RE FU LUNG INTERNATIONAL TEXTILES LTD

HCCW 316/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 316 OF 2003

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REASONS FOR JUDGMENT

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1. This is a petition for winding-up of Fu Lung International Textiles Limited ("the Company") presented by a judgment creditor, Kam Shing Enterprises Company Limited. The judgment debt is in the sum of HK$250,000.00 pursuant to an Order dated 19 February 2003 made by Master Kwang in HCA No. 3593 of 2002 upon the petitioner's application for summary judgment.

2. At the hearing of the petition on 12 May 2003, I gave leave to the Company to file and serve an affirmation of its director, Wang Kah Sze William affirmed on 10 May 2003 within three days of the hearing. Having considered the late affirmation of Mr Wang and having heard counsel for the Company, as I am not satisfied that the Company has any valid ground of opposition, I have made a winding-up order against the Company and these are the reasons for my decision. The background leading to the petition may be stated as follows.

3. On 13 June 2002, the Company issued a writ against Guanglian Bedclothes Co., Ltd ("Guanglian") in HCA No. 2285 of 2002. Guanglian is a company incorporated in Mainland China. In that action, the Company claims against Guanglian loss and damages allegedly suffered by the Company as the result of a breach by Guanglian of an oral agreement made between Guanglian and the Company ("the Oral Agreement"). The Oral Agreement was entered into in November 1995 and by that agreement, the Company agreed to sub-contract to Guanglian its orders for textile processing works from Pac-Fung Feather Co. Ltd ("Pac-Fung"), on condition that Guanglian was not to have any business relationship whether directly or indirectly with Pac-Fung, so as to protect the Company's business and interests.

4. It is alleged that in breach of this condition, Guanglian had directly received orders for textile processing works from Pac-Fung and had caused the Company to suffer loss and damages in excess of HK$1,000,000.00, being the subject of the claim in HCA No. 2285 of 2002.

5. On 19 September 2002, Guanglian and the petitioner brought proceedings against the Company in HCA No. 3593 of 2002. Guanglian is the 1st plaintiff in that action and the petitioner is the 2nd plaintiff. The claim was for charges owed to Guanglian and the petitioner for textile processing works done by Guanglian for the Company. It is not in dispute that the petitioner was an agent of Guanglian in collecting payment for such works from the Company.

6. On 27 November 2002, Guanglian and the petitioner sought summary judgment against the Company in HCA No. 3593 of 2002 with the result that I have mentioned. In the Order dated 19 February 2003, Master Kwang had ordered inter alia as follows:

(1) the Company was to pay Guanglian HK$740,091.74 with interest;

(2) the Company was to pay the petitioner HK$250,000.00 with interest;

(3) Guanglian was to give credit to any sum received by the petitioner pursuant to the judgment in respect of the judgment debt owed to Guanglian as ordered in (1);

(4) there be a stay of execution of the judgment made in favour of Guanglian pending the determination of the Company's counterclaim against Guanglian.

7. In respect of the judgment debt upon which the petition is founded, Master Kwang did not order any stay of execution. There is no appeal against the judgment and order made by Master Kwang.

8. On 26 February 2003, the Company's solicitors wrote to the petitioner's solicitors stating that the Company is unable to pay the judgment debt of HK$250,000.00 to the petitioner. The solicitors went on to say that as the petitioner's claim is an alternative to Guanglian's claim in HCA No. 3593 of 2002 and it was ordered by the Master that Guanglian is to give credit to any amount received by the petitioner pursuant to the judgment, the Company asked whether the petitioner would agree not to enforce the summary judgment in its favour until the conclusion of HCA No. 2285 of 2002.

9. The petitioner turned down the request and presented the petition herein on 18 March 2003.

10. On 3 April 2003, the Company issued a summons in HCA No. 2285 of 2002 and HCA No. 3593 of 2002 seeking an order of consolidation as both actions arose from the same set of facts, and an order for the stay of execution of the judgment made in favour of the petitioner in HCA No. 3593 of 2002. An order was made by Master Woolley on 8 April 2003 that the two actions be consolidated and directions were given for the further conduct of the consolidated action. The Master ordered a stay of execution of the judgment made in favour of the petitioner in HCA No. 3593 of 2002 pending the determination of the consolidated action on condition that the Company is to pay into Court the judgment sum of HK$250,000.00 with interest up to the date of the order within twenty-eight days thereof. The time limit for complying with the condition for stay of execution expired on 6 May 2003 and no payment was made. In the late affirmation put in by the Company, Mr Wang admitted that up to the present, the Company is unable to make such payment.

11. The Company has opposed the petition, alternatively it sought an order that the petition be stayed pending the determination of the consolidated action, on the ground that the Company has a genuine and serious claim in the consolidated action that would set-off and extinguish the petitioning debt of HK$250,000.00. It is clear from the above that the claim of the Company in the consolidated action, which is based on damages for breach of the Oral Agreement, is against Guanglian and Guanglian alone. This claim has nothing to do with the petitioner, a wholly separate entity from Guanglian. By the order of Master Kwang, it was held that the petitioner, as the agent of Guanglian in collecting payment for the textile processing works, is entitled to payment from the Company in the sum of HK$250,000.00. The fact that the petitioner would have to account to its principal, Guanglian, for any amount received from the Company pursuant to the judgment, as recognized by the Master and provided for in his Order, is of no relevance. The petitioner is a judgment creditor and is entitled ex debito justitiae to a winding-up order in the absence of any valid cross-claim of the Company against the petitioner.

12. As there are no valid grounds of opposition, and the Company has admitted that it is unable to pay the petitioner's debt, I have made a winding-up order against the Company and that the petitioner's costs are to be paid out of the Company's assets.