RE HONG KONG EASY CHARGE LTD

HCCW 174/2024

[2024] HKCFI 2134

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 174 OF 2024

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REASONS FOR JUDGMENT

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1.  At the hearing of the petition presented by the petitioner, SmartMore Corporation Ltd (“Petitioner”)  on 25 March 2024 (“Petition”), I made a usual winding up order against the respondent, Hong Kong Easy Charge Limited (香港充電易有限公司)[1] (“Company”). These are the reasons for my judgment.

2.  The Company was incorporated on 27 August 2012 under the former Companies Ordinance (Cap. 32).  Its paid up capital is HK$10,000.

3.  The Company has a wholly owned subsidiary, Hong Kong Easy Charge Marketing Ltd (“Subsidiary”), which was also incorporated in Hong Kong.  Mr Chan Kwo Li (“Chan”)  has been the Company’s Chief Executive Officer and executive director.

4.  The Petition was based on the Company’s failure to comply with a statutory demand served on 5 February 2024 which required the Company to pay HK$16,294,500 (“Debt”)  within 21 days (“SD”).

5.  In the SD, the Debt was described as the outstanding amount due and owing by the Company under a contract dated 15 September 2021 (“Contract”)  whereby the Petitioner agreed to sell, and the Company agreed to acquire, vehicular IoT smart wireless charging system (“Goods”)  on the terms stated therein, together with the facts giving rise to the Debt.

Background facts

6.  The following facts are not in dispute.

7.  The Contract contains, inter alia, the following terms:

(1)  The total purchase price payable by the Company is HK$18,105,000 (clause 1.1);

(2)  The purchase price shall be paid in 3 instalments, with (a)  HK$3,621,000 payable within 30 calendar days after signing the Contract (“1^st Instalment”); (b)  HK$5,431,500 payable within 60 calendar days upon delivery and signing of receipt of the Goods (“2^nd Instalment”); and (c)  HK$9,052,500 payable within 90 calendar days after the 2^nd Instalment (“3^rd Instalment”)  (clause 3.1);

(3)  The date of delivery of the Goods is deemed to be the date on which the receipt of the Goods was signed in accordance with the Contract (clause 2.7);

(4)  After signing the receipt of the Goods, the Company is deemed to have approved and accepted the type, model, volume, package and quality of the Goods (clause 2.6);

(5)  If the Company fails to pay the purchase price by the time stipulated in clause 3.1 without legitimate reason and the Petitioner’s consent, the Company shall pay liquidated damages in the amount equivalent to 0.05% of the amount payable but unpaid for each day of default (clause 4.1); and

(6)  The maximum liquidated damages to be borne by either party shall be 10% of the total price under the Contract (clause 4.2).

8.  The Company paid the 1^st Instalment in 3 tranches, on 15 October 2021 (HK$500,000), 28 October 2021 (HK$1,220,000)  and 10 November 2021 (HK$1,901,000).  

9.  On 2 November 2021, the Subsidiary (on behalf of the Company)  signed a receipt (產品確定簽收單)  for the Goods, which was then signed by the Petitioner on 8 November 2021 (“Receipt”).

10.  The Company failed to pay the 2^nd Instalment by 7 January 2022 or the 3^rd Instalment by 7 April 2022.

11.  By letter dated 22 March 2022 (signed by Chan on behalf of the Company), the Company referred to COVID pandemic and its adverse impact on the business and requested the Petitioner to extend the time for payment of the remaining purchase price until July 2022 (“Acknowledgement Letter”).

12.  Despite the Acknowledgment Letter, no further payment was made by the Company.  By letters dated 29 June 2022, 3 August 2022, 15 August 2022 and 15 December 2023, the Petitioner demanded the Company to pay the outstanding purchase price.

13.  As at the date of the SD, the Petitioner claimed that the Company was liable to pay the Debt, which comprised (1)  HK$14,484,000, being the 2^nd and 3^rd Instalments; and (2)  HK$1,810,500, being 10% of the total purchase price under the Contract.  

14.  As the Company failed to comply with the SD, it is deemed insolvent by virtue of s.178(1)(a)  of the Companies (Winding Up and Miscellaneous Provisions)  Ordinance (Cap. 32)  (“CWUMPO”).

15.  In the Petition, the Petitioner stated that the Receipt was signed by the Subsidiary on behalf of the Company on 2 November 2021[2] (instead of signed by the Company as stated in the SD)  and by the Petitioner on 8 November 2021.

16.  The Petition was presented on 25 March 2024 and was scheduled to be heard before a Master on 12 June 2024.

17.  As the affirmation verifying the Petition was filed on 26 March 2024, the Company was obliged to file its affirmation in opposition by 9 April 2024 as required by rule 32 of the Companies (Winding-up)  Rules.

18.  On 11 April 2024, a notice to act and a notice of intention to appear on and oppose the Petition were filed by C&T Legal LLP, the solicitors for the Company (“CTL”). No affirmation in opposition was filed by the Company.

19.  In its letter dated 17 April 2024, CTL requested, inter alia, “a copy of the [Receipt] duly signed by [the Company] dated 2^nd November 2021 signifying its receipt of the Goods”[3].

20.  On 5 June 2024, the Company issued a writ in HCA 1093/2024 with a general indorsement claiming the 1^st Instalment and unliquidated damages for breach of the Contract (“1^st Action”). 

21.  It was only until 6 June 2024 that the Company belatedly issued a summons to seek leave to file the 1^st affirmation of Chan Kwo Li (“Chan 1^st”)  out of time (“Leave Summons”).  The Master adjourned the Leave Summons and the Petition to the next Monday hearing on 24 June 2024.   

22.  On 17 June 2024, the Company issued another summons to strike out the Petition on the ground that there is a bona fide dispute on substantial grounds in respect of the Debt (“Strike Out Summons”), and filed the 2^nd affirmation of Chan Kwo Li (“Chan 2^nd”)  on the same day.  As stated in Chan 2^nd[4] the grounds for striking out are the same as those set out in Chan 1^st.

Hearing on 24 June 2024

23.  At the first Monday hearing of the Petition on 24 June 2024, Ms Natalie So, counsel for the Company, submitted that:

(1)  There was no explanation for the delay in filing evidence in opposition.  The usual practice of the Companies Court is to require the company to pay the petitioning debt into court as a condition for granting leave (Re Sun Sang Kong Yuen Shoes Factory Co Ltd [2015] 4 HKLRD 52, §§1, 5 & 6).

(2)  Even if the court were to consider the allegations raised in Chan 1^st, there was no bona fide dispute on substantial grounds in respect of the Debt given that (a)  the Company had signed the Receipt, which constituted delivery of the Goods pursuant to clause 2.7; (b)  the Company had issued the Acknowledgement Letter to ask for extension of time to make payment, which constituted an admission of liability to pay the balance of purchase price under the Contract; and (c)  the belated allegation that the Receipt had not been authorised by the Company was incredible, as such allegation was not corroborated by any contemporaneous documents and was inconsistent with the Acknowledgement Letter.

24.  On the other hand, Ms Amanda Lee, counsel for the Company, relied heavily on the allegations raised in Chan 1^st and submitted that the Petition should be struck out as an abuse of process, or alternatively, directions should be given by the court for filing evidence for the following reasons:

(1)  There was “not a scintilla of evidence in support of actual delivery” of the Goods.

(2)  There was discrepancy in the description of the signatory to the Receipt in the SD and the Petition.

(3)  There were many inconsistencies in the Receipt, and Chan denied having signed the Receipt.  The authenticity of the Receipt should not be resolved on affirmations or counsel’s submissions and “might be best investigated by the law enforcement agencies”.

(4)  The issue as to whether the Acknowledgment Letter constituted admission of liability should be investigated at the trial of the 1^st Action.

(5)  In August 2022, Mr Tan of the Petitioner had been made aware of Chan’s “specific and repeated denial of having signed the [Receipt] and having received the Goods”.

(6)  The Petitioner chose to present the Petition based on the “problematic deemed delivery of the Goods”.  As the Petition was presented “for falsely, maliciously, and without reasonable or probable cause, the Company shall also seek leave to amend the writ [in the 1^st Action] to add the cause of action of the tort of malicious proceedings in liquidation and seek damages”.   

(7)  If leave were not granted, the Company would suffer “grave injustice of not being able to properly plead its case and defend the winding up petition and its draconian consequences”.  The Petitioner would suffer no prejudice if leave were granted, as no substantive hearing date nor milestone dates had been fixed and none would be derailed if leave were granted.

(8)  It is “extremely unreasonable” for the Petitioner to demand payment into court for over HK$16 million “just for the Company to have a chance to properly defend the Petition which is problematic and inconsistent in itself, premising on a doubtful and potentially forged document, of a Debt clearly subject to a bona fide dispute and substantive dispute”.

25.  After considering counsel’s submissions, Ng J observed that it was duplicative and redundant for the Company to have issued the Strike Out Summons as the grounds for striking out are effectively the same as the grounds in opposition to the Petition, and made an order that (“Order”):

(1)  leave be granted to the Company to file Chan 1^st out of time conditional upon the Company paying HK$8,147,250 (i.e. 50% of the Debt)  into court within 28 days (i.e. by 22 July 2024)  (“Condition”);

(2)  leave to the Petitioner to file evidence in reply, and no further evidence to be filed without leave of the court; and

(3)  the Petition and the Strike Out Summons be adjourned for arguments with 3 hours reserved.

Failure to comply with Condition

26.  On 2 July 2024, the Company filed a notice to discontinue the 1^st Action, but issued another writ in HCA 1279/2024 with a general endorsement (“2^nd Action”)  claiming:

(1)  as against the Petitioner, the 1^st Instalment, unliquidated damages for breach of the Contract and unliquidated damages “for falsely and maliciously and without reasonable or probable cause presenting a petition by the [Petitioner] to wind up [the Company] in relation to the Goods that were never delivered”; and

(2)  as against the Petitioner, Jia Jiaya and Tandy Tan, unliquidated damages for unlawful means conspiracy to injure the Company.  

27.  The Company did not apply for leave to appeal against the Order. Nor did the Company comply with the Condition.  This was despite the reminder letters dated 19 and 23 July 2024 issued by the Petitioner’s solicitors, ONC Lawyers (“ONC”).

28.  By letter dated 25 July 2024 to the court, ONC referred to the Company’s failure to comply with the Condition and asked the court to restore the hearing of the Petition to a Monday hearing on the basis that there was no evidence in opposition to the Petition.

29.  As there was no evidence in opposition to the Petition, on 25 July 2024, this Court directed the Petition to be heard at the next Monday callover hearing on 5 August 2024 (“Direction”).

30.  After the Direction was given, CTL sent a letter to the court dated 25 July 2024, asserting that (1)  ONC’s application to restore the hearing of the Petition was “an ambush and a sheer abuse of the process of the Court” as a 3-hour hearing had already been fixed before DHCJ Le Pichon on 22 October 2024 and the Judge had given directions for the hearing on 4 July 2024; and (2)  the Company was “entitled as of right to apply to strike out a Petition, to file evidence it relies on, and to be heard on the merits”.

31.  Further letters to the court were sent by ONC and CTL.  In CTL’s letter of 30 July 2024, they claimed that the Company “is a victim of fraud and the use of a false document” and asserted that:

“the prejudice suffered by the Company in fact extends to its impecuniosity and inability to provide the payment into court, the Company is out of pocket for the deposit paid to the Petitioner (around HK$3.6 million), the Company have [sic] never received the Goods (around HK$18 million)  and therefore have [sic] nothing to sell to raise funds”

32.  Having considered the parties’ submissions, on 30 July 2024, this Court informed the parties that the Direction stands.

33.  Leaving aside the extensive arguments in CTL’s letters to the court, which are wholly inappropriate, their contention that the Company was “entitled as of right” to strike out the Petition is plainly wrong. 

(1)  Unlike other proceedings, a company which opposes a winding up petition presented by a creditor should set out its grounds in opposition to the petition in the affirmation to be filed in accordance with rule 32.  This has been the practice of the Companies Court in dealing with creditors’ winding up petition.

(2)  Ms Lee’s argument that the Strike Out Summons “is always heard before a petition” and “the issue of locus has to be determined first before the issue of insolvency” and her reliance on Re H12 (HK)  Ltd, [2021] HKCFI 1836 §§19-20 are misplaced.  In Re H12 (HK), this Court reiterated the well-established principle that if the petitioning debt is not subject to a bona fide dispute on substantial grounds, the petitioner is a “creditor” within the meaning of s.179(1)  of CWUMPO and has locus to pursue the petition, and the court will consider whether the company is insolvent and should be wound up.  Far from supporting Ms Lee’s argument, Re H12 (HK) is an instance where the company adduced evidence in opposition to the petition without issuing any summons to strike out the petition.

(3)  As rightly observed by Ng J, it was redundant for the Company to issue the Strike Out Summons when the grounds in support of the striking out are the same as those in opposition to the Petition.  Indeed, it was a waste of time and costs for the Company to have issued the Strike Out Summons and filed Chan 2^nd only to say that it opposed the Petition on the same grounds set out in Chan 1^st.

(4)  If and insofar as the Company sought to use the Strike Out Summons and Chan 2^nd to get around the time limit prescribed by rule 32, such tactic would not be allowed by the court.  

34.  On 1 August 2024, the Company issued a summons under Order 2 rules 4-5, Order 3 rule 5 of the Rules of the High Court and inherent jurisdiction of the court to seek an order that (1)  the Company “be relieved from the sanction imposed by paragraphs 1 and 3 of the Order”; (2)  leave to file Chan 1^st within 3 days; (3)  alternatively, the time for the Company to comply with the Condition be extended to within 56 days from the date of the order to be made; and (4)  further directions on filing evidence in respect of the Petition and the Strike Out Summons (“Relief Summons”).  

35.  The Relief Summons, to extent that is seeks a relief from sanction under Order 2 rules 4-5, is misconceived.  The Order did not impose any sanction on the Company. Instead, it granted leave to the Company to file Chan 1^st subject to compliance with the Condition.  As the Company has failed to comply with the Condition, Chan 1^st is not admitted as evidence and the Petition remains uncontested.  As the Company is deemed insolvent, the Petitioner is entitled ex debito justitiae to a winding up order.

36.  At the hearing before this Court, Ms Lee merely repeats the same arguments advanced before Ng J at the hearing on 24 June 2024 (see §24 above).  Such arguments had already been considered by Ng J before he made the Order from which there was no appeal.  Ms Lee has not articulated any basis or justification as to why the Company should be allowed to re-open the same issue already considered and decided by the court.  

37.  Although in the Relief Summons, the Company also asked for an extension of time to comply with the Condition, Ms Lee does not pursue the application.  When this is raised by this Court, Ms Lee emphasises that the Company is impecunious and does not have the means to comply with the Condition. This confirms the fact that the Company is unable to pay its debts and should be wound up.