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Chim Kee Machinery Co Ltd v Sne Engineering Co Ltd

Judgment Cited authorities 11 Cited in Precedent Map Related
Vincent
Judgment Date23 May 2013
Subject MatterCompanies Winding-up Proceedings
Judgement NumberHCCW308/2012
CourtHigh Court (Hong Kong)
HCCW308/2012 CHIM KEE MACHINERY CO LTD v. SNE ENGINEERING CO LTD

HCCW 308/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO 308 OF 2012

______________________

IN THE MATTER of SNE ENGINEERING COMPANY LIMITED

and

IN THE MATTER of the Companies Ordinance, Cap 32

____________

BETWEEN

CHIM KEE MACHINERY COMPANY LIMITED Petitioner

and
SNE ENGINEERING COMPANY LIMITED Respondent

____________

Before: Mr Recorder A Ho, SC in Court
Date of Hearing: 6 February 2013
Date of Decision: 23 May 2013

______________

DECISION

______________

Background

1. SNE Engineering Co Ltd (“the Company”) was a subcontractor of Hsin Chong Construction Company Ltd to perform certain pile removal works under the MTR Express Rail Link Contract.

2. For the purpose of the subcontract work, the Company had since September 2010 contracted with the Petitioner, Chim Kee Machinery Co Ltd, for the supply of various heavy machinery including Rotators, Crawler Cranes, Truck Cranes, Casings and Tools with or without operators and workers.

3. It was the practice of the Petitioner to render monthly statements of account to the Company. The statements were compiled from the invoices, and the invoices were in turn issued according to the Work Bill kept by the Petitioner.

4. There had been disputes between the Petitioner and the Company with regard to payment. On 3 April 2012 the Petitioner served a statutory demand on the Company to compel payment of $10,399,066, allegedly as outstanding hiring charges from 30 April 2011 to 29 February 2012. The Company in turn requested Hsin Chong to make payment to the Petitioner through the Company’s account.

5. In the meantime, further charges accrued for the months of March and April 2012. On 23 May 2012, the Company requested Hsin Chong to advance payments-on-account to enable the Company to pay for the March and April charges pending finalization of the actual accounts between the Company and the Petitioner. On the same day, an arrangement was agreed among the Petitioner, the Company and Hsin Chong whereby Hsin Chong had agreed to make payment on behalf of the Company to the Petitioner for an amount to be certified by the Company or for a reasonable amount to be assessed by Hsin Chong.

6. Subsequently on 13 June, the Company sent the Petitioner a cheque for $3,841,751 and also paid the Petitioner $3,758,249 through bank transfer. These two payments totalled $7.6 million. At the time of payment, the Company also sent two tables to the Petitioner, one of which listed a series of March invoices totalling $3,841,751 and the other listed a series of April invoices totalling $3,355,495. There was no explanation as to what the $7.6 million was meant to cover. But as one would see that the amount of the cheque corresponded with the table of March invoices, one could assume that the sum through bank transfer would be treated as payment-on- account for the April invoices.

7. The Petitioner did not accept that the March and April invoices had been fully discharged by the payment of $7.6 million. On 26 June, the Petitioner again demanded payment of the outstanding sums due for those two months. The Petitioner threatened to terminate its service after 3 July if the outstanding sums were not settled.

8. The Company responded on 28 June 2012, reiterating that the sums certified for March and April were already paid. The Company further asked the Petitioner to issue new rental agreements for the period starting 1 June.

9. The question of outstanding charges was not resolved. On 3 July, the Petitioner issued a letter to the Company accusing the latter of failing “to provide any commitment on repayment, compensation of damaged equipment and rental period of equipment” and indicated that the Petitioner had “no choice but to terminate [its] service at MTRC 802 job site immediately”.

10. It appears that since 3 July, Hsin Chong had started using workers other than the Company’s workers to operate the machinery and equipment. A meeting between the Company and the Petitioner was held at the site on 6 July at which Hsin Chong also attended as an observer. But as later correspondence shows, the parties even argued over whether they had actually reached any agreement at all for the Petitioner to resume work. There was also an allegation from the Company that the Petitioner had deliberately operated its machinery at a much slower rate which had adversely affected the progress of the Company’s work.

11. Eventually, on 11 July, the Company wrote to Hsin Chong to inform them of the Company’s acceptance of the Petitioner’s termination of service. The letter was copied to the Petitioner.

12. Disputes then ensued between the Company and the Petitioner regarding the removal of the machinery from the Site. The Company eventually obtained an injunction from the court on 24 July to require the Petitioner to remove its equipment.

13. In the meantime, the Petitioner issued its July statement of account (“the July Statement”). The July Statement (dated 5 July 2012) was made up to the end of June 2012 and the amount allegedly due from the Company was $9,192,474.50. This sum was apparently net of the March and April invoices which the Company had listed in the tables when the $7.6 million was paid.

14. Based on the July Statement the Petitioner issued and served another statutory demand on the Company on 1 August, demanding payment of the said sum of $9,192,474.50.

15. However, what was due for the months of March and April was still unresolved. The parties disagreed over whether the $7.6 million payment was meant for settling the March and April invoices or whether part of that sum should be treated as payment-on-account and to be set off against the invoiced amount for the month of May.

16. In the meantime, further charges for the month of July had accrued. As will be seen later, these charges were strongly contested by the Company. The Petitioner issued another statement of account made up to end of July 2012 (“the August Statement”). The outstanding amount had by then accumulated to $12,501,781 according to the Petitioner.

17. On 23 August 2012, the Petitioner presented a winding up petition against the Company based on the alleged indebtedness of $12,501,781 (“the Petitioning Debt”).

18. On the other side of the dispute, the Company had issued proceedings (HCA 1466/2012) against both Hsin Chong and the Petitioner for infringement of the Company’s patent. For such infringement, the Company claimed damages or an account of profits among other reliefs sought.

19. Further, by another action (HCA 2025/2012) the Company sued the Petitioner, first, for overpayment of the hire charges for the period from September 2010 to April 2012; secondly, for damages for loss occasioned by the Petitioner’s slow operation of its plants and equipment since 7 July to 12 July 2012, which was provisionally assessed at $4,627,339.20; and thirdly, for damages and loss of profits allegedly arising from Hsin Chong’s withdrawal of subcontract-works from the Company as a result of the Petitioner’s termination of its service on 3 July 2012, which was provisionally assessed at $10,821,213.

20. The Company now seeks to strike out, or alternatively, to stay the Petition on the following grounds:

(i) There is a bona fide and substantial dispute over the Petitioning Debt;

(ii) The Company has genuine cross-claims against the Petitioner which would exceed the alleged indebtedness;

(iii) The Company has commenced the two Actions and accordingly the respective claims between the parties should be resolved in those proceedings rather than by way of the present winding-up.

21. The Company’s contention, primarily, is that its cross‑claims in HCA 2025/2012 alone would have exceeded the Petitioning Debt. The second and third aspects of that claim amounted to $15,448,552.20 (see §19 above). In addition, the Company had a substantial claim in damages in the patent action (HCA 1466/2012).

22. In addition the Company also challenges the sums allegedly due under the July and August Statements. The company’s case is that out of the sum $9,192,474.50 mentioned in the July Statement, $1,529,942 is disputed. And as for the further sum of $3,309,306.50 allegedly accrued in July, only $249,744.92 is admitted and the Company disputes the balance of $3,059,561.58 for that month. The Company acknowledges that these deductions, even if upheld, would not have completely extinguished the Petitioning Debt.

Legal Principles

23. The relevant legal principles are not in dispute. I would respectfully adopt the following principles set out in two cases decided by Kwan J (as she then was). In Re Hong Kong Construction (Works) Ltd, HCCW 670 of 2002, the learned judge said, at §6:

“(1) The burden is on the company to establish that there is a genuine dispute of the debt on substantial grounds. In this context, "substantial" means having substance and not frivolous. An honest belief in an insubstantial ground of defence is not sufficient to avoid a winding-up order.

(2) The court should look at the company's evidence against so much of the background and evidence that is not disputed or not capable of being disputed in good faith; in other words, the evidence is not to be approached with a wholly uncritical eye.

(3) The court would caution itself against unsubstantiated and unparticularised assertions, especially where particulars and information have been sought by the other side. It is incumbent on the company to put forward "sufficiently precise factual evidence" to substantiate its allegations.

(4) The court does not try the dispute on affidavit but is to determine whether a substantial dispute...

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