MAPLE TRADE FINANCE INC. v. HUGE BEST INTERNATIONAL LTD

HCCW389/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP NO. 389 OF 2010

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JUDGMENT

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Introduction

1.  This is the judgment after trial of a Petition dated 27 September 2010, by which Maple Trade Finance Inc ("MTF") asks that the Respondent, Huge Best International Ltd ("the Company"), be wound up by the Court under the provisions of the Companies Ordinance Cap 32. (Unless the context otherwise makes clear, all references in this judgment to numbered sections are to the sections of that Ordinance).

2.  The Petition is brought under section 177(1)(d) on the basis that the Company is unable to pay its debts, i.e. that it is insolvent, said to be evidenced (at least in part) under section 178(1)(a) by its failure to meet a statutory demand.

3.  It is the Company's position that the alleged debt the subject of the statutory demand is bona fide disputed on substantial grounds, the dispute being both as to the existence of any debt as well as to quantum.

4.  The Petition was verified by the 1st affidavit of Carole-Ann Miller ("Ms. Miller"), but upon staff at the court registry noting that that affidavit pre-dated the date of the Petition, the Petition was again verified by the 2nd affidavit of Ms. Miller.  There is also a 3rd affidavit of Ms. Miller in support of the Petition.

5.  The Company has filed two affidavits of Chen Lei ("Ms. Chen") in opposition to the Petition.

6.  At trial, MTF was represented by Mr. Paul Carolan of Counsel, and the Company was represented by Ms. Yvonne Fong of Counsel.

Background

7.  MTF is a company incorporated in accordance with the laws of the province of Nova Scotia, Canada, with its registered office in Halifax. Its business is to provide accounts receivable financing services to other businesses.

8.  The Company is a company incorporated in accordance with the laws of Hong Kong, with its registered office in Central. Its sole director is a Mr. Chen Ping ("Mr. Chen"), who is Ms. Chen's father.

9.  The Company is a 100% owned subsidiary of CY Oriental Holdings Ltd ("CY"), a company incorporated in accordance with the laws of British Colombia, Canada (and for a time, but no longer, listed on the TSX Venture Exchange in Canada).

10.  CY is in fact a China-based manufacturer and supplier of apparel and fashion products to leading international brands and retailers.  It is through the Company that it owns and operates garment manufacturing facilities in Shanghai and Tengzhou, China.

11.  From early 2006, MTF as lender and CY as borrower entered into accounts receivable financing arrangements. The arrangements were first conducted under an Assignment of Receivables Agreement dated 4 January 2006 ("the ARA"). Under the ARA, MTF provided credit facilities to CY with a limit of US$5 million.

12.  This limit was later increased to US$8 million by a Credit Letter dated July 2007 (with no reference on the face of the document to a specific date in that month).

13.  It was agreed under both the ARA and the Credit Letter that certain of the invoices to be financed by MTF would be issued by the Company. The Credit Letter contains the Company's acknowledgement and agreement to its terms. The Credit Letter was signed by Mr. Chen on behalf of both CY and the Company.

14.  Although there is some potential dispute as to the precise chronology (see below), at about the same time that the Credit Letter was made, the Company entered into a Guarantee and Postponement of Claim ("the Guarantee") which also bears the date of July 2007 (again with no reference to a specific date in that month). It is this document which is the underlying basis for the demand made by MTF, leading to this Petition.

15.  The Guarantee contains CY’s acknowledgement and agreement to its terms. The Guarantee was signed by Mr. Chen on behalf of both CY and the Company.

16.  All the material documents governing the relationship between MTF and CY and the Company were made in the English language.  They were negotiated with the assistance of lawyers.

17.  Pursuant to the terms of the Guarantee, the Company gave an unconditional continuing guarantee that CY would duly and punctually pay to MTF all of its indebtedness to MTF as and when it became due and payable, and that in the event of default, the Company would make payment of the debt.

18.  In early 2009, MTF gave notice to CY that it was in default of its obligations, and required it to repay the then outstanding indebtedness ("the Debt"). On 28 July 2009, proceedings were commenced by MTF against CY to recover the Debt ("the BC Action") in the Supreme Court of British Columbia ("the BC Court").

19.  On 23 September 2009, the BC Court made an order ("the 2009 BC Order"), in essence dismissing MTF's application for the appointment of a receiver, but on certain conditions, including that CY made payments to MTF on a schedule approved by the court and set out in the order.

20.  The 2009 BC Order appears to have assessed – or at least it proceeded on the basis – that the total amount of debt outstanding as at the date of the order was US$4,080,777, which was to be paid through periodic payments made by CY. That sum comprised principal and non-default interest, but was also divided into two tranches being (1) US$1,016,019, the amount of a claim brought by MTF in related US litigation (which is not relevant for the current proceedings), and (2) US $3,068,758. The second tranche was to be payable in four equal instalments of US$767,189.50, together with interest at the contract rate, but excluding default interest, being the daily sum of US$225.95.

21.  In addition, Mr. Chen was required to pledge his shares in CY as security for its indebtedness to MTF. The relevant Share Pledge Agreement was subsequently entered into and dated 15 October 2009. It contains Mr. Chen's pledge of his 42% shareholding (i.e. 20,715,100 shares) in CY.

22.  It would seem from the terms of the 2009 BC Order that it had not been in dispute that CY had defaulted on the principal loan, but the order was merely to provide more time to repay, and for the provision of additional security (and to leave open the claim to default interest). However, I can note at this point that it is said on behalf of the Company that the 2009 BC Order was simply an interlocutory order, and the ultimate amount of the debt as might be owed by CY to MTF was yet to be determined by the BC Court.

23.  (There were later minor amendments to the form of the 2009 BC Order, but they are not relevant for the purposes of the issues in these proceedings.)

24.  On the day before the 2009 BC Order was made, on 22 September 2009, MTF issued a petition in Hong Kong in HCCW 566/2009, seeking to wind up the Company, on the basis that it owed MTF US$5,147,324.46 under the Guarantee. That petition was similarly based upon an allegation of the inability of the Company to pay its debts because it had not satisfied a statutory demand for that sum.

25.  Whether intentional or not, the issue of that petition had the effect of freezing the Company's bank account at HSBC in Hong Kong. As the Company is the invoice issuing company, the ability for CY to effect repayment of the indebtedness to MTF was said to depend upon smooth cash flow from the Company. Hence, the freezing of the account had at least some impact on the repayments intended under the 2009 BC Order.

26.  In HCCW 566/2010, Mr. Chen filed an affirmation stating, amongst other things, that from the time of the 2009 BC Order until the end of October 2009, CY had paid US$1,402,750.92 to MTF in compliance with the order, and that the indebtedness claimed had been reduced by that amount.

27.  But, in that affirmation Mr. Chen also made a complaint that at the end of October 2009 the main bank account of the Company was frozen as a result of the petition in those proceedings. A further ground of opposition mentioned was that the full amount of the debt was still subject to future determination by the BC Court in BC Action.  (I accept that may be the case, but it may be because there remained a dispute over at least the claim to default interest.)

28.  On the other hand, Ms. Chen has exhibited a document described as a repayment schedule showing the repayments made by CY to MTF until 30 October 2009, with a total outstanding loan as at that date of US$2,435,135.71. In the same paragraph of her affirmation which exhibits that schedule, she states that CY repaid a further US$100,000 in each of July and November 2010. No other suggested repayment is put forward.

29.  On 17 December 2009, CY applied in the BC Action for an order restraining MTF from continuing with the petition in HCCW 566/2010. Apparently at the suggestion of the BC Court, that application was adjourned to allow the parties an opportunity to resolve issues by agreement, before any order might be made. There was, therefore, an agreement to extend for a short time the repayment obligations under the 2009 BC Order.

30.  There is disagreement as to the extent of effect of the temporary agreement, but in any event the application to restrain MTF from continuing with the petition in HCCW 566/2010 was heard on 31 May 2010. On that day the BC Court made a further order ("the May 2010 BC Order"), by which MTF was restrained from commencing or pursuing proceedings against CY (and companies within the group, including the Company) during the period within which CY must make payments to MTF under the terms of the order.

31.  The schedule of the payments in the 2009 BC Order was varied by the May 2010 BC Order, so that CY was to pay US$2,685,258 in six equal instalments of US$383,608 and one last instalment of US$383,610, together with interest at the contract rate, but excluding default interest, being the daily rate of US$225.95. The instalment dates were over the period from 24 June to 28 September 2010.

32.  The May 2010 BC Order further provided that if there was default by CY of that order and/or the 2009 BC Order, the restraining injunction would be lifted and MTF would then be at liberty to pursue any and all of its rights and/or remedies.

33.  The May 2010 BC Order also provided for the consensual dismissal of the proceedings in HCCW 566/2010, which dismissal was subsequently effected by an order made in those proceedings on 28 June 2010. That order also specifically recorded the Company's undertaking not to object to MTF issuing a new petition to wind up the Company relying on the debt relied upon to demonstrate insolvency in the HCCW 566/2010 proceedings.

34.  The freezing of the Company's HSBC account was lifted shortly before the order, on 24 June 2010.

35.  On 13 July 2010, there was a further hearing in the BC Action leading to an order made on that day ("the July 2010 BC Order"). That order specifically dissolved the injunction in the May 2010 BC Order restraining MTF from pursuing CY (and the group companies), and expressly provided that MTF would be at liberty to pursue any and all of its rights and/or remedies, including any rights and/or remedies provided for under the May 2010 BC Order and the 2009 BC Order.

36.  In other words, only that part of the May 2010 BC Order that contained the restraint on MTF was set aside, and the payment obligations set out in that order were expressly continued, and made liable to enforcement through MTF's exercise of any of its rights and/or remedies.

37.  On 10 August 2010, MTF served on the Company a statutory demand requiring payment of the sum of US$4,324,033, which was stated to be the amount of the Company's indebtedness to MTF as at 23 July 2010. No particular breakdown or calculation of that sum was provided.

38.  On 24 September 20, Mr. Chen received a letter of demand from MTF, notifying him that MTF was exercising its rights under the Share Pledge Agreement.

39.  At almost the same time, on 27 September 2010, these proceedings were commenced. The debt pursued in these proceedings is US$4,324,033 (the same sum as was the subject of the statutory demand).

40.  The calculation of that sum was not identified, and no breakdown into any constituent parts is set out in the petition or any of the evidence filed in support of the petition.

41.  Although a breakdown between the three elements of principal, interest and legal costs is offered in Mr. Carolan’s skeleton, he rightly does not rely upon that as he cannot show by evidence that it is correct. What Mr. Carolan can do is to identify that there are the three elements of principal, interest and legal costs, and it might be that a different approach is taken to each of those elements.

42.  The figure in the petition obviously does not take account of any value of the shares now controlled by MTF after the exercise of its rights under the Share Pledge Agreement. There is a dispute as to the value of those shares, but there is in any event at present a "cease trading" order which it seems at least currently prevents any share value as might exist actually being realised. (There is no suggestion on the evidence that the shares have any dividend income.)

Applicable Principles

43.  The legal principles applicable on a petition to wind up the company on the basis that it is unable to pay its debts are well settled and need not be rehearsed at any great length.

44.  Under section 177(1)(d), the court may wind up the company on the basis that it is unable to pay its debts, i.e. that it is insolvent. It is the allegation of insolvency which is fundamental, and the basis upon which a winding up order is made: see Cornhill Insurance plc v. Improvement Services Ltd [1986] 1 WLR 114, at 116H.

45.  One convenient method by which insolvency might be demonstrated is under section 178(1)(a), which deems inability to pay debts if the creditor neglects to meet a statutory demand for a debt then due within the three-week period provided for in the subsection.

46.  The relevant debt must be "then due", meaning "absolutely due" or "presently payable", so that contingent or prospective liabilities may not be the subject of a statutory demand. As it has otherwise been described, section 178(1)(a) contemplates a creditor being able to point to a debt of a specified sum that cannot be seriously questioned either as to existence or quantum.

47.  It is clearly established that where a creditor can, without serious argument, allege a debt of a specified sum exceeding the statutory limit, he can still rely on section 178(1)(a), notwithstanding that the sum was wrongly stated in the demand: see, for example, In re a Company [1984] 1 WLR 1090; Re Jialing Xin Tuo International Ltd (unreported, HCCW 800/2005, 19 April 2006, Kwan J).

48.  In other words, if the debt mentioned in the demand is overstated, this will not invalidate the demand, provided the undisputed element exceeds the minimum statutory level: see Re a Debtor (490/SD/1991) [1992] 1 WLR 507 (a case involving bankruptcy, but a particular principle equally applicable to the winding-up regime).

49.  But if the size of the debt cannot be known with certainty, then a statutory demand cannot be served and the petitioner must be able to prove the company's inability to pay its debts otherwise than by neglect to comply with a statutory demand: see, for example, Re Jackin Total Fulfilment Services Ltd [2008] 3 HKLRD 475, at [9].

50.  A statutory demand is merely one means of proof of insolvency. Section 178(1)(c) provides that insovency may also be demonstrated by proving to the satisfaction of the court that the company is unable to pay its debts, in determining which the court shall take into account the contingent or prospective liabilities of the company.

51.  Thus, once the court concludes that a petition should be allowed to proceed to trial (either because an application to restrain its presentation or strike it out has failed, or because no strike-out was attempted), the issue of solvency generally is clearly relevant: see Capital Globe Ltd v. Abdul Aziz Essa (unreported, HCMP524/2011, 13 May 2011, Tang Ag CJHC & Fok JA) at [34], following Re Hyundai Engineering & Construction Co Ltd (No. 2) [2002] 2 HKLRD 354, at [28]-[29].

52.  When a debt which is not substantially disputed remains unpaid, an inference could be drawn that the company is unable to pay its debt: see, for example, Re AuraSound Speakers Ltd [2004] 3 HKLRD 502, at [50]-[51].

53.  Deemed insolvency is rebuttable, by demonstrating either that the debt is bona fide disputed on substantial grounds or that the company is in fact solvent. As to the assertion of a bona fide dispute, the onus is on the company to show by precise factual evidence a dispute which is not trivial or insubstantial, but rather one based on solid grounds. Mere assertions will not suffice. The relevant standard required is higher than that required of a defendant in resisting an application for summary judgment under Order 14.

The Battleground

54.  Though the total sum of alleged debt, as stated in the statutory demand and the petition, comprised principal, interest and legal costs, Mr. Carolan did not seek to persuade me that that total sum was an undisputed debt.

55.  First, he accepted that the legal costs have not been subject to any process of taxation or formal court assessment, so that it might not be said that those costs were then due. Secondly, though it is possible to point to the 2009 BC Order and specific daily rates for interest accruing, he also accepted that there were at least elements of uncertainty as to the interest and its calculation. As a result, of the total sum stated in the demand, whatever is attributable to interest and legal costs can, for the purposes of this trial, be put to one side.

56.  The focus must, therefore, be limited to the principal sum, and Mr. Carolan accepted that I would need to be satisfied that there is a principal sum of indebtedness (exceeding the statutory minimum) which cannot be seriously disputed.

57.  Therefore, he said, where MTF can demonstrate a principal sum against which there can be no serious dispute, the court should be satisfied as to the insolvency of the Company (section 177(1)(d)), either by virtue of the deeming provision flowing from the failure to meet the statutory demand (section 178(1)(a)), or more generally (section 178(1)(c)).

58.  For the Company, Ms. Fong submitted that the entire amount claimed is disputed, both as to existence as well as to quantum. Even focusing only on the principal (and ignoring any elements of interest or legal costs), she said, there is a bona fide dispute on substantial grounds.

59.  Though a greater number of arguments were originally raised through the evidence filed on behalf of the Company (including non est factum and estoppel), Ms. Fong sensibly limited herself to a small number by ignoring the most obviously bad points.

60.  The arguments remaining to be dealt with, therefore, were the following points:

(1) it is impossible to identify a fixed sum as might be due because of the real confusion as to any principal as has variously been stated to be due, and there is a lack of any conclusive evidence as to the quantum of the debt;

(2) it is impossible to identify a fixed sum as might be due also because MTF has already received an unquantified recovery from the exercise of rights under the Share Sale Pledge;

(3) the Guarantee was given for past consideration, and so is not enforceable;

(4) there are substantial arguments that the Guarantee is invalid as a matter of Nova Scotia law, for four reasons (a) the Guarantee should be in the form of a deed; (b) to be enforceable, the Guarantee had to be registered; (c) there should have been acceptance; and (d) problems arise from the incomplete date.

61.  I will deal with these in turn.

The Guarantee

62.  But, in the context of the various arguments that have been raised by the Company in opposition to the petition, it may be helpful to consider some of the specific terms of the Guarantee.

63.  First, it can be noted that the Guarantee is on the headed notepaper of MTF. Secondly, as already noted above, it is signed on behalf of both the Company as guarantor and CY as borrower by Mr. Chen.

64.  The Guarantee expressly states that it is made in consideration of MTF advancing loans or extending credit to CY and other good and valuable consideration, the receipt and sufficiency whereof is acknowledged by the Company.

65.  Clause 1 provides that for the purposes of the Guarantee, the term "indebtedness" shall mean all debts and liabilities of CY to MTF now or in the future at any time and from time to time whether the same be secured or unsecured, including principal and interest.

66.  Clauses 2 and 4 provide that the Company unconditionally guarantees and covenants with MTF that CY will duly and punctually pay the indebtedness as and when the same becomes due and payable, and that if CY makes a default in payment of the indebtedness, then the Company shall forthwith on demand pay the indebtedness owing.

67.  Clause 3 provides, in part, that no obligation or liability of the Company under the Guarantee shall be limited, released, discharged or in any way affected by the release, loss or alteration or dealing with any security held by MTF in respect of the indebtedness.

68.  Clause 6 provides that MTF is not bound to exhaust its recourse against the borrower or against other securities before being entitled to payment under the Guarantee.

69.  Clause 8 provides that the Guarantee is a continuing guarantee covering both liabilities at the date it was made as well as all liabilities incurred afterwards.

70.  Clause 11 states that any account settled or stated by or between MTF and CY shall be accepted by the Company as conclusive evidence that the balance or amount thereby appearing due by CY to MTF is so due.

71.  Clause 17 provides that the Guarantee shall be construed in accordance with the laws of Nova Scotia, and that the Company will submit to the jurisdiction of the courts of Nova Scotia, without limiting MTF’s right to bring proceedings against the Company elsewhere.

72.  As noted above, the Guarantee is dated simply July 2007, with no reference to any specific day in that month. There was space to have amended the draft or to have provided in manuscript a particular date in the month, but that was not done.

73.  In fact, from a review of the surrounding documentation, it is apparent that the Guarantee cannot have actually been signed in the month of July, and could only realistically have been signed on or after 2 August 2007. There is an e-mail timed/dated 3.29pm on 1 August 2007 from Graham Matthews, a lawyer at Lang Michener LLP (then advising CY on the transactions). On the basis that that time/date is Vancouver time (as was common ground), it would have been received by any recipient in Shanghai at 6.29pm on 2 August 2007.

74.  The e-mail attached PDF copies of the drafts of various documents including the Credit Letter and the Guarantee, annotated in manuscript with amendments proposed on behalf of CY or the Company. Though it seems that the amendments were probably not accepted, as they do not appear to have been incorporated in the executed documents, likely some time would have been taken for consideration of them.

75.  In any event, the drafts are all dated by reference to the blank day of July 2007, even though they obviously could not have been signed in July when they were still in draft in August. It seems the drafts were simply signed without amending the date.

76.  But it is of some significance that all the documents being drafted and to be executed were being dealt with together. The practical likelihood is that these documents were interlinked, all part of one overall change in the relationship between the parties, and were intended to be executed more or less simultaneously.

Uncertain principal sum and no conclusive evidence

77.  The various statements as to the extent of the outstanding debt by reference to different figures over different periods or at different dates, sometimes without any breakdown, has opened the door to arguments on behalf the Company that the court could not be satisfied that there is any fixed sum as might be said to be due (either in the sense of "then due" looking at the time of the statutory demand, or in the sense of due by reference to any other particular date).

78.  I accept that there is some confusion over the full extent of the indebtedness, and there have been various statements even as to the principal part of it. However, it seems to me that it is possible to identify at least some fixed sum as to which there cannot be any substantial dispute.

79.  The 2009 BC Order clearly identifies a sum which the parties to the BC Action (at least) accept as being payable by CY to MTF. The schedule for payment of that sum by instalments was in effect the price paid to avoid the appointment of a receiver.

80.  The May 2010 BC Order also clearly identifies the sum which the parties to the BC Action (at least) accept as being payable by CY to MTF. Indeed, as well as being contained in an order of the BC Court, I accept Mr. Carolan's submission that the consent order reflects a contractual agreement between CY and MTF that the amount of US$2,685,258 was payable and would be paid in accordance with the instalments scheme set out.

81.  On the evidence, the only repayments made by CY after the date of the May 2010 BC Order totalled US$200,000. This seems clearly to identify an outstanding amount of US$2,485,258.

82.  Ms. Fong suggested that the evidence might not be complete, and that there might have been other repayments. But I do not think that submission is properly open to the Company, for the Company was plainly able to have put in evidence of other repayments (had such repayments in fact been made).

83.  Clearly, Ms. Chen had no difficulty in exhibiting to one of the affirmations a repayment schedule identifying the advances from MTF and the repayments by CY at least up to 30 October 2009. It is significant that that statement of account expressly identifies that as at that date there was an outstanding sum to be repaid in excess of US$2.4 million (albeit apparently also including elements of interest required to be paid). There is no suggestion that some anywhere approaching that kind of figure has been repaid since that date. On that basis, the figures put forward by the Company seem to identify an outstanding indebtedness of at least US$2.2 million (even if some part of that is interest).

84.  It also seems to me that the terms of the contract reflected in the May 2010 BC Order identified a statement of account, agreed between MTF and CY. Ms Fong submitted that as the Company is not a party to the BC Action, it is not bound by the terms of the May 2010 BC Order. But that seems to me to miss the point. The May 2010 BC Order is simply evidence of the agreed statement of account between the lender and borrower, which Ms. Fong accepts CY certainly could not escape.  Under the terms of clause 11 of the Guarantee the Company has accepted that would be conclusive.

85.  Ms. Fong's reference to the case of Ex parte Young; in re Kitchin (1881) 17 Ch D 668 does not assist her submission. Whilst it identifies that even a judgment or an award against the principal debtor is generally not binding on the surety and is not evidence against him in an action against him by the creditor, it also identifies that a surety may choose to make himself liable to pay what any person may say is the loss which the creditor has sustained. If he does so, he must abide by that agreement. It seems to me that clause 11 of the Guarantee is precisely that type of agreement.

86.  I also do not accept that there is a reasonably possible alternative way of interpreting the May 2010 BC Order. Ms Fong suggests that it might be read so that the real point of focus is the restraint on MTF and that the payment instalment schedule does not amount to any agreement that the sum payable is in fact due and owing. That suggestion ignores the reality of the circumstances of the order and what it sought to achieve.

87.  But for the making of the May 2010 BC Order, MTF would have been at liberty to pursue all its rights and remedies in relation to alleged indebtedness, because CY was in breach of the payment terms under the 2009 BC Order. The May 2010 BC Order in effect reflects a debt repayment rescheduling agreement. The injunction restraining MTF from pursuing action against CY or the sureties only bites so long as CY adheres to the repayment schedule, and during the period of time provided by that schedule.

88.  In the circumstances, I am wholly satisfied that there is a fixed sum (albeit less than the full sum the subject of the statutory demand and the petition), exceeding the statutory minimum level, capable of founding a finding of insolvency unless it is shown that the amount is otherwise bone fide disputed on substantial grounds.

Effect of Share Pledge Agreement

89.  In its simplest form, I think Ms. Fong's argument runs as follows.

90.  On 24 September 2010, through its lawyers, MTF gave notice to Mr. Chen that it was exercising with immediate effect certain rights under the Share Pledge Agreement. The exercise of those rights brought into MTF's hands the shares the subject of that agreement. Those shares have some value, even though it may not be possible to ascertain precisely what that value is, because they cannot be sold. But, it is precisely because the value of the shares cannot be ascertained that it is impossible to identify what value MTF should give credit for as having already been recovered in diminution of, or even in extinguishing, the debt. If it is not possible to know by what extent the debt has been diminished, it is not possible to identify any fixed sum which can properly be said still to be due.

91.  It seems obvious, as Mr. Carolan accepted, that if a creditor has obtained actual value from one surety in diminution of the debt owed by the principal debtor, he would have to give credit of that amount against any claim against another surety. So in this case, if MTF had taken the shares under the Share Pledge Agreement and had sold them for, say, US$ 1 million, that would reduce the amount of any fixed debt by that fixed amount.

92.  But, in this case, that is not actually what has happened. First, I think it is to be noted that when MTF gave Mr. Chen notice about the exercise of rights under the Share Pledge Agreement, and although it was expressed "without limitation", the specific rights which were notified as being immediately exercised were the voting rights and the right to receive all income, such as dividends or distributions, attached to the shares. There was no request to transfer the shares into the name of MTF in the register of the Company, nor any purported exercise of the right to sell the shares.

93.  Indeed, it seems to be common ground that the "cease trade orders" effectively prevents the sale of any shares, at least on a public sale. It is not entirely clear to me how orders preventing the cessation of trading on a public exchange continued to have effect when the shares of the company are no longer listed on the exchange, but it was suggested to me in argument that the problems giving rise to the orders are effectively such that the shares cannot be traded either publicly or through private sale.

94.  It is also Ms. Chen's own evidence that CY is unable to issue the financial statements required for the lifting of the "cease trade orders", though she points out that CY is still in operation and remains, as she describes it, a valuable company. (Of course, it might be said that that only begs the question as to why CY has been able to pay only such a small amount towards the indebtedness it agreed to pay by instalments under the May 2010 BC Order).

95.  There is at least no dispute that the shares have not in fact been sold. There can, therefore, be no dispute that MTF has not in fact realised any value from any rights that it has exercised under the Share Pledge Agreement (where there is no suggestion that there has been any dividend or other distribution).

96.  Mr. Carolan accepts that, if subsequently the shares are sold for any value, MTF will have to give credit for that. But that is a matter which may affect the amount of debt proved in any liquidation following a winding up order. It is not, he says, a basis for not making a winding up order now.

97.  As he put it, the existence of the debt gives rise to the obligation to make a monetary payment. Unless and until the exercise of any rights under any other security provides MTF with some actual monetary benefit, the monetary payment obligation has not been reduced.

98.  I confess that this aspect of the matter has caused me some pause. However, at the end of the day, and on the particular facts of this case, I am satisfied that the steps taken by MTF in relation to a different form of security, namely the Share Pledge Agreement, do not mean that there is for that reason no fixed sum which it can be said is due. I accept Mr. Carolan's submissions.

Past consideration

99.  Ms. Fong's argument in this respect arises from the uncertainty as to the true date on which the Guarantee was made, allied to further uncertainty as to the true date on which the Credit Letter was made.

100.  She suggests that it may be that the Credit Letter (which is addressed to CY in Canada) may have been signed in Canada, before Mr. Chen returned to Shanghai, where he signed the Guarantee. If that is the case, she says, and where the consideration for the Guarantee is the making of the Credit Letter, that would indicate that the consideration for the Guarantee was past.

101.  However, I do not think this point gives rise to any bona fide dispute on substantial grounds. First, the consideration for the guarantee is not the making of the Credit Letter, where the consideration expressly stated on the Guarantee is the advancing of loans or the extension of credit to CY, of which the Company also expressly acknowledged receipt and sufficiency. CY's own repayment schedule, produced in evidence by Ms. Chen, identifies that advances were provided on 14 August 2007 (which, despite any uncertainty as to the date of the Guarantee, seems almost certain to be after the date it was made).

102.  Secondly, the suggestion that this is the sort of matter that needs to be investigated, and can only be dealt with at a trial, triggers in my mind the well-known passage from Lady Anne Tennant v. Associated Newspapers Group Limited [1979] FSR 298, quoted in the Hong Kong Civil Procedure 2011 at Note 14/4/3:

"A desire to investigate alleged obscurities and a hope that something will turn up on the investigation cannot, separately or together, amount to sufficient reason for refusing to enter judgment for the plaintiff. You do not get leave to defend by putting forward a case that is all surmise and Micawberism."

103.  If such an approach is not capable of satisfying the burden on a defendant facing a summary judgment application, it cannot satisfy the burden for the Company to demonstrate the existence of a bona fide dispute on substantial grounds.

104.  Thirdly, it might also be pointed out that any holes in the evidence as to matters on the chronology could have been filled by Mr. Chen, upon whose information and instructions and authority Ms. Chen made her affirmations.

Nova Scotia law

105.  Ms. Fong submits that there are substantial arguments that the Guarantee is invalid as a matter of Nova Scotia law, for four reasons (a) the Guarantee should be in the form of a deed; (b) to be enforceable, the Guarantee had to be registered; (c) there should have been acceptance; and (d) problems arise from an incomplete date.

106.  She relies upon a report from lawyers at the Harvey Law Group ("HLG"), which she says identifies the points of Nova Scotia law which can form the basis of real disputes as to the validity of the Guarantee, or whether liability has arisen under the Guarantee. (I note no individual identified lawyer appears to have signed the report; in fact, it is not signed at all.)

107.  Mr. Carolan has criticised the report on the basis that it is not clear that whoever is the author of the HLG report is competent and qualified to opine on matters of Nova Scotia law. In response, there has been produced various ‘mobility’ agreements which identify that it is permissible for lawyers in one part of Canada to act as lawyers, and to advise on matters, in other parts of the country. Whilst I am not sure this quite meets the point, I shall proceed on the basis that HLG is able to opine on Nova Scotia law.

108.  In response to its report, MTF has filed a report from a Mr. Stephen Kingston of McInnes Cooper, who is undoubtedly qualified to opine on matters of Nova Scotia law.

109.  Ms. Fong in effect relies on the McInnes Cooper report because it contradicts the HLG report relied upon by the Company, as demonstrating that there is a dispute. She says that where the terms of the Guarantee expressly identify that questions of interpretation are to be determined in accordance with Nova Scotia law, and whilst it is not necessary to decide between the competing opinions, that there are competing opinions shows that there is a dispute which really ought to be determined by a Nova Scotia Court.

110.  However, I think I am entitled (in fact, obliged) to give some consideration as to whether any real weight can be given to the opinions offered. I am, after all, looking for matters of substantial (as opposed to trivial or immaterial) dispute. Mere assertions do not suffice.

111.  With respect, the report from HLG is not at all persuasive. Much of the report deals with utterly irrelevant matters, and/or deals with matters in a vague and imprecise manner. Many of the points made in the report are simply factually wrong, demonstrating either the failure to have read relevant documents, or the failure to have been provided with the relevant documents. Such expressions of opinion on which Ms. Fong seeks to rely – and she has been careful to rely on only limited statements in the report – are couched in extremely weak and tentative terms. None of this identifies likely fertile ground for demonstrating a bona fide dispute on substantial grounds. Indeed, most of the points made in the report can be dismissed without even looking at the McInnes Cooper response.

112.  I can deal with each of the four suggested areas of dispute in turn.

113.  The suggestion that the Guarantee should be in the form of a deed seems to proceed upon the factual basis, which it is said is "important to note", that there is an absence of consideration in the Guarantee. That asserted factual basis does not exist; the Guarantee expressly provides for consideration, and expressly identified also that the Company has acknowledged the sufficiency of that consideration.

114.  In so far as it is suggested that there is some other basis that "the laws of the Nova Scotia suggest that a security guarantee should be done in the form of a ‘trust indenture’, which requires to be done in the form of a deed", no authority whatsoever is provided for that statement, nor is any relevant law even named.

115.  As to the second point, as to the question whether the Guarantee needs to have been registered to be enforceable, HLG merely suggests that to protect its rights a creditor should have registered and perfected his rights. This vague (and perhaps misleading) statement is not helpful, but is anyway conclusively answered by the McInnes Cooper report.  It cogently states that there is no requirement for the guarantee to accord with the provisions of the statue mentioned by HLG, or to meet any definition of "trust indenture", and it goes on to identify that any registration under the statute is simply to ensure appropriate priority is preserved amongst secured creditors competing inter se.

116.  There is also nothing in the third point about whether there should have been a notice of acceptance of the promise of the Guarantee, before which the guarantor is not bound. HLG's statement proceeds simply by reference to the frequent situation where guarantees are in the form of letters addressed to the creditor. But that general statement completely overlooks the actual facts of this case. In this case, the Guarantee was sent to the Company by MTF, on MTF's headed notepaper, as part of the terms upon which MTF would be prepared to provide further facilities and ending to CY. In terms of offer and acceptance, it was MTF which offered to take a guarantee, which the Company accepted and provided.

117.  In any event, where there was the provision of drafts between the parties (and lawyers), which led to the execution of the various documents upon which further advances were actually made, to suggest that the Company did not receive notice that the terms of the Guarantee had been accepted is fanciful.

118.  The last point is based on the HLG view that "a Nova Scotia Court might find the guarantee invalid based on the requirements of the Statute of Frauds". Specific reference is then made to article 8 of that statute, which deals with a completely different point relating to not deeming a document invalid simply because the consideration for the promise does not appear in writing or by necessary inference from a written document. HLG’s next suggestion that the "Court in Nova Scotia clarified that the incomplete agreement such as the missing date could be a material problem to a contract and such could invalidate the Guarantee" is not only tentatively expressed, it is devoid of any authoritative reference, and is in any event a complete non sequitur from what has just been stated by reference to article 8. There is nothing in this point either.

119.  In the circumstances, I do not think that there has been demonstrated any bona fide dispute on substantial grounds by reference to any matter of Nova Scotia law.

Conclusion

120.  I am satisfied that there is a debt in a sum which exceeds the statutory minimum, albeit in a figure less than that raised by the statutory demand and the petition, upon which the insolvency of the Company is deemed. Indeed, on the evidence at trial, it seems to me that the documentation produced both by MTF and by the Company recognizes the existence of such a debt.

121.  I do not think that the Company has raised a bona fide dispute on substantial grounds in relation to such a sum.

122.  Therefore, in so far as it might be necessary, where I am satisfied that there is a significant debt which remains unpaid, and when there is no bona fides dispute of that debt on substantial grounds, I would also draw the inference from the fact that it remains unpaid that the Company is unable to pay it.

123.  In the circumstances, I ordered that the Company may be wound up by the Court under the provisions of the Companies Ordinance.

Costs

124.  There was no argument at trial as to the question of costs. However, I do not at present see any reason why costs should not follow the event. I would, therefore, order the Company to pay the costs of the proceedings.

125.  I make that order in the first instance on a nisi basis, but the order will become absolute if no application to vary it is made within 14 days of the handing down of this judgment. Any such application to vary can be made by letter addressed to this Court, and if such an application is made directions will be given for the application to be dealt with by the exchange of written submissions.