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Cool Tech Laundry Ltd v Unibo Trading Ltd

Judgment Cited authorities 2 Cited in Precedent Map Related
Vincent
Judgment Date27 January 2006
Year2006
Judgement NumberHCCW733/2005
Subject MatterCompanies Winding-up Proceedings
CourtHigh Court (Hong Kong)
HCCW000733/2005 COOL TECH LAUNDRY LTD v. UNIBO TRADING LTD

HCCW 733/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP NO. 733 OF 2005

____________

　 IN THE MATTER of UNIBO TRADING LIMITED
　 and
　 IN THE MATTER of Section 177 (1)(d) of the Companies Ordinance

____________

BETWEEN

　 COOL TECH LAUNDRY LIMITED Petitioner
　 (formerly known as CALMFIELD TRADING COMPANY LIMITED and previously known as CACHAREL LIMITED) 　
　 and 　
UNIBO TRADING LIMITED Respondent

____________

Before: Hon Barma J in Court

Date of Hearing: 27 January 2006

Date of Decision: 27 January 2006

______________

D E C I S I O N

______________

1. On 17 September 2005 Cool Tech Laundry Limited (“the Petitioner”), presented a petition to wind up Unibo Trading Limited (“the Company”). The basis of the petition is that the Company is unable to pay its debts, this allegation being founded on the Company’s failure to respond to a statutory demand served on it on 9 August 2005 in respect of a debt of HK$329,937 which the Petitioner alleges is owing to it and which arises out of the provision of garment washing and dyeing services performed by the Petitioner for the Company in about March 2005.

2. The Company now applies to strike out the petition on the basis that it is scandalous, frivolous and vexatious, or otherwise an abuse of process. The Company contends that the alleged debt is disputed by it bona fide on substantial grounds, or that it at least has genuine and serious cross-claims against the Petitioner which exceed the amount of the debt on which the petition is based.

3. The Company is a manufacturer and trader of garments carrying on business in Hong Kong. One of its major customers is (or was) the well-known United Kingdom clothing retailer, Next plc, which operates a chain of high street stores in most cities in the United Kingdom and in many other cities internationally.

4. According to the Company, towards the end of 2004 it was in receipt of orders from Next Sourcing Limited, which, as its name implies, is a company associated with and operating as a sourcing office for Next plc, for a substantial quantity (in excess of 55,000 pieces) of linen cropped trousers or shorts with waist ties for ladies. I shall refer in this judgment to Next plc and Next Sourcing Limited collectively as “Next”.

5. These garments required to be washed and pigment dyed. The Company says that it entered into an oral contract with the Petitioner for the provision by the Petitioner of the necessary washing and dyeing services. It is the Company’s case that the Petitioner knew that the garments which it was to wash and dye were intended for resale to Next and that the Petitioner agreed that its services should be carried out to the standards required by Next, such that the garments should be of the same quality as samples which had been provided by the Petitioner and approved by Next earlier. The Petitioner appears to accept that the work it was to carry out should meet Next’s standards.

6. In March 2005 the Company supplied some 26,380 pieces of garments to the Petitioner for washing and dyeing pursuant to this contract. The washing and dyeing of these garments was delayed due to problems with the dyeing of the waist ties. According to the Company, the result of this delay was that it was unable to meet Next’s delivery schedule and had to air freight the garments to Next, resulting in the incurring of additional shipment costs of some HK$73,865.55.

7. The Company says that there was, however, a more serious problem. On about 18 March 2005, Next appears to have informed the Company that quality tests that it had carried out in the previous week on washed and dyed garments showed that they were inferior in quality and did not meet Next’s standards. Further tests were carried out on other garments shortly afterwards, the results for which were similar. The upshot was that Next cancelled the bulk of its orders with the Company, cancelling orders for some 43,450 pieces of garments. The Company says that this caused it to suffer further losses, which it quantifies at HK$2,080,961.83.

8. According to the Company, there was then a meeting between Next, the Company and the Petitioner on 21 or 22 March 2005 at which Next produced the reports from the first set of tests, stated that the garments did not meet its standards and that it would be cancelling most of its orders with the Company.

9. The Petitioner was later asked to return the remaining unwashed and undyed garments in its possession, which it did. Thereafter the Petitioner issued two invoices both dated 22 April 2005 for the services which it had rendered, in the total sum of HK$330,157. It is this amount, plus accrued interest, which forms the basis of the statutory demand. According to the Company, attempts to resolve matters amicably came to nothing and the Petitioner issued the statutory demand on 9 August 2005, notwithstanding a letter which it had received from the Company’s solicitors indicating that the Company had claims against the Petitioner which exceeded the amounts of the invoices.

10. Following the presentation of the petition, the Company has, on 4 January 2006, issued a writ against the Petitioner claiming the amounts of HK$73,865.55 and HK$2,080,961.83 as damages for breach of contract by the Petitioner on the basis of a breach by the Petitioner of its agreement to wash and dye the garments supplied to it in such a way as to meet Next’s standards, or alternatively on the basis of a breach of an alleged implied term to the effect that the Petitioner would exercise reasonable care and skill in its performance of the washing and dyeing process.

11. The relevant legal principles applicable to this application were not really in issue between the parties. Where a company is able to show, by adducing sufficiently precise and believable evidence, that the debt on which the petition against it is based is disputed bona fide on substantial grounds, the petition will be dismissed and the petitioner left to establish its claim by bringing an action in the usual way (see Re ICS Computer Distribution Limited [1996] 1 HKLR 181).

12. Where the arguments raised by the company do not give rise to a defence, whether by way of equitable set off or otherwise, but do give rise to a cross-claim, the company will have to show that the cross-claim is genuine and serious and exceeds the amount of the debt on which the petition is based. See Re Bayoil SA [1999] 1 WLR 146 and Re Landune International Limited [2005] 4 HKLRD 46. In either case, the quality of the evidence that the company will be required to adduce is likely to be of a similar standard. Where it is clear and obvious either that the debt is bona fide disputed on substantial grounds, or that there exist genuine and serious cross-claims in excess of the amount of the petition debt, it is open to a company to apply to strike out the petition, as the Company has done here.

13. Although the power to strike out the petition is one that should be exercised sparingly and with caution, where the court is satisfied that it is clear and obvious that their petition will fail, for example because it is clear and obvious that the debt on which it is based is disputed bona fide on substantial grounds, the court can and will exercise its discretion to strike out the petition as the very fact of presentation of a petition can, and generally does, have serious consequences for the company that is the subject of it.

14. As I have noted, the Company’s defences and/or cross-claims are based on two matters - the loss and damage suffered as a result of the cancellation of the Next orders, which is alleged to be due to the Petitioner’s breach of its contract with the Company, and also the loss arising from the incurring of additional air freight charges as a result of alleged delay on the petitioner’s part.

15. Having regard to the amount of the alleged damages arising from the alleged delay, this claim would not of itself, even if well founded, justify striking out the petition, since the amount of the claim is such that, even after allowing for it in full, there would remain a debt which exceeds the statutory minimum required for the presentation of a petition. I shall therefore focus on the Company’s case that it has a defence or cross-claim due to the cancellation of the Next orders. While I do not think that it makes any real difference whether this is characterised as a defence or a cross-claim, it seems to me, having regard to the nature of the claim, that it is more accurately to be regarded as one which operates by way of defence,...

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