RE ENTERBAY LTD

HCCW192/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP NO. 192 OF 2009

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J U D G M E N T

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1.  On 8 April 2009, Renown (Asia) Limited (“Renown”) presented a winding up petition against Enterbay Limited (“Enterbay”) based on an alleged debt of HK$4,007,315.58. By summons dated 9 September 2009, Enterbay applied to strike out the petition on the ground that the debt is bona fide disputed on substantial grounds.

2.  The background is summarized as follows.

Background

3.  Renown is engaged in the production of mould injection, painting, concept product and mass production.

4.  By an exclusive licence made in about July 2007, Enterbay was granted by Ferrari SpA the right to produce 23 Ferrari model cars and engines for worldwide distribution.  In the same month, Enterbay engaged Renown for the production of model cars and engines.  (Enterbay’s case is that Renown was engaged to produce all the 23 models covered by the licence.  Renown alleged that it was only engaged for 8 models.)  The production process began soon afterwards.  But subsequently disputes arose.

5.  On 2 March 2009, Renown served a statutory demand dated 16 February 2009 on Enterbay, demanding it to pay the sum of HK$4,007,315.58, alleged to be the price of goods sold and delivered between June and December 2008.  The allegation that the said sum represented the price for goods sold and delivered is not correct.  Even on Renown’s own case, it had only delivered 15,120 pieces of model cars of which the total price was HK$941,320.40.  The balance consisted of HK$644,024.38 being the price of 9,693 pieces of model cars which Renown alleged Enterbay had failed to take delivery, HK$20,298.80 being film charges, HK$1,000 being sample cost, HK$106,672 being line tooling charges, HK$121,000 being pattern charges and some HK$2 million being tooling charges.

6.  This defect has however caused no prejudice to Enterbay.  For it is not in dispute that Renown had already sent all the supporting invoices to Enterbay between June and December 2008.  Enterbay is fully aware of Renown’s claims.

7.  Enterbay did not meet the demand, which led to the presentation of the winding up petition. Its defence is based on delay and defective quality.  It also sought to raise a counterclaim for the loss and damage that it has suffered as a result of the sales of counterfeit products resembling some of the model cars.

Applicable legal principles

8.  The applicable principles are well settled.  Faced with a creditor’s petitioner for winding up, the company bears the burden to show, by way of sufficiently precise evidence, that it has a bona fide dispute on substantial grounds.  When a cross claim not less than the amount of the petitioning debt is raised, the company must adduce sufficiently precise evidence to satisfy the court that the cross claim is genuine and serious and one of substance : see Re Standard Kitchen Cabinets Engineering Co. Ltd, HCCW425/2008, unreported, 6 May 2009, per Kwan J (as she then was) at paras.6-7.

9.  With these principles in mind, I now turn to examine the evidence in greater detail.

No dispute about the debt?

10.  Mr Leung, counsel for the petitioner, argued repeatedly Renown had already sent all the invoices to Enterbay and Enterbay had not disputed the debt.  This is factually incorrect. Renown might have sent all the invoices to Enterbay.  But it does not necessarily follow that Enterbay had not disputed liability.  As can be readily seen from the contemporaneous documents, especially the email exchanges, Enterbay did complain about delay, defective quality and counterfeit model cars.  Indeed, the contemporaneous documents speak volumes for Enterbay’s complaints.

Evidence on Enterbay’s complaints

11.  On the question of delay, Mr Tjhang Ching, director of Enterbay, said :

“13. It was orally agreed between I and upon the first model 599 would be completed within 60 days commencing from August 2007. However, during the course of production, the Company found that P did not have the right equipments, the necessary expertise and skills to perform the works. P could not produce the right prototype and to a satisfactory standard for Company, it took them two weeks from August 2007 to reconstruct the prototype and each time P could not be able to come up with the rejected prototype.

14. Usually it would only take 60 days to complete all the moulding. P took over 6 months to complete and still could not complete all the tooling and models to the standard required by the Company. The Company contemplated that the first model cars would have been completed and be ready to enter the market for sale in May 2008.

15. Therefore the Company had no alternative but to postpone the date of the advertising the first model car in the August 2008 in the car model magazine. There is now produced and shown to me marked Exhibit ‘TC-6’, a copy of the advertisement on the Japanese car model magazine. However, the production of the first model was not commenced by P until July 2008, the delivery of which was further delayed until September 2008.

16(a) I have instructed Mr York Chan of the Company to visit P’s factory and he discovered that P was working and producing and assembling other products for another factory called ‘Mini Champion’ in the period from late July 2008 for about 7 days and to Mid August for 2 weeks and the production of the Company product was put aside. It was clear that P priority was to finish the ‘Mini Champion’ production line, P gave the excuse that the Mini model series had to meet the deadline, thus the production of the product was further delayed.”

12.  Although he only dealt with the 599 series, the documents showed that in fact Enterbay complained about the delays for other models as well.  For example :

(1) In an email dated 20 August 2008, Enterbay complained :

“……請貴方捉緊色皮的交板日期與色皮質量，檢查后再交板！另外612修改后的啤件，FXX，F430引擎為何推遲一個星期？”

(2) In an email dated 11 November 2008, Enterbay stated :

“鉴於我司產品迟迟跟不上預期(打廣告日期)，很多消費者以及客戶對我司產品失去信心，同時也讓我司流失一定的訂單，打乱我司的消售策略……”

(3) In an email dated 1 December 2008, Enterbay again complained :

“……這兩款車[F40/50 及 612/ENZO]工程部8月份已開始試模，到現在未改到位！麻煩莫生寻出問題所在，加快進度！”

(4) In a letter dated 8 December 2008, Enterbay reiterated :

“因我司收到不少法拉利F340系列產品的投訴，和產品生產進度嚴重脫離時間表，我司的銷售策略和一系列的宣傳鋪排已完全失去協調，导至很多消費者以及客戶[對]我司品牌失去信心从而造成非常大的负面影响和已帶來嚴重的經濟損失.”

(5) In the reply letter dated 11 December 2008 Renown said :

“至於產品生產進度脫離時間表，希望雙方能面對面詳細瞭解，共同找出問題所出(是我司未能配合貴司的要求還是貴司提供的資料重複修改)。我司曾多次提出請求,請貴司負責人(Mr Bill Tjhang)到我廠開會，但貴司一直因未有空而未能安排成行。”

(6) In an email dated 11 December 2008, Enterbay repeated :

“基於秉秉的不協調問題和延誤，各國杂志廣告公布的上市時間已嚴重脫期和失去了推廣效益，导致我們各地的代理商嚴重不滿和跟本司索取賠償，599和F430系列的產品變為牺牲品.”

(7) In another email dated 29 December 2008, Enterbay complained :

“最近大家開會已提過，開發期上由手版，模具和色版上完全沒有尽力根据我們的時間表做出合理的配合导致嚴重失期和导致我司全部銷售和推廣策略失效，再加上因貴廠的管理安排不善，导致之前有不完整的599和430系列的次品流出市面导致我司受到嚴重声譽損害和經濟伤害.”

(8) In an email dated 31 December 2008, Enterbay stated :

“Enzo, Fxx, F40, F50, 288GTO, superamerica和575的模具根据貴廠發出的時間表文件顯示，从6月開始做模，到現在12 月底都還沒有完成，在正做工模的流程下應該不超過60天. 經我司不斷吹促下情況并無改善，手版同样問題，每一次的修改需時最少2到3個星期或更長時間，所有作並時間都完全不符合常理和一間正規工廠應有的守則. 完全沒有把客戶的利益放在前提考慮，道理上我司是有权利不支付和购買那些不合理模具和手版. 因造成我司的時間，利益和声譽损失已远远超出模具本身的价值.”

“另因以上因我司不能夠順利生產并如期推出市面和交貨給客戶已另我司招致嚴重的經濟损失和声譽受损，我司會保留一切追究权利.”

13.  Renown denied that there was any deadline of 60 days as specified.  This factual dispute cannot be resolved on affidavit.  For present purposes, I only note that Enterbay did refer to the 60 days’ requirement in the email dated 31 December 2008.  Mr Leung argued that Enterbay made up the defence of delay in order to defeat the petition.  This argument is not supportable by the contemporaneous documents.

14.  There is also a wealth of documentary evidence on defective quality :

(1) In an email dated 20 August 2008, Enterbay complained :

“F430跑車板色板問題

1. 倒后鏡本應是白色，個別染到紅色

2. 兩側移印白色最尾端向上(之前早已說過，貴廠未修改)

3. 兩側移印白色不夠整齊

4. 車玲與車胎裝配時有條縫

5. 個別車胎已破

6. 移印效果非常差(有變形也不到位)

7. 個別引擎上方透明件已脫膠

F430開逢板色板問題

1. 用錯車玲

2. 座椅后方的透明件部份是斜的(导致項逢不能完全合并)

3. 車玲有嚴重批鋒

4. 車身夾線幫忙打磨”

(2) In an email dated 22 August 2008, Enterbay said it was forced to abandon certain designs given that it could not attain the necessary standard.

(3) In the letter dated 8 December 2008 referred to above, Enterbay also complained of the defective quality of the products :

“因我司收到不少法拉利F340系列產品的投訴，和產品生產進度嚴重脫離時間表，我司的銷售策略和一系列的宣傳鋪排已完全失去協調，导至很多消費者以及客戶對我司品牌失去信心从而造成非常大的负面影响和已帶來嚴重的經濟損失.”

(4) In the letter dated 11 December 2008, Renown did acknowledge the complaints about defective quality :

“1. 關於法拉利F430系列產品存在的品質問題，請把所有有問題的貨品退回本廠以作跟進。

備註： 貴司於08年10月30日開始提取F430系列，10次合共3272pcs，在08年12月8日才投訴質量問題。

另外為了避免日後再有類似情況出現，請貴公安排驗貨員到本廠檢查所有貨品後才出貨。

……

3. 我司會應貴司要求，即時暫停所有未完成的F430系列產品。至於貴司要求我司列出詳細有關剩餘油漆﹑輔助工具﹑啤件鋼板噴油模的資料等，我司會盡力安排。”

(5)Enterbay had received complaints from its customers about defective quality from its customers in writing.

I reject Renown’s argument that Enterbay fabricated the defence of defective quality.

15.  In my view, both complaints based on delay and defective quality are genuine defence on substantial grounds.

16.  As to the cross claim arising from the counterfeit model cars, the evidence is quite strong.  It is not in dispute that such products had been available in the market since about November 2008. Mr Tjhang Ching said :

“19. In about November 2008, I discovered that the model car was contained in a fake package bearing the famous brand name of Mattel a toy manufacturer were on sale in China and mostly located in Guangzhou and Hong Kong SAR. I have bought one of these model cars with the package of Mattel (fake car model) from a toy model shop in Wan Chai, Hong Kong. There is now produced and shown to me marked Exhibit ‘TC-8’, a copy of the fake car model and emails between 3^rd January 2009 and 7^th January 2009 from the company and customers complaining about the fake car model.

20. The different packaging is used for the car model and is already fully assembled. I noticed that the under tray chassis of the faked model car, the Company is engraved thereon the Company’s logo ‘Enterbay’, this is clearly that these are the car models manufactured by P for the Company. There is now produced and shown to me marked Exhibit ‘TC-9’, a copy of the photograph of the fake car model.

21. The Company suffers a great financial loss in expected sales volume for the customers refused to purchase models from the Company as there were faked car models flooding the market at very cheap prices of about HK$165.00 or below, while the recommended retail prices by the Company’s retail customers in the sum of HK$380.00. Therefore by reason of the default by P and that the Company cannot be able to carry on the car model business with the Italian Company and therefore the Company has suffered losses and damages.

22. I verily believe that faked car model products would not have come from other sources and must have been produced by P for they were sold in the market since November 2008 and only P and no others could be able to produce the same product within a short period of time.

23. Furthermore, the paint used is a special paint supplied by PPG Paints Trading (SHA) Co Limited, which is the official designated paint company for Ferrari. I have examined the faked models and found that the paint work was the same as the paint from the said supplier, P must have sold the products to retailers using the label of one famous toy company by the name of Mattel in packaging. By the reason of the above unlawful act committed by P, the Company has suffered loss and damages and loss of reputation in the Toy trade.

24. As mentioned above, P has closed down its company and moved the factory address to 中國東莞塘廈石鼓田廈大道26 號的舊廠房一樓 on 6^th April 2009. All the moulds and toolings are still kept by P, and had not been delivered to the Company. The above address is occupied by company in the name of 豪泰廠 which is manufacturing of wooden furniture and not of P. There is now produced and shown to me marked Exhibit ‘TC-10’, a copy of the photograph of the said address. I verily believe that P was trying to mislead the Company as to their place of business so as to avoid any search for their above unlawful activity after the Company lodges a complaint to the authorities.

25. The Company’s goodwill and reputation have been severely damaged and the relationship between Ferrari and the Company can no longer be sustained The Company had made a wrong decision to have engaged P to undertake the task of the manufacturing these unique car models of which P have had no skill and expertise. The Company suffered a total loss on this exclusive business venture with Ferrari and the prospect of making handsome profits from the sale of these unique Ferrari car models and engines worldwide.”

17.  In an email dated 31 December 2008, Enterpay complained :

“在跟貴公司合作期間，在產品剛上市不久就發現一些未經授权的貨源流出市面并嚴重影晌到我司和合作伙伴的利益和声譽”

18.  Enterbay had already made a report to the police who are yet to make a finding on the complaint.

19.  Pending discovery, Enterbay is understandably unable to quantify the loss and damage that it has suffered because of the counterfeit products.  But it is most probable that it has suffered and will continue to suffer substantial loss and damage.  I accept that it has a genuine and substantial cross claim against Renown, although it is not sure at the moment if its value exceeds the petitioning debt.

Conclusion

20.  Having looked at all the circumstances in the round, I do not find it suitable to wind up Enterbay summarily based on the petitioning debt.  Renown’s claim and Enterbay’s defence and cross claim ought to be resolved by way of a writ action.

21.  Renown is fully aware of Enterbay’s complaints well before the commencement of the winding up proceedings.  It should know that the parties’ dispute ought to be fully litigated by way of a civil action in the usual manner.  It nevertheless commenced the winding up petition.  In my view, Renown had used the winding up proceedings as an unjustified means for collecting the disputed debt.  It is an abuse of process.  The winding up petition must be struck out and dismissed.

22.  For the above reasons, I order the petition be struck out and dismissed.  The parties have already agreed that costs should follow the event.  I therefore order Renown to pay the costs of the petition including the costs of Enterbay’s summons and all the reserved costs, to be taxed if not agreed.