RIGHT STAR INVESTMENT CO LTD v. GRAND PALACE LTD

HCCW 908/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP NO. 908 OF 2005

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J U D G M E N T

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1.  This was the trial of a creditor’s winding up petition presented by Right Star Investment Company Limited (“Right Star”) against Grand Palace Limited (“Grand Palace”).  According to Right Star’s petition, Grand Palace is indebted to it in the sum of HK$5,977,974.60 in respect of arrears of rental said to be due to Right Star under three tenancy agreements between itself and Grand Palace.  On 17 October 2005, Right Star served a statutory demand in respect of the debt.  The statutory demand having gone unanswered, Right Star presented its petition on 20 December 2005.

2.  Grand Palace denies that it is indebted to Right Star.  Although Grand Palace’s case is somewhat convoluted, it boils down to the contention that the first two tenancy agreements between the parties were of no effect and should be ignored, and that having regard only to the third tenancy agreement, far from owing Right Star any arrears of rental, Grand Palace has in fact overpaid Right Star in respect of the rental due under that tenancy agreement.

3.  The parties were in agreement that the main issue for determination was whether Grand Palace had established that the alleged debt was bona fide disputed on substantial grounds.  If it had, then, subject to a fall back position advanced by Mr Li which I deal with later in this judgment, the petition should fail (although Mr Li, appearing for Right Star, suggested that in that event, rather than dismissing the petition outright, it should simply be stayed pending resolution, by an action in the normal way, of such dispute as might be found to exist).  If, however, Grand Palace was unable to demonstrate the existence of such a bona fide dispute of substance, the petition should succeed.

4.  It was also common ground that the test to be applied was that identified by Rogers J (as he then was) in Re ICS Computer Distribution Limited [1996] 3 HKC 440, where he said (at p.444):-

“	… the onus must be on the company against which a petition is presented to adduce sufficiently precise factual evidence to satisfy the court that it has a bona fide dispute on substantial grounds … the company’s evidence must establish a substantial case. …”

5.  At the hearing, the evidence for Grand Palace consisted of four affirmations of Dr Huang Hsin Yang (one of its directors and shareholders), three affirmations of Madam Liu Pui Fan (a director of a company called Sky Harvest Limited, which was also a director and shareholder of Grand Palace), and an affirmation of a Mr Ng Cheuk Ngon.  Right Star’s evidence consisted of five affirmations of Mr Hui Kwok Wah, its director and shareholder, and affirmations of Mr Cheung Ying Kim and Mr Chung Yau Wing, who were involved in the preparation of accounting documentation of Grand Palace and Right Star at the material times.

6.  According to Right Star, the debt arises out of two tenancy agreements dated 1 October 1996 and a third tenancy agreement dated 15 May 1998.  All of the tenancy agreements related to units owned by Right Star in a commercial building in Yau Ma Tei known as King Star Commercial Building.  The first tenancy agreement dated 1 October 1996 related to the ground to third floors of the building, and recorded a lease of those floors by Right Star to Grand Palace for a period of two years, at a rent of HK$145,000 per month.  The second tenancy agreement (of the same date) related to 15 units between the 12^th and 23^rd floors of the building and recorded a lease of those units by Right Star to Grand Palace for the same period, also at a rent of HK$145,000 per month.  The third tenancy agreement recorded a lease of the ground floor and the 15 units (but not the first to third floors) by Right Star to Grand Palace for a term of slightly over 10 years from 16 May 1998 at a monthly rental of HK$80,000.  So far as the first two tenancy agreements are concerned, there was also what purported to be an agreement by a letter dated 1 April 1997 to vary their terms so as to reduce the rental payable under the two agreements to a total of HK$150,000 per month.  Right Star now says that because Grand Palace did not in fact comply with certain conditions to which the rental reduction agreement was subject (to pay an outstanding rental deposit and all rental then in arrears), the rental reduction agreement never actually became effective, and that the amount due to it should in fact have been somewhat over HK$7.7 million.  However, at the hearing, Mr Li indicated that he was content to proceed (for the purpose of this hearing) on the basis that the rental reduction agreement was effective.

7.  Right Star says that Grand Palace did not make any payments to it under the first set of tenancy agreements, and only commenced making payments of rent in November 1998, some time after the commencement of the third tenancy agreement.  Right Star goes on to say that between then and 30 June 2003, Grand Palace made intermittent payments to it, totalling HK$2,858,500, an amount which falls short of the amount payable under the third agreement alone, leaving aside the amounts due under the first two agreements.

8.  According to Right Star, the breakdown of the amount due from Grand Palace is as follows:-

Period from October 1996 to March 1997	HK$	1,740,000
Period from April 1997 to March 1998	HK$	1,800,000
Period from April 1998 to 15 May 1998	HK$	225,000
Period from 16 May 1998 to March 1999	HK$	840,000
Period from April 1999 to March 2000	HK$	960,000
Period from April 2000 to March 2001	HK$	960,000
Period from April 2001 to March 2002	HK$	960,000
Period from April 2002 to March 2003	HK$	960,000
Period from April 2003 to June 2003	HK$	240,000
Total	HK$	8,685,000
Less:  Amounts received	HK$	2,858,500
Amount due	HK$	5,826,500

9.  This is slightly less than the amount claimed in the statutory demand.  The difference appears to arise as a result of a different monthly rental applied by Right Star for the period from August 2001 onwards in the breakdown which it gave (through its solicitors) in respect of the amount demanded in the statutory demand.  However, there does not appear to be any basis for this different rental to have been applied, and it was not relied on by Mr Li at the hearing.

10.  Grand Palace’s case, as it appears from the various affirmations of Dr Huang and Madam Liu, is that there was in fact no tenancy agreement between itself and Right Star until 1 August 1998, but that thereafter, there was a tenancy agreement in respect of the ground floor and the 15 units in the building at a monthly rental of HK$80,000, which continued until 31 July 2003, resulting in rental being payable in the amount of HK$4,720,000 (it being alleged that there was a waiver by Right Star of the rent payable for the month of August 1999).  It is said, however, that some HK$5,544,000 was in fact (or in effect) paid by Grand Palace to Right Star, so that not only was there no debt owed by Grand Palace to Right Star, but Right Star had been overpaid.

11.  Although there are clearly a number of matters in controversy between the parties (whether or not these amount to a bona fide dispute of substance), there is also a certain amount of common ground so far as the factual background is concerned.

12.  It is common ground that Right Star was initially owned as to 50% each by Dr Huang and Mr Hui, with Dr Huang’s shares being divided between himself and his wife, and Mr Hui’s shares held (for the most part) by a company controlled by him called Maxifast Limited.  This remained the position until mid-2001, when Mr Hui acquired the shares owned by the Huangs.  In the early 1990s, Right Star acquired the property in Yau Ma Tei on which the Kingstar Commercial Building was to be built.  The initial plan was to develop the property for sale.  When completed, the building consisted of twenty three floors, with a ground floor and 47 units on the upper floors (three on each of the first to third floors, and two on each of the 19 floors above them).

13.  Sales of the property proved unsuccessful.  Right Star was able to sell only 18 out of the units on the upper floors, mostly to purchasers introduced by Dr Huang.  It was then agreed that the remaining 20 unsold units on the upper floors should be notionally divided between Dr Huang and Mr Hui, although Right Star would retain the legal title to them.  The object appears to have been to enable Dr Huang and Mr Hui to generate funds from those units so as to recoup advances which they had made to Right Star.  Dr Huang disposed of one unit to his wife, and Mr Hui disposed of four units, two to a Mr Shun, an architect involved with the development of the building, and two to companies controlled by him.  The nine remaining units attributable to Dr Huang and the six remaining units attributable to Mr Hui formed the 15 units that were the subject of one of the 1996 tenancy agreements, and of the 1998 tenancy agreement.

14.  On realising that they would be left with a substantial number of unsold units, Dr Huang and Mr Hui discussed the situation further, and decided to convert the units in the building into hotel rooms with a view to operating a guest house business.  Other owners to whom units in the building had been sold were receptive to this concept.  Grand Palace was then incorporated to operate the proposed guest house business.

15.  On its incorporation on 27 April 1995, Grand Palace had three shareholders.  Dr Huang and Mr Hui each held 45% of its issued shares, while the architect, Mr Shun, held the remaining 10%.  Thereafter, there were some further changes in the shareholding structure of Grand Palace, and by the second half of 1997, there were five shareholders.  Dr Huang and Mr Hui’s interests in Grand Palace were reduced to 40% each, Mr Shun retained his 10%, and two new shareholders, a Mr Poon Nai Leung and Sky Harvest Limited each held 5%.

16.  Steps were also taken to effect the conversion of the units in the building for use as a hotel or guest house.  In April 1996, an application was made for a guesthouse licence.  It was then found that certain works needed to be done to the building before such a licence could be obtained.  Mr Hui says that it was against this background that Right Star entered into the 1996 tenancy agreements with Grand Palace, in anticipation of the guesthouse licence being obtained, and the guesthouse business commencing operations.

17.  Both of the 1996 tenancy agreements were signed by Mr Hui on behalf of Right Star, and by Dr Huang on behalf of Grand Palace.  Dr Huang accepts that these documents were signed by him, but says that they were not in fact signed on the date they bear (1 October 1996), but some time later.  He also says that it was never intended that they should serve as genuine tenancy agreements between the two companies, but were executed “for accounting purposes” only, this being what he was told by Mr Hui or staff of Right Star when he was asked to sign them.  He says that when he was asked to sign them, they were blank and not filled in.

18.  Dr Huang says that it had been agreed between Mr Hui and himself that Right Star would not charge any rent to Grand Palace while the guesthouse business to be run by Grand Palace was in its infancy.  He says that it was agreed that rent would only be charged by Right Star when the business became profitable.

19.  In about the beginning of 1997, further tenancy agreements (the genuineness of which does not appear to be disputed) were entered into by Grand Palace with owners of other units in the building.

20.  According to Mr Hui, no rental payments were received from Grand Palace, and at the end of March 1997, there having been some delays in the conversion of the building for use as a guesthouse, he and Dr Huang agreed that Right Star should offer Grand Palace a rental reduction under the two leases so as to bring the rental down to a total of HK$150,000 per month for all the units covered by the two leases.  This, Mr Hui says, led to the making of the rental reduction agreement of 1 April 1997, which was contained in a letter from Right Star to Grand Palace of that date, and which was signed by Mr Hui for Right Star, and Dr Huang for Grand Palace.  The letter refers to all of the units covered by the two tenancy agreements dated 1 October 1996, and expressly refers to those tenancy agreements.

21.  Again, Dr Huang accepts that his signature appears on this document.  However, he suggests that this document, too, was created “for accounting purposes” only.

22.  It seems to be common ground that the guest house business actually commenced operations in about the middle of 1997.  It is also common ground that it was not very successful.  As a result, following discussions between Dr Huang and Mr Hui, it was decided that one of them should run the guesthouse business on his own.  In the event, Dr Huang did so, through another company owned by him called Kingsmark Investments Limited.

23.  Next comes the tenancy agreement dated 15 May 1998.  This provided for a lease of a little over ten years of the ground floor and the 15 units on the upper floors, at a monthly rental of HK$80,000.  This document, too, was signed by Dr Huang on behalf of Grand Palace, and Mr Hui on behalf of Right Star.  Dr Huang does not suggest that this was not a genuine tenancy agreement.  However, he suggests that the commencement date of the term created by it should have been 1 August 1998 rather than 16 May 1998.

24.  At the same time, Kingsmark entered into a sub-tenancy with Grand Palace at a monthly rent of HK$290,000.  The sub-tenancy also commenced on 15 May 1998.  Dr Huang accepts that there was such a sub-tenancy, but alleges that it did not commence until 1 August 1998.

25.  Thereafter, Kingsmark operated the guesthouse business in the building, presumably having entered into sub-leases in respect of the other units in the building which Grand Palace had leased from the other owners.  It also rented the first to third floors of the building directly from Right Star, to be used as a restaurant.  It does not appear that Kingsmark was much more successful in operating the business, as it did not make punctual or regular payments of rent to Grand Palace (or it seems, to Right Star), with the consequence that Grand Palace was itself unable to make punctual and regular payments of rent to Right Star.

26.  According to Mr Hui, as a result of the delays in payment of rent, on 25 November 1998 Right Star issued a demand letter to Grand Palace demanding the rental that was then in arrears under the 1996 and 1998 tenancy agreements.  The amount demanded was, however, calculated on the basis that there had been no rental reduction in April 1997.

27.  Thereafter, Grand Palace made various payments to Right Star.  In 2001, as I have noted, Dr Huang transferred his interest in Right Star to Mr Hui.  Eventually, Kingsmark gave up the operation of the guesthouse business, also in 2001.  The hotel business was then taken up by another company.  The tenancy came to an end on 30 June 2003 (Dr Huang suggests that it in fact ended a month later).

28.  In 2005, disputes arose between Dr Huang and Grand Palace on the one hand, and Mr Hui on the other.  Dr Huang and Grand Palace accused Mr Hui of breach of fiduciary duty towards Grand Palace, and commenced proceedings against him and companies associated with him on 28 November 2005.  Meanwhile, Right Star had also demanded repayment of the amount it claimed was owing to it from Grand Palace, leading eventually to the presentation of the petition in December 2005.

29.  Right Star’s claim is relatively straightforward.  It is based on the 1996 and 1998 tenancy agreements.  For the purposes of the petition, Right Star is content to proceed on the basis that the rent reduction mentioned in the 1 April 1997 letter was effective.  In support of its claim, Right Star relies on the three tenancy agreements, all of which were signed by Grand Palace (through Dr Huang), and the rent reduction agreement, which was likewise signed by Dr Huang on behalf of Grand Palace.  In addition, Right Star relies on its own audited accounts for the years ended 31 March 1997 until 31 March 2001, all of which record an indebtedness on the part of Grand Palace to it in the amount of the outstanding rental under the various tenancy agreements at the relevant year end.  Right Star further relies on Grand Palace’s audited accounts for the year ended 31 March 1999, which showed that it had debts owed to creditors other than its shareholders in excess of the amounts which were outstanding in favour of Right Star under the tenancy agreements in the years ended 31 March 1998 and 31 March 1999 (the figures as at 31 March 1998 appearing as prior year figures in those accounts).  Right Star’s and Grand Palace’s audited accounts were audited by different firms of auditors, but in each case, the balance sheets were signed by Mr Hui and Dr Huang as directors.

30.  Against this, Grand Palace contends that the tenancy agreements of 1 October 1996 were not genuine tenancy agreements.  However, it is not disputed that they were signed by Dr Huang on behalf of Grand Palace.  In these circumstances, it seems to me that it is necessary to examine the basis on which Dr Huang says that the 1996 tenancy agreements were not genuine, and to consider whether he has identified substantial grounds for saying this.

31.  However, the only explanation put forward by Dr Huang is that he was told that the documents were required for “accounting purposes”.  Nowhere in his evidence does he suggest what those “accounting purposes” might possibly be.  It is difficult to envisage what such accounting purposes are likely to have been, other than to serve as a record of the relationship between the two companies, by recording the terms on which one (Right Star) rented out property which it owned to the other (Grand Palace).  That is a purpose which confirms the arrangements recorded in the tenancy agreements, and does not cast doubt on their genuineness.

32.  Moreover, Right Star’s position is, I think, strengthened by the contents of its own, and also Grand Palace’s, audited accounts.  These documents also provide evidence of the existence and reality of the 1996 tenancy agreements.

33.  Although Mr Leung, appearing for Grand Palace, sought to dismiss Right Star’s audited accounts as “self-serving”, this ignores the fact that the balance sheet in each set of audited accounts which has been produced contains a reference to a debt owing by Grand Palace to Right Star in the amount which would have been outstanding on the basis that the tenancy agreements of 1996 were genuine agreements, and that such balance sheets were certified as true and correct by both Dr Huang and Mr Hui.  In these circumstances, where Dr Huang himself has certified the correctness of the balance sheets in question, I do not think that they can be said to be so self-serving as to be capable of being disregarded or ignored.

34.  Similarly, Grand Palace’s own audited accounts (albeit only available for one year) are consistent with the position contended for by Right Star.  These showed that as at 31 March 1998, Grand Palace owed sundry creditors a total of HK$4,677,975, a figure which rose to HK$5,688,495.67 as at 31 March 1999.  This compares to amounts owing to Right Star of HK$3,540,000 and HK$4,351,475 as at those dates.  While Right Star is not expressly identified as one of the creditors comprised within those figures, it is notable that Grand Palace has not put forward any material to suggest that those creditors did not include Right Star.  Given that Grand Palace had by March 1998 been operating the guesthouse business for some months, and seems to have had difficulty meeting its obligations to pay rent not just to Right Star but to other landlords as well, these accounts do appear to support Right Star’s claim.

35.  Finally, the rent reduction agreement of 1 April 1997 would also appear to support Right Star’s claim, referring expressly, as it does, to the 1996 tenancy agreements.  Although this was also said by Dr Huang to be a document brought into existence for accounting purposes, it is again difficult to see what those accounting purposes could have been, other than to record the relationship between the two companies, and no other suggestion or any detail as to the nature of the accounting purposes is provided by Dr Huang.

36.  In addition, as Mr Li pointed out, the making of tenancy agreements in about 1996 was consistent with Grand Palace setting up its guesthouse business.  Given that that business in fact commenced in mid 1997, and required a period of time before that for the carrying out of conversion work to the units in the building, it was unsurprising that Grand Palace should have entered into leases of the parts of the building that it required prior to the commencement of the operation of the guesthouse business itself.  If there were no leases in place, Grand Palace would in effect have been able to operate without paying any rental to Right Star, an arrangement which must have been unlikely, given that the effect of such an arrangement would be that Right Star would be benefiting the shareholders of Grand Palace (which included Mr Shun, Mr Poon and Sky Harvest) at the expense of its own shareholders, Mr Hui and Dr Huang.  Dr Huang does not provide any explanation as to why he and Mr Hui would have been willing to do this.

37.  Notwithstanding this, Mr Leung submitted that there are a number of documents which provide support for Grand Palace’s case, and that taken together, they demonstrate that there is real substance to that case.  I shall therefore consider those documents to see the extent to which this might be so.

38.  Mr Leung pointed first to a faxed copy of the 1996 tenancy agreement in respect of the units on the upper floors of the building which appeared to have been faxed to Dr Huang in November 1997 by Right Star’s accountant, Mr Cheung, which differed from the tenancy agreement produced by Right Star and Mr Hui in that the amount of the monthly rental had been left blank in the faxed copy.  It is curious that this document was not produced by Dr Huang until a late stage in these proceedings, not being mentioned until his fourth (and last) affirmation made for these proceedings.  Moreover, it appears that the original of this document was never produced for inspection, despite requests by those acting for Right Star.  In these circumstances, I would not ascribe much weight to it.

39.  Mr Leung next relied on two documents which were exhibited to Madam Liu’s first affirmation, which appear to set out a series of calculations with a view to making certain adjustments as to the position as between Grand Palace, Dr Huang and Mr Hui.  These documents are difficult to follow.  The first, dated 24 January 2000, records the fact (which appears to be correct) that Right Star received from Grand Palace an amount of HK$1,106,500 between August 1998 and November 1999.  However, it then goes on to suggest that for the period to July 1999, Right Star should only have received HK$420,000 (being rental in respect of the lobby on the ground floor of the building at HK$35,000 per month for 12 months from August 1998 to July 1999), so that it was overpaid by HK$686,500 for that period (this notwithstanding that the payments in fact covered a period not of 12 months, but of 16 months, to November 1999).  It then suggests that Mr Hui and Dr Huang should have been receiving HK$64,000 and HK$72,000 per month respectively, treats the excess of HK$686,500 as having been paid to them in equal shares, and proposes arrangements for equalizing the position as between them.  The second document appears to follow a similar format, although the detailed figures are in some respects different.

40.  With respect to Mr Leung, I have had great difficulty in understanding what this document was meant to show.  It departs in a number of significant respects from the position even under the 1998 tenancy agreement, which (apart from its commencement date) Dr Huang accepts as genuine and correct.  First, it seems to ignore the fact that the 1998 tenancy agreement existed at all.  Second, it appears to ignore the fact that the legal owner of the units rented to Grand Palace was Right Star, which would therefore have been entitled to payment of the rent stipulated in the 1998 tenancy agreement.  Third, it appears to ignore the fact that under the 1998 tenancy agreement (whenever it commenced), Right Star should have received HK$1,280,000 for the 16 month period from August 1998 to November 1999, and so could not be regarded as having been overpaid when it only received HK$1,106,500 during that period.  Fourth, it seems to suggest that Mr Hui and Dr Huang between them had provided 17 units to Grand Palace, whereas the tenancy agreement only related to 15 units.  Fifth, it suggests a total monthly rental of HK$171,000 for the ground floor and 17 other units (HK$35,000 for the ground floor, HK$64,000 to Mr Hui for 8 units and HK$72,000 to Dr Huang for 9 units), whereas the tenancy agreement provided for a monthly rental of HK$80,000 for the ground floor and the 15 units owned by Right Star.  Having regard to all of these discrepancies, I do not think that these documents can be regarded as providing any substantial support for Grand Palace’s case.

41.  Further, there is nothing in the document to indicate that Right Star was in any way party to it.  On the face of it, whatever adjustments were being made were meant to in some way equalize or adjust the position as between Dr Huang and Mr Hui personally.  It is therefore not possible, in my view, to regard this document as being somehow binding on Right Star so as to lend support to Grand Palace’s position in these proceedings.  Given that Grand Palace also appeared to owe considerable amounts to its shareholders (as is disclosed by its audited accounts for the year ended 31 March 1999, shareholders’ loans were in excess of HK$9 million), it seems entirely possible that this document was connected to those loans, rather than to the amount owing to Right Star.

42.  The third document to which Mr Leung referred was a handwritten note, apparently signed (perhaps by way of acknowledgment only) by Mr Hui, which is dated 31 March 1998.  It was suggested that this indicated that the 1996 tenancy agreements were not signed in 1996, but later.  However, that does not appear to be in any way apparent from this document.

43.  Reliance was also placed by Mr Leung on certain documents which were said to be rental records, which showed that no rental was paid in respect of the units owned by Right Star during the period of the 1996 tenancy agreements, although rental was payable after the 1998 tenancy agreements were entered into.  With respect to Mr Leung, I do not think that these isolated documents bear the weight that he sought to put on them, as it is far from clear whether they were intended to be full or complete lists of units that had been leased by Grand Palace, or simply lists of those in respect of which it was in fact paying rent (as opposed to those in respect of which it was obliged to do so).

44.  Finally, Mr Leung referred to a letter dated 7 September 1998 from Mr Shun in which he complained of various matters relating to Grand Palace.  Again, this letter does not support Grand Palace’s position, and appears to be largely neutral.

45.  Thus, it does not seem to me that any of the documents on which Grand Palace relies in fact detract from Right Star’s case.

46.  Mr Leung also contended that account should be taken of the fact that, as he put it, Grand Palace was handicapped because it did not have access to all of its own documents so as to enable it to fully advance its own case.  However, as to this, the position is that Dr Huang in fact took proceedings against Mr Hui in 2005 seeking inspection of Grand Palace’s documents which were said to be in Mr Hui’s possession, and obtained an order for inspection.  Mr Hui provided documents in accordance with that order in 2005, some time prior to the service of the statutory demand on which this petition is based.  An attempt by Dr Huang to bring contempt proceedings against Mr Hui for alleged failure to comply with the order has been rejected by Kwan J.  In these circumstances, I do not think that it would be appropriate to give any weight to this argument.

47.  Finally, Mr Leung suggested that the petition was brought for an ulterior purpose – to stifle Grand Palace’s claim against Mr Hui for breach of fiduciary duty.  However, as Mr Li pointed out, if there is merit in that claim, it is one that can be pursued by a liquidator even if Grand Palace is wound up.

48.  I am therefore not satisfied that Grand Palace has come close to establishing the existence of a bona fide dispute of substance as to the debt asserted by Right Star.  It follows that Right Star is entitled to the winding up order which it seeks.

49.  However, in case I am wrong as to this, and Grand Palace has shown a bona fide dispute of substance as to the existence of the 1996 tenancy agreement, I should consider also the fall back position advanced by Mr Li, which is that even on Grand Palace’s own case, it is still indebted in a substantial amount to Right Star.

50.  Mr Li’s argument runs as follows.  On Grand Palace’s own case, the amount of rental payable under the 1998 tenancy agreement, up to the date of its termination, was HK$4,720,000.  However, Right Star has only received HK$2,858,500, leaving an indisputable debt of HK$1,861,500 owing to Right Star.

51.  Grand Palace’s response, contained largely in Madam Liu’s first affirmation, is that it has in effect paid Right Star over HK$5,400,000 during the period in question.  This is made up as follows:-

Period from August 1998 to November 1999	HK$	2,052,000
Period from December 1999 to June 2000	HK$	833,000
Period from July 2000 to July 2001	HK$	819,000
Period from August 2001 to September 2001	HK$	160,000
Period from October 2001 to June 2003	HK$	1,840,000
Total	HK$	5,544,000

52.  Dealing first with the period from August 1998 to November 1999, Right Star’s records show that it only received a total of HK$1,106,500 from Grand Palace.  This amount tallies with the figure mentioned in the document dated 24 January 2000 to which I have referred above.  However, Madam Liu contends (and Mr Leung submitted) that Right Star should be regarded as having in effect received HK$2,052,000 during this period.  This contention appears to have been based on the figures set out in that document as being payable to Right Star, Dr Huang and Mr Hui respectively (i.e. HK$420,000, HK$864,000 and HK$768,000), which it is suggested were effectively paid by the various payments made by Dr Huang in accordance with the suggestions at the end of that document.  The arrangements involved various offsets being made as between Dr Huang and Grand Palace, although there seems to have been a net amount payable by Dr Huang to Grand Palace at the end of the day.

53.  The difficulty with this argument is that it wholly ignores the existence and terms of the 1998 tenancy agreement, which are accepted by Grand Palace.  I have already pointed out the many respects in which the document and its contents do not tally with the 1998 tenancy agreement.  As I have also noted, there is nothing in the document to connect it with Right Star or to indicate that it was somehow (and if so, how) binding on Right Star, so that upon the payments proposed being made by Dr Huang to Grand Palace, Right Star should be treated as having received the amounts of “rental” supposedly (according to the document) payable to itself, Dr Huang and Mr Hui (and received, if at all, not by itself, but by Dr Huang and Mr Hui for the most part).  There is no evidence to suggest that Right Star ever treated itself as having received any such sums.  On the contrary, the sums supposedly payable to Dr Huang and Mr Hui appear to have been recorded in Grand Palace’s books as repayments of their shareholder’s loans to the company.  In these circumstances, I fail to see how Right Star can be regarded as having, in fact or in effect, received the amount of HK$2,052,000 when it only ever appears to have received HK$1,106,500.

54.  The next period is in respect of December 1999 to July 2000.  It is suggested that payments of HK$119,000 per month directly by Grand Palace to Mr Hui and Dr Huang should be treated as receipts by Right Star.  Again, the first point to note is that this amount exceeds the amount payable under the 1998 tenancy agreement, so that there would appear to be no good reason for Grand Palace to have paid it to Right Star, whether “in effect” or otherwise.  Further, no evidence (beyond Madam Liu’s assertion) is put forward to suggest that such payments were in fact made to Mr Hui and Dr Huang.  Finally, and fundamentally, no basis is put forward for suggesting that such payments to the two individuals should be regarded as being the equivalent of payment to Right Star.  Thus, this amount must, I think, be ignored.

55.  The position is the same for the next period, where it is alleged that HK$819,000 was paid to Right Star by Kingsmark making direct payments to Dr Huang (by way of offset) between July 2000 and July 2001.  No payment records in respect of such alleged payments were disclosed.  Again, the fundamental problem facing Grand Palace in respect of this claim is that no sensible or viable basis is put forward for suggesting that such payments (if any) should be regarded as the equivalent of payment to Right Star.

56.  For the period of August and September 2001, Madam Liu simply asserts, without any documentary evidence, that Grand Palace would have paid HK$80,000 per month (or a total of HK$160,000) to Right Star.  Absent any documentary support for such an assertion, I do not feel able to accept it in preference to Right Star’s contention that it received no payment in this period.  It is also curious that at this point, the arrangement of making direct overpayment to Dr Huang or Mr Hui seems to have come to an end, without any obvious explanation being proferred.

57.  For the final period, from October 2001 to June 2003, it is again simply asserted that as Grand Palace should have been receiving HK$165,000 a month from the company then operating the guesthouse, it would have paid Right Star in full.  Again, no evidence of payment is proffered, and again, I cannot accept the assertion in preference to Right Star’s contention that it only received HK$1,290,000 directly from the sub-tenant in this period.

58.  The position is therefore, that there is, in my view, no substance to Grand Palace’s contention that it has in effect overpaid Right Star during this period, or indeed that it has paid Right Star any amount beyond that which Right Star says it has received.  That being so, there is still a shortfall of some HK$1,861,500 in respect of the period from August 1998 to June 2003, which is owing from Grand Palace to Right Star and which has not been paid, thus, even on the basis that the only relevant tenancy agreement is the 1998 tenancy agreement, and that it commenced from 1 August 1998 as Grand Palace contends, it would remain appropriate to make a winding up order against Grand Palace.

59.  For these reasons, I shall make the usual winding up order against Grand Palace, and shall order that the costs of the petition, including all previously reserved costs, are to be paid by Grand Palace to Right Star, to be taxed on the party and party basis if not agreed.