DISCREET LTD v. WING BO BUILDING CONSTRUCTION CO., LTD

HCCW 49/2017

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING‑UP PROCEEDINGS NO 49 OF 2017

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J U D G M E N T

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1.  On 6 February 2017, the petitioner issued a petition to wind up the Company on the grounds of insolvency asserting by service of a statutory demand that a sum of $52,630 was due to it. I will explain how the debt arose later in this judgment. The petition was amended pursuant to an order of 1 March 2017. The Company has applied to strike out the petition.

Background

2.  The Company is a building contractor.  On 19 July 2007, it signed a contract with the petitioner, which is a developer, to build houses at Ting Kau, Tsuen Wan.  When the work was complete, the Company, in the normal way, produced a final account assessing how much was owed to it.

3.  In the evidence, I have been presented with two versions of that final account.  The first version was presented on 23 April 2013.  It shows a total final account sum of $78,064,019.65 and, after deduction of various interim payments that have been made, a sum of $5,234,329.93 as being payable.  There is also a revised version of that final account dated 13 June 2013, in which the final contract sum is adjusted to $77,808,589.27, and the amount payable to $4,517,407.55. 

4.  It would appear that the petitioner was not satisfied with the Company’s assessment of the amount payable for the work it had completed.  It suggested that an independent quantity surveyor be appointed to assess the final amount.  His name was Raymond Szeto.

5.  On 23 January 2014, the petitioner and the Company signed an agreement setting out the terms of his appointment to “[p]repare and present the overall final account statement for the whole project incorporating final account values for all items of work.”[1]  Paragraph (D)(1) reads as follows:

“As the review and assessment of the final account to be conducted by Party C under this Agreement is deemed to be independent and final, both Party A and Party B hereby agree that the result of the independent review and assessment of the final account to be produced and issued by Party C shall become final and binding among all concerned parties under this Agreement.”

6.  The petitioner failed to pay any part of the sum that Mr Szeto calculated was payable by the petitioner to the Company which is set out in his report dated 5 September 2014, namely $3,689,994.10.  As a result, the Company commenced legal proceedings against the petitioner (HCA 146/2015).

7.  The petitioner applied to stay the proceedings in favour of arbitration.  I take it there is an arbitration clause in the general conditions of the contract, although they have not been included amongst the exhibits filed in these proceedings.  That application was initially unsuccessful before Master Lung.  The petitioner successfully applied before Deputy High Court Judge Marlene Ng to have that determination set aside. 

8.  The Company attempted to appeal the Deputy Judge’s decision.  The application for leave to appeal was unsuccessful and the Court of Appeal ordered that costs in the sum of $52,630, namely, the debt relied on in the statutory demand, was payable.

The Present Application

9.  For the purposes of HCA 146/2015 (“High Court Action”), Mr Daniel Kwan of the defendant, who has also filed evidence in these proceedings, filed two affirmations.  They are dated 25 March and 8 May 2015 respectively.  Although they refer in general terms to disputes over the final valuation of the contract works, they contain no analysis which demonstrates that nothing is payable by the defendant to the Company. 

10.  For the purposes of these proceedings, Mr Kwan has filed an affirmation which, once again, is short on detail as regards adjustments, which is inherent in the petitioner’s case, needed to be made to the final account.  Exhibited to Mr Kwan’s affirmation is a document dated 13 June 2013 prepared by the petitioner purporting to adjust various items in the final account.  It runs to three pages.  There is also a short letter dated 19 July 2017 prepared by Wayer Limited, who are apparently surveyors, commenting on the adjustments and appearing to suggest that they are reasonable.  However, this still shows HK$918,229.79 being payable by the petitioner to the company. 

11.  On the face of it, therefore, after the preparation of the adjustments to the final account which, presumably, represent the maximum the petitioner has been able to assert it can deduct, the petitioner has had reason to believe that a sizable amount is still payable to the Company.

12.  The adjustments to the final account were prepared in June 2013 it would appear, and the petitioner has also had plenty of opportunity to instruct, if it felt it necessary, another quantity surveyor to undertake a more detailed review of the work done by the contractor and Mr Szeto.  But it has not done so.

13.  It is, therefore, quite clear on the evidence before the court, and as I have already indicated would appear to have been quite clear as far back as June 2013, that a significant sum is owed by the petitioner to the Company, and that was the position before the High Court Action was commenced which led to the costs order relied on by the petitioner as demonstrating insolvency.

Legal Principles

14.  I say this at para 8 of my judgment in Re Alpha Building Construction Limited:[2]

“There are cases, such as the present one, where a company contends that it has a bona fide defence on substantial grounds because it has a cross‑claim. If the company demonstrates that its cross-claim is genuine and serious and it is greater or equal to the debt relied on by the creditor a petition should not be presented and if one is it will be dismissed. Delay in prosecuting a cross-claim may be relevant in the assessment of its credibility, but it is not generally a bar to reliance on it. A claim, other than the debt relied on in the petition, that a petitioner asserts he has and which constitutes a bona fide defence on substantial grounds to the company’s cross claim, may also be relevant in assessing whether overall a company has shown a defence to a claim for payment of the petition debt.”

15.  Mr Meyrick Wong, who appeared for the petitioner, drew my attention to the decision of Madam Justice Kwan (as she then was) in another unreported decision Hong Kong Construction (Works) Limited [3] in which her Ladyship says this in sub‑para 6(6):

“Where a company does not or cannot dispute the petitioning debt, but puts forward a counterclaim which is disputed, on an application to strike out the petition or to restrain its advertisement, it could not be said that the petition is an abuse of the process of the court, even though the existence of the cross-claim may be relevant to the exercise of the court’s discretion on the hearing of the petition. After advertisement of the petition, the views of all the creditors who appear on the petition will be a material consideration to be taken into account (Re a Company No. 006273 of 1992 [1992] BCC 794 at 795B to 796B; Re Pendigo Ltd, supra. at 610F).”

16.  Mr Wong submitted, largely with a view to the issue of costs, that these authorities establish that as the petitioner clearly was owed the sum claimed it could not be an abuse of process to present the petition because the matter relied on by the Company was a cross-claim.  This is to misunderstand Kwan J’s decision.  Her Ladyship refers to a counterclaim that is disputed.  The dispute has to be a bona fide one.  If a petitioner knows that it is a net debtor of the company, as in the present case, in my view it is prima facie an abuse to present a petition.  This is particularly true if the petitioner has no reason to think that the company is insolvent and it cannot, therefore, be sensibly suggested that the petitioner is asserting a class right with a view to ensuring that the interests of creditors generally are protected by the company being put into liquidation.  There is no evidence to suggest that in the present case the petition was presented for this purpose. 

Conclusion

17.  In the present case, it seems to me that there quite clearly is a cross-claim, which exceeds the sum claimed by the petitioner, and I will strike out the petition.

18.  It also seems to me that on the information available to the petitioner, it was quite clear that the petition should not have been issued and it was an abuse of process to do so.

19.  I will now hear the parties on costs.

(Submission on costs)

20.  I will order for the reasons that I have just given that the Company’s costs are taxed on an indemnity basis for the reasons: see also para 14 of my decision in Alpha Building Construction.[4]