RE ALROCO CO. LTD.

HCCW 1386/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO. 1386 OF 2001

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REASONS FOR JUDGMENT

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1. This was a petition to wind up a company by the name of Alroco Co Ltd ("the Company"). At the conclusion of the hearing on 6 May 2002, I ordered the Company to be wound-up and said I would reduce the reasons for the order into writing to be handed down.

The petition

2. Honeycomb Garment Factory Ltd ("the Petitioner") is a garment manufacturer. It alleged that the Company owed it US$332,673.16 for goods sold and delivered under 18 purchase orders, for which invoices were presented between 27 April 2001 and 20 August 2001, and a sum of HK$3,205.30 for terminal handling charges paid by the Petitioner on behalf of the Company.

3. It was further alleged in the petition that the Company had drawn 3 post-dated cheques in favour of the Petitioner in the sums of HK$481,507.50, HK$200,000 and HK$200,000 on 8 October 2001, 19 October 2001 and 19 November 2001 respectively, but that the cheques had been dishonoured upon presentation.

4. On 28 November 2001, the Petitioner presented a statutory demand upon the Company. This was done by (a) sending a copy by ordinary post to the Company's registered office, (b) inserting a copy into a mail box at the Company's registered office and (c) leaving a copy at the Company's registered office by slipping it under the door.

5. No payment was forthcoming on any of the invoices, and on 21 December 2001, the present petition was presented.

Grounds of opposition

6. The Company has opposed the petition on the following grounds:-

(1) the statutory demand had not been properly served;

(2) it was only acting as agent when it issued the purchase orders to the Petitioner and this was known to the Petitioner;

(3) the cheques were given to the Petitioner on condition that the Company would be paid by its principal, which payment was not forthcoming;

(4) it had a claim against the Petitioner for damages for inducement of breach of contract, unlawful interference with contract and defamation which should be set-off against the debt.

Service of statutory demand

7. I shall deal with each ground in turn. The first ground was that the statutory demand had not been properly served. The significance of this ground is this:- if the statutory demand had not been properly served, then the deeming provision of s.178(1)(a) Companies Ordinance would not apply. This subsection provides that a company shall be deemed unable to pay its debts if a creditor to whom the company is indebted has served on the company, by leaving it at the registered office of the company, a demand requiring the company to pay the sum so due, and the company has 3 weeks thereafter neglected to pay the sum.

8. As for service, there is an affirmation from William Wong Wai Ming, a director of the Petitioner, deposing that on 28 November 2001 ("the service date"), he went to the registered office of the Company at Unit 1601 Malaysia Building. He found no one there. He then inserted one copy of the statutory demand under the door of that unit "at about 7:00 p.m.", and also inserted a copy into the letterbox mounted beside the door of the unit.

9. The Company did not dispute that Unit 1601 Malaysia Building was its registered office on the service date, but it denied that it received the statutory demand.

10. In the affirmation of Wong Lap Boon, one of the Company's directors, he deposed that the Company had moved out of that unit the previous month, but he had made an arrangement with the management office and the postman that letters sent to the Company thereafter would be collected by the management office, to be collected by the Company from the management office at regular intervals.

11. However, that arrangement with the postman obviously would not apply to the statutory demand inserted under the door of Unit 1601 as it had not been sent by post.

12. As to this, Mr Wong Lap Boon said in his 3rd affirmation that he had been informed by security officers at Malaysia Building that "commencing from 7:00 p.m. during weekdays", there would be a counter at the ground floor lobby and all persons entering the building would be asked to register their names and state the units they wished to visit. As the service date was a weekday, Mr Wong Lap Boon inferred that Mr William Wong would have been stopped by the security officers and would not have been permitted to visit Unit 1601, as the security officers would have known that the Company had moved out.

13. The Court was asked to infer from this that Mr William Wong had never visited Unit 1601 and had not in fact inserted the statutory demand under the door of that unit.

14. However, the Company did not apply to cross-examine Mr William Wong on his affirmation, and even upon the Court's enquiry at the hearing, indicated that it did not seek to do so.

15. Further, the Company's evidence as to the security arrangements at Malaysia Building was not such as would lead to an inference that the statutory demand had not been served in the manner deposed to by Mr William Wong.

16. Mr William Wong's affirmation (made and filed before Mr Wong Lap Boon's 3rd affirmation) was to the effect that he had inserted the statutory demand under the door of Unit 1601 "at about 7:00 p.m". The Company's evidence was that "commencing from 7:00 p.m.", the security arrangements would be put in place on the ground floor. The times indicated in these two pieces of evidence are such that they may both be true. Mr William Wong would only not have been allowed up (or perhaps only allowed up after registration) if he had arrived at the ground floor after 7:00 p.m., but his evidence was that at about 7:00 p.m., he was already on the 16th floor inserting the statutory demand under the door. The Company's evidence therefore does not show that Mr William Wong's evidence of service was untrue or incorrect.

17. Further, it should be noted that whilst in paragraph 6 of Mr Wong Lap Boon's 3rd affirmation, he stated his source of information as to general security arrangements, he did not state any source for his statement in paragraph 7 that had Mr William Wong gone to Malaysia Building at about 7:00 p.m., he "would have been stopped by the security officers and not allowed to go up to Unit 1601, because the security officers would inform him that the Company had already moved out and not allow him to go up". I should add as a matter of completeness that there is no evidence of the contents of the security officers' record book for the service date, as the Company had been denied access to it.

18. In the circumstances, I was satisfied that the statutory demand had been properly served.

Agency

19. The Company further alleged that the debt was bona fide disputed on substantive grounds in that it was, to the knowledge of the Petitioner, only acting as an agent for Starboard Cruise Services ("Starboard").

20. That, however, is not a defence to its contractual liability to the Petitioner. It is well-established that an agent who makes a contract in his own name is contractually liable to the other party even if that party knew that he was acting as agent (see e.g. Basma v Weekes [1950] AC 441 (P.C.), 454), and here all 18 purchase orders were made between the Company only as purchaser and the Petitioner as vendor.

21. The Company did not dispute that but argued that the contracts in this case were partly oral and partly in writing. The Company relied on evidence of a course of dealings, as set out in paragraph 3 of Mr Wong Lap Boon's 1st affirmation.

22. Even if one accepted that evidence in its entirety, it said no more than that after Starboard's initial contact with the Company and the latter's contact with various manufacturers including the Petitioner, Starboard and the various manufacturers would then "meet together to discuss the particulars of the quality, quantity, price and shipment dates etc of the fabrics and clothes to be sold and purchased". Samples would then be sent by the manufacturers to the Company, and the Company would then inspect and ship the goods ordered. Payment was made by Starboard to the Company, which would then pay the manufacturers.

23. However, there was no evidence as to whether, and if so, how, those "discussions" ever became binding such as to form part of the contracts between the Company and the Petitioner. As such, I found that the Company failed to show any bona fide dispute on substantive grounds based on its case of agency.

Conditional cheques

24. The Company further alleged that it issued the dishonoured cheques subject to the condition that they should not be presented for payment unless and until the Company had received payment from Starboard, and Starboard had failed to pay the Company for settlement of "some" of the outstanding amounts owed to the Petitioner.

25. The allegation that such a condition was imposed was completely lacking in particulars. There was no evidence as to when and how such a condition was imposed, and whether anyone at the Petitioner company was informed of or accepted any such condition. One cannot conceive of a barer allegation than that made in this case.

26. In those circumstances, the Company had not discharged its onus to show that this was a bona fide dispute on substantive grounds, and it is not necessary to consider the Petitioner's further submission (based on the case of Prosperity Lamps & Components Ltd v Rotegear Corp Ltd [2000] 2 HKC 638) whether parol evidence should be admitted of the imposition of such a condition.

Set-off

27. Finally there is the allegation that the Company has a set-off against the Petitioner for loss and damages which it claims to have suffered as a result of the Petitioner's acts which are said to be torts of inducing breach of contract, unlawful interference with contract and defamation. The Petitioner's acts are said to be its requests to Starboard to pay it directly as a result of the Company's failure to pay the outstanding invoices, and the making of "adverse comments" on the Company's credit and financial position. The Company alleges that as a result, Starboard had refused to settle payment for "part" of the subject goods, had queried the Company's financial position and had not placed any fresh orders with the Company.

28. Even taking the Company's evidence in its entirety, it is difficult to see how there could be any set-off arising from the Petitioner's alleged conduct. Given that the Company's case had been that it was not liable to the Petitioner, and that Starboard was liable as its principal, the Company could hardly complain if the Petitioner attempted to get payment for its goods from Starboard. Further, the fact was that the Company had indeed failed to pay 18 invoices of US$332,673 , HK$3,205 disbursements and had dishonoured 3 cheques upon presentation. Further, even if there were anything in the point, such a claim could be pursued by the liquidators of the Company, there having been no submission made to me as to why liquidators would not be able to do so.

29. In the circumstances, I ordered the Company to be wound-up.