GOLDEN CITY ELECTRONIC INDUSTRIES AND ANOTHER v. RCR ELECTRONICS MANUFACTURING LTD

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

COMPANIES WINDING-UP NO. 258 OF 1996

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JUDGMENT

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1. This is an application to strike out a winding up Petition. It follows an application which was made before the duty judge whereby he granted an injunction over until today to prevent the advertisement or further prosecution of the Petition.

2. The Petition is short and concise. It is based upon a statutory demand consequent upon the dishonour of a cheque for $254,880.00. The cheque was dishonoured on the 1st April. Notice of dishonour was given and a statutory demand was made on the 18th April and the three weeks thereafter expired.

3. At the hearing before the duty Judge, the Order made was conditional upon the sum of $101,490.78 being paid to the Petitioner's solicitors by Friday, the 24th May, since it was clear that on any footing the Respondent had no defence to that amount.

4. The Respondent seeks to strike out the Petition on the ground that it is an abuse of process. It says, first of all, that the liability under the cheque was not a liability which was owed to the Petitioner, but owed to one Mr. Chow Man Yan. Secondly, it relies upon a defence of quantified partial failure of consideration. Thirdly, it says that bringing this winding up Petition, even if there were a debt which were properly owed, is wrong and what the Petitioner should have done is to commence an action, bring Order 14 proceedings and seek payment under the Rules of Court. I can deal with the points fairly shortly.

5. It is not in dispute between the parties that the Petitioner did contemplate discounting the cheque. Indeed Madam Lai Yim Lee, who was also known as Mrs. Hong, says as much at the end of para. 12 of her affidavit of the 27th May. Certain alterations were made to this cheque which I need not go into it, in order to enable that to be done, if that is what the Petitioner wished to do. It is said on the Petitioner's behalf that the cheque never was discounted and never was transferred to Mr. Chow. In support of that, there will be filed today an affidavit which exhibits a copy of a fax from Mr. Chow who is now in Canada saying that although he was approached to take this cheque, he refused to do so.

6. Mr. Lam, on behalf of the Respondent, who seeks to strike out this Petition, supports his argument on the basis that there is an endorsement "Pay to Mr. Chow Man Yan" on the reverse of the cheque. He says, supported by evidence, that the chop of the Petitioner, which appears on the reverse of the cheque and which has been signed (and the signature has been confirmed by the bank), shows that there was an intention to transfer this cheque to Mr. Chow. He says that in the normal course of events, this endorsement "Pay to Mr. Chow Man Yan" would not have been put on the cheque unless Mr. Chow had agreed to take it. That may or may not be right, but for the cheque to be properly delivered to Mr. Chow, two things are required under the Bills of Exchange Ordinance. The first is that there should be an endorsement and the second is that there should be a delivery. The Respondent has produced no evidence of delivery of this cheque.

7. In order for the Petition to be struck out, the Respondent must establish that there is a bona fide dispute as to the existence of the debt on substantial grounds. In order to establish that it is necessary for the Respondent to support that case by evidence. It is not sufficient simply for counsel to expound hypotheses of fact upon which the Respondent may succeed. In my view, a respondent who seeks to strike out a winding up petition must adduce sufficiently precise factual evidence to support his contentions. That in this respect, in my view, clearly has not been done.

8. I turn then to the second ground upon which it is said that this debt is disputed. It is said that there is a quantified partial failure of consideration. It is said that this cheque was issued in part payment of a running account, the running account related to the supply of loudspeakers by the Petitioner to the Respondent. Those loudspeakers were provided in China. Frequently they were defective and from time to time had to be returned, sometimes in large quantities, to the Petitioner. That may be correct, but as Mr. Lam submitted, this cheque does not correlate to a particular purchase order. Therefore, on this cheque, it cannot be said that there is a partial total failure of consideration, since this cheque does not relate specifically to any loudspeakers which were returned.

9. In those circumstances, I accept for the purposes of today that the Respondent may have or does have a valid counterclaim against the Petitioner, but the Petitioner's claim is upon a cheque, a Bill of Exchange, and in accordance with the standard Order 14 rules, the Petitioner is entitled to payment on that cheque and any counterclaim by the Respondent should be dealt with separately. In my view, therefore, the liability under this cheque is clear. If the Respondent wishes to bring a claim, it may do so, but in the meantime, payment under the cheque must be made.

10. There remains the final argument of Mr. Lam that winding up proceedings should not be used as a lever for the payment of a debt. Whereas I entirely agree that winding up proceedings should not be used as a means of extracting a disputed debt, where there is not a legitimate dispute on the debt, I consider that a winding up petition is a perfectly proper remedy for enforcing payment of a just debt, and I have borrowed the words, slightly altered, from Palmers Company Precendents, 17th ed.

11. In my view, therefore, the Respondent to the Petition has failed to show proper grounds that this Petition should be struck out. Therefore I refuse the application.