HOEPFUL MEAT LTD v. TAI PO FROZEN MEAT CO LTD

HCCW 489/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP NO. 489 OF 2006

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D E C I S I O N

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1. This is a petition for winding-up issued against the Tai Po Frozen Meat Company Limited (“the Company”) by the Petitioner, which was a supplier of frozen meat products to the Company.  It appears that the Petitioner and the Company had a relationship that extended over some years, in the course of which the Petitioner would supply, on a regular basis, frozen meat products to the Company.  The terms of business were that the Petitioner would receive orders from the Company and, on receipt of the orders, would issue invoices to the Company.  Relying on the invoices, the Company would be able to obtain delivery of frozen meat products from the Petitioner's storage facilities.  It was not necessary for the Company to pay the price of the goods immediately on receipt of the invoice, and it was able to obtain delivery prior to payment because there was a system whereby payment was to be made at a certain time depending on when the invoice was issued.  Thus, for invoices issued in the first half of any particular month, payment would be made at the end of that month, whereas for invoices issued in the second half of any particular month, payment would have to be made on or before the 15th of the following month.

2. It appears that, at one point, there arose a dispute between the Petitioner and the Company as to the quality of certain meat products supplied by the Petitioner to the Company.  The Company alleged that the meat products in question were defective and sought to exercise a self-help remedy by offsetting the value of the allegedly defective meat against the amounts that it was due to pay the Petitioner when the next payment was due.  The Petitioner, however, considered that there was, first, no problem with the meat and, secondly, that there was, in any event, no entitlement on the part of the Company to make such a deduction, and accordingly pressed the Company for payment.  When payment was not forthcoming, the Petitioner invoked the terms of the contract between itself and the Company, which were to be found on the back of the invoice, and declined to supply further meat products to the Company.  It insisted that the Company should pay in full for the meat products ordered and although it refused to deliver further products to the Company (claiming to be entitled to do so under the terms of the contracts between itself and the Company), it maintained that it was holding such products or the equivalent available for the Company's collection at its warehouse and was incurring storage charges which it also sought to recover from the Company.

3. The matter eventually went to trial in the District Court where the District Court judge found, in part, in favour for the Petitioner.  The judge essentially found that the meat products to be supplied on any given occasion were not ascertained goods and that there had been no appropriation of specific goods to the contract covered by each invoice on any particular occasion.  Appropriation only took place at such time as the invoice was presented for delivery of goods from the Petitioner's warehouse facilities. 

4. In those circumstances, the judge held that the Petitioner was not entitled to the price of the goods on the basis that property in the goods had passed.  However, he held that because of the course of dealing between the parties, payment in respect of the invoices was to be made on a day certain and, in those circumstances, notwithstanding that property had not passed, it was possible under the Sale of Goods Ordinance for the Petitioner to maintain an action for the price rather than simply accepting the repudiation by the company and suing for damages instead. 

5. In those circumstances, the judge gave judgment for the Petitioner for the price of goods covered by a number of invoices which had fallen due by the point in time at which he held that the Petitioner had accepted the Company's repudiation.

6. The effect of the judgment was that the petitioner was adjudged to be entitled to payment of the value of those invoices, after which (i.e. on payment being made) the Petitioner would come under an obligation to supply meat to the Company in accordance with those invoices.  The judge held, in effect, that the Petitioner's obligation under the usual course of dealings to supply meat prior to payment had been suspended at the Petitioner's option when the Company had failed to pay the invoices in full.

7. The Company took steps to appeal against this judgment, applying for leave to appeal and a stay of execution from the District Court judge in about August this year.  However, the application was unsuccessful.  A further application for leave to appeal but, it seems, without an application for a stay of execution, was made to the Court of Appeal, but a single judge of the Court of Appeal rejected that application in September.  A renewed application for leave to appeal has been made to the Court of Appeal but that is not due to be heard until January 2007. 

8. In these circumstances, the Petitioner presented its petition, having first served a statutory demand in respect of the outstanding judgment debt and interests and costs, and has sought the winding-up of the Company on the basis of its inability to pay its debts because it has not responded to the statutory demand. 

9. At the hearing today, Mr Lung, who appears for the Company, submitted that although an intended appeal against the judgment did not amount to a stay of execution in itself, nonetheless, in the particular circumstances of this case - the fact that the Company wishes to appeal against the judgment of the District judge – it was a factor that I should take into account.  Further, he submitted that although there was not, strictly speaking, a cross claim or set-off that arose, he suggested that the effect of the District Court judge's judgment was that the Petitioner was in possession of property - that is to say, meat - which was to be delivered to the Company and it would be more just and reasonable that the Petitioner should exercise some form of self-help by selling the meat in question and using that to offset the value of the sum claimed under the statutory demand, as the value of the meat shown on the invoices exceeded the amount of the statutory demand by a small margin.

10. With respect to Mr Lung, I am afraid that I cannot agree with either of these submissions.  I shall deal with the second submission first.  It seems to me that the effect of the District Court judge's judgment was that the Company was obliged to pay the Petitioner the amount of the invoices.  It was only after such payment was made pursuant to the judgment that the Company would be entitled to delivery of any meat from the Petitioner.  It is not an apt analogy to suggest that the Petitioner is in possession of any property or anything resembling property of the Company.  The reason for this is that, as the District judge has found in his judgment, no property in any particular meat has passed to the Company at this stage.  It is only upon payment and subsequent appropriation when delivery is made that property will pass.  Whether or not the District Court judge is right in this conclusion is not for me to decide.  That is a matter for the Court of Appeal, if the matter ever gets that far.  But it seems to me that looking at it simply from the point of view of the judgment that has been entered against the Company, the fact is that there is no property that can properly be described as the property of the Company in the hands of the Petitioner to which the Petitioner can have recourse to satisfy the debt due to it. 

11. In effect, what the Company is telling the Petitioner to do is to ignore the fact that judgment has been entered against it and to simply drop the claim against the Company.  I see no reason why the Petitioner, having gone to the trouble of taking proceedings against the Company and obtained a judgment in its favour, should be required to do this.  For these reasons, it seems to me that the analogy that Mr Lung sought to draw with a set-off or cross-claim fails.  There is no appropriate analogy to be drawn and, even if there were, it seems to me that it could not be said that the Company has demonstrated the existence of a genuine or bona fide cross-claim or set-off or similar right that could be prayed in aid in this case. 

12. So far as the proposed appeal is concerned, it is quite clear that an appeal does not operate as a stay of execution.  In this case, there is not even, at this stage, an appeal in existence.  Further, it is relevant to note that an application for leave to appeal has been made to both the District Court judge and the Court of Appeal, and has failed.  This, it seems to me, counts against the Company.  In any event, even if an application for leave to appeal had not been made but were about to be made, it seems to me that in the circumstances, there being no evidence that the payment of the judgment debt to the Petitioner would lead to the appeal being rendered nugatory (there being no suggestion that the Petitioner is otherwise in a position to repay any sums that are paid to it in the event of a successful appeal, there would be no real prejudice to the Company in making payment prior to the prosecution of any appeal that it may be permitted to bring.

13. In those circumstances, I do not see that there is any basis for regarding the Company's intended appeal, whatever may be the merits of such an appeal, as a factor to be taken into account in deciding whether or not to exercise my discretion to make a winding-up order against the Company.  These matters were explained to Mr Lung during the course of submissions and he was offered an opportunity to ascertain whether or not the Company would wish to pay the debt rather than suffer the making of a winding-up order against it.  However, having taken instructions, Mr Lung has informed me that the Company does not intend to pay the debt and, in those circumstances, since I have held that there is no merit in the Company's opposition to the petition, I shall make the usual winding-up order with costs against the Company, such costs to include any reserved costs in respect of previous hearings.