LAM MIN WING FRANKLIN v. GREAT INTENT INTERNATIONAL LTD

HCCW 268/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING‑UP PROCEEDINGS NO 268 OF 2013

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R E A S O N S  F O R  J U D G M E N T

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1. This was a petition to wind up Great Intent International Limited (“the company”) on the ground that it is unable to pay its debts. It is based on two letters from the company dated 31 July 2013 and 2 August 2013 (respectively “the 1^st Acknowledgement” and “the 2^nd Acknowledgement”) signed by its director Simon Leung (“Mr Leung”). They respectively confirmed the company’s indebtedness to the petitioner in the sums of HK$203,085 and HK$3,808,025, totalling just over $4 million. At the conclusion of the hearing, I made a winding up order. My reasons appear below.

Background facts

2. The company is in the garment trade. Mr Leung a director of the company owns 99.67% of its issued shares.  The remaining shares are held by a BVI Company thought to be under his control. 

3. The petitioner became a director of the company in the early 1990s.  Prior to that he worked in a bank and came to know Mr Leung who became a friend about five years previously.  The petitioner’s role was in marketing and sales.   

4. It is the petitioner’s case that from time to time, he has made advances to the company when it experienced liquidity problems.  The advances were sometimes paid to third parties on behalf of the company or made in cash.  The advances from the petitioner alone with interest total over $1.8 million and make up approximately 45% of the outstanding debt.  The balance is made up of an outside loan of $410,000, unpaid salary, operating and travelling expenses, and credit card expenses he had incurred on behalf of the company in the course of his employment which have not yet been reimbursed.

5. The petitioner’s case is simple: in 2013 the company acknowledged and confirmed its indebtedness to the petitioner by signing the Acknowledgements.  A statutory demand for the aggregate amount of the Acknowledgements in the sum of $4,011,110 was served on the company but it remains unsatisfied.

6. The 1^st Acknowledgement refers to the following items:

(a)	unsettled salary	$128,000
(b)	unsettled China telephone bill	$17,073
(c)	unsettled travelling expenses in 2002 and unsettled miscellaneous expenses	$12,512
(d)	unsettled personal loan to Simon Leung	$45,500
		__________
	Total:	$203,085

7. The 2^nd Acknowledgement itemised the following:

I.	Advances to the company from the petitioner	$1,800,915
II.	Outside loan	$410,634
III.	Operating and travelling expenses unsettled	$363,760
IV.	Credit card expenses	$490,672
	Agreed interest payable	$742,044
		__________
	Total before interest:	$3,065,981
	Total after interest:	$3,808,025

The disputed debt defence

8. The affirmation of Mr Leung was largely directed at the absence of supporting documents such as receipts or records to substantiate the debt.  The company did not deny that advances were received or that it had to borrow money from the petitioner and, as will become apparent, it did not put forward a positive case.

9. §§22 and 24 of Mr Leung’s affirmation read:

“22. In persuading me to sign on the 1^st Letter, the Petitioner had behaved in an abnormal, desperate and evolution on manners. The Petitioner adopted every expediency in order to persuade me to sign on the 1^st Letter. At that time, I considered that the behaviour of the Petitioner was extremely annoying, and that I was under a great pressure and undue influence by the Petitioner who forced me to sign on the 1^st Letter.

…

24. Because of the undue influence, misrepresentation, abnormal and emotional behaviour of the Petitioner and my trust on him, I finally unwillingly signed on the 1^st Letter even no documentary proofs were provided to me by the Respondent at the time of signing …”

10. Notwithstanding the reference to undue influence, misrepresentation and duress, other than a bare assertion, no precise factual evidence supporting any of those defences can be found in Mr Leung’s affirmation.  At the hearing, counsel for Mr Leung also expressly disavowed reliance on the defence of non est factum.

11. In respect of the claims for unpaid salary and employment related expenses, a jurisdictional point was taken.  Relying on the decision of the Court of Appeal in Lam Lap v Lee Tang Wan trading as Tung Loi Restaurant Co [1981] HKLR 322, Mr Lau submitted that the Labour Tribunal has exclusive jurisdiction to deal with those claims since the present case is not one within section 178(2) of the Companies Ordinance, Cap 32 and that this court does not have jurisdiction in so far as the winding up petition is based on those amounts.

12. Leaving aside the argument that the Acknowledgements upon which the petition is based are fresh promises to pay so that the nature of the underlying debt is irrelevant, and assuming there is merit in the jurisdictional point, it cannot assist the company given the value of the petitioner’s advances.  There is no reason why a winding up petition cannot proceed based on the amount of the advances alone.

13. For the same reason, it is unnecessary to address the various points taken by Mr Lau as regards the supporting documents provided by the petitioner in respect of unreimbursed expenses, such as the fact that the subscriber to the China telephone number was not the petitioner but a lady; that the claims for travel and related expenses were not made on the standard claim forms of the company; that the credit card used for the un-reimbursed travel and related expenses (including a karaoke bar receipt showing that it was incurred at 5 in the morning) was the petitioner’s personal credit card and not the corporate credit card etc.  In relation to credit card expenses, it is the petitioner’s case that while issued with an American Express corporate card, that was not widely accepted in China and often it was unusable because the credit had been “maxed out”.

14. As far as the advances are concerned, they are shown in handwritten notes prepared by the petitioner for Mr Leung.  There are two versions of these notes both of which are undated.  They are similar save for a few discrepancies. The net result is that the aggregate amount advanced is different.  For present purposes, the version that commences at page 270 of the bundle is the relevant version (“the notes”).  According to Mr Lau, that version results in a lower overall figure for the advances said to have been made.

15. The notes provide particulars of each advance by reference to the date, whether it was in cash or by cheque, the name of the payee and the amount.  Some of the cheques and accompanying documents have also been exhibited, supporting advances totalling $803,927.

16. The petitioner’s case is that after he left in October 2012, he did return to the office on various occasions between the date of his departure and 31 July 2013 (the date of the 1^st Acknowledgement) to discuss with Mr Leung the amounts the company owed him.  During this period, he provided Mr Leung with the notes and the supporting documents that are to be found in the hearing bundle.  After much discussion, they reached agreement on the items reflected in the Acknowledgements.  There is independent evidence from Mr Leung’s staff (a Ms Ho) who had typed up the Acknowledgments supporting not only the petitioner’s visits, the typing up various versions of the Acknowledgments but also that she did not witness any disturbance during those visits.

17. Mr Leung’s version is different.  I have already set out his evidence concerning the signing of the 1^st Acknowledgement.  Similar circumstances apply to the signing of the 2^nd Acknowledgement.  It is the respondent’s case that the Acknowledgements were signed under reluctance but on the basis that chapter and verse (ie supporting documentation) would be provided.

18. On 6 May 2013, Mr Leung wrote to the petitioner stating his intention to “assess” the petitioner’s demands “by making reference and further investigation to, inter alia, all available documentary proofs …” and on 13 May to the effect that documentary proof was required.

19. Exhibited to the petitioner’s second supplemental affirmation is a draft agreement he was asked by Mr Leung to sign.  A solicitor friend of Mr Leung’s had apparently prepared that draft.  It is apparent from the draft that it was prepared in July 2013, to be executed the same month as it was envisaged that the first instalment would be paid on 31 July 2013.  The figures contained in the draft agreement correspond to the items in the Acknowledgements. The draft agreement was intended to settle the disputes between the petitioner and the company and contained a release and discharge provision.  As the petitioner did not find the terms acceptable, he refused to sign it.

20. It is difficult to believe that such a document (prepared at the behest of Mr Leung) would have been prepared if by that date he had not been provided with the supporting documentation.  In any event, the company failed to comment on the May letters, the draft agreement as well as the cheques substantiating payments of over $800,000.  It had no answer to the evidence substantiating the advances. In short, it has not been shown that the company has any coherent or viable defence to the petition.