Those matters that had subsequently been removed were conspicuously displayed in the website.  Brian Lee provided no credible explanation as to why he was not aware of, or was not alerted to those (what must have been to him) glaringly misleading/inaccurate contents. His affidavit was ambivalent as to when his allegedly discovered the misleading/inaccurate contents. There was no credible explanation for Yeung to audaciously include such glaringly “misleading/inaccurate” information in the Company’s website.  Furthermore, it was too much of a coincidence that all contents removed were features that tend to corroborate the Petitioner’s claims. Neither did he provide evidence, such as the Company’s group organization chart or inter-group accounts summary to demonstrate that OMG was wholly unrelated business-wise to the Company. Mr. Carolan also referred me to a Portfolio Management & Advisory Agreement between the Company and Prezar (executed in February 2007); a Portfolio Management & Advisory Agreement between OMG and an unrelated third party (executed in September 2004); and another Portfolio Management & Advisory Agreement between the Company and the same unrelated third party (executed in July 2007). The “address for notice” clauses in these agreements required communications to be made to “OMG/Capital Globe Ltd.” at the registered address of the Company.  Mr. Leong was unable to provide any explanation. The onus is on the Company to dispute the Petitioner’s debt by way of precise factual evidence.  The Company wholly failed in this regard.  All this Court has been provided is the unsubstantiated bare assertion of Brian Lee that there was no business link between OMG and the Company.  

29.  Capital injection under TCC4 consisted of two payments, namely US$1,500,000.00 made on 22 June 2006 and US$500,000.00 made on 2 October 2006 respectively. Pursuant to the express term of TCC4, the Petitioner was required to make payment to CGS through Liu Chong Hing Bank. Both payments were in fact effected by the Petitioner through Liu Chong Hing Bank. The first payment was made directly to the Company.  The second payment was made to CGS.  Both payments met the stipulated deadline of 3 October 2006. It was however stipulated on the Credit Suisse debit advice in respect of the first payment of US$1,500,000.00 that it was “for cement plant loan refundable by Sept 2006”.  The Petitioner’s evidence was that this sum was originally deposited in June 2006 as per Haque’s request in connection with the Titan Cement Project.  It was later appropriated as part-payment for TCC4. The remaining US$500,000.00 payable under TCC4 was remitted to the Liu Chong Hing Bank on 2 October 2006.  Mr. Carolan stressed that by 2October 2006, the sum of HK$1,500,000.00 originally paid pursuant to the cement plant project became refundable and that was entirely consistent with the same being appropriated for TCC4.  Brian Lee first alluded to the existence of the Titan Cement Project in his first affidavit.  He admitted that according to the Company’s accounting records, the Company did receive this sum of US$1,500,000.00. He said that the cement plant project was the only joint venture between the Company and the Petitioner which he was aware of.  However, he did not provide any further information about the cement plant project. Neither did he state categorically whether the said sum of US$1,500,000.00 was in fact used in the project and hence never refunded to the Petitioner or appropriated for another purpose.  Mr. Leong submitted that there was no evidence that the cement plant project loan was appropriated for TCC4. He also pointed out that the balance payment of US$500,000.00 pre-dated the execution of TCC4 on 15 October 2006. In my view, the last point was rather neutral as the payment clause itself stipulated the deadline for payment on 3 October 2006 which also pre-dated the formal execution of TCC4 on 15 October 2006.  On the first point, the Petitioner had provided evidence of appropriation of the US$1,500,000.00 for TCC4.  The onus was then on the Company to provide precise factual evidence to the contrary.  In my view, the Company had provided no such evidence particularly in the light of the Company’s failure to disclose the forensic accountant’s report which I shall deal with hereinbelow.

30.  TCC5 was executed on 23 February 2009. Clause 1 stated that TCC5 superceded the Portfolio Management & Advisory Agreement signed by the Company and the Petitioner on behalf of Prezar on 21 February 2007 (the “PMAA”). Clause 1 further stated that the PMAA “referencing the IFX/Commerce Account no longer shall be in force”. TCC5 related to 6 vessels and the Petitioner was required to pay the Company a total sum of US$6,000,000.  Unlike all other preceding TCCs, TCC5 did not contain a clause setting out the deadline for payment to be made by the Petitioner and the banking coordinates of the recipient of funds.  Mr. Carolan then referred me to the PMAA which contained handwritten words “Changed to shipping agreement” and lines crossing out the entire contents of the agreement.  There was no evidence as to who made those handwriting and lines.  They were however consistent with Clause 1 of TCC5.

31.  There were terms in the PMAA material to my analysis of the veracity of TCC5 which are thus set out as follows:-

“1. Client’s Account

Client has been facilitated and has an operating designated currency trading account hereafter known as the “Account” with IFX/Commerce Bank & Trust, MA., USA. Client herein acknowledges that it funds will be held in a segregated account under the said Bank in USA. Said account shall be under the full control of the Client. The funds in the account will be traded solely by CG under the terms and conditions of the Agreement.

2. Client’s Representation

Client represents to CG that:-

a) The funds herein being placed is a security towards a transaction involving the purchase of time charter contracts involving 6 dry bulk cargo vessels. Client herein does NOT have direct ownership of the said vessels, hence, the funds are being placed in the client’s account for the benefit of the client’s own safety. However, client will receive the return based on the operations of the vessels and as such any trading related income arising from the said funds shall be to the full benefit of CG solely.

b) Client herein acknowledges to transfer the sum of : Six Million US Dollars (US$6,000,000.00) into his segregated account the said funds by February 20, 2007. It is hereby noted that Client has given irrevocable instructions to CG to re-invest all of its payment due from CG for February and March 2007 to make up the said figure of Six Million US Dollars.

c) Client further acknowledges that he/she shall receive a remuneration of his/her account at the rate of 23.7% (Twenty Three Point Seven Percent) per annum paid quarterly in arrears as follows:…It is further clarified that the client shall not be liable or responsible for any loss if occurred as a result of CG trading client’s account under the said Agreement. CG indemnifies the client for all losses that my arise from the trading of the client’s account under this Agreement.

3. Bank Responsibilities and Statements

Client understands that the Bank, rather than CG, will have full custody of Client’s funds and commodity market positions. CG will transmit orders on the Client’s behalf to the Bank and arrange for the direct execution of such orders…

5. Additions and Withdrawals

During the term of the Agreement, Client may not add any further sums of money to his/her account unless agreed by CG. The Client may NOT also take on any positions at his own accord on the said account and further may not interfere with the trading techniques of CG.

Client shall also not be permitted to withdraw any of the monies during the term of this Agreement. In the event a Client withdraws his/her full or any part of the monies in the account prior to the completion of the month and without consent from CG, then, CG shall be at liberty without further notice to the Client to liquidate all remaining open positions in the account and further CG shall be indemnified of any loss that Client may sustain as a result of the liquidation and subsequent termination of the Agreement. Moreover, Client herein covenants and guarantees to pay CG any profits immediately in the amount that is above what is herein stated and acknowledged to be his/her pro-rated share of the accrued profits. However, the client may add or withdraw any amount with mutual consent of CG during this agreement.

6. Termination

   This Agreement shall remain in effect until August 31, 2010 and may be mutually extended by both parties for a further term until December 31, 2012.” [emphasis added]

32.  Clause 2(a) shows that the PMAA was linked to the subsequently executed TCC5. Mr. Carolan relied on bank documents in respect of 3 payments made in February 2007 totalling US$5,350,000.00 as referable to TCC5.  That was on the basis that the entire sum of US$6,000,000.00 had already been paid under the previous PMAA which was later appropriated to TCC5 which superseded the PMAA.  The balance of US$650,000.00 must have been provided for as per Clause 2(b) of the PMAA. However, it is apparent from the above terms of the PMAA that the US$6,000,000.00 was kept in a bank account in the name of Prezar. Mr. Leong submitted that there was simply no evidence of actual transfer of US$6,000,000.00 from Prezar or the Petitioner to the Company or its affiliates.  Mr. Carolan accepted that there was no documentary evidence to that effect. Furthermore, the Petitioner did not provide specific evidence in his affirmation pertaining to the transformation from the PMAA to TCC5.  Mr. Carolan submitted, however that the link between TCC5 and the PMAA was apparent on its face. He stressed that TCC5 contained no separate payment instruction and thus the terms of the two agreements were consistent with his theory of appropriation.  Mr. Carolan further relied on the Haque email which was an acknowledgement that the Petitioner had performed his part under TCC5.  It is correct that the Haque email did refer to TCC5 in this way: “Vessels (US$6.0M)”.  Mr. Carolan submitted that the Company merely questioned the Petitioner’s evidence without putting forward any positive case, particularly in this regard.  He submitted that if the Company wants this court to believe that TCC5 and the PMAA were not so linked, the Company has to provide precise factual evidence to the contrary.  Mr. Leong’s reply in this regard was to reiterate that the Company did not have records of this transaction and that after the demise of Haque and Yeung, nobody in the Company had any relevant knowledge.

33.  It is thus high time to consider the Company’s main argument that it has no record of the relevant transactions and that after the demise of Haque and Yeung, nobody in the Company had any such relevant knowledge.   In the first affidavit of Brian Lee, he mentioned that the Company had instructed Messrs. Cheng & Cheng (C & C), a firm of forensic accountants (“C&C”), to make a thorough scrutiny of the books and accounts of the whole CG Group of companies. The object of the exercise was to ascertain whether or not those payments mentioned in the TCCs and the APA had been received and used by the CG group of companies. In a letter dated 29 September 2010 from C&C, it seemed that they had made some preliminary investigation on the organization of CG group and obtained some books and accounts of CG group. Results of such preliminary investigation were apparently contained in annexures to the said letter. These annexures were however never disclosed by the Company.  It was also apparent that they had not yet obtained all relevant books and accounts. C&C also indicated that some supporting documents were missing and they were approaching the banks to obtain remittance advices or other supporting documentations.  They estimated that a full forensic report was likely to be available by 15 November 2010.  In the end, no such forensic report was ever disclosed despite the fact that C&C eventually charged HK$2,000,000.00 for the making of such report.  From the amount charged, Mr. Carolan rightly surmised that substantial investigative work must have been conducted by C&C over the books and accounts of CG group.

34.  At the hearing, I specifically asked Mr. Leong as to what had happened to the final forensic report and why it was not disclosed.  Mr. Leong said that he had not seen it but he could understand why it was not disclosed at this stage.  He said that there was no obligation to disclose it because the report might involve many matters about the Company and there was no reason to assist the Petitioner in fishing. Mr. Leong was thus not claiming any form of privilege.  In response, Mr. Carolan referred me to the dictum of Cockburn CJ in M’Queen v. Great Western Railway Co. (1874-1875) LR 10 QB 569, at 574:

“If a prima facie case is made out, capable of being displaced, and if the party against whom it is established might by calling particular witnesses and producing particular evidence displace that prima facie case, and he omits to adduce that evidence, then the inference fairly arises, as a matter of inference for the jury and not as a matter of legal presumption, that the absence of that evidence is to be accounted for by the fact that even if it were adduced it would not disprove the prima facie case.”

35.  I accept Mr. Carolan submission that in relation to TCC1 to TCC5, the Petitioner had established, to say the least, a prima facie case that the Company had, either through itself, or its associated companies and/or Haque received all those sums stipulated in TCC1 to TCC5. Given the raison d’être of the forensic accountant’s report, if the Company omits to adduce it as evidence and refuses to disclose it, I can fairly draw the inference that even if it were adduced, it would not disprove the prima facie case.  It is particularly so when I take into account what Brian Lee said in his first affidavit [§69(d)]:-

“During my preliminary search of CG’s shipping accounts record, I have come across some payment records revealing that CG did make some periodic payments to Prezar Trade Ltd. SA seemingly in accordance with 1 of the Time Charter Contracts between Essa and SH as beneficial owners. I am now in the process of verifying such figures with the forensic accountant of CG.”

36.  TCC6 was executed on 23 February 2009. Clause 1 stated that it was in relation to a vessel named M/V Wilno. The Petitioner was obliged to make payment of US$3,100,000.00 but there was no stipulated payment instruction and bank coordinates. Clause 3 stated that commencing from February 28, 2009, the Petitioner would receive monthly return of US$70,000.00.   In the first affirmation of the Petitioner, his evidence about TCC6 was not entirely clear.  After referring to TCC1 to TCC5 [§3], he continued to say as follows:-

“3. In addition as is described further below at paragraph 5 herein, on or about 23^rd February 2009, I also agreed to reinvest monthly revenue payments CG would owed to me under the Time Charter Contracts for the period of February 2009 to September 2009 totalling US$3,100,000 in return for interests in the operation and sale of the vessel M/V Blue Sky by CG (the “M/V Blue Sky Investment”). I understood and believed the M/V Blue Sky Investment was with CG and that [Haque] signed the meeting minutes reflecting the M/V Blue Sky Investment as a duly authorized agent and representative of CG even though the signature block containing Haque’s signature on the meeting minutes does not specifically identified CG. Copies of the Time Charter Contracts and the meeting minutes reflecting the M/V Blue Sky Investment were attached to the letter from my Hong Kong solicitors Messrs. Stevenson, Wong & Co. (“SW”) to CG dated 31^st May 2010 and comprise part of exhibit “BL-4” to Lee’s Affidavit…

5.      During 2005, 2006 and into 2007, CG made some periodic payments to me and/or Prezar under the Time Charter Contracts. In 2007, Haque requested that, in lieu of receiving period cash payments from CG under the Time Charter Contracts, the amounts owed would instead be reinvested into CG’s operations with monthly cash payments to resume in early 2009.  When CG failed to renew making monthly cash payments as promised in early 2009, Haque asked me to enter into the M/V Blue Sky Investment to further forbear on the monthly cash payments owed under the Time Charter Contracts from February 2009 to September 2009. In September and October 2009 however, CG again failed to renew making any monthly cash payments under the Time Charter Agreements or the additional payments promised under the M/V Blue Sky Investment. After CG’s default on the periodic payments due under the Time Charter Contracts and the M/V Blue Sky Investment and following continued pressure from me, Haque sent me an email on 13^th October 2009 from his CG email account as Chairman of CG promising payments of revenue under the Time Charter Contracts and the M/V Blue Sky Investment in the instalments therein set out which he described as the Revised Revenue Schedule for December 2009-December 2010 (“RRS”)…”

37.  It can be seen that the Petitioner did not refer to TCC6 in relation to M/V Wilno at all in his 1^st Affirmation. In fact, the above paragraphs in his 1^st Affirmation gave one the impression that the “Blue Sky Time Charter Contract” was the 6^th TCC in line. However, I was informed by Mr. Carolan that the sum claim under the statutory demand had excluded the March 2010 instalment of US$3,100,000.00 set out in the RRS which was referable to the Blue Sky Investment. The Blue Sky Investment was thus wholly irrelevant to this Petition. Hence, the court was only provided with a copy of TCC6 with no assistance from the Petitioner’s evidence as to how the alleged capital contribution of US$3,100,000.00 was made to the Company or its affiliates.

38.  The only other reference to TCC6 (the Wilno Time Charter) that I could find is in a letter from the Petitioner’s solicitors dated 31^st May 2010:-

“6. Wilno Time Charter Contract [Exhibit 6]

Mr. Essa, as beneficial owner, and CG. As lead underwriter and guarantor, executed the Wilno Time Charter Contract on or about 23 February 2009. Based on the representations of CG, its affiliates and agents, Mr. Essa invested US$3,100,000 in exchange for a 50% beneficial ownership in the venture. Per the terms of Wilno Time Charter Contract, Haque represented that he personally invested US$3,100,000. In the venture. We demand that Haque immediately produce: (1) evidence supporting his representation that he invested such sums in this venture; (2) all documents reflecting the Time Charters represented as existing or to be procured for the venture; and (3) all documents reflecting the beneficial interests in such Time Charters held by any party.

   The Wilno Time Charter Contract provided for the return of all of Mr. Essa’s capital and for monthly payments to Mr. Essa of US$70,000. Based upon our understanding of when CG stopped making payments on the Wilno Time Charter Contract, over US$2,030,000 in monthly payments are owed to Mr. Essa Through the end of the contract. Additionally, CG is obliged to return Mr.Essa’s initial capital contribution in full. We also demand to see any documents reflecting the return of capital or the payment of any profits or funds of any nature to eithyer Haque or any other person or entity relating to the Wilno Time Charter.”

39.  It thus seems from the aforesaid letter that the investment was made by the Petitioner in or about the time when TCC6 was executed, i.e. 23 February 2009. However, according to the Schedule, the capital contribution of US$3,100,000.00 was said to have been provided by the Petitioner in the following manners:-

(i)      US$400,000.00 paid on 10 September 2008;

(ii)     US$2,699,993.00 by re-invested revenue from August to December 2008 of US$1,615,832 plus Bank of China refund of US$1,047,661 plus revenue from January 2009 of US$36,500.00.

40.  The payment of US$400,000.00 was evidenced by a credit advice of Credit Suisse. The payer was Prezar and the payee was Kemp International Inc. (“Kemp”).There is no evidence that Kemp was and is an affiliate of the Company. Prezar, though related to the Petitioner, was not a party to TCC6. Under “Details of payment”, it was only marked as “investment for purchase of” without identifying as to what.  There is thus no documentary evidence that the payment was related to TCC-6.  As to the balance of US$2,699,993.00, there was no record of how the alleged revenue became accumulated to the sum of US$1,615,832, let alone as revenue from what source. The same applies to the source of the alleged revenue of US$36,500.00. Similarly, there is no evidence of what the Bank of China refund was, documentary or otherwise.  In the end, the Petitioner could only rely on the Haque email as evidence of acknowledgement that he had in fact made the investment of US$3,100,000.00 under TCC6. It is thus necessary to take a closer look at the RRS as set out in the Haque email.

41.  It is important to note that the Petitioner’s statutory demand was not based on the refund of the capital injections made under the various TCCs at the end of their respective terms.  Paragraph 6 of the Petitioner’s 1^st Affirmation stated that:-

“The statutory demand served by SW on CG on my behalf dated 9^th September 2010, consists of two parts:-

(1) The past due revenue on the Time Charter Contracts pursuant to the RRS excluding the March 2010 instalment of US$3,100,000.00 referable to the M/V Blue Sky Investment; and

(2) The past due instalments due under the Australian Property Agreement as of the date of the demand.”

42.  The Haque email began with the following words after addressing the Petitioner:- 

“At long last and after a lot of headaches, the below are the preliminary numbers (forecast) …In short, we are selling all vessels in tandem and we will get a payout over the next 15-18 months…Once we get our funds back, we will re-strategize again a new structure if we wish to continue in this sector. There are 3 purchases involved in the transaction…The final numbers (minor changes expected only) will be done prior to month end as we are meeting in Europe again for all to sign off and settle the matter…I will be sending U further details once I am back from Europe but the below is fairly accurate for your planning purposes…”.

What followed was a table entitled “Revised Revenue Schedule for Dec 2009-Dec 2010”.  Mr. Carolan confirmed that the Petitioner had limited its claim under the statutory demand to the September revenue.  I will therefore only set out the table up to September 2010:-

The table was then followed by a note stating that: “Australia Investment covered under a separate agreement and will now commence with first instalment no later than February 2010”.

43.  At the hearing, I pointed out to Mr. Carolan that the figures set out in the RRS were expressly said to be preliminary forecast although Haque anticipated only minor changes at the end of the day. Mr. Carolan submitted that the Petitioner would rely on the underlying TCCs to show at least more than HK$10,000.00 in debt was due.  He relied on Re First Dragon Fashion (Hong Kong) Limited, ibid,  and submitted that even if the statutory demand overstate the indisputable debt, Company can and should pay the indisputable portion and dispute the rest.  In this case, the Company did not offer to pay anything.

44.  It can be seen from the RRS that for every month, the revenue due was apparently generated from 7 sources.  Looking at the first column, the 1^st item corresponds with TCC1, the 2^nd item with TCC2; the 3^rd item with TCC3; and the 4^th item with TCC4. The 5^th and 6^th items both refer to “New Vessel Purchase (3.1M)”.  It is unclear which of the 2 items represent TCC6 (Wilno) and the Blue Sky Investment. The 7^th item however corresponds with TCC5.  There was no breakdown of revenue said to be generated from each TCC.  Only a global monthly figure was given.  

45.  In my judgment, given the provisional and unbroken down nature of the monthly revenue figures set out in the RRS, I cannot accept them on their face and must proceed on the basis of the underlying TCCs. 

46.  As I have pointed out above, other than the implied acknowledgement in the Haque email, there is really no evidence of the Petitioner actually having paid the capital injection of US$3,100,000.00 to the Company or its affiliated companies under TCC6.  Even when one looks at the RRS, it was not entirely clear which item actually referred to TCC6.  In this state of evidence, I am not prepared to find that the Company has not raised a bona fide dispute on the issue of whether the Petitioner had in fact paid the Company the capital injection under TCC6.  Accordingly, I am not prepared to find that the Company has not raised a bona fide dispute on the Company’s alleged entitlement to monthly revenue as stipulated in TCC6.

47.  The position is different for TCC1 to TCC5.  In respect of TCC1 to TCC3, I am satisfied that the Petitioner had made the requisite capital injections to OMG.  I am also satisfied that those injections were stipulated in TCC1 to TCC3 as payable to OMG because OMG was a member of the Company’s group as described in the Company’s website prior to its subsequent beguiling amendments.  Accordingly, I am satisfied on the evidence that the Company has not raised a bona fide dispute on the Company’s alleged entitlement to monthly revenues as stipulated in TCC1 to TCC3.  In so far as it is necessary, I also find that the evidence presented by the Petitioner clearly established a prima facie case and the failure of the Company to disclose and adduce the final forensic accountant’s report entitled me to draw the inference that such prima facie case could not be displaced by the Company despite its thorough investigation over the books and accounts of its group.

48.  In respect of TCC4, the 2 payments of capital injection were indisputably received by the Company and its affiliate CGS.  I am satisfied that the evidence of the Petitioner clearly raised a prima facie case that although the first payment was originally made pursuant to a cement plant project, it was later refunded and appropriated for the purpose of TCC4.  I am satisfied that the failure of the Company to disclose and adduce the final forensic accountant’s report entitled me to draw the inference that such prima facie case could not be displaced by Company despite its thorough investigation over the books and accounts of its group.  Accordingly, I am satisfied on the evidence that the Company has not raised a bona fide dispute on the Company’s alleged entitlement to monthly revenue as stipulated in TCC4.

49.  In respect of TCC5, I am satisfied from the documentary evidence adduced by the Petitioner that the bulk of US$6,000,000.00 had been paid to a designated account pursuant to the terms of the PMAA and the balance was provided as per Clause 2(b).  I am also satisfied that the contents of the PMAA and TCC5, coupled with the implied acknowledgement contained in the Haque email established a prima facie case that the said US$6,000,000.00 had subsequently been appropriated for the purpose of TCC5 when it superseded the PMAA.  I am satisfied that the failure of the Company to disclose and adduce the final forensic accountant’s report entitled me to draw the inference that such prima facie case could not be displaced by Company despite its thorough investigation over the books and accounts of its group.  Accordingly, I am satisfied on the evidence that the Company has not raised a bona fide dispute on the Company’s alleged entitlement to monthly revenue as stipulated in TCC5.

50.  Under the terms of TCC1 to TCC5, the Petitioner was promised different streams of revenue returns.  Those returns were not necessarily calculated on monthly basis. After making due adjustments, it can be seen that the Petitioner would be entitled to monthly revenue in the amounts as follows:-

51.  Mr. Carolan said that the figure in the RRS for March 2010 was excluded from the statutory demand. He did not suggest any alternative figure. He also stated that the cut off line was after September 2010.  Accordingly, there were all together 8 months of revenues claimed under the statutory demand.  The total revenue due was thus US$2,200,000.00.  This is the total debt relating to TCC1 to TCC5 that is definitely due under the statutory demand which the Company has failed to raise any bona fide dispute.  In this regard, I do not accept the submission of Mr. Carolan that at least, US$5,450,000 was incontrovertibly due under TCC1 to TCC3. This was the total of 3 sums of US$1,750,000; US$1,500,000 and US$2,200,000 paid under TCC1 to TCC3 and evidenced by Credit Suisse credit advices.  This submission failed to recognize what I have stated in paragraph 41 above.  In any event, according to the terms of TCC1 to TCC3, no capital injection could have been due for refund to the Petitioner as at the date of the statutory demand, i.e. 9 September 2010.  TCC1 to TCC3 all contained a similar term that “at the end of the contract… the capital injections shall be returned in full within 15 days unless all parties agree to re-invest the said sum into a purchase of another Time Charter Contract or and extension in the same vessel should she still be sea worthy at that time”. For TCC1, the expiry date of the contract was extended to 30 June 2011. For TCC3, the expiry date of the contract was extended to 28 February 2011. As for TCC2, although the expiry date was extended only to 31 August 2010, the 15 days period had not yet expired as of 9 September 2010.  Accordingly, it is plainly wrong to focus on the amounts of capital injections proven to have been made under TCC1 to TCC3 in calculating what was indisputably due under the statutory demand.   

(II)     The Australian Property Agreement

52.  The APA was between the Company and Prezar.  It was executed by Haque on behalf of the Company on 31 August 2007 and by the Petitioner on behalf of Prezar on 4 September 2007. The material terms of the APA reads:-

“Now Witnesseth that in consideration of the sums exchanged for the participation in the said property transaction in Australia, receipt of which is hereby acknowledged by CG as per the schedule indicated herein, and other mutual covenants and promises, the party herewith agree the following terms and conditions:-

1. the aggregate required sum of funds due for the participation is AUD 15 Million. The said funds will be payable to CG as per the following schedule:-

	May 31, 2007	AUD 1 Million
	July 31, 2007	AUD 4 Million
	September 30, 2007	AUD 5 Million
	December 31, 2007	AUD 5 Million

2. CG has been appointed to make all decisions and arrangements for the said transaction in the best interest of the underlying participants and all parties herewith agree that CG shall have the sole mandate for the day to day operating/management of the entire project. Based upon the feasibility and the forward sale and purchase agreements, the herein schedule will be honoured for the return of capital and profit to the participants.

	September 30, 2009	AUD 5 Million
	December 31, 2009	AUD 4 Million
	July 31, 2010	AUD 5 Million
	December 31, 2010	AUD 5 Million
	July 31, 2010	AUD 6 Million
	December 31, 2011	AUD 8 Million”

53.  The APA did not contain any payment instruction and bank coordinates.  The acknowledgement of receipt of funds contained in the preamble also seems inapt because by the time of execution of the APA, the last 2 injections were still not due for payment.  According to the Schedule, the relevant funds transfers were classified under 3 categories:-

(i)      Funds transferred from Credit Suisse CG:

Date	Item	AUD	USD	Description	Receipient
27/072007	11b	2,500,000.00		Australian Property Payment 1	Haque
27/07/2007	11c	1,526,429.00		Australian Property Payment 1	Haque
26/09/2007	11e	434,346.00		Australian Property Payment 3	Capital Globe Australia Pty. Ltd
30/09/2007	11h	800,000.00		Australian Property Payment 2	Capital Globe Australia Pty. Ltd
07/12/2007	11i	1,200,000.00		Australian Property Payment 3	CGS

(ii)     Funds transferred from other sources to CG

Date	Item	AUD	USD	Description	Receipient
31/05/2007	11a		817,800.00	Australian Property Payment 1	Haque	via Gul Mohammed
31/12/2007	11e		200,000.00	Australian Property Payment Final	Haque	via Gul Mohammed
31/12/2007	11e		238,000.00	Australian Property Payment final	Haque	via SAMI
31/12/2007	11e		36,065.00	Australian Property Payment Final	Haque	in PKR from Pakistan

(iii)    Funds re-invested

Date	Item	AUD	USD	Description	Receipient
28/09/2007	11f		2,400,000.00	Australian Property Payment 1	Haque	reinvested: Capital from TANKER TIME CHARTER Agreement  of May 2006
28/09/2007	11g		706,666.00	Australian Property Payment 2	Haque	Revenue from September 2007
31/12/2007	11j		1,500,000.00	Australian Property Payment final	Haque	reinvested: Capital from Portfolio Management Account
31/12/2007	11l		1,233,666.00	Australian Property Payment Final	Haque	reinvested: revenue from Nov 2007: $146,500; Dec 2007: $580,666; and Feb 2008: $506,500

54.  Mr. Carolan accepted that only those remittances set out in category (i) were evidenced by bank documents.  As to the rest of the remittances under category (ii) and (iii), Mr. Carolan referred me to certain emails exchanged between the Petitioner and Haque.  Mr. Carolan also relied on the Haque email as an acknowledgement that Prezar had already performed its capital injection obligations because it contained a note saying: “Australia Investment covered under separate agreement and will now commence with first instalment no later than February 2010”.

55.  The first email was one from Haque to the Petitioner on 15 June 2007. It contained contents of earlier exchanges between them beginning with Haque informing the Petitioner of a press coverage relating to the sale of an Australian property.  It was then followed by the Petitioner’s reply as follows:-

“The price per sq yard for G8 is Rs,400,000/ and for your project Rs.274,000/ which is less. Gul Bhai have send you US$817,888/ and what balance I have to pay to make 1M AUD. Please send details for Geneva A/C….”

Haque then replied to the Petitioner as follows:-

“Putting together a full email with U regarding the investment etc… Give me a few days to complete… Meanwhile, confirming receiving US$817,800 from Gul Bhai…Rate is 0.84 USD=1AUD…Hence this works out to be: AUD973,571.43…

1,000,000 AUD – 973,571.43 = AUD 26,428.57 ”

56.  Mr. Carolan submitted that the reference to “1M AUD” was a reference to the 1^st instalment of capital injection stipulated in the APA.  The bulk of this sum (i.e. US$817,800) was paid via Gul Mohammed on 31 May 2007 (item 11a of the Schedule).  This payment, though not evidenced by bank document, was confirmed by the reply email of Haque.  I accept that although there was no documentary evidence of the balance AUD 26,428.57 having been subsequently paid, it was likely to have been.  The Haque email was an implied recognition that the Petitioner had in fact fully performed his capital injection obligation under the APA.

57.  The 2^nd instalment of capital injection was AUD 4 Million due on 31 July 2007.  Mr. Carolan referred me to two remittances which were evidenced by bank documents.  The first sum was AUD2,500,000 from Prezar to Haque on 27 July 2007 evidenced by a Credit Suisse debit advice.  The second sum was AUD 1,530,000 from Prezar to Haque also on 27 July 2007 evidenced by another Credit Suisse debit advice.  Therefore, the Petitioner had in fact overpaid AUD 30,000.  It was slightly more than AUD 26,428.57 and was probably the Petitioner’s payment of the outstanding balance due under the 1^st instalment.

58.  The 3^rd instalment of capital injection was AUD 5 Million due on 30 September 2007. Mr. Carolan referred me to an email dated 28 September 2007 from Haque to the Petitioner which read:-

“This is for your reference and information…

September 28th closing. AUD/USD closing = .8870

Your dues was 2,400,000 + 706,666 = 3,106,666/.8750 = AUD 3,502,442

Therefore amount due = 5,000,000 -3,502,442 = AUD 1,497,558

Amount sent to me = 800,000 + 434,338 = 1,234,338

Balance Due = AUD 263,220”

59.  It is clear from the email that Haque first referred to 2 USD sums, i.e. 2,400,000 and 706,666 already received by him which he then converted them into AUD equivalent of AUD 3,502,442.  The said 2 sums in USD were referred to as items 11f and 11g on the Schedule and were both dated 28 September 2007. They were said to be revenue returns due to the Petitioner which he agreed to reinvest in the APA.  Then the calculation formula referred to AUD 5,000,000 which was a reference to the 3^rd instalment of capital injection under the APA.  Haque was thus calculating the AUD balance due from the Petitioner after taking into account the amounts he agreed to reinvest into the APA.  From the AUD balance of 1,497,558, Haque further deducted two sums in AUD.  These two sums of AUD 800,000 and AUD 434,338 were the two sums represented as items 11h and 11e in the Schedule. The sums of AUD 800,000 and AUD 434,338 were both sent by Prezar to “Capital Globe Australia Pty Ltd”, an Australian affiliate of the Company, on 26 September 2007 and were evidenced by 2 debit advices of Credit Suisse.  All in all, Haque therefore set out in this email the outstanding balance of AUD 263,220 in respect of the 3^rd instalment due under the APA.

60.  The aforesaid sum of AUD 263,200 remained due from the Petitioner until the 4^th and final instalment of capital injection under the APA became due on 31 December 2007.  Mr. Carolan referred me to an email from Haque to the Petitioner dated 27 December 2007. This email was entitled “Re: Australian Final Account Dec 2007”.  This email was a reply to an earlier email from the Petitioner to Haque which read:-

“Thanks for A/Cs but could not understand properly and I have following A/C with me please check and correct

Total Balance payment for 31^st Dec 07 AUD5,263,220/

Convert to USD 5,263,220 * 0.8602 == 4,527,422 USD

PAYMENTS

	Commerce bank	1,500,000
	Nov 07	146,500
	Dec 07	580,666
	PKR 2M to Sami	32,786/
	Ticket 0.2M	3,279/
	Karachi GulBhai	100,000/
	……… Sami	138,000/
	……… GulBhai	100,000/
	……… Sami	100,000/
	Thomas 12/12/07	1,200,000/
	Feb 08	506,500
	TOTAL	4,407,731/
Balance       4,527,422/ - 4,407,731/ == 119,691 USD

Balance Due 119,691 USD Please check and guide me Thanks I will try if we get Arif as JV partner, let us hope for good…”

Attached to the Petitioner’s email to Haque was a copy of the account prepared by Haque and entitled “Azziz Essa Investment Summary and Revenue Forecast for 2005” showing a different figure (i.e. US$468,783.00) as the final instalment due under the APA.  It was clear that the Petitioner was referring to this accounting by Haque as being different from the records kept by him. Then Haque replied to the Petitioner as follows:-

“We will go with YOUR accounting as stated below as being the FINAL for Australian Deal…Difference was in exchange rates as not all of it was at 8602 contract that I had…Needless to say, its fine and accepted…Balance of 119,691 can be towards my cash account of Titan…Thanx for everything and Inshallah all will go well as per plan!”

61.  The opening balance of AUD 5,263,220 was the final instalment plus the outstanding of the 3^rd instalment. The Petitioner than set out the various payments he had made to Haque.  The sum of US$1,500,000 was probably item 11j on the Schedule.  The sums of US$146,500; US$580,666 and US$506,500 were referred to in item 11l of the Schedule. The 2 sums totalling US$238,000 to Sami were referred to in item 11e of the Schedule. The 2 sums totalling US$200,000 to Gul were referred to in item 11e of the Schedule. The sum “PKR 2M to Sami – USD 32,786 + 3,279” was probably item 11e of the Schedule.

62.  In the end, Haque agreed with the accounting of the Petitioner and accepted the exchange difference.  The remaining balance of USD119,691 was most probably settled subsequently as per Haque’s reply email above.  This can be corroborated by the Haque email which impliedly acknowledged that the Petitioner had fully performed his payment obligations under the APA.  The Company had provided no evidence to contradict the Petitioner’s case of having fully injected funds as per the terms of the APA which was corroborated by the aforesaid emails. In particular, no explanation had been proffered in relation to the funds proven by bank documents to have been made to Capital Globe Australia Pty Ltd. and to CGS. On the evidence, I find that the Petitioner had established that Prezar had fully paid for the capital injection pursuant to the terms of the APA.  To say the least, the evidence presented by the Petitioner raised a clear prima facie case. The failure on the part of the Company to disclose and adduce the forensic accountants’ final report entitled me to draw the inference that the Company could not displace the Petitioner’s prima facie case.

63.  According to the terms of the APA, the first 3 instalments of promised return were in the total sum of AUD 14 Million and due by 31 July 2010.  This was the AUD 14 Million relied upon in the statutory demand.  I am satisfied that this debt was due from the Company to the Petitioner (as an assignee of Prezar) under the APA and the Company had failed to raise a bona fide dispute on the Petitioner’s entitlement to AUD 14 Million as return of profits and capital under the APA.

(III)    Provisional conclusion on proof of debt

64.  I therefore find that under TCC1 to TCC5, the Petitioner has established a debt of US$2,200,000 due from the Company.  I also find that under the APA, the Petitioner has established a debt of AUD$14,000,000 due from the Company.  I also find that the Company has failed to establish any bona fide dispute on the aforesaid amounts of debt due to the Petitioner. This conclusion of course is only a provisional one because I have yet to deal with whether the Company can raise bona fide disputes on the remaining 2 defences raised, namely, (2) the lack of authority on the part of Haque; and (3) fraud and collusion between Haque and the Petitioner.

Authority of Haque

65.  The point about Haque’s authority or the lack thereof in entering the TCCs and APA on behalf of the Company was not originally raised by the Company.  This point was brought up by Harris J. in the course of arguments at the inter partes hearing for the injunction application [See §11 of the Judgment of Harris J in HCMP 1937/2010].  In the 3^rd Affidavit of Brian Lee, he described how the business of the Company was managed:-

“17. To begin with, CG never authorized SH to enter into any of the Alleged Agreements…

18.    The business of CG were managed by SH and I.  We had an agreement that for any business opportunities valued at more than HK$10 million, we would notify each other. It had been how the business of CG was run all along.  As such, had there been any transaction as alleged by Essa involving such sums, I would expect to have been informed by SH of the same before he committed CG to them. I would also have expected to find contracts, minutes and records pertaining to materials relevant to the Alleged Agreements and Essa’s payments in the books and records of CG.”

66.  Firstly, I cannot accept Brian Lee’s evidence of lack of contracts, minutes and records pertaining to materials relevant to the TCCs/APA and the Petitioner’s payments thereunder in the books and records of CG.  The failure of the Company to disclose and adduce the forensic accountant’s final report and the Company’s recalcitrant refusal to comply with To J’s discovery order permit me to draw adverse inference against the Company. What Brian Lee said was merely bare assertion. Secondly, I agree with Mr. Carolan’s submission that the evidence of Brian Lee meant that both he and Haque did have the authority to commit the Company to business transactions, albeit that the two directors had agreed to inform each other in respect of transactions above HK$10 million. Brian Lee was not saying that transactions above HK$10 million need to have prior express sanction from the board of directors.  In any event, Mr. Leong was unable to point to any article in the M&A of the Company or any board resolution to that effect.

67.  Mr. Carolan relied on the principle of implied authority as enunciated in Hely-Hutchinson v. Brayhead Ltd. [1968] 1 QB 549, at 583 where Lord Denning MR said:-

“It is there shown that actual authority may be express or implied. It is express when it is given by express words, such as when a board of directors pass a resolution which authorises two of their number to sign cheques. It is implied when it is inferred from the conduct of the parties and the circumstances of the case, such as when the board of directors appoint one of their number to be managing director. They thereby impliedly authorises him to do all such things as fall within the usual scope of that office. Actual authority, express or implied, is binding as between the company and the agent, and also as between the company and others, whether they are within the company or outside it.

Ostensible or apparent authority is the authority of an agent as it appears to others. It often coincides with actual authority. Thus, when the board appoint one of their number to be managing director, they invest him not only with implied authority, but also with ostensible authority to do all such things as fall within the usual scope of that office. Other people who £see him acting as managing director are entitled to assume that he has the usual authority of a managing director.  But sometimes ostensible authority exceeds actual authority.  For instance, when the board appoint the managing director, they may expressly limit his authority by saying he is not to order goods worth more than £500 without the sanction of the board. In that case, his actual authority is subject to the £500 limitation, but his ostensible authority includes all the usual authority of a managing director.  The company is bound by his ostensible authority in his dealings with those who do not know of the limitation.”

68.  The Company had, at the material times, only 2 directors, namely Brian Lee and Haque. The evidence of Brian Lee was that the Company’s business was managed by him and Haque.  According to Brian Lee’s 1^st Affidavit [§69(d)], he admitted to making some periodic payments to Prezar seemingly in accordance with one of the TCCs between the Petitioner and Haque as beneficial owners. Although he said that he was in the process of verifying such figures with the forensic accountant, Brian Lee never subsequently disclosed the final report. Furthermore, in his 2^nd Affidavit [§20], Brian Lee admitted to signing off payments for the Petitioner from time to time. He also said [at §21] that he had disclosed those payment records.  In fact, he never did.  It is also noteworthy from the contents of the Company’s website (before its suspicious amendments) that time charter contracts and property development in Australia were precisely the sort of businesses which the Company was engaged in. In my judgment, Mr. Carolan was correct in his submission that there was more than sufficient evidence to hold that Haque did have actual implied authority to enter into the TCCs and the APA.  I find that the Company had failed to adduce any precise factual evidence to establish that Haque did not have such actual implied authority.

69.  As a further alternative, Mr. Carolan also relied upon the principle of ostensible/apparent authority as recently expounded in Akai Holdings Ltd. v. Kasikornbank PCL [2011] 1 HKC 357. Mr. Carolan submitted that unless the Petitioner had actual knowledge of Haque’s alleged lack of authority, or that his belief of Haque’s authority was dishonest or irrational, then the Petitioner’s state of mind would be sufficient for the purpose of establishing apparent authority.  In Akai, Lord Neuberger NPJ said [at §49 to 52]:

“The state of mind of the person alleging apparent authority

49. For the Bank, Mr. Jonathan Sumption QC … contended that, unless the Bank had actual knowledge of Mr. Ting’s lack of authority or its belief that Mr. Ting had authority was dishonest or irrational, then the Bank’s state of mind will suffice for the purpose of establishing apparent authority. Mr. Sumption also accepted that, if the Bank was reckless in its belief, or if it was guilty of turning a blind eye, that would not do either, on the basis that recklessness and blind-eye ignorance amount to irrationality or dishonesty in this context. Mr. Leslie Kosmin QC…argued that this set too low a standard on the Bank as a third party seeking to establish apparent authority, and that apparent authority could not be relied on if the Bank had failed to make the inquiries that a reasonable person would have made in the circumstances to verify the authority of Mr. Ting.

50. I have some doubts as to the extent to which there would, in practice, be much difference in outcome between the application of the rival tests. The distinction between Mr. Sumption’s ‘irrationality’ and Mr. Kosmin’s ‘unreasonableness’ may puzzle anyone who has recourse to the dictionary, although I would accept that the former word tends to carry more pejorative overtones, and therefore would set a higher hurdle for a party in the position of Akai in the present case. Similarly, the distinction between turning a blind eye and being put on enquiry seems fairly slender, but I accept that the former involves a more subjective exercise than the latter, although irrationality ultimately involves an objective assessment.

51. Approaching the issue by reference to both practicality and principle, I would prefer the Bank’s submission. In terms of practicality, at least when it comes to normal transactions, the application of the concept of constructive notice, which is what Akai’s approach effectively involves, has been deprecated (see for instance per Scrutton LJ in Greer v. Downs Supply Company [1927] 2 KB 28, 36). And one can understand why.

52. In a commercial context, absent dishonest or irrationality, a person should be entitled to rely on what he is told: this may occasionally produce harsh results, but it enables people engaged in business to know where they stand…”

70.  Haque was a 50% shareholder and one of the only two directors of the Company. He was also the Chairman of the Capital Globe Group and a co-founder and principal as evidenced by the Company’s press release dated 24 March 2009 as well as the Haque email. The Company allowed its business to be managed by Haque. Various capital injections under the TCCs and APA were directed to be remitted to and were in fact received by affiliates of the Company.   As mentioned before, the natures of the TCCs and the APA were entirely consistent with the descriptions of the Company’s business parameters in its website.  The Company had also made periodic payments to the Petitioner from time to time under at least 1 TCC. In the circumstances, I find that the Petitioner can also rely on the apparent authority of Haque to enter into the TCCs and the APA.  In conclusion, I find that the Company had failed to establish any bona fide dispute on the issue of Haque’s authority to enter into the TCCs and the APA.

Fraud and collusion

71.  In the 1^st Affidavit of Brian Lee, in explaining the Company’s case of bona fide dispute of the debts, there was no specific allegation of fraud and collusion between the Petitioner and Haque. He mentioned possible fraud and collusion in the following context:-

“69(a) Frankly speaking, I have also cast doubt on SH. There was always the possibility that SH might have entered into the alleged deals with Essa either by himself or in collusion with anybody including Essa. Since SH is now dead and there existed no records of any transactions alleged by Essa, I cannot therefore reach any conclusion without conducting further investigations into the matter through the forensic assistance of C&C or other sources. Yet I maintain my position that even though Essa might also be a victim to the fraud of SH like me, he has still failed to prove his claims with the requisite proof, that his claims are full of inconsistencies and double counting, and that the Time Charter Contracts and Australian Property Agreement, even if validly executed, are still subject to many genuine disputes that can only be resolved in a full trial.”

Brian Lee thus effectively acknowledged that prior to further investigation by the forensic accountant, the Company did not have and could not put forward any concrete allegation of fraud or collusion involving the Petitioner.  

72.  In the 2^nd Affidavit of Brian Lee [§5], he questioned the commercial sensibility of the alleged agreements; circumstances under which they were made; various inconsistencies and flaws in their terms; and the identity of funds recipients. Yet, there was still no specific allegation of fraud or collusion involving the Petitioner. The various matters he questioned related only to the “existence, authenticity, legality and enforceability” of the alleged agreement.  The position of Brian Lee remained the same in his 3^rd Affidavit. In paragraph 9, Brian Lee merely said that the Credit Suisse debit advices relied on by the Petitioner “could indeed have been evidence of collusions between the Petitioner and SH to defraud the Company”.  There was no explanation whatsoever as to the basis of such accusation.

73.  The 3^rd Affidavit of Brian Lee was largely a repetition of the contents of his 2^nd Affidavit. The two grounds of bona fide dispute were stated to be: (1) No proof of claims; and (2) Defects of Claim affecting the existence, authenticity, legality and enforceability of the alleged agreements.  In the course [at §24], Brian Lee said:-

“24. Some of the so called supporting documents discovered by Essa could even have been evidence of collusions between Essa and SH to defraud CG.”

Again, there was no elaboration on the basis for making such serious allegations.  Neither did the Company disclose and rely on any finding arising out of the investigative work conducted by the forensic accountant.

74.  Mr. Carolan criticized that the Company’s allegation of fraud and collusion was wholly unparticularized and unsubstantiated by any evidence.  This is particularly so in the light of the Company’s refusal to disclose the forensic accountant’s final report and to comply with To J.’s discovery order.  I agree. In De Krassel and Chu Vincent [2010] 2 HKLRD 937, at 945 [§43-46], Sakhrani J. said:-

“43. It is trite that a plaintiff who alleges dishonesty must plead and establish facts at trial to show that the defendant was dishonest and not merely negligent. The court will not infer dishonesty from facts which have not been pleaded or from facts which have been pleaded but which are consistent with honesty.

44. In Three Rivers District Council v. Governor and Company of the Bank of England (No. 3) [2003] 2 AC 1, Lord Millet said at p.291:

It is well established that fraud or dishonesty (and the same must go for the present tort) must be distinctly alleged and as distinctly proved; that it must be sufficiently particularized; and that it is not sufficiently particularized if the facts pleaded are consistent with innocence: see Kerr on Fraud and Mistake, (7^th ed., 1952), p.644; Davy v Garrett (1878) 7 Ch D 473, 489; Bullivant v Attorney-General for Victoria [1901] AC 196; Armitage v Nurse [1998] Ch 241, 256. This means that a plaintiff who alleges dishonesty must plead the facts, matters and circumstances relied on to show that the defendant was dishonest and not merely negligent, and that facts, matters and circumstances which are consistent with negligence do not do so.

45. An allegation of dishonesty must be established with cogent and compelling evidence. The standard of proof is on a balance of probabilities.

46. However, it is clear that the more serious the allegation, the less likely it is that the event occurred and hence the stronger and more compelling the evidence should be before the court concludes that the allegation is established on a balance of probabilities.”

75.  At the hearing, Mr. Leong relied upon 5 main points to establish a bona fide dispute of the debt on the ground of fraud and collusion.  The first point is that based on the Schedule, a number of payments of capital injections under the TCCs and the APA were received either by Prezar itself or by the personal account of Haque.  In relation to TCC1 to TCC5, as analysed in paragraphs 26 to 35 above, no monies were received by Haque personally.  It is correct to observe that 3 remittances relating to TCC5 were received by “IFX Markets Inc. for investment in IFX Markets Inc. for account of Prezar Trade Ltd. Acct. No. 3674”.  That was however due to the terms of the original PMAA which required Prezar to deposit funds into a designated account and authorized the Company to carry out trading activities in the designated account.  The PMAA was subsequently replaced by TCC5 and I have been satisfied by the Petitioner’s evidence that the US$6 million paid under the PMAA had been appropriated for the TCC5. It is also correct to observe that in relation to the APA, there were a number of payments received by Haque and said to be reinvestments made by the Petitioner. However, I have already conducted careful analysis, matching each payment with the corresponding contemporaneous email exchanged between the Petitioner and Haque shortly before each instalment for capital injection was due pursuant to the terms of the APA.  In my judgment, the contents of those emails indicated that both parties considered the APA investment to be genuine.  All along, Haque used his company email account shaquil@capitalglobeltd.com openly. It was also apparent that both Haque and the Petitioner kept their own accounting.  In my judgment, I cannot see any sign of fraud or collusion between the Petitioner and Haque.

76.  Mr. Leong then drew my attention to a number of what he called “salient features” of the TCCs and APA transactions and suggested them to be evidence of fraud and collusion.  He first pointed out that all the agreements were signed only by Haque for and on behalf of the Company. With respect, I do not quite understand the gravemen of this complaint.  The evidence of Brian Lee was that the Company’s business was managed by him and Haque. There is no evidence that Haque was not authorized to sign agreements on behalf of the Company by his sole signature.  The agreements also contained a round chop of the Company which was not suggested to be faked. The most that Brian Lee could say [§34 of his 3^rd Affidavit] was that it was standard practice of the Company to use a rectangular chop instead.  Even that was a mere bare assertion without any supportive documentary evidence.

77.  Mr. Leong then submitted that the Company had no records whatsoever of such contracts or any resolution authorizing Haque to enter into such contracts for and on behalf of the Company.  I have previously mentioned that I cannot give weight to this submission bearing in mind that the Company had refused to disclose and adduce the forensic accountant’s final report and refused to comply with To J’s discovery order. Furthermore, the various periodic payments admittedly paid by the Company and signed by Brian Lee were equally not disclosed and explained. 

78.  Mr. Leong then argued that from the reading of all the TCCs and APA, all the terms were (i) only for the benefits of the Petitioner and Haque; (ii) such benefits were either unreasonably favourable to the Petitioner; or commercially not sensible for the Company to have agreed upon; and (iii) not to the benefit but only detriments of the Company.

79.  First of all, it can be seen from TCC1 to TCC5 that there were invariably 3 investing parties: (i) the Petitioner; (ii) Gul Mohammed; and (iii) Haque & Associates/Nominees. There is no evidence from the Company to suggest that the Company or its affiliated companies had not received any capital injection from Gul Mohammed or Haque & Associates/Nominees as per the terms of the TCCs.  If there were such evidence, I fail to see why the Company had chosen not to refer to them.  Again, the Company’s refusal to disclose and adduce the forensic accountant’s final report and the 2009 Audited Financial Statements entitles me to draw adverse inference.

80.  Secondly, given that the Petitioner had been proven to have made capital injections pursuant to the terms of the TCCs, and given that the Company had provided no evidence to show that Haque had not equally made capital injections pursuant to the terms of the TCCs, it is neither here nor there that the Petitioner and Haque stood to be entitled to revenue returns for such investments.  Mr. Leong argued that Haque had not disclosed his personal interest under the TCCs to the Company.  With respect, it begs the question whether there was any evidence that Haque in fact did not do so. Again, bearing in mind the Company’s refusal to disclose and adduce the forensic accountant’s final report and the 2009 Audited Financial Statements, the court is left with Brian Lee’s bare assertion that he did not know about the TCCs.  Even that was partly contradicted by the admitted fact that Brian Lee had signed off some of the periodic payments at least pursuant to one TCC. Again, without disclosing documents relating to such periodic payments signed off by Brian Lee, the Company had prevented this court from properly assessing what knowledge about these TCCs that the Company, through Brian Lee, truly had.  In this regard, the Company was clearly not discharging the burden of raising bona fide dispute of debt by adducing precise factual evidence.  

81.  Thirdly, I do not agree that the terms of the TCCs were necessarily one-sidedly in favour of the Petitioner or that they were commercially non-sensible in the Company’s perspective.  The TCCs invariably referred to the fact that the respective vessel/vessels “is/are being Time Chartered by CG”.  The website of the Company also mentioned that the Company had a fleet which the company was seeking an en bloc sale in order to enhance profitability for the Company and use the proceeds in other viable investment opportunities.  It was perfectly likely that the Company was seeking to recover the capital that it had previously invested in the time charters by seeking other investors to take its place so that capitals could be freed for Company’s use in other more profitable investment opportunities.  Without any evidence to the contrary from the Company, I am not prepared to accept that there could have been no commercial sense for the Company to enter into the TCCs. Mr. Leong then pointed out that whilst the investors were promised handsome returns, the capital originally injected were also promised to be refunded at the expiration of the TCCS.  With respect, I cannot see anything necessarily sinister.  It is common knowledge that there are numerous investment products that are capital protected.  In the absence of any evidence adduced by the Company, I am unable to find that the rates of return under the TCCs were so unrealistic that they could feed any suspicion of fraud or collusion.  It was perfectly likely that at the material times, the Company formed the view that by freeing its capital from the time charters, such funds could be invested on products that could generate even higher returns than what were promised under the TCCs. 

82.  Lastly, Mr. Leong referred me to a number of so-called anomalies in the terms of the TCCs. For instances, in relation to TCC2, although the name of the vessel was the same in the body of the TCC and the attached schedule, there were discrepancies in respect of the identity of the builder and year of built. Also in respect of TCC3, there was similar discrepancy in respect of the identity of the builder.  In respect of TCC5, it was curious that it was just one month before date of the TCC that a bareboat transfer was made.  Mr. Leong also pointed out that all the TCCs referred to “English Basic Law” as the governing law which indicated sloppy drafting.  With respect, I am unable to see how such observations could transcend into precise evidence of fraud and collusion. It is important to note that whilst the Company’s website referred to it having a current fleet, there was no evidence from the Company to demonstrate that those vessels were not amongst the Company’s fleet at the material time.  If there were such evidence, I fail to see why the Company had chosen not to adduce such evidence. 

83.  In respect of the APA, Mr. Leong questioned the description of the Company as “the lead under writer and guarantor” in the parties’ clause and its role as a project manager under Clause 2. He also referred to sloppy drafting of referring to “English Basic Law” as the governing law.  In its most common dictionary meaning, “to underwrite” means to sign and accept liability under certain arrangement thus guaranteeing payment in the event of loss and damage. The Company did undertake to pay stipulated returns coupled with a promise to return the capital. The APA was not drafted by legal professionals. Furthermore, the fact that the Company also assumed the role as the project manager having full power to operate and manage the project is uneventful to say the least.  The Company was given the fund so that it could participate into a real property development project in Australia. As apparent from the Company’s website, investing in Australian property was one of the major business activities of the Company. The email from Haque to the Petitioner on 15 June 2007 seemed to suggest that the said project related to Foster’s sale of its brewery site.  There was no evidence from the Company to suggest that it did not in fact have involvement in such a project. If there were such evidence, I fail to see why the Company would not rely on it. Again, the refusal of the Company to disclose and adduce the forensic accountant’s final report and its refusal to comply with To J’s discovery order permit me to draw adverse inference.

84.  In the circumstances and in the current state of the evidence, I find that the Company had failed to demonstrate by precise factual evidence that it has bona fide dispute of the debts on the ground of fraud and collusion.

Insolvency of the Company

85.  Mr. Carolan had devoted very considerable footage in his Skeleton Arguments on the issue of insolvency of the Company and the court is grateful for that. However, given my conclusion that the Petitioner had successfully proven unpaid debts in excess of HK$10,000 and my finding that the Company had failed to demonstrate by any precise factual evidence that the debts are bona fide disputed, it is not necessary for me to go further into voluminous evidence which goes to demonstrate that the Company is in fact insolvent.  I would just note that originally, in his 1^st Affidavit, Brian Lee asserted the solvency of the Company by relying on the Balance Sheet allegedly extracted from the 2009 Audited Financial Statements of the Company.  This led to the Petitioner’s application for discovery of the entire 2009 Audited Financial Statements. The application was granted by To J. but up to the date of the hearing, the Company refused to comply with the said order.  The Company’s appeal against such order was eventually dismissed by the Court of Appeal.  In the 3^rd Affidavit of Brian Lee, he no longer asserted that the Company was and is solvent.  I was informed by Mr. Carolan that the Company had twice stated in court that it would no longer rely on Brain Lee’s assertion of solvency in his 1^st Affidavit. Mr. Leong did not suggest otherwise. In fact, in Mr. Leong’s Skeleton Arguments, he submitted that the entire issue of solvency was irrelevant and the sole question was whether the Company could demonstrate bona fide dispute of debts.   There was thus no attempt on the part of the Company to deal with the detail submissions and observations made by Mr. Carolan on the issue of insolvency of the Company.   The Court of Appeal had since ruled that Mr. Leong’s approach was incorrect and the issue of solvency of the Company is a relevant issue at the hearing of the Petition.  The result is that I have been given detail analysis of the evidence by Mr. Carolan demonstrating that the Company was and is in fact insolvent but is faced with no contrary evidence or arguments from Mr. Leong.  I have considered Mr. Carolan’s detail submissions with reference to the evidence he identified in his Skeleton Arguments and I accept those submissions in full.  In so far as it is necessary, I also find that the Company is in fact insolvent.

Conclusion

86.  By reason of all the aforesaid, I exercise my discretion to make a winding-up order against the Company and make a costs order nisi that the Company shall pay the Petitioner’s costs.

87.  Mr. Carolan submitted that in view of the Company’s dilatory conduct in respect of its attempts to conceal relevant evidence (i.e. the forensic accountant’s final report; the 2009 Audited Financial Statements; records of periodic payments made by the Company and signed off by Brian Lee; and the suspicious amendments to the Company’s website), the court should exercise its discretion to order costs to be taxed on indemnity basis.  I agree that the aforesaid conduct of the Company, particularly in the light of its recalcitrant refusal to comply with the order of To J. (having obtained no interim stay of its execution), is outrageous and amounts to an abuse of process.  To show the Court’s disapproval, it is appropriate to make an order nisi that costs be taxed on indemnity basis.

88.  Mr. Carolan also referred me to Applications to Wind Up Companies, by Derek French, 2^nd ed., §4.6.3.1 in which the learned author said:-

“The company’s costs of preparing for and appearing at the hearing of a successful winding-up petition are normally ordered to be paid as an expense of the liquidation. But the court has jurisdiction to order that the company’s costs are not to be paid out of its assets in the liquidation. The company’s assets available for distribution to its creditors should not be used to pay for its unjustified opposition to the petition. Where there has been unjustified opposition, the court may either:-

(a) order the company’s costs to be paid by a person who instigated the company’s unjustifiable opposition; and

(b) order that the company’s costs are not to be paid until all unsecured creditors have been paid in full.

The first order is in the nature of a third party costs order and the person against whom such an order is sought must be given an opportunity to submit a defence and, if necessary, put in evidence, before the order is made. The second order (known as a ‘Bathampton order’) ensures that the person ordered to pay the company’s costs cannot claim an indemnity from the company in competition with unsecured creditors.  Before the jurisdiction to make third-party costs order was established, only Bathampton orders were made. ”

89.  I agree that the Company’s opposition to the Petition was, particularly in the light of the aforesaid conduct, unjustified. If the Petitioner seeks an order that Brian Lee be personally liable for the Company’s costs incurred in pursuing an opposition to the Petition, Mr. Brian must first be given an opportunity to defend.  In the meantime, I should only make an order nisi that the Company’s costs incurred in pursuing an opposition to the Petition should not be paid until all unsecured creditors have been paid in full.  If the Petitioner intends to further pursue a personal costs order against Mr. Brian Lee, an application should be properly made so that Brian Lee can have the opportunity of filing relevant evidence and putting forward relevant defences before the Court can consider exercising its jurisdiction and discretion.

90.  Finally, I make an order nisi that the security for costs paid by the Petitioner into court be paid out to the Petitioner.