RE PARVINOS LINES LTD.

IN THE SUPREME COURT OF HONG KONG

COMPANIES WINDING-UP NO. 37 of 1977

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JUDGMENT

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1. I have before me a motion filed on the 20th September 1984 to set aside an order made by Clough, J. on the 21st July 1983. The application is made under Order 35 rule 2 of the Rules of the Supreme Court which provides for an application to be made within 7 days after the trial. However, the Court has a discretion to extend the time under Order 3 rule 5.

2. The order was made under section 275(1) of the Companies Ordinance (Cap. 32) declaring that Mr Maqbool Ahmed Shaikh (the respondent) was knowingly a party to carrying on the business of Parvinos Lines Ltd (the Company) with intent to defraud creditors of the Company and for other fraudulent purposes and that he is responsible without limitation of liability for all debts of the Company to Apostolos Andreas Shipping Company Limited (the applicant). An order was also made for the respondent to pay under the provisons of section 275(2) of the Ordinance to the applicant HK$752,463.71 and interest the equivalent in Hong Kong dollars of a judgment obtained in Singapore on the 5th March 1977 which was registered in Hong Kong under the Foreign Judgments (Reciprocal Enforcement) Ordinance, Cap. 319. Although the respondent is the applicant on the motion and the applicant the respondent I shall in order to avoid confusion continue to refer to them as respondent and applicant.

3. The Company was formed with a nominal capital of $100,000 divided into 1,000 shares of $100 each. The paid up capital amounted to $2,200. The objects of the Company included the business of chartering ships.

4. On the 2nd July 1976, the Company chartered the vessel called the "Aftadelfos" from the applicant. The charter was a time-charter for 4 months upto 6 months at US$2,700 per day which was extended at the option of the Company in November 1976.

5. The Company fell into arrear with its payments of hire which resulted in the judgment being obtained in Singapore and the subsequent registration in Hong Kong to which I have referred. On the 7th July 1977 the Company was wound-up compulsorily.

6. The summons which led to the making of the order on the 21st July 1983 was issued on the 2nd July 1982 and was returnable on the 11th November 1982, but there were several adjournments due to the applicant's inability to serve the respondent. On the 24th February 1983 the applicant obtained leave to serve the respondent out of the jurisdiction in Australia, but attempts to effect service there were unsuccessful. Another order to serve the respondent outside the jurisdiction in Pakistan was made on the 6th May 1983. Evidence of service was adduced by Mr Mustafa Haider, a process-server in Karachi, in which he said that on the 15th May 1983 he handed the summons and other papers to the respondent. He said that the respondent read the summons, briefly went through the papers but stated that he would not accept them without consulting his lawyers. The respondent refused to sign an acknowledgment of service and informed Mr Haider that the papers should be sent to an address in Perth, Australia. Mr Haider made a further attempt to effect service on the respondent on the 29th May 1983 where he handed the summons and other documents to an employee who informed him that the respondent was abroad.

7. Clough, J. held that the purported service effected by Mr Haider on the 15th and the 29th May 1983 was deemed to be sufficient service of the proceedings on the respondent. In his affirmation dated the 2nd February 1985 the respondent agrees that he saw Mr Haider in May 1983, but that he refused to accept service on the grounds that he believed the proceedings concerned the company and did not affect him in his personal capacity. Mr Smith who appeared on behalf of the respondent did not challenge Clough J.'s finding that service of the proceedings was effected, but submitted that the respondent was not aware of the contents of the documents and did not appreciate their legal effect.

8. The respondent said that after he met Mr Haider in May 1983 he left Pakistan several days later and was unaware until his return after a lapse of many months of the subsequent attempts that had been made to effect service.

9. Two main allegations of fraud were made against the respondent in connection with the Company's business which were contained in an affidavit of Mr Jolly, the applicant's solicitor that was sworn on the 23rd February 1983. The first alleged that the respondent procured the Company to perpetrate what is a not uncommon form of fraud perpetrated by charterers in the shipping world that by paying just enough hire to the owner to get the vessel to sea with its cargo, having himself collected as much freight as he can get into his hands. The charterer then defaults on payment of hire and puts the owner on the horns of a dilemma because if the vessel is turned round it is at risk of arrest in an action in rem at the instance of holders of bills of lading relating to the cargo. At the final stage of the scheme the defaulting charterer disappears in the hone that the owner will not consider it worthwhile to pursue him.

10. The second main allegation of fraud against the respondent was to the effect that he procured the Company to continue trading when it was clearly hopeless for him to do so with the result that the applicant and other creditors suffered heavy financial loss.

11. Clough, J. found on the evidence that the respondent was the moving force behind the Company and the person who had control of its trading activities. Whilst he found that the second main allegation of fraud had not been established he accepted the evidence relating to the first ground. He held that there was prima facie evidence of such a degree of cogency as reasonably to require the inference, in the absence of any evidence from the respondent regarding the manner of disposal of the pre-paid freight, that the Company as the charterer of the "Aftadelfos" had adopted the dishonest stratagem of paying, 15 days in advance at some time in October 1976, only sufficient charter hire payments to get the vessel sea bound for Dubai on the 20th October 1976 after collecting pre-paid freight in respect of its cargo, and then defaulting on the subsequent charter hire payments.

12. In the absence of any further evidence from the respondent, he concluded that the applicant had proved on the balance of probabilities that the Company had adopted a dishonest stratagem to which the respondent was knowingly a party.

13. Clough, J. was fortified in his conclusion by the evidence of the respondent's conduct since the Company had become the subject of the winding-up proceedings for he had made no attempt to assist the Official Receiver and had flagrantly attempted to evade service of the proceedings.

14. In an affidavit sworn on the 21st March 1985 by Mr N.C. Papathomas, who was formerly Managing Director of Transatlantic Seaways Ltd who acted as agents for the applicant in respect of the performance of the charter party, it is deposed that the Company's agents in Singapore Glomarine Singapore Pte Limited (Glomarine) had collected freight and had paid the amounts on the instructions of the Company but they had not been paid to the applicant. He, therefore, concluded that the respondent together with Glomarine had timed matters accurately so as to load the vessel and collect all freights on the second voyage and then announced that there was no intention to pay any further hire to the applicant. On the other hand, Mr David Wu, formerly Manager of Fairwind Shipping Ltd who acted as agents for the Company from September 1975 to 1st January 1977, denied the allegations put forward by Mr Papathomas that once freight was received on behalf of the Company that the respondent withdrew the funds for himself. The respondent has denied the allegations of dishonesty and put his case on the basis that his Company suffered cash flow problems which were attributable to undermeasurement of cargo, congestion of ports in the Red Sea and Persian Gulf which resulted in considerable delays and difficulties in obtaining payment of freight from ports in India and Port Kelang.

15. It is abundantly clear that the respondent has behaved quite irresponsibly in connection with the affairs of the Company by virtue of his attempts to evade service of the proceedings and by his failure to co-operate with the Official Receiver. Further he has failed to give an explanation for the inordinate delay that occurred from the time that the papers were deemed to be served in May 1983 until the motion to set aside was issued in September 1984. The respondent states that all the accounts, relating to the Aftadelfos are with Glomarine and all relevant facts are within the knowledge of Mr Deen of that Company. Yet, no steps have been taken by the respondent to obtain evidence from Mr Deen in connection with this matter.

16. By virtue of the Order made by Clough, J. the respondent is guilty of an offence under section 275(3) of the Ordinance whereby upon conviction on indictment he is liable to a fine of $50,000 and imprisonment for 2 years and upon summary conviction to a fine of $10,000 and imprisonment for 6 months.

17. No sympathy can be accorded to the respondent in this matter, and in the normal course of events I would have had no hesitation in refusing the respondent's application. However, having regard to the gravity of the allegations and to the serious consequences that may result I have reluctantly come to the conclusion that the respondent is entitled to have his evidence heard to explain what has happened to the monies paid in respect of the freight and his reasons for nonpayment of the hire due to the applicant. As a result the order of the 21st July 1983 will be set aside. Nevertheless, stringent conditions will be imposed and I will hear the parties on this aspect and also upon the appropriate order for costs that should be made.