RE FORTUNE HILL ENGINEERING LTD

HCCW1218/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO.1218 OF 2002

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D E C I S I O N

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1. By summons filed on 9 January 2003, the Company, Fortune Hill Engineering Limited ("the Company"), applies to strike out the winding-up petition presented by Li Ho Yeung (formerly known as Li Kwok Hung) trading as Wai Chun Ceiling Decoration Co ("the petitioner").

BACKGROUND

2. The Company was incorporated on 17 March 2000 with a capital of $10,000 divided into 10,000 shares at $1 each. The Company is a sub-contractor under two contract nos.TCH-019 and TCK-019 of which the Architectural Services Department ("ASD") is the employer. Under these two contracts, the Company was responsible for the installation of wall partitions at different sites designated by the ASD.

3. The petitioner was one of the Company's sub-contractors under contract nos.TCH-019 and TCK-019. On 10 October 2002, the petitioner served a statutory demand ("the SD") on the Company demanding payment for $299,703. The SD was based on 23 invoices said to have been issued by the petitioner to the Company in respect of work done under the said two contracts ("the 23 Invoices"). On 5 November 2002, the petitioner presented the petition herein for the winding up of the Company on the ground that the Company is unable to pay its debt.

4. On 21 November 2002, the Company paid a sum of $62,638.30 to the Petitioner, thereby reducing the petitioner's claim to $237,064.70.

THE STRIKING OUT APPLICATION

5. The Company disputes the claim of $237,064.70 in its entirety. It contends that by the payment of $62,638.30, it has settled all the account with the petitioner.

6. On 9 January 2003, the Company applies to strike out the petition on the basis that there is a bona fide dispute as to the debt alleged in the petition and, secondly, that the petitioner has no locus standi to present the petition in that there is no debt due to the petitioner such that the petitioner is not a creditor of the Company. The second ground is therefore dependent on the first ground and the two grounds either stand or fall together.

THE APPLICABLE PRINCIPLES

7. The law in this area is clear and counsel have no disagreement. The principles can be shortly stated as follows :

(1) A creditor's petition is liable to be struck out or dismissed if the debt on which it is based is bona fide disputed on substantial grounds;

(2) The burden is on the Company against which the petition is presented to adduce sufficiently precise factual evidence to satisfy the Court that it has a bona fide dispute on substantial grounds;

(3) If there is a bona fide dispute on substantial grounds sufficient to extinguish the claim, then that should, absent other considerations, be the end of the matter. But the fact that only part of the debt is disputed may not be sufficient to determine the petition, particularly where the company is not in a financial position to make payment :

Re ICS Compute Distribution Ltd [1996] 1 HKLR 181;

(4) Where a debt is substantially disputed, the winding-up procedure is an abuse of process;

(5) The Companies Court should not seek to resolve issues of fact without cross-examination where there is credible affidavit evidence on each side. But the court is not bound to hold that there is a need for a trial in circumstances in which, on a full understanding of the documents, the evidence asserted in the affidavits on one side is simply incredible :

Re First GNP Hong Kong Ltd [1995] 2 HKC 380; and Re a Company No.606685 of 1996 [1997] BCC 830 at 838D.

THE DISPUTE

8. The Company's case is that it did not receive the 23 Invoices until copies of them were supplied by the petitioner's former solicitors under a letter dated 19 September 2002 and in response to the Company's former solicitors' request. The Company says that the contents of the 23 Invoices are incorrect both as to the quantity of work done and as to the unit price to be adopted. In respect of the quantity, the Company says that it is at variance with the quantity certified and accepted by the main contractor. As to the applicable unit price, the Company points out that the 23 Invoices were calculated on the basis of the old rates under Quotation DTC-2000, which is only applicable to contract no.TCH-019 and not contract no.TCK-019. The applicable rates, according to the Company, are those set out in Quotation DTC-2001. The Company further rejects some of the items of work included in the 23 Invoices. Seven of the invoices are also rejected on the basis of duplication, and for containing no job number or reference and including items of work described to be done after the completion date specified in the invoice itself as well as for the reason that the work was done without instruction or after the petitioner had been replaced.

9. The Company contends that after making adjustments to the 23 Invoices on account of the matters aforesaid, and taking into account four previous payments totalling $201,468, the petitioner was only entitled to be paid $84,891.35. The Company deducted from this sum an amount of $22,253.05 in respect of loss and damages by reason of work uncompleted by the petitioner. The balance of $62,638.30 was paid on 21 November 2002. Accordingly, the Company says that no debt is due to the petitioner.

10. For the purpose of this striking out application, the petitioner is prepared to proceed on the basis of the quantity of work put forward by the Company. The petitioner however maintains that the rates under Quotation DTC-2000 are the only applicable rates. He says that he has not seen and has not agreed to Quotation DTC-2001. He also says that the Company had previously accepted and paid invoices calculated on the old rates. In respect of the 23 Invoices, the petitioner relies heavily on the point that the site manager or foreman had acknowledged the accuracy of the invoices. On the basis of the old rates under DTC-2000, and taking into account the previous payments and the payment made after the presentation of the petition as well as the cross-claim for uncompleted work, there is still a balance of $63,857.25 which the Company has to pay.

11. In addition, the petitioner says that the Company has no justification for rejecting some of the items in the 23 Invoices and also seven invoices in their entirety. The petitioner's case is that the dispute goes only to quantum but not the liability to pay. In the circumstances, he argues that there is no bona fide dispute on substantial ground.

REASONS FOR DECISION

(1) The applicable unit price

12. While the petitioner claims that he has not seen and received Quotation DTC-2001, Mr Wun, a director of the Company, says that he had personally delivered it to the petitioner and the petitioner had signified agreement to it. This is a matter that cannot be resolved on the affidavits. What is of significance is that Quotation DTC-2000, relied upon by the petitioner, makes clear reference to contract no.TCH-019 in its caption and states explicitly that it is for a duration that expired on 1 June 2001. There is no evidence filed before the Court to show the circumstances whereby this Quotation came to be applied to or extended to contract no.TCK-019 and for the period after 1 June 2001.

13. The petitioner refers to 21 invoices ("the 21 Invoices"), five of which form part of the 23 Invoices, and contends that these invoices totalling $614,413, had been paid, notwithstanding that they were calculated on the old rates in Quotation DTC-2000. While it is true that the Company had in a letter dated 13 August 2002 stated it had paid $614,413.11 to the petitioner on account of work done, there is not in evidence before the Court any payment record or cheques to substantiate this payment. In fact the Company's letter of 13 August 2002 did not make reference to the 21 Invoices and the sum of $614,413.11 was described as payment made between June 2000 and March 2002.

14. The Company now disputes that it had paid these 21 Invoices in full or in accordance with the calculations stated therein. The Company says that it had only paid 16 of the invoices. This is plainly correct because the remaining five invoices are among the 23 Invoices claimed in the Statutory Demand. The Company has also produced copies of the cheques for payment and other documents, which clearly show that the Company had made adjustments to the calculations put in the invoices before effecting payments for the adjusted amounts. In particular, for nine of the invoices that are for contract no.TCK-019, the Company had revised the calculations by adopting the unit prices in Quotation DTC-2001 and also disregarded items of work which were not listed in Quotation DTC-2001. The payments had been accepted by the petitioner. Miss Yu for the petitioner comments that this does not necessarily mean that there has been full and final settlement of the nine invoices. But the evidence does not show that the petitioner accepted the payments under protest. Further, while the petitioner had demanded payment and issued the SD on the 23 Invoices, the petitioner has not included any of the unpaid balance of these nine invoices in his claim or debt.

15. Miss Yu also refers to one of the 23 Invoices, invoice 2001-127 (exhibit WKC-22), and points out when the Company assessed this invoice, it had adopted the old rate in Quotation DTC-2000 in adjusting one of the items (i.e. $129 for item no.81019E). In my view, very little weight can be attached to this because the invoice as adjusted was exhibited together with a document entitled "Final account with Wai Chun Ceiling Decoration". In this Final account, the item was calculated by reference to the new rate in Quotation DTC-2001 (i.e. $103). In the circumstances, the court cannot, in the absence of oral evidence or cross-examination, conclude that the Company had adopted the old rate in finalizing the account with the petitioner.

16. The petitioner further contends that the 23 Invoices had been acknowledged by the foreman or manager of the sites. The acknowledgements take the form of endorsements at the reverse side of the 23 Invoices in these words :

「地盆管工確認煒俊天花裝飾公司根據本發票正面所列之工程項目、質量及完工日期無誤。」

Only the endorsements on nine of the 23 Invoices are signed. Out of the nine signed endorsements, only four are dated and they are dated 19 September 2002. The completion dates appearing in the 23 Invoices range between 9 November 2001 and 9 April 2002. It follows that at least four of the endorsements were signed months after the work stated in the invoices was completed. The weight to be attached to the so-called acknowledgments is therefore minimal. More importantly, the identity of the person signing is unknown. The petitioner has led no evidence as to the relationship of the signatory with the Company and his authority. It is not shown whether he is an employee or agent of the Company and whether he is in a position to affect or bind the Company. Additionally, the endorsement does not purport to be an acknowledgement of the unit price or the quantity appearing on the invoice. In the premises, the suggestion that the accuracy of the calculations in the 23 Invoices had been acknowledged by the Company is on thin ground.

17. There is in short a bona fide dispute on the unit price to be applied to the 23 Invoices. Accordingly, even on the reduced claim of $63,857.25, it is not uncontroversial.

(2) Rejection of items of work and rejection of seven invoices

18. For some of the items in the 23 Invoices, the Company rejects them for the reasons that they are not among the work listed in Quotation DTC-2001. As for some others, the Company has not specified the reasons for rejecting them. The petitioner says that the rejections are unjustified. In particular, Miss Yu points out that under some of the previous invoices that had been paid, items of work not listed on the Quotation had been invoiced and duly paid by the Company. In reply, Miss Lau, for the Company, refers to deletions of similar items of work under some of the 21 Invoices and points out that the deletions had not been objected to by the petitioners when accepting payments. The Company's director, Mr Wun, has also affirmed that there were variations to the work under contract no.TCH-019. In my view, this is not an issue that can be resolved on the affidavits. Clearly, the affidavit evidence is not definitive of the matter and the issue can only be properly resolved on hearing oral evidence and cross-examination.

19. As to the seven invoices, one was rejected for being a duplication of another (i.e. invoices nos.2001-109 and 2002-116). For the remaining six, they are mostly rejected by the Company on the basis that they do not bear a job number or work order number and/or that some of the items were said to be carried out on dates after the completion dates specified on the respective invoices. Two of them are rejected for the reason that the work was done without instruction and that the work was said to be done after the petitioner had been replaced.

20. The petitioner argues that the reasons given are unsustainable because the Company never says that the work set out in the invoices was not carried out. The omissions of job number and work order number are therefore irrelevant to whether the Company is under a liability to pay.

21. In my view, the question of rejection of the invoices has to be viewed against the Company's case as a whole. The Company's primary case is that the debt in the SD has been extinguished with the payment of $62,638.30 in November 2002. Secondly, the Company says that the claim of the petitioner has been inflated in a number of ways, including the adoption of old unit rates and the inclusion of these invoices which the Company rejects. It is therefore not strictly correct to say that the Company does not dispute that the work in these rejected invoices had been carried out so that the omissions of the job number or work order number are peripheral.

22. It is not exactly a case that the invoices are rejected merely because they do not set out the job number or work order number. The Company also contends that it had hitherto not received the 23 Invoices and no verifications of the contents of the invoices had been carried out. Implicit therefore in the Company's case is that the veracity of these rejected seven invoices is not accepted. Given the wider basis of the Company's objections, the omissions of the job number and work order number and the actual dates of completion of the work are not immaterial matters. The fact that the Company had in the past settled payments for invoices that do not bear a job number does not advance the petitioner's case.

(3) Dispute on quantum vs. dispute on liability

23. In the circumstances, it will not be apt to regard the Company's dispute as one that goes only to quantum or part of the debt. There is a bona fide dispute on substantial ground as to whether the claim in the SD has been extinguished. Even if the Company's dispute can be regarded as only going to part of the debt, the evidence does not show that the Company is unable to pay the debt. As a result of a condition imposed by Deputy Judge To in granting a validation order on 10 January 2003, the Company had paid into court the sum of $233,000, which approximates the outstanding claim in the SD.

CONCLUSION

24. For the reasons aforesaid, there are serious triable issues as to whether the Company remains liable for any of the amount claimed. There is thus a bona fide dispute of the debt in the petition on substantial ground and the petitioner does not have locus standi to present the petition. The petitioner ought to establish his entitlement to the debt in an action before presenting the winding-up petition. Accordingly, the petition ought to be struck out and I so order. There will also be an order nisi that the petitioner pays the Company the costs of these proceedings, including the costs of this application, to be taxed if not agreed. I further order that the sum of $233,000 paid into Court on 27 January 2003 together with any interest accrued thereon be paid out to the Company.