RE PHOON LEE PILING CO LTD

HCCW 564/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 564 OF 2002

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J U D G M E N T

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1. This is a petition to wind up Phoon Lee Piling Co. Ltd ("the Company") on the ground that it is unable to pay its debts. The petition was presented by Mr Chow Chung Kan who had obtained an award against the Company in the Labour Tribunal on 5 June 2001 in the sum of HK$163,881.90. By the same award, the Company was ordered to pay to seven other claimants the total sum of HK$1,023,466.20. The Company is also indebted to another claimant by an award made by consent in the Labour Tribunal on 11 July 2000. By that award, the Company was to pay HK$50,000.00 to that claimant by 3 instalments. The Company had only paid two instalments leaving outstanding the sum of HK$20,000.00.

2. On 18 December 2001, the petitioner served on the Company at its then registered office a demand for his own debt and on behalf of the seven other claimants in the award of 5 June 2001, under s.178(1)(a) of the Companies Ordinance, Cap. 32. The demand was not complied with. On 28 March 2002, the petitioner served on the Company at its new registered office a demand for the debt owed to him and the debt owed to the seven other claimants. As no payment was made by the Company, the petitioner herein was presented on 27 May 2002.

3. One creditor has given notice of intention to appear and to oppose the petition. This is Paul Y - ITC Construction & Engineering Co. Ltd. This creditor claims that a debt is owed to it by the Company in the sum of HK$63,319,205.68. There is also a creditor who has given notice of intention to appear and to support the petition and this is the Hong Kong Housing Authority. It is claimed that the Company owes it the sum of HK$702,597.00.

4. The petition first came before me on 26 August 2002, by which time the Company has taken out a summons to strike out the petition under Order 18 rule 19 of the Rules of High Court and the inherent jurisdiction of the Court on the basis that no debt is owed by the Company to the petitioner, or to the seven other claimants as they were not the employees of the Company at the material time.

5. On 28 August 2002, leave was granted by the Court under Order 9 rule 6 of the Rules of the High Court for a director of the Company, Mr Choy Bing Wing, to represent the Company in these proceedings.

6. On 7 October 2002, I adjourned the petition and the striking out summons for argument to be heard together and I am dealing with both matters today.

7. The petitioner has filed a total of three affirmations. The Company has, by its director, Mr Chung Kau ("Mr Chung") filed four affirmations and by another director, Mr Chung Tse On Jeff ("Mr Jeff Chung") filed one affirmation. I propose to summarize the case of each side first.

The petitioner's case

8. The petitioner started to work for the Company since July 1989. In support of this, he produced a bundle of employer's returns filed by the Company with the Inland Revenue Department for his employment from April 1990 to April 1993 and from April 1995 to April 2000. Up to April 1997, these returns were signed by Mr Chung as the manager of the Company. The last three returns were signed by Mr Jeff Chung as the assistant manager of the Company. As for the return in April 1994, this was filed by Phoon Lee Construction Co. Ltd as the employer of the petitioner and was signed by Mr Chung as the manager of that company.

9. In October 2000, the petitioner and seven other claimants in the Labour Tribunal proceedings were engaged by the Company to work on a site at Tokwawan. The main contractor was China State Construction Engineering Corporation ("the Main Contractor"). On 11 October 2000, the petitioner stopped working for the Company because his wages were not paid. His co-workers had also stopped working at around that time. On 23 October 2000, a solicitors firm acting for the petitioner and his co-workers wrote to the Company stating that their wages were not paid within one month on which they became due and in accordance with section 10A of the Employment Ordinance, Cap. 57, the workers gave notice to terminate their contracts of employment with the Company forthwith. By the letter, a demand was made to the Company to pay the workers the sum specified in section 7 of Cap. 57 within 7 days.

10. On 24 October 2000, after the contracts of employment were terminated by the aforesaid notice, the Main Contractor paid the arrears in wages to the petitioner and his co-workers.

11. On 30 November 2000, the petitioner and seven co-workers filed a claim against the Company in the Labour Tribunal being LBTC No. 8869 of 2000 claiming arrears in wages, wages in lieu of notice, annual leave pay, severance pay or long service payment, on account that their contracts of employment were deemed to have been terminated by notice dated 23 October 2000 under section 10A of Cap. 57.

12. The claim was defended by the Company and the Company was represented in the Labour Tribunal by Mr Chung. The only defence raised by the Company in the Labour Tribunal was that the Main Contractor had reached an agreement with the claimants to pay their wages and as the Main Contractor had in fact settled the arrears in wages in October 2000, the claimants were not entitled to invoke section 10A to terminate their contractors of employment and claim against the Company the amounts due to them on account of the termination of their contracts.

13. The trial took place before the Presiding Officer on 24 and 25 May 2001. It was then adjourned to 5 June 2001 for the Company to call witnesses from the Main Contractor to substantiate its allegation of an agreement between the Main Contractor and the claimants. At the conclusion of the evidence on 5 June 2001 and after hearing submissions from both sides, the Presiding Officer gave judgment in favour of the claimants and made the award that I have mentioned.

14. As the Company has failed to pay the judgment debt, the petitioner has brought this petition after serving two demands for payment on the Company.

The Company's case

15. According to the evidence of the Company, it was in financial difficulty since about January 1999 when the ICAC arrested a number of persons for suspected corruption and conspiracy to defraud in connection with sub-standard piling works at a construction site of the Housing Department in Tung Chung where work was undertaken by the Company.

16. In February 1999, as there was no work for the Company, the petitioner and seven co-workers left the Company and ceased to do any work for the Company.

17. In March 1999, an interlocutory injunction was obtained by one of the principal contractors of the Company to restrain the Company from entering the site at Tung Chung.

18. In July 1999, Mr Chung suggested to his two sons, Mr Jeff Chung and Mr Chung Tsz Lok to form a new company, as the Company was unable to get any piling work due to the ICAC investigation. Hence, Chun Wai Engineering Co. Ltd ("Chun Wai") was incorporated on 6 August 1999 with the sons as the directors and shareholders. Mr Chung claimed to have no interest in Chun Wai, but it would appear from the evidence before me that he had taken an active role in its business.

19. Notwithstanding that the petitioner and his seven co-workers had ceased to work for the Company, they returned to the Company regularly to demand wages and they were paid wages by the Company up to early 2000. I should mention that this is denied by the petitioner and he has produced a number of work cards from January 1999 up to October 2000 to show that he had in fact worked at various sites during this period. These work cards all bore the name of the Company although they were not signed.

20. On 15 February 2000, the Company and Chun Wai made an agreement in writing for the transfer of the employment of the petitioner and eight other employees of the Company to Chun Wai. The agreement was signed by Mr Chung on behalf of the Company and by Mr Jeff Chung on behalf of Chun Wai. It was stated that the employees would be notified of the transfer and from then onwards, Chun Wai would be responsible for the wages of these workers and recognize their years of service with the Company and arrange work for them. It is alleged that Mr Chung and Mr Jeff Chung then told the petitioner and the eight workers of the transfer and that with the exception of one worker, all had agreed to be transferred to Chun Wai. The worker who did not agree was laid off. The petitioner denied that he was ever told by the Chungs of the transfer as alleged or at all. He claimed that he was employed by the Company at all material times.

21. The Company has produced several cheques issued by Chun Wai to the petitioner and other workers on 5 June 2000 in payment of their wages. The petitioner has admitted that he had received the cheque issued by Chun Wai but asserted that he did not pay attention to the issuer as he is illiterate.

22. On 3 July 2000, Chun Wai entered into an agreement in writing with the Main Contractor to carry out piling work as its sub-contractor at the site in Tokwawan.

23. It is alleged that at the material time which was September and October 2000, the true employer of the petitioner and his co-workers was not the Company but Chun Wai, hence the award of the Labour Tribunal was wrongly made and the Company should not be liable to the petitioner and his co-workers.

If there is a substantial dispute of the debt on bona fide grounds

24. Mr Choy submitted on behalf of the Company that the judgment of the Labour Tribunal is wrong in law and was obtained by the petitioner and other claimants against the Company by fraud, and that this Court should go behind the judgment on the hearing of the petition to wind up the Company.

25. I was referred by Mr Allan Lam, who appeared for the petitioner, to a number of authorities on the approach of the Court when it is asked to inquire into the validity of a judgment in such circumstances. The authorities all related to bankruptcy proceedings but I accept that they apply equally to winding-up proceedings. It would appear from the authorities that where a judgment was entered by default (as in Re Onslow, ex parte Kibble (1875) 10 Ch 373) or where the judgment was entered by consent (as in Re Lennox, ex parte Lennox (1885) 16 QBD 315) that where there are strong grounds for believing that no petitioning creditor's debt exists notwithstanding the judgment obtained by the petitioner, a bankruptcy court may go behind the judgment. In Re Flatau, ex parte Scotch Whisky Distillers Ltd (1888) 22 QBD 83, it was held that the bankruptcy court will not, as a matter of course, inquire into the validity of a judgment debt, but only where there is evidence that the judgment has been obtained by fraud, mistake, collusion, or that there has been some miscarriage of justice. The judgment considered in Re Flatau was obtained after trial and Fry LJ said at page 86 that this power of the bankruptcy court to go behind the judgment has never, as far as he was aware, been extended to cases in which a judgment has been obtained after issues have been tried before a court.

26. The judgment in the Labour Tribunal was given after a 3-day trial. There is no application to stay execution of the judgment, nor is there any application for leave to appeal against that judgment. As a judgment creditor, the petitioner is entitled ex debito justitiae to a winding-up order against the Company. Are there any compelling grounds for this Court to inquire into the validity of a judgment which was obtained after a proper trial?

27. In my judgment, no such grounds have been shown by the Company. I was taken by Mr Lam and Mr Choy to considerable parts of the transcript of proceedings before the Labour Tribunal. I note the following matters from the transcript:-

(1) The only ground of defence raised by the Company in the Labour Tribunal was the ground that I have mentioned earlier, namely, that the Main Contractor had reached an agreement with the claimants to pay their wages (transcript pages 84 and 92) and in respect of that defence, Mr Chung was reminded by the Presiding Officer on several occasions that it would be advisable for the Company to call someone from the Main Contractor to support its allegation. Indeed, the trial was adjourned on 25 May 2001 to 5 June 2001 to give Mr Chung the opportunity of locating a witness or witnesses from the Main Contractor and in the end he did call two witnesses from the Main Contractor, only that they did not support his allegation that the Main Contractor had reached an agreement with the workers to pay their wages. Thus, the Company was given every opportunity in the Labour Tribunal to raise such defence it might want to raise and to call evidence to support its allegations.

(2) From the exchanges between Mr Chung and the Presiding Officer in the course of the trial, Mr Chung had clearly accepted that the Company was the employer of the claimants and as the employer, the Company would have the duty to pay wages to the claimants but for the alleged agreement between the Main Contractor and the claimants that the Main Contractor would pay their wages instead (transcript pages 48, 86-87, 118-119, 120). There was no dispute by the Company on the number of years of service of the claimants (transcript pages 2, 92-93).

(3) On the basis of the evidence before him, the Presiding Officer found that the claimants were employed by the Company at the material time in September and October 2000, that the Company was a sub-contractor to Chun Wai, and that Chun Wai was a contractor to the Main Contractor (transcript page 126).

28. No or no proper explanation was given by the Company in these proceedings why it had not raised the defence before the Labour Tribunal that it was not the employer of the claimants. Mr Chung made a feeble excuse in his Fourth Affirmation that he had "very bad memory" and was "sometimes careless". I do not accept that as an explanation at all.

29. The Company has completely failed to satisfy me that there is a substantial dispute of the debt on bona fide grounds or that there are any grounds to inquire into the validity of the judgment.

30. None of the points made by Mr Choy on behalf of the Company casting doubt on the correctness of the judgment are of any validity. His submission on the work cards (that the work cards produced in these proceedings, not the work cards produced in evidence in the Labour Tribunal, have not been signed) and on the length of service of the petitioner with the Company (that the petitioner is not entitled to long service pay on the basis that he had worked for the Company for over 11 years) are irrelevant and untenable in the light of clear admissions in the Labour Tribunal that the length of service of the claimants was not disputed by the Company. There is but a bare allegation that the judgment was obtained by fraud and that is wholly unsubstantiated.

31. For the above reasons, I dismiss the Company's application to strike out the petition.

32. As mentioned earlier, as a judgment creditor, the petitioner is entitled to ex debito justitiae to a winding-up order. The only opposing creditor, Paul Y - ITC Construction & Engineering Co. Ltd was notified of the hearing today. It has not appeared, nor has it put in any evidence to substantiate the claim that the Company is indebted to it of HK$63,000,000.00 or, more importantly, what is the reason for opposing a winding-up order. In the absence of any reason of opposition given by this creditor, I would attach no weight to its opposition (In re P & J Macrae Ltd [1961] 1 WLR 229 at 233 and 235).

33. I therefore make a winding-up order against the Company and I order that the petitioner's costs, to be taxed in accordance with the Legal Aid Regulations, are to be paid out of the Company's assets.

Remarks: