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HCCW 1035/2004
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
COMPANIES (WINDING-UP) NO. 1035 OF 2004
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IN THE MATTER of CITY TOP ENGINEERING LIMITED （昌裕工程有限公司）（COMPANY NO. 555708） |
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and |
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IN THE MATTER of the Companies Ordinance, Cap. 32 |
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BETWEEN
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TO KWAN CHAK and YIM KOK KEUNG
trading as ELITE CONSTRUCTION COMPANY
（尚宏建築公司）
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Petitioner |
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and |
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CITY TOP ENGINEERING LIMITED
（昌裕工程有限公司）
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Respondent |
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Before: Hon Kwan J in Court
Date of Hearing: 4 April 2006
Date of Handing Down of Judgment: 20 April 2006
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J U D G M E N T
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1. Three matters were heard together before me. In the order in which they were presented or filed, they are as follows:
(1) a petition to wind up City Top Engineering Limited (“the Company”) presented on 22 September 2004 by To Kwan Chak and Yim Kwok Keung trading as Elite Construction Company (“Elite”), on the ground that the Company is unable to pay its debts;
(2) a notice of motion issued on 22 November 2004 by the Company to strike out the petition aforesaid on the basis that there is a bona fide dispute of the petitioning debt on substantial grounds and/or the petition amounts to an abuse of the process of the court; and
(3) an application made on the hearing of the petition on 4 April 2006 by Hoi Lee Aluminium & Glass Engineering Company Limited (“Hoi Lee”) to be substituted as the petitioner in the place of Elite and for leave to amend the petition, on the basis that it is the ultimate equitable assignee of the petitioning debt.
2. The petition debt is in the sum of HK$402,271.04, being the outstanding price for work done by Elite for the Company in a construction project.
3. Prior to the application for substitution, the Company and Elite have filed voluminous evidence, taking up seven box files. Hoi Lee has not filed any evidence of its own and is content to rely on the evidence that has been filed by Elite and such evidence filed by the Company regarded as of assistance to Hoi Lee’s case. Leaving aside the affirmation verifying the original petition, Elite has adduced two affirmations from its former quantity surveyor Li Chi Tong, four affirmations from its manager Lee Siu Fung, and one from its partner To Kwan Chak. On the Company’s side, there are five affirmations from one of its directors Ng Tit Lung Edwin (“Edwin Ng”).
4. In essence, the Company raises a cross-claim in the nature of a set-off in defence against the petition debt. Hoi Lee alleges that most or all of the claims raised in the set-off are not sustainable; further or alternatively, there is a reverse cross-claim which exceeds the amount of the set-off. The Company counters with the submission that Hoi Lee is not entitled to rely on any reverse cross-claim as a matter of law, where the Company has raised a set-off in defence to extinguish the petitioning debt. As a fallback position, if the reverse cross-claim should be taken into account and netted off against the Company’s cross-claim, the Company contends that the net cross-claim would still exceed the petition debt.
The background
5. I will first set out the relevant background matters.
6. On 1 April 2000, the Hong Kong Housing Authority as the employer entered into a contract with Sun Fook Kong Construction Limited (“SFK”) as the contractor. I shall refer to this contract as “Contract 149”; its name in full is the District Term Contract for the Maintenance and the Vacant Flat Refurbishment for Chuk Yuen District 2000/2002 – Contract No. 149 of 1999. On the same day, SFK entered into a management agreement with the Company, by which SFK engaged the Company as the manager for Contract 149, to assist in the execution of, completing and maintaining the works under Contract 149.
7. In anticipation of entering into a management agreement with SFK, the Company had issued a letter to Elite dated 9 March 2000, by which the Company was to appoint Elite as the manager of the Company, on the basis of the attached management agreement to be executed by the Company and Elite and on the terms as set out in that letter. I shall refer to the letter as “the Appointment Letter”. The partners of Elite signed on it to confirm acceptance on 30 March 2000. One of the matters in dispute is the terms on which Elite was engaged as the Company’s manager for Contract 149.
8. In about September 2002, Elite vacated all the sites of Contract 149. There is dispute whether Elite had completed all the works.
9. Disputes arose in November 2002 when the Company refused to issue interim payments to Elite for work done and sought to impose various contra-charges.
10. In March 2003, Elite and the Company tried to settle their differences under the auspices of SFK. There is dispute as to the terms of the settlement reached and which party was in breach of contract subsequently. I shall refer to the settlement as “the March Agreement”.
11. On 3 March 2004, Elite issued a writ against the Company in HCCT No. 19 of 2004 (“the writ action”), claiming damages for breach of contract in the estimated sum of HK$5 million, further or alternatively, reimbursement of unauthorised contra-charges of HK$1.4 million and HK$590,042.48 being the outstanding sum in respect of work which Elite had performed and completed. The said sum of HK$590,042.48 included the claim of HK$402,271.04, which later formed the basis of the petition.
12. On 29 June 2004, the Company served a defence and counterclaim with six annexure in the writ action. The document ran into 85 pages. The total counterclaim for loss and damage against Elite, calculated up to June 2004, is HK$2,802,025.68. The subject of the counterclaim made up in part the set-off relied on by the Company subsequently as a defence to the petition. Elite served a reply and defence to counterclaim on 8 September 2004. The writ action has not been resolved.
13. After the writ action was commenced, Elite then served several demands on the Company under section 178 of the Companies Ordinance, Cap. 32. They were all for the sum of HK$402,271.04. The first such demand was dated 26 April 2004. A second demand was sent on 7 June 2004. The last demand, issued by Elite’s solicitors, was dated 20 August 2004.
14. The Company replied by letters of its solicitors dated 29 June 2004 and 23 August 2004 that it has a valid and bona fide defence as set out in its defence and counterclaim and if Elite should present a winding-up petition, it would seek dismissal of such petition with costs on an indemnity basis.
15. The petition was presented by Elite on 22 September 2004. As mentioned earlier, the Company applied to dismiss the petition on 22 November 2004.
16. By a notice of assignment dated 12 May 2005, Elite gave notice to the Company that it had assigned to Lee Siu Fung “all my [sic] rights and entitlements under or arising out of the said HCCT 19 of 04 and the Contract 149 of 99, including but not limited to my [sic] right to pursue and demand for damages or losses which we have incurred as a result of and in connection with the said HCCT 19 of 04.”
17. By another notice of assignment dated 19 May 2005, Lee Siu Fung gave notice to Elite that by an oral agreement made on 17 May 2005 between him and Hoi Lee, he had further assigned to Hoi Lee “all my rights and interest into under or arising out of the said HCCT 19 of 04, including but not limited to my right to pursue and demand for damages or losses under the HCCT 19 of 04.” The assignment to Hoi Lee, which would apparently cover the petitioning debt, was only in respect of the rights and entitlement of Elite in the writ action and not any other rights and entitlement under Contract 149 which are not the subject of the writ action, unlike the earlier assignment by Elite to Lee Siu Fung.
18. On 30 May 2005, Elite served both notices of assignment on the Company under cover of a letter dated 19 May 2005, together with a copy of a consent and acknowledgment dated 24 May 2005 signed by Elite in favour of Hoi Lee. The application for substitution as petitioner was only made when the petition was eventually heard on 4 April 2006.
If a reverse cross-claim should be brought into account where a set-off is relied on
19. It would be convenient to deal with first the point of law raised by Mr. Simon Ho on behalf of the Company. Mr. Louie Chan for Hoi Lee and Elite has contended to the contrary that any reverse cross-claim should be brought into account in this situation.
20. Mr. Ho’s argument is along the following lines:
(1) The Company’s cross-claim would amount to either an equitable and/or legal set-off, the aggregate amount of which is more than sufficient to set off and wholly extinguish the petition debt. Legal set-off is available as the claims on both sides are in respect of liquidated debts, or money demands which can be readily and without difficulty ascertained. It is arguable that legal set-off is part of the law of Hong Kong, notwithstanding the provisions of the Application of English Law Ordinance, Cap. 88 (Re Finbo Engineering Co. Ltd. [1998] 2 HKLRD 695 at 701G to I and 702H to I). Equitable set-off may be invoked where there is a cross-claim flowing out of and inseparably connected with the dealings and transactions which also give rise to the claim, such that it would be manifestly unjust to allow one claim to be enforced without taking into account the other. In Finbo, where the company raised a claim for interim payment applications to set off the payment of wages made by the petitioner under section 43C of the Employment Ordinance, Cap. 57, it was held that the company also had an arguable case that...
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