RE PROJECT GLOBAL LTD

HCCW1070/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO. 1070 OF 2003

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JUDGMENT

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1.  The Company Project Global Limited (“the Company”) is a company incorporated in the British Virgin Islands.  The Petitioner Energy World International Ltd. served a statutory demand on the Company at its principal place of business in Hong Kong at Unit 08, 42^nd Floor, Sun Hung Kai Centre, 30 Harbour Road, Hong Kong “the SHK Office”).  It was served on 2 August, 2003 pursuant to section 178 and 327 of the Companies Ordinance, Cap. 32 for AUD$601,555.25. The demand was not met at all.  The petitioner then presented this petition on 23 September 2003.  The petition says that the debt due was at AUD$576,911.01. 

2.  The petition alleges that the debt has arisen from an agreement which was partly written and partly oral and made between the Company and the Petitioner in or around January, 2000 (“the Agreement”).  The petition further says that under the Agreement, the Petitioner would provide the Company with qualified personnel, office space and associated overheads in order to assist the Company in certain projects in which the Company and/or its parent company Pacific Energy Ltd. (“Pacific Energy”) was involved and to assist the Company in the general operation and management of Pacific Energy and another associated company Atlantic Pacific Infrastructure Ltd. (“APIL”).  The petition further alleges that it was a term of the Agreement that the Petitioner would not charge a fee for providing these services but that the Company would fund at costs all the amounts incurred by the Petitioner in providing services pursuant to the Agreement.  The Petitioner then issued invoices to the Company for services provided under the Agreement.  The amounts in the invoices constituted the alleged debt in the statutory demand.

3.  The Company opposes the petition.  It issued a summons on 17 November 2003 seeking to strike out the petition under Order 18 rule 19 Rules of the High Court.  The grounds in the summons are:

(a)	the alleged date referred to in paragraph 5 of the petition is bona fide disputed on substantial grounds;
(b)	the Company has not been served with the statutory demand referred to in paragraph 9 of the petition in accordance with s. 327 of the Companies Ordinance and is not deemed unable to pay its debts; and
(c)	the petition has not been properly served on the Company in accordance with the Companies (Winding Up) Rules.

Address of the Company

4.  The Company on 22 November 2003 filed an affidavit of one Kong Yuk Lin also known as Florence Kong in support of its application.  Miss Kong was the authorized representative of the Company as well as APIL.  She also served as the Assistant to Company Secretary of APIL.  She said that both the Petitioner and one Energy World (HK) Ltd. (“Energy World”) were owned and controlled by Mr. Stewart Elliot (“Elliot”).  She worked for the Company and APIL and took directions from Mr. John Fletcher (“Fletcher”). 

5.  Miss Kong further said that in about April, 2001, Energy World took up a 3-year tenancy of the SHK Office.  On about 28 March, 2001, Mr. Elliot and Mr. Fletcher agreed that the Company and APIL would share the SHK Office with the Petitioner and Energy World and the Company would contribute 50% of the rent etc.  It was subsequently agreed that Energy World would bill APIL for the contribution.  Pursuant to this agreement, APIL and the Company moved into the SHK Office on about 16 April 2001.  The Company then submitted a Form 2 to the Companies Registry on 24 April 2001 and notified the Registry that it had changed its principal place of business in Hong Kong to the SHK Office.  It has also notified the Business Registration Office of the change of address on 14 May 2001. 

6.  However, when Miss Kong arrived at the SHK Office for work in the morning of 28 July 2003, she was stopped at the entrance by a Mr. Thomas Wong, an employee of the Petitioner, from entering the office.  Mr. Wong told her that she could not enter the office because APIL had not paid the rent.  She then took instructions from Mr. Fletcher, who was then in Australia, and was told to go to the office of Cleveland Bridge Hong Kong Ltd. at 2805 Great Eagle Centre, 23 Harbour Road (“Cleveland Bridge Office”) and to settle down there.  She went there and was given a desk and a computer to work with.  She also arranged with the telephone company to divert the calls for the Company/APIL to the telephone and fax numbers at the Cleveland Bridge Office.  She returned to the SHK Office on 31 July 2003 and, with the help of the staff of Kroll & Associates, removed most of the files and properties of the Company, APIL and Pacific Energy to the Cleveland Bridge Office.  She returned to the SHK Office for the second time on 10 October 2003 and removed some more items therefrom.  After these two removal exercises, there were only a few items left in the SHK Office.

7.  Miss Kong said as a result of the removal, the Company no longer operated from the SHK Office as from 28 July 2003.  She further said that because she was preoccupied with settling in at the Cleveland Bridge Office, she did not update the Company’s address with the Business Registration Office until 6 August 2003.  Mr. Fletcher later returned to Hong Kong and leased Room 2804, Great Eagle Centre (“Great Eagle Office”) in September 2003.  From about 22 September 2003, the Company and APIL started using the Great Eagle Office as the principal place of business in Hong Kong.  The record at the Business Registration Office was also updated on 26 September 2003.  However, Miss Kong said that she was too busy making arrangements for moving into the Great Eagle Office and she only notified the Companies Registry by a Form 2 dated 8 October 2003 that the Company had a new principal place of business.

Service of the Statutory Demand and the Petition

8.  It is the Petitioner’s cases that the statutory demand was served on the Company at the SHK Office on 2 August 2003 pursuant to section 327 of Companies Ordinance.  Regarding the petition, it was served on the Company on 23 September 2003 at the SHK Office and it was received in that office by Mr. Thomas Wong on behalf of the Company.  However, Miss Kong deposedin her affidavit that Mr. Wong had only been seconded by the Petitioner to work for APIL up to 31 December 2002 and had never being and certainly was not an employee of the Company on 23 September 2003.  Furthermore, the Company was not operating at the SHK Office on 23 September 2003.  Both the Company and APIL had started using the Great Eagle Office as the principal place of business in Hong Kong from about 22 September 2003.  Prior to that, they were operating at the Cleveland Bridge Office.  The first time she saw the statutory demand and the petition was on 10 October 2003.  She returned there to retrieve the outstanding properties of the Company, APIL and Pacific Energy.  The statutory demand and the petition were kept in a brown manila envelope and stacked among some other documents belonging to the Company, APIL and Pacific Energy.  She took them away together with those documents. 

9.  She also confirmed that Mr. Fletcher had told her that a copy of the statutory demand had been faxed to the Company in Australia on 2 August 2003 and Fletcher had passed this fax copy to Pacific Energy’s Australian lawyers.  The Australian lawyers wrote to the Petitioner’s solicitors on 22 August 2003 disputing the claim against the Company and said that the Company had in fact overpaid the Petitioner and would claim against the Petitioner for refund.  She further confirmed that Mr. Fletcher had told her that a copy of the petition had been faxed to the fax number of Pacific Energy on 23 September 2003.

10.  The Petitioner’s case is that at the time of service of the statutory demand and the petition, records of the Companies Registry show that these documents were served at the correct address of the Company.  The Company did not inform the Petitioner and the Petitioner did not know about the Company’s new address until it was later informed by the lawyers.

Disputes on the alleged debt

11.  The Company argued that the debt is bona fide disputed on substantial grounds.  On 8 December 2003, the Company filed an affidavit of Mr. Fletcher in support of the application to strike out the petition.  Mr. Fletcher said that Pacific Energy was a company listed on the Australia Stock Exchange.  The Petitioner was the owner of approximately 20% of issued share capital of Pacific Energy.  The Company was incorporated in Bermuda on 8 April 1999 as a wholly-owned subsidiary of Pacific Energy.  Its purpose was to hold 75% (later changed to 80%) of the shares of APIL.  The use of the Company to hold the APIL shares was to separate APIL’s business from the other activities of Pacific Energy.  APIL was a company formed by Pacific Energy jointly with Macquarie Bank Ltd. to acquire some development companies and assets from a Kvaerner plc.  Mr. Fletcher had been a director of Pacific Energy since 1996 and also as its chairman since 1997.  He was also its chief executive officer and managing director since October 2002 by replacing Mr. Elliott because Mr. Elliott withdrew himself for re-election prior to the AGM of Pacific Energy on 29 May 2003. 

12.  On 29 May 2003, Mr. Elliott, as a shareholder of Pacific Energy, requisitioned the board to convene a general meeting to replace the board with his nominees.  The general meeting was held on 28 July 2003, but Mr. Elliott’s attempt failed as his motion was out-voted.  He was also removed as a director of the Company on 25 July 2003.

13.  Towards the end of 1999 after the acquisition from the Kvaerner plc, the Company and APIL shared office premises with the Petitioner initially at Hopewell Centre and later at the SHK Office until 28 July 2003.  The reason for the sharing arrangement was because Mr. Elliott wished to operate his companies in Hong Kong and the Pacific Energy companies all from one office.  He was the chief executive officer and managing director of Pacific Energy until October 2002.  He was also the managing director of the Company until 25 July 2003 and a director of APIL until 21 October 2003.  

14.  Regarding the Agreement made in or around January 2000, Mr. Fletcher said that it had been discussed in detail and reached over a period of months from February to June 2000 and later revised sometime in mid-2001.  Secondly, APIL was directly involved in the Agreement.  He also produced a number of minutes of meeting of Pacific Energy to demonstrate that the making of the Agreement had taken a number of months.  He also said that the staff secondment part of the Agreement was terminated on 31 December 2002 by a notice in writing of 26 November 2002.  Thereafter there was no more secondment of staff or other support by the Petitioner to the Company or APIL. 

15.  For the arrangement for payment of charges, Mr. Fletcher also divided the period from 1 January 2000 to 30 June 2001 as Period 1 and 1 July 2001 to the termination of the staff secondment agreement as Period 2.  During Period 1, the charges were levied according to the Year 2000 Budget.  He said that the budget was prepared with the input by Mr. Elliot.  It was prepared on the basis that it was all-inclusive and would be the maximum and not to be exceeded.  If however the actual amount incurred by the Company should be below budget, the Company would only be liable for the actual amount.  For Period 2, the staff secondment costs should be the actual cost of the seconded staff plus 10% administration charge and such costs had to be substantiated with supporting data and timesheets. 

16.  Mr. Fletcher divided the unpaid invoices into six categories as follows and gave his reasons for rejecting them:

(i)	Exchange rate losses (due to the depreciation of A$ against HK$);
(ii)	Claims for staff and other costs exceeding the budgeted amounts (“over budget”);
(iii)	Claims for 13th month pay due to the Financial Controller for the years 2001 in 2002;
(iv)	Fees of the Financial Controller for 1 January 2003 – 31 July 2003;
(v)	Claims for work done that have not been substantiated with timesheets and/or supporting data; and
(vi)	Miscellaneous invoices.

17.  The Petitioner filed an affidavit by Mr. Elliot on 30 January 2004 to deal with Mr. Fletcher’s allegations.  Mr. Elliot said that the Agreement was for the Petitioner to provide the Company with qualified personnel, office space and associated overheads to work as directed on the project development of the assets, other projects nominated by the Company and in the general operations and management of Pacific Energy and APIL.  He also produced a copy letter dated 1 January 2000 from the Petitioner to the Company as evidence of the terms of the Agreement.  It had a chart annexed to it and Mr. Fletcher had written “OK” and signed on it.  He said the Petitioner would not charge a fee but the Company agreed to fund all costs incurred by the Petitioner in the normal course of business.  The Agreement was for two years with an optional extension of a further year.  He did not take part in the negotiation because of conflict of interests.  However, at no point did the independent directors, who approved the Agreement and the budget, state to him that the budget was the “maximum” limit.  He understood that the Agreement was a very simple one - the actual costs incurred by the Petitioner were to be reimbursed by the Company.  Nobody had ever told him in writing or verbally that the amounts to be paid by the Company to the Petitioner for the services were on a “not to exceed basis”.  He further said that if the board had stated that the budget was a maximum, it would have appeared clearly in the minutes and the Company would have put it in writing to the Petitioner.  Given the fact that the Petitioner was charging no fee for the services, he opined that it would not have made business sense to charge anything less than costs. 

18.  He also referred to the minutes of a meeting of the directors of Pacific Energy held on 12 May, 2000 in New South Wales.  They have been produced by Mr. Fletcher.  The minutes recorded that there should be quarterly reconciliation of the budgeted amounts with the actual costs incurred and there would be adjustments to the invoices for next months and recharge every 6 months as might be necessary.  He also referred to some other documents which recorded something similar.  He therefore concluded that the fundamental basis of the Agreement was for the Company to reimburse the Petitioner the actual costs of the services following reconciliation with the budget.

19.  On the Year 2000 Budget, he denied that he had taken part in its preparation.  He merely identified the costs of the Hong Kong operations for use in the preparation of this budget.  He also said that the Hong Kong costs were incurred in Hong Kong dollars and a conversion rate was necessary for preparing the budget.  The rate at the time of preparing the budget was approximately HK$4.80 to A$1.00.  However, the costs incurred by the Petitioner were in Hong Kong dollars.  Therefore, when the Petitioner invoiced the Company, it did so at the rate for preparing the Year 2000 Budget with the expectation, as had been agreed, that there would be a reconciliation of the actual costs.  The reconciliation took place on a quarterly and half yearly basis has agreed.  Mr. Elliot said that the Agreement was still in place in Period 2 and the Company was still required to pay the Petitioner the actual costs.  However, payments were not made on the basis of the Year 2000 Budget, but according to the anticipated estimated costs for the month which the Company paid in advance followed by reconciliation.  The 10% administration cost was for general office overhead and not for the service charge of any staff of the Petitioner. 

20.  In addition, the Petitioner also filed affidavits by Mr. Ian Jordan and Miss Ling and an affirmation by Miss Ho to corroborate Mr. Elliot. 

21.  The Company also filed the 2^nd affidavit of Mr. Fletcher in response.  He denied that the letter of 1 January 2000 had formed the Agreement and pointed out that it had not been signed by the Company.  Regarding the chart that bore his signature and the work “OK”, he said he wrote the word and signed the chart on a separate occasion and the chart was not annexed to the letter.  He said sometime after February 2000, Mr. Elliot showed him the chart and told him that it contained management arrangement of the seconded staff.  Mr. Fletcher then indicated his agreement with the arrangement and signed thereon.  He also said that when the Year 2000 Budget was presented to the board of Pacific Energy, Mr. Elliot had told the board that the budget limit would not be exceeded.  On the document referred to by Mr. Elliot on the terms of secondment, Mr. Fletcher said that that was not the final position and the document did not form part of the minutes of Pacific Energy. 

22.  The Company also filed two affidavits by Mr. Stuart Foster and Mr. Peter Evans of Pacific Energy, an affirmation by Mr. Samih Ramiz of APIL and a 2^nd affidavit of Miss Kong to corroborate Mr. Fletcher.  I now deal with the respective cases of the parties on the disputed categories of invoices one by one. 

Exchange loses

23.  The invoices that fall within this category relate to payments made during Period 1.  Mr. Fletcher said that the Year 2000 Budget was prepared by the Petitioner in Australian currency and it was so approved and agreed to by Pacific Energy.  Invoices issued pursuant to this budget were in Australian dollars.  Payments for them were also made in Australian dollars by the Company or Pacific Energy on its behalf.  Mr. Fletcher further said that the Company had never agreed to pay any adjusted amounts to the Petitioner in accordance with any fluctuations in the Australian dollar and the Petitioner was not entitled to issue such invoices to the Company.

24.  Mr. Fletcher further said that the exchange rate for Australian dollars had been falling during year 2000, and yet no attempt had been made by the Petitioner to object to the payments being made by the Company in Australian dollars during this period.  If there had been an agreement for Pacific Energy or the Company to make up to the Petitioner the losses or to take into account of the fluctuations in the exchange rate, the Petitioner would have claimed such losses or raised the question much sooner than it did in November, 2000.  He therefore said that it was an afterthought of the Petitioner to claim the exchange rate losses.

25.  Mr. Elliot on the other hand said that the costs incurred by the Petitioner were in Hong Kong dollars.  Though the Petitioner invoiced the Company in Australian dollars to facilitate payment by the Company, it was on the understanding that the Company would reimburse the Hong Kong dollars costs in full.  Therefore, in accordance with the agreed method for payment following reconciliation of the actual costs against the Year 2000 Budget, the Petitioner required the Company to pay the difference in exchange rate. 

26.  Mr. Fletcher replied that despite the reference by Mr. Elliot to reconciliation of actual costs, the Petitioner had never arranged any reconciliation or even a verification of the actual costs with the Company.  The Petitioner had not supplied the Company with any staff salary breakdown with full supporting documentation, timesheets and the full details of sundry costs.  He said he had asked for such information from Mr. Eller, Mr. Sam Ramiz and Miss Nicola Ho on several occasions, but the information never came.  For Period 1, the Petitioner had invoiced the Company according to Year 2000 Budget without any adjustment or allowance for actual costs or expenses. 

Over budget/variances

27.  The next category of disputed invoices was issued for Period 1 and for which the Year 2000 Budget applied.  Mr. Fletcher said that the sums allowed in the Year 2000 Budget were agreed to be the maximum and all-inclusive sums and the Petitioner was not entitled to charge anymore payment from the Company.  He again criticized the Petition for only issuing invoices for over budget amounts in November 2000 and not at earlier times and said that such charges in excess of the Year 2000 budget were made as an afterthought of the Petitioner.

28.  Mr. Fletcher further referred to two invoices for payments in relation to the secondment of Mr. Ian Bickerstaff and Mr. Gordon Trayling, both engineers.  He said that these two engineers were brought in by Mr. Elliott on a part-time basis to replace Mr. Ian Jordan and other members of the Petitioner’s team as the latter had switched back to Mr. Elliott’s private companies.  He also said that Mr. Jordan was the most highly paid staff of the Petitioner and Messrs. Bickerstaff and Trayling were on a lower pay scale and they were pay out of the same budgeted amounts allocated in the Year 2000 Budget as they were replacements.  Hence, he said there should not have been any additional sums charged by the Petitioner for the services of Messrs Bickerstaff and Trayling. 

29.  Mr. Elliot said that the Year 2000 Budget was for planning purposes.  Where the actual costs exceeded the budgeted costs, the difference was payable by the Company to the Petitioner.  Since there was the reconciliation exercise, there was no need to raise the issue at an earlier stage.

30.  On the employment of Mr. Bickerstaff, Mr. Elliot said that he was brought in to work as the senior manager for the Nonoc Nickel Project on a full-time basis and not as a replacement for Mr. Ian Jordan.  Regarding Mr. Trayling, he was the most highly paid staff of the Petitioner and was seconded to the Company to be responsible for the Mount Hope Project and the Nonoc Nickel Project and not as a replacement for Mr. Jordan.  He also said that the Company had never disputed the employment of Mr. Trayling as an additional staff of the Company.  

31.  Mr. Fletcher responded by pointing out that the Company had not signed the letter from the Petitioner offering the services of Mr. Bickerstaff at HK$72,000 per month. 

Claims for 13th month pay due to the Financial Controller for the years 2001 in 2002

32.  Two invoices fall into this category.  They related to the 13^th month pay for Miss Jo Anciano, the financial controller of Philnico  Development Ltd. (PDL”).  Miss Anciano had been seconded to PDL to serve as its financial controller.  The arrangement was by the agreement of Mr. Fletcher and Mr. Elliott.  Mr. Fletcher said that he had agreed with Mr. Elliott that the Petitioner would be paid US$2,100 for the services of Miss Anciano and this sum was to include all her expenses including bonuses and any other employment-related costs.  He denied any agreement for the Company to pay the Petitioner the 13^th month pay for Miss Anciano as the US$2,100 was in fact substantially higher than the total emoluments that Miss Anciano was receiving from Mr. Elliott.  Mr. Fletcher also said that the US$2,100 up to June 2001 was to be paid out of the 7.5% contingency expenses in the Year 2000 Budget as Miss Anciano was an additional staff.

33.  Mr. Elliot replied that the total sum of US$4,200 in the two invoices included the salary of the driver.  He also said that the laws of the Philippines required payment of the 13^th month salary and such was a cost to the Petitioner.  Miss Anciano was seconded on the terms of the Agreement.  Her costs were invoiced separately as her service was not included in the Year 2000 Budget.

34.  Mr. Fletcher responded by saying that the Company was not aware of and had never been told about the statutory requirement for 13^th month salary.  He further pointed out that Miss Anciano’s monthly salary from the Petitioner was about US$750 and the US$2,100 was more than twice her monthly salary.

Fees of the Financial Controller for 1 January 2003 – 31 July 2003

35.  The Petitioner has invoiced the Company for fees in respect of the service of Miss Anciano from 1 January 2003 onwards.  Mr. Fletcher says that the secondment arrangement had ceased before 1 January, 2003 and the Company had not requested for or authorized the service of Miss Anciano since then.  He further said that there was no verification of the alleged service rendered by Miss Anciano and he believed that she was working as the financial controller for a company in the Philippines owned by Mr. Elliot. 

36.  Mr. Elliot said that this item was not included in the Petition.  He did not comment on it.

Claims for work done that have not been substantiated with timesheets and/or supporting data

37.  There are also two invoices which fall into this category.  They were issued for service charges for October and November 2002.  They have both been partly paid. 

38.  For the October invoice for A$45,945, Mr. Fletcher made various deductions.  He deducted 60% of the claim together and the 10% administration charge in respect of the service of Mr. Sam Ramiz for October 2002 because Mr. Ramiz had been on annual leave in that month for two and half weeks.  He also deducted a claim for the service of Miss Penny Ling which was unsubstantiated.  There was already an unsubstantiated claim for Miss Ling’s service in September 2002 and Mr. Fletcher had asked her for verification by timesheets to be supplied in the next month.  However, the claim for Miss Ling’s service for October 2002 was again unsubstantiated.  Hence, it was not paid.  There was also a claim for the service of Miss Nicola Ho, but Mr. Fletcher said that Miss Ho was an accountant of the Petitioner.  She only issued invoices to the Company and her cost had been covered by the 10% administration charge.  He said that there had been previous payments for similar claims for Miss Ho’s service and the Company is going to claim back such sums.  As a result of the deductions, the Company only paid the Petition A$26,830 for this invoice. 

39.  For the November invoice, the only item that was rejected was the charge for Miss Nicola Ho’s service.  Mr. Fletcher repeated the point that the additional service was covered by the 10% administration charge.  Hence, this item was not payable. 

40.  On the cost of Mr. Ramiz, Mr. Elliot agreed that he was on holiday, but said that his holiday pay was part of the secondment costs and was payable by the Company. 

41.  Mr. Fletcher however said that Mr. Ramiz’s service in question was in Period 2 and the Company was only obliged to pay the actual costs of the services provided.  When he was on holiday, he was not providing service to the Company and the Company should not be required to pay the holiday pay. 

42.  Mr. Fletcher also said that Miss Penny Ling was only helping Pacific Energy and APIL on a part-time basis from July 2000 and was no longer actively involved in the accounting matters of the Pacific Energy Group.  He also produced a letter dated 30 October 2002 from Mr. Ramiz to Miss Nicola Ho asking for substantiation of Miss Ling’s work. 

Miscellaneous invoices

43.  There are two invoices in this last category.  The first invoice was for charges incurred by Mr. Ron Proulx.  Mr. Proulx was the project manager of a Mount Hope Project of APIL at New Jersey.  The invoices charged a claim for flights taken by Mr. Proulx between Sydney and Perth and it claimed for hotel charges in India.  Both claims were rejected by Mr. Fletcher on the basis that they had nothing to do with the Mount Hope Project.

44.  The second invoice charged the year-end double pay for the seconded staff for 2002 and their Mandatory Provident Fund (“the MPF”).  Mr. Fletcher agreed to pay A$20,000 for the double pay claim as he regarded that as the approximate pro rata liability of the Company for the time that the staff had been seconded to APIL during the year.  For the MPF claim, he rejected it on the ground that it was already included in the staff charges. 

45.  On the flight of Mr. Proulx, Mr. Elliot said that he traveled to Perth to discuss matters including a turbine of approximately 500MW and his contribution was well received.  He had also traveled to other countries to gain relevant experience which was necessary for the Mount Hope Project.  This invoice was thus payable. 

46.  On the MPF, Mr. Elliot said that when the Year 2000 Budget was prepared, the Hong Kong Government had not introduced the MPF and hence such had to be paid by the Company. 

47.  On the flight and hotel expenses of Mr. Proulx, Mr. Fletcher put Mr. Elliot to straight proof. 

Overpayment claim

48.  In addition to disputing the Petitioner’s invoices, Mr. Fletcher also deposed that the Company would be making a claim against the Petitioner for refund of overpayments made by the Company to Petitioner during Periods 1 and 2.  Mr. Fletcher produced the minutes of a meeting of the directors of Pacific Energy held on 12 May, 2000 in New South Wales.  Mr. Elliot has also referred to these minutes.  They record that there should be quarterly reconciliation of the budgeted amounts with the actual costs incurred and there would be adjustments to the invoices for next months and recharge every 6 months as might be necessary.  Mr. Fletcher indeed alleged that the overpayments arose from adjustments to the budgeted amounts in the Year 2000 Budget.  The adjustments were made because some of the seconded staff did not work full-time on the APIL projects and the Company had paid for the use of the Hopewell Centre Office for the months of April to June 2001 when it was no longer using it.  The amounts allegedly overpaid were estimated by Mr. Ramiz from his knowledge of the salary of and time spent by the seconded staff.  Mr. Fletcher also relied on some schedules and timesheet supplied to the Company by the Petitioner to show that the seconded staff had spent some of their times working for companies owned by Mr. Elliot.  The amount allegedly overpaid was at A$906,581 and exceeded the amount claimed in the statutory demand or the amount in the petition. 

49.  Mr. Elliot’s answer is that the Petitioner had conducted a due diligence exercise on Energy World Corporation Ltd. for the Company at the request of Pacific Energy.  That was the reason for the Petitioner charging the Company for that exercise. 

50.  Mr. Fletcher however said that the due diligence cost was of no concern to the Company and pacific Energy had paid the Petitioner A$1 million for that. 

Law on striking out

51.  I am reminded that I should only strike out the petition only if it is plain and obvious that it should be struck out and there should not be a trial on affidavits (see Ha Francesca v. Tsui Kat Kan (No. 1) [1982] HKC 382 at 392G). 

Service of statutory and petition duly effected

52.  The Company had ceased to occupy the SHK Office from 28 July 2003.  The statutory demand and the petition were however served on it at this Office after this date.  The Company therefore said that the two documents had not been properly served on it.  The Petitioner however relied on section 327(4)(a) of the Companies Ordinance and rule 25 of the Winding-up Rules as in force at the material times and said that both documents had been properly served on the Company as they had been delivered to the principal place of business of the Company as recorded in the records of the Companies Registry.  Section 327(4)(a) and rule 25 provided:

"	327.	(4)	An unregistered company shall, for the purposes of this Ordinance, be deemed to be unable to pay its debts-
		(a)	if a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding $5000 then due, has served on the company, by leaving at its principal place of business, or by delivering to any officer of the company, or by otherwise serving in such manner as the court may approve or direct, a demand under his hand requiring the company to pay the sum so due, and the company has for 3 weeks after the service of the demand neglected to pay the sum or to secure or compound for it to the satisfaction of the creditor;" (emphasis added)
"	25.	Every petition shall, unless presented by the company, be served upon the company …… by leaving a copy at such registered office or principal place of business, or by serving it on such member, officer, or servant of the company as the court may direct; …... (See Forms 5 & 6)" (emphasis added)

53.  The Petitioner also relied on sections 333(1)(c) and 335(1)(d) of the Companies Ordinance on the duty of an overseas company to notify the Companies Registry its principal place of business and its change. 
The sections as in force at the material times provided:

"	333.	(1)	Any oversea company which, on or after the commencement of the Companies (Amendment) Ordinance 1984 (6 of 1984), establishes a place of business in Hong Kong shall, within 1 month of the establishment of the place of business, deliver to the Registrar for registration-
		(c)	……, and also- (Amended 83 of 1995 s. 17; 3 of 1997 s. 49)
			(i)	the address of the principal place of business of the company in Hong Kong; and
			(ii)	the respective addresses of the principal place of business, if any, and the registered office (or its equivalent) of the company in the place of its incorporation;

54.  Section 335(1)(d) of the Companies Ordinance provided:

"	335.	(1)	If in the case of any oversea company any alteration is made in-
		(d)	the address of the company’s principal place of business in Hong Kong or of its registered office (or its equivalent), or of its principal place of business, in the place of its incorporation, (Added 6 of 1984 s. 231)
	the company shall, within the prescribed time (21 days), deliver to the Registrar for registration a return in the specified form, containing the particulars of the alteration.  (Amended 6 of 1984 s. 231; 46 of 2000 s. 36)"

55.  The Company on the other hand argued that a company’s principal place of business is a question of fact.  I was referred to Elsint (Asia-Pacific) Ltd. v. Commercial Bank of Korea Ltd. [1994] 3 HKC 365 at 369B to E.  That was a case where the plaintiff served a writ on the defendant at its representative office in Hong Kong.  The defendant had not registered with the Companies Registry as an overseas company and had not furnished any information to the Registrar for registration under section 333(1)(c).  There was thus no record in the Companies Registry of its principal place of business in Hong Kong.  The writ was served on the defendant pursuant to section 338(2) of the Ordinance.  This section provided that:

“	(2)	Where any oversea company makes default in delivering to the Registrar the name and address of a person resident in Hong Kong authorized to accept on behalf of the company service of process or notices, or if at any time all the persons whose names and addresses have been so delivered are dead or have ceased so to reside or refuse to accept service on behalf of the company or for any reason cannot be served, a document may be served on the company-
		(a)	by leaving it at or sending it by post to any place of business established by the company in Hong Kong; or
		(b)	if the company no longer has a place of business in Hong Kong-
			(i)	by sending it by registered post to its registered office, and a copy thereof by registered post to its principal place of business (if any), in the place of its incorporation at the respective addresses thereof registered under section 333(1)(c); or
			(ii)	if no such addresses have been registered, by leaving it at or sending it by post to any place in Hong Kong at which the company has had a place of business within the previous 3 years.”

56.  The defendant therefore argued that it had no place of business in Hong Kong and its activities in Hong Kong were of a non-business nature.  Patrick Chan, J. (as he then was) held that whether the defendant had a place of business in Hong Kong was a matter of fact to be decided on the civil standard of proof.  The first distinguishing feature in that case is that the defendant there had not provided information to the Registrar as to its principal place of business pursuant to section 333(1)(c) of the Ordinance.  Secondly, it was a case on the service of a writ on a defendant under section 338(2) and not the service of a statutory demand or a petition which were governed by the then section 327(4) and rule 25 of the Winding-Up Rules respectively.  I do not think this case can provide assistance for resolving the dispute here. 

57.  The Company also referred me to Re: Alpina Pty Ltd. (1977) 2 ACLR 331 at 334-5, Re: Garton (Western) Ltd. [1989] BCLC 304 at 305g and In the matter of Golden Dragon Land Development Ltd. [1999] 539 HKCU 1.  In the case of Alpina, Hogarth J. noted that under the South Australian Companies Act (the relevant provision was similar to section 92 of our Companies Ordinance) a company could have a registered office upon incorporation or shortly thereafter of which there was no record in the Companies Office (or the Companies Registry in Hong Kong).  During this period, the office was the registered office of the company though the Registrar knew nothing about it and there was no record of it in his office.  The situation was similar when there was a change of the registered office.  The change of the registered office would take place first and notification of the change would be made later.  Hogarth J was of the view that the registered office was where it was as a matter of fact and not where it was as recorded in the Companies Office.  He came to this conclusion by following the language of the section closely.  On this view, the public cannot rely on the address of the registered office as shown in the public record and has to prove it as a matter of fact whenever the company raises a dispute. 

58.  In Garton, a statutory demand was served on a company on 29 July 1988 at the company’s registered office as it appeared in the Companies’ Registry.  The demand was not received by the company as shortly before it was served, the company had changed its registered office.  The notice of change was delivered to the Registrar on 30th July.  Hoffman J said that the statutory demand was duly served on 29 July 1988 because it was served at the company’s registered office as it then appeared in the Companies’ Registry.  He also said that the outside world is entitled to treat the register as conclusive evidence of the site of the registered office.  Le Pichon J took the same view on similar facts in Golden Dragon Land. 

59.  The Petitioner submitted that if this court should follow Hogarth J, then it would benefit those who do not notify the Registrar of change in registered office.  I also note that section 92(1) of the Ordinance requires a company to have a registered office for the purpose of receiving communications and notices.  Section 92(2) requires the notification by the company to the Registrar of its location or its change within 14 days.  It may be right that during the short period after incorporation but before the address of the registered office is reported to the Registrar, the whereabouts of the registered office may not be known to the Registrar and the public cannot learn about it from the public records.  The public record may also be incorrect during the short period between the change of the registered office and the time when the change is reported.  However, apart from these two short periods, the public should be able to rely on the public record.  The requirement of notification is obviously to facilitate public knowledge of the address so that communication and notices can be served on the company.  Sections 333 and 335 impose similar requirements on overseas companies which have established a place of business in Hong Kong.  They require the notification to the Registrar the principal place of business and its change.

60.  The Company left the SHK Office on 28 July 2003 and moved to the Cleveland Bridge Office.  It notified the Business Registration Office of the change of place of business on 6 August 2003, but she did not notify the Registrar of Companies.  The 21 days for notification of change expired on 18August.  The Company then moved next door to the Great Eagle Office on about 22 September 2003.  It then notified the change to the Business Registration Office on 26 September 2003.  The Registrar of Companies was only notified about the change on 8 October 2003.  The Petitioner had no idea of the change.  Meanwhile, the solicitors of the Petitioner served the statutory demand and the petition at the SHK Office as per the records of the Companies Registry on 2 August and 23 September 2003 respectively.  Hogarth J’s reasoning, if accepted, will give blessing to the Company for its default in notifying the change to the Registrar of Companies.  It may also encourage avoidance of service by non-compliance with requirements to report the change of address.  The public also cannot rely on the records of registered offices of companies as kept in the Companies Registry.  In the light of these problems, I would prefer to follow Garton and Golden Dragon Land.  I think the public should be able to rely on the records of registered office and principal place of business as kept in the Companies Registry save perhaps for the short period between the change of such office and the date when the change should have been reported to the Registrar.

61.  The Petitioner has also submitted that the principal place of business as referred to in section 327 must mean the same principal place of business as in section 333.  I agree with that submission.  If the draftsman should have intended otherwise, he would have spelt it out.  I therefore hold that the updating of the business address at the Business Registration Office on 22 September 2003 did not affect the position of the Company as it is the principal place of business as recorded in the Companies Registry that is the correct address for service.  I therefore hold that both the statutory demand and the petition have been duly served on the Company. 

The debt is bona fide disputed on substantial grounds

62.  The Company relied on Re: ICS Computer Distribution Ltd. [1996] 1 HKLR 181 at 182J-184B and Re: Hyundai Engineering & Construction Co. Ltd. (No. 2) [2002] 2 HKLRD 354 at 364.  These cases show that the onus is on the Company to adduce sufficiently precise factual evidence to satisfy the court that it has a bona fide dispute on substantial grounds.  I also note what has been said by Chadwick J in Re Company (No 006685 of 1996) [1997] BCC 830 at p. 838D that 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.

63.  The differences in the affidavits and affirmations filed by the parties have revealed a dispute on the terms and conditions of the Agreement.  There is force in Mr. Elliot’s argument that the Petitioner would only have agreed to provide the service at full costs.  However, there is indeed no evidence of any reconciliation exercise to support his case of reimbursement of actual costs.  The Company’s case of the Agreement would put it in a more favourable position as things stand, but this is not impossible bearing in mind that Mr. Elliot or his company had substantial interest in the Pacific Energy Group and the secondment arrangement could absorb some of his resources and his costs burden.  Furthermore, the Company might have wanted some protection from over exposure and hence wanted the budget to be its maximum and all-inclusive liability.  There was also a 7.5% contingency in the Year 2000 Budget to protect the Petitioner.  It is therefore not impossible for that to have been the basis of the Agreement. 

64.  For the exchange rate loss for Period 1, if the variation of exchange rate should have gone the other way, on the Company’s case, the Petitioner would have gained.  Hence, the Company’s version of the terms of the Agreement is not all one sided.  I also note the Company’s point that the invoices for exchange rate loss and over budget costs were not issued in quarterly or half-yearly intervals or for reconciliation but were first issued in November 2000.  The Petitioner answered that the Company did not object to these invoices until proceedings were brought whilst it had expressly rejected some other invoices.  But one must not lose sight of the fact that the Company had paid many other invoices which were issued before and after these unpaid invoices.  The Company obviously had its reasons not to pay these invoices.  Regarding the invoices that were expressly rejected, they were issued sometime in 2003 after the secondment arrangement had ended.  The relationship between the parties at this time was probably less amiable than before so that the Company did not think it too hostile a move for it to expressly reject the unwarranted invoices.  The Petitioner has made a further point that when the Company’s Australian lawyers responded to the statutory demand in August 2003, no mention was made about exchange rate loss or over budget costs.  But that was a short and general letter denying liability and suggesting a reconciliation of all the invoices and other matters between the parties and other companies on both sides.

65.  On the 13^th month pay for Miss Anciano, the Petitioner has not produced any evidence of how much her monthly salary was.  The Company however has produced some evidence suggesting that her monthly salary was US$750 and not US$2,100.  There is obviously a dispute over the two invoices that needs to be resolved at a trial. 

66.  On the holiday pay for Mr. Ramiz, there again is a dispute on whether the actual costs would cover holiday pay.  There is no evidence of how much Mr. Ramiz was getting from the Petitioner and one cannot tell whether the Petitioner was merely reimbursed by the Company for what it paid Mr. Ramiz. 

67.  For Miss Penny Ling, the Company was required to pay for her actual service measured by time.  There had to be substantiation by timesheet or other data to confirm how much the Company had to pay.  Hence, the Company’s case that she had been asked to substantiate her time is entirely possible. 

68.  In the case of Miss Nicola Ho, it is again opened to argument whether the 10% administrative charge would cover her services to the Company.

69.  On Mr. Proulx’s flight charges and hotel expenses, there is prima facie no reason for these expenses to have been incurred for the Company.  Mr. Elliot tried to supply the reasons, but he gave no particulars or documentary support.  I do not think the mere assertion by Mr. Elliot would be sufficient when there is prima facie no reason why the Company should be liable.

70.  Of the A$29,333 for year-end double pay of 2002, Mr. Fletcher only paid A$20,000 on the basis that that was the Company’s approximate pro rata liability.  The Petitioner disagreed and wanted the balance of A$9,333, but it did not say where Mr. Fletcher has gone wrong.  On the MPF at A$8,232, the Company’s suggestion that this item was included in the staff charges again deserves adjudication.

71.  For the above reasons, I hold that the debt is bona fide disputed on substantial grounds.  This finding is sufficient for the purpose of the summons.  However, I would also deal with the cross-claim and defence of set-off in case I have gone wrong on this finding.

Cross-claim and set-off

72.  The legal principle for dealing with cross-claims and set-offs raised to oppose winding up has been summarized in Re: Keen Lloyd Resources Ltd. [2004] 2 HKC 33 at 37-38 and Re: S Y Engineering Company Limited CACV 1896/01.  The four elements are:

(1)	the debtor company has a genuine and serious cross-claim;
(2)	it has been unable to litigate the cross-claim;
(3)	the cross-claim exceeds the amount of the petitioner’s debt; and
(4)	where the requirements in (1) to (3) are met, the court should exercise its discretion to dismiss or stay the petition in the absence of special circumstances.

73.  The second element has been questioned in Keen Lloyd and I would assume that this is not a necessary element.  I observe that the Company has refused to pay a number of invoices which together constitute the debt alleged in the petition and I have found that the Company had a bona fide dispute of this debt on substantial grounds.  However, the cross-claim was only raised when the Company’s Australian lawyers responded to the statutory demand which was served by fax.  When the cross-claim was first raised, it was for A$672,797.  However, when Mr. Fletcher referred to it in his affidavit, it had inflated to A$906,581.  No reason had been given on why this claim was not raised earlier or why it had increased so substantially in Mr. Fletcher’s affidavit.  There is also no supporting document apart from the schedules prepared on the basis of some guessing though it may be intelligent guessing.  On the materials available, I am not satisfied that the Company has a genuine and serious cross-claim as alleged.

Order

74.  In the premises, I strike out the petition on the ground that the debt is bona fide disputed on substantial grounds.  I also make a costs order nisi that the Petitioner do pay the Company the costs of the petition and this application with certificate for two counsel.