RE CHINA PROPERTIES GROUP LTD

CACV 197/2023, [2025] HKCA 302

On Appeal From [2023] HKCFI 1500

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 197 OF 2023

(ON APPEAL FROM COMPANIES

(WINDING-UP) PROCEEDINGS NO. 67 OF 2022)

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REASONS FOR JUDGMENT

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Hon Cheung JA (giving the Reasons for Judgment of the Court) :

I.  The appeal

1.  This is an appeal against the judgment of Anthony Chan J dated 31 May 2023 who, upon the amended petition (‘the petition’) presented by JIC Trust Co., Ltd (‘the Petitioner’), ordered the winding‑up of China Properties Group Limited (‘the Company’). The Company appealed and issued a summons to adduce new evidence for the appeal and to amend the notice of appeal. The Petitioner also issued a summons to strike out the appeal. At the conclusion of the hearing we dismissed the Company’s application to adduce fresh evidence and dismissed the appeal. We now give our reasons.

II.  Basis of the petition

2.  The following is the relevant background extracted from the judgment below.

3.  The petition was based on the failure of the Company to repay a debt of RMB 731,801,596.56 (‘the Debt’) arising out of a Consent Judgment dated 3 April 2020 granted by the Higher People’s Court of the Zhejiang Province (the ‘Zhejiang Court’) in the Mainland where the Petitioner commenced the proceedings against Shanghai Jingan Concord Real Estate Co. Ltd (‘JAC’) and the Company to recover the Debt (‘the Zhejiang proceedings’).

4.  The Debt arose out of an ‘entrusted’ loan agreement (and supplement) between the Petitioner as lender and JAC, a subsidiary of the Company, as borrower dated 27 September 2017 for RMB 1.2 billion. It was guaranteed by the Company pursuant to a guarantee dated 28 September 2017.

5.  Following defaults, the loan became due in 2019. It was not repaid, and the Zhejiang proceedings were commenced as a consequence. This was followed by a settlement embodied in the Consent Judgment to which the Company was a party, and it confirmed that the Company was jointly and severally liable for the loan. Under the Consent Judgment, the Company agreed to repay the loan, accrued interest, accrued default interest, court fees and litigation expenses as well as late performance fee.

6.  There was an attempt by the Company to reopen the Consent Judgment on 7 November 2022 (nearly nine months after the filing of the original petition herein), which was rejected by the Zhejiang Court on 22 December 2022.

7.  It was not disputed that the Debt was owed by the Company. In the Court below, the Company challenged the petition on the ground that there was a bona fide dispute of the Debt based on an alleged substantial cross‑claim against the Petitioner by JAC. JAC claimed that the properties charged for the loan had been sold by auction at an undervalue (‘the auction issue’). The Judge rejected the Company’s challenge to the petition and ordered it to be wound up.

III.  The appeal and the new evidence

8.  The appeal by the Company is based on an entirely new ground. It claims that there is a bona fide dispute of the Debt because at the time of the presentation of the petition, the Petitioner had already assigned the Debt to a third party and therefore did not have the necessary standing to present the petition. Mr Ho SC (together with Mr Kok) for the Company stressed that that it was the Petitioner’s own case that it had chosen not to serve the notice of assignment on the Company. The Company claimed it was only after the winding‑up order was made on 31 May 2023 that it discovered the Debt had in fact already been transferred or assigned by the Petitioner to a third party (‘the Assignment’). The Assignment only became known to the Company on or around 8 June 2023, when a staff of the Company’s Mainland subsidiary came across the announcement made by the Petitioner’s parent company, China Jianyin Investment Co. Ltd (‘China Jianyin’), dated 27 March 2023 (the ‘Announcement’).

9.  The Announcement was a disclosure statement in respect of China Jianyin’s business operation. It made reference to the proceedings brought by JAC against the Petitioner in 2023 in Hangzhou in the Mainland (‘the Hangzhou proceedings’) in which JAC relied on the auction issue. It said that JAC had previously raised the auction issue and the issue was rejected by different levels of courts including the Supreme People’s Court. The Announcement said that the auction issue had been rejected by the Supreme People’s Court, the original debt had been assigned to a third party, [the Petitioner] merely acted on instructions to respond to the litigation 「原始信託債權已轉讓給第三方，中建投信託僅為依指令代為應訴」.

10.  The Judge had briefly referred to the earlier proceedings by JAC against the Petitioner on the auction issue between 2021 and 2022 including the rejection of JAC’s claim by the Supreme People’s Court.

11.  The Company’s case is that the Announcement showed that the Debt had been assigned and the Petitioner therefore had no standing to present the winding‑up petition. This constitutes a bona fide dispute of the Debt. Mr Ho relying on this Court’s decisions in Re Tam Mei Kam CACV 87/2012 and Re Sun Fung Timber Company Limited [2021] HKCA 1660 submitted that although the Consent Judgment is prima facie evidence that the Company is indebted to the Petitioner upon which the petition is based, this Court may go behind the Consent Judgment in situations where there is fraud, collusion or miscarriage of justice.

12.  The Company in support of its appeal sought leave to adduce the following four items of evidence relating to the Assignment :

1)  A copy of the Announcement made by China Jianyin.

2)  A copy of the 「民事訴訟監督申請書」(Translation: Application for supervision of civil litigation) made by JAC against the Petitioner to the Zhejiang Province People’s Procuratorate (‘Zhejiang Procuratorate’) on 23 October 2023 (the ‘Procuratorate Application’).

3)  The Legal Opinion of Mr Zhongda Wu (‘Mr Wu’) of Gao Kai Law Firm dated 30 October 2023 in the Mainland.

4)  The first affirmation of Wong Sai Chung (‘Mr Wong’), the managing director of the Company on matters relating to Items 1) to 3) above.

IV.  Our view

13.  We will deal with the Company’s application to adduce new evidence first. In our view the application does not satisfy the first and second limbs of Ladd v Marshall, namely, 1) the evidence could not have been obtained at the hearing below with reasonable diligence; and 2) the evidence would or might, if believed, have an important influence on the result of the case, though it need not be decisive.

14.  The Petitioner in response to the Company’s application to adduce new evidence produced the transcript of the Zhejiang proceedings dated 3 April 2020. As recorded in the transcript, the Petitioner (as plaintiff), JAC and the Company (as defendants) were parties to the proceedings. The latter two were represented by a lawyer Mr Wu Wenxiang. As shown in the transcript, the Company was well aware of the issue of assignment of the Debt. In fact, it was the Company and JAC who raised the issue that the Petitioner had assigned the Debt and had no standing to sue and they requested the Zhejiang Court to resume the proceedings. The Zhejiang Court, pursuant to this request, had fixed a date to investigate the matter but the parties then agreed to settle the dispute. The transcript revealed that Mr Wu, the lawyer for JAC and the Company, was asked by the Zhejiang Court whether he would persist with the position that the Petitioner had no right to sue and whether he would need to seek clarification from the Petitioner. The lawyer answered no and stated that he would withdraw the application concerning the Assignment and the Petitioner’s standing to sue. As a result the parties agreed to the Consent Judgment. The relevant part of the transcript read as follows :

「                浙江省高級人民法院

                     調查質證、調解筆錄

案號：(2019)浙民初15號

案由：金融借款合約糾紛

時間：2020年4月3日下午2時30分

地點：本院第五法庭

審： 本案在2020年3月9日公開開庭審理後，我們收到了被告要求恢復庭審的申請，主要理由是認為原告債權進行了轉讓，涉案信託進行了清算，認為原告不具有訴訟主體資格。因此，根據被告的申請，原定於4 月7 日下午進行調查質証，進一步查明相關事實。但是事後與雙方律師進行溝通的過程中，很高興地得知雙方就本案有調解的願望和方案，而且主要的條款內容已經達成，這也是法院表示歡迎和樂見的。今天召集雙方過來一方面就相關事實作進一步了解，另一方面將調解方案和協議作最後的敲定。法庭注意到今天到場的人員兩被告特別授權的委託訴訟代理人吳律師到場了，原告的一般授權的委託訴訟代理人丁律師、馮律師沒有到場，兩位律師向我們表示了歉意，因為北京的疫情防控措施比較嚴格，以及兩律師回去後還要隔離報備，對工作帶來不利，經與中建投充分溝通，中建投委託公司的法務經理作為特別授權簽署相關調解協議的人員到場，本庭也予以准許。

審： 被告對原告不具有訴訟主體資格的請求是否還堅持？是否需要對方作適當的釋明？

吳： 不需要。鑑於目前已達成調解情況，我們對原告債權轉讓以及不具有訴訟主體資格的請求予以撤回。

審： 根據主審人與雙方律師分別溝通的情況以及提交的調解協議的初稿，以及經過背靠背的進一步工作和引導，雙方在法院的主持下，本著互諒互讓的原則，自願達成了如下調解 協議：

［協議內容］

(劃線後加)

」

 

Translation

「                Zhejiang Provincial High People’s Court

Investigation, Examination of Evidence and Mediation Transcript

Case Number: (2019) ZheMinChu 15

Cause of Action: Contractual disputes of financial loans

Time: 2:30pm, 3^rd April 2020

Place: Court No.5 of this Court

Court: Having heard the present case in open court on 9^th March 2020, we received the application from the Defendants to restore court proceedings. The main reason is that they have assigned the debt, the trust in question was liquidated, and the Plaintiff has no right to sue. Consequently, upon the application of the Defendant, it was originally scheduled to conduct investigation and examination of evidence in the afternoon of 7^th April in order to further examine the relevant facts of the case. However, in the communication process with the lawyers of both parties at a later time, the Court was very pleased to know that both parties had the intention to mediate and make proposals to settle this case. Moreover, the contents of the major terms were already agreed. This is also something that the Court will welcome and is pleased to see. Today, both parties have been summoned to attend so that we can have a further understanding of the relevant facts on one hand, and to finalize the mediation proposals and agreement on the other hand. The Court noticed that the agent of the litigation specially authorized and appointed by the two Defendants, Lawyer Wu is present. Lawyer Ding and Lawyer Feng, the agent of litigation who were given general authorization and appointed by the Plaintiff, have not come to court. The two lawyers expressed their apologies to the Court as the prevention and control measures against pandemic in Beijing are rather stringent and that the two lawyers will be required to quarantine and report upon their return which will adversely affect their work. Therefore, having fully communicated with JIC, JIC appointed the legal manager of the company as specially authorized person to sign the relevant mediation agreement to come to court. This Court also gives permission to it.

Court: Do the Defendants still insist to pursue the application concerning the Plaintiff having no right to sue? Will the Defendants require the opposite party to make appropriate clarification?

Wu: No need. In view of the present circumstances of reaching settlement, we will withdraw our application regarding the Plaintiff’s assignment of debts and no right to sue.

Court: Upon respective communication between the presiding judge and lawyers of both parties, the draft of agreement upon mediation as submitted, and back to back further work and guidance, both parties, in the presence of the presiding judge, based on the principle of mutual understanding and accommodation, reach the following settlement agreement voluntarily:

[Terms of the Settlement]

(emphasis added)

」

15.  JAC had also sought to challenge the Consent Judgment and had applied for a retrial of the Petitioner’s claim. The Zhejiang Court by a decision dated 7 September 2023 dismissed the application. As can be seen from that judgment, JAC repeated the contention that the Petitioner had assigned the Debt to a third party. This point was expressly rejected by the Zhejiang Court which held that JAC had previously withdrawn this contention and hence had no basis to seek a retrial.

16.  A further attempt by JAC to invoke the jurisdiction of the Zhejiang Procuratorate to challenge the Consent Judgment on the basis that the Debt had been assigned to a third party was likewise rejected by the Zhejiang Procuratorate. In its decision dated 22 January 2024, it held that JAC and the Company had withdrawn their reliance on the Assignment of the Debt and hence JAC had no proper basis to further challenge the Consent Judgment.

17.  The Company had not joined JAC in the latter’s applications to challenge the Consent Judgment by reason of the Assignment of the Debt and had not explained why it did not do so.

18.  One would have been more sympathetic to the Company’s application if the evidence supports its contention that it only became aware of the Assignment when it came across the Announcement. However, this is not the case. From the information gleaned from the transcript of the Zhejiang proceedings, the Company’s explanation for adducing the new evidence at this late stage of the proceedings just does not bear scrutiny. It showed that the Company already had knowledge of the Assignment by the Petitioner and its standing to sue in April 2020. Mr Wong in his second affirmation dated 29 December 2023 attempted to gloss over this by saying that the Company only had suspicion then.

‘ (2) For the avoidance of any doubt, I understand from JAC that whilst it did raise a query as to the Petitioner’s locus standi during the Zhejiang Proceedings, this was merely prompted by an unverified suspicion which was gleaned in those proceedings. Importantly, I understand that during the entire course of the Zhejiang Proceedings, JAC and the Company never had any knowledge or awareness of the Assignment, nor were they privy to any documents or information relating to the Assignment. As the Petitioner has now confirmed, such matters were deliberately withheld from JAC and the Company throughout.’

19.  This is a feeble response because the Company’s concern about the Assignment and the standing to sue was serious enough in 2020 for it to request a resumption of the Zhejiang proceedings for the matter to be investigated. If indeed the Debt had been assigned then the Company would not have been liable at all. After all, the Debt was a huge sum of more than RMB 731 million. It could have with reasonable diligence found out more about the Assignment. However it had decided not to pursue the matter further and chose to settle the dispute with the Petitioner which resulted in the Consent Judgment. Plainly it was a considered decision. With this factual background, we do not accept that the evidence relating to the Assignment could not have been obtained with reasonable diligence before the winding‑up order. On the contrary, the clear impression that one is entitled to come to is that the Company’s present dispute on the Petitioner’s standing is a desperate last ditch attempt to salvage an impossible situation when it found that it was unable to repay the Debt.

20.  In any event, Mr Wong’s explanation on how the Company came to know the Announcement is patchy and lacks credibility. He said in his first affirmation dated 31 October 2023 that, after the winding‑up order was made, he was informed on 8 June 2023 by Ms Xiao Liyuan, a staff of the Company’s subsidiary, that she had just come across an announcement made by the Petitioner’s parent company (i.e. China Jianyin), which related to the relevant underlying debts allegedly owed to the Petitioner. Upon further enquiry, Ms Xiao sent him a copy of the Announcement made by China Jianyin dated 27 March 2023. Ms Xiao did not give an affirmation to explain the circumstances in which she came across the Announcement and no explanation was given why she did not do so.

21.  In respect of the second limb of Ladd v Marshall, if the Company could not even properly explain why it had chosen to withdraw its complaint about the Assignment, then clearly it could not satisfy the requirement that the new evidence would or might have an important influence on the result of the case.

22.  As the appeal by the Company is dependent upon the new evidence being accepted, our dismissal of the application to adduce new evidence means that the appeal cannot get off the ground. Mr Ho properly accepted that to be the position.

23.  The parties have raised many other topics such as the Mainland law on assignment and the ‘principle of voluntariness’ for the purpose of reaching a settlement, the common law position on the effect of a foreign judgment and whether the Company is insolvent. It is not necessary for us to discuss these topics as the Petitioner had failed to cross the threshold in adducing the fresh evidence upon which the appeal against the winding‑up order is based.

24.  As observed by the Court during the hearing in recent years there is an increasing number of cases where the parties seek leave to adduce new evidence for the appeal. This is an unacceptable trend because it generates satellite litigations which cause delays and affect the resources of the Court and the other party. An appeal from a first instance decision in Hong Kong is not in the nature of a ‘second trial’ where fresh evidence may be adduced. The Court of Appeal deals with the appeal solely on the evidence that was presented at the first instance proceedings. Admission of new evidence for the appeal is the exception rather than the rule and is only allowed if stringent conditions are fulfilled as all relevant evidence should be properly adduced at the first instance proceedings. It behoves lawyers to firmly advise their clients of the requirement to provide a complete discovery of all relevant documents and to bring forward all the evidence at one go in the first instance proceedings. The Court of Appeal takes a strict approach on attempts to introduce new evidence and will impose sanctions by way of punitive costs order against unmeritorious applications.

V.  Conclusion

25.  Accordingly the Company’s summons and its appeal were dismissed. We have also made an order to strike out the appeal pursuant to the Petitioner’s summons even though it was strictly not necessary.

VI.  Costs

26.  The Company is to pay the Petitioner costs of the appeal and the summonses respectively issued by the Company and the Petitioner on an indemnity basis by reason of the unmeritorious nature of the appeal and application. Certificate for two counsel is granted.

27.  Mr Li SC and Mr Chan for the Petitioner had informed the Court that they intend to ask for costs against the funder of the present proceedings. We have, in accordance with the approach in Penta Investment Advisers Limited v. Allied Weli Development Limited (formerly known as Hennabun Capital Group Limited) (CACV 58/2016), given directions for the conduct of the intended application.