CITICORP INTERNATIONAL LTD v. TSINGHUA UNIGROUP CO., LTD

HCA 1269/2021

[2022] HKCFI 1558

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1269 OF 2021

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REASONS FOR DECISION

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Introduction

1.  On 24 August 2021 Citicorp International Limited (“Citicorp”) issued a writ making claims for approximately US$500 million against Tsinghua Unigroup Co., Ltd (“Tsinghua”) for breach of a Keepwell Deed and Equity Interest Purchase Undertaking (“EIPU”) both dated 10 December 2015 given in support of a series of bonds issued by its indirectly held subsidiary, Unigroup International Holdings Ltd (“Unigroup”) of which Citicorp is the trustee. The Statement of Claim was issued on 21 September 2021. On 18 October 2021 Tsinghua issued a summons seeking various alternative orders, the purpose of which is to stay the claim and to require Citicorp to pursue it before the Beijing No. 1 Intermediate People’s Court (“Beijing Court”), which has conduct of the restructuring proceedings to which Tsinghua is currently subject in the Mainland.

2.  The present Action and the Application is very similar to that concerning Peking University Founder Group Co. Ltd (“Peking Founder”). I handed down my decision in that case on 17 December 2021[1] dismissing the application to stay the claim. Peking Founder is also subject to restructuring before the Beijing Court. Mr Maurellet on behalf of Tsinghua (he also appeared for Peking Founder) did not repeat the submissions made in the Peking Founder case. He reserved the right to advance the arguments rejected in Peking Founder if this matter were to go on appeal. It is not necessary for me to repeat what I said in Peking Founder. Also as the contractual framework and circumstances which give rise to the present claim are very similar to that in Peking Founder it is not necessary for me to explain what a Keepwell Deed is or the operation of the Mainland’s Enterprise Bankruptcy Law (“EBL”), which governs the restructuring process to which Tsinghua is currently subject or the grounds advanced in Peking Founder which Tsinghua also says justify the Action being stayed.

3.  By way of background what is relevant to the present case is as follows. There is no dispute that Unigroup defaulted on the bonds and that on its face the Keepwell Deed and the EIPU are engaged. Tsinghua is incorporated in the Mainland and a state-owned investment holding company associated with Tsinghua University. Through its subsidiaries it operates in various business segments including IC Chip, cloud and IT and technology services. These businesses have not developed successfully. On 9 July 2021 the Beijing Court notified Tsinghua that Huishang Bank Corp Ltd had applied to it to commence a reorganisation process in respect of Tsinghua under Chapter 8 of the EBL. On 16 July 2021 the Beijing Court ordered commencement of reorganisation proceedings. On the same day the Beijing Court issued a public announcement on the National Enterprise Bankruptcy Information Disclosure Platform stating that any creditor who wished to file a claim in the Reorganisation should do so by 8 October 2021.

4.  On 29 September 2021 Citigroup submitted a proof of debt for the present claim to the Administrators appointed by the Beijing Court to conduct the reorganisation. The Administrators have not rejected the claim. The Administrators have not provided any substantive response to the proof and not indicated when they expect to do so. In the present Action the Administrators have not filed any evidence explaining their present assessment of Citigroup’s claim. Given the length of time since the claim was notified to the Administrators this is surprising. It is made all the more surprising as the Administrators have filed a report by Professor Gerard McMeel QC dealing with the construction of clauses 2.2 and 4.1 of the Keepwell Deed and clause 2.2 of the EIPU. These are similar to the provisions in Peking Founder and in summary provide that Tsinghua’s obligations are subject to Unigroup obtaining such regulatory approvals as are required. As I have not been told how the questions identified and addressed by Professor McMeel are relevant (although it is apparent to me how they might be from hearing Peking Founder) the evidence does not take matters far.

5.  In addition to filing a report by Professor McMeel, Tsinghua also filed a report by Professor Shi Jingxia, who also filed a report in the Peking Founder case. On this occasion Professor Shi was available to be examined albeit remotely. This was helpful as I explain in [10].

Relevant Legal Principles

6.  The Action was commenced in Hong Kong because the Keepwell Deed contains (as in Peking Founder) an exclusive jurisdiction clause. It is in the following terms:

“18.2.1 The courts of Hong Kong are to have exclusive jurisdiction to settle any disputes which may arise out of or in connection with this Deed and accordingly any legal action or proceedings arising out of or in connection with this Deed (‘Proceedings’) may be brought in such courts. All of the parties to this Deed irrevocably submit to the jurisdiction of such courts and waives any objection to Proceedings in such courts whether on the ground of venue or on the ground that the Proceedings have been brought in an inconvenient forum.”

7.  The right to require a claim to be determined in accordance with the agreed contractual provision is an important and substantial one and not a formal or technical right. Strong reasons must be demonstrated before the court will stay proceedings, which have been commenced in accordance with an exclusive jurisdiction clause in favour of another forum[2].

8.  The Spiliada Principles, which guide the court in determining an application for a stay pursuant to RHC O12 r8 is explained in the context of matrimonial proceedings by the Court of Final Appeal in [50]–[51] of the judgment of the Court in SPH v SA[3]:

“50. It is now well established in Hong Kong that the general principles of forum non conveniens apply to the stay of matrimonial proceedings: Johnston, Conflict of Laws in Hong Kong (2^nd ed 2012), para 7.104.

51. We adopt the re-statement of the principles in matrimonial proceedings by the Court of Appeal (Cheung JA and Tang JA (as he then was)) in DGC v SLC (née C) [2005] 3 HKC 293, 297-298, applying Spiliada Maritime Corporation v. Cansulex Limited [1987] 1 AC 460, 477 and Louvet v. Louvet [1990] 1 HKLR 670, 674-675:

‘1. The single question to be decided is whether there is some other available forum, having competent jurisdiction, which is the appropriate forum for the trial of an action i.e. in which the action may be tried more suitably for the interests of all the parties and the ends of justice?

2. In order to answer this question, the applicant for the stay has to establish that first, Hong Kong is not the natural or appropriate forum (“appropriate” in this context means the forum has the most real and substantial connection with the action) and second, there is another available forum which is clearly or distinctly more appropriate than Hong Kong. Failure by the applicant to establish these two matters at this stage is fatal.

3. If the applicant is able to establish both of these two matters, then the plaintiff in the Hong Kong proceedings has to show that he will be deprived of a legitimate personal or juridical advantage if the action is tried in a forum other than Hong Kong.

4. If the plaintiff is able to establish this, the court will have to balance the advantages of the alternative forum with the disadvantages that the plaintiff may suffer. Deprivation of one or more personal advantages will not necessarily be fatal to the applicant for the stay if he is able to establish to the court's satisfaction that substantial justice will be done in the available appropriate forum.’”

The Argument before me

9.  Other than reserving the right to advance the arguments made in Peking Founder in any appeal, Tsinghua made the following submissions:

(1)  Citicorp seeks a monetary remedy. This is a strong reason for staying the Action.

(2)  If Citigroup were to seek only a declaration, in the light of recent authority this would weigh against allowing the Action to continue as the court rarely would be willing to grant a declaration in order to provide a foreign court with its view on a matter of Hong Kong law.

(3)  The Beijing Court would be able to determine the issues of English law.

(4)  The Beijing Court is the natural forum in which to determine the claim.

10.  I will address the 3^rd submission first as it bears on how the first two need to be approached. As I have explained Professor Shi was available for examination. She was able to explain two matters in particular, which I had not found clear in her reports in both the Peking Founder case and the present one. First, that although a Mainland court is able to obtain a report on foreign law using the procedures described in [55] of my decision in Peking Founder this does not inhibit a party adducing its own evidence on foreign law to advance its case. Secondly, Citigroup could adduce a judgment by this court in the Action as evidence before the Beijing Court pursuant to Article 21 of the EBL. Professor Shi explained the following:

“Q. …. My last question, I think, is, I think, if I have understood your answer to one of Ms Lam’s earlier questions, there would be nothing in principle objectionable to a party submitting as evidence a judgment of a foreign court. So in this particular case there would be nothing objectionable to a judgment which I produced being relied on as evidence, not it being enforceable, you understand, but purely as evidence. So this is what Mr Justice Harris thought the correct interpretation under English law of this contractual provision.

A. I understand if it’s -- if it’s an expert opinion, you know, containing or relying your Lordship’s judgment, it’s admissible material before the PRC court.

Q. All right, well, that is what I thought you were saying.

A. Yes, it’s admissible materials which can be submitted by the parties -- apparently in this case from the plaintiff. That’s for sure, but the PRC court will review, you know, all the evidence including this evidence to make a final decision.

Q. All right. Now, I understand they may still disagree, but it’s admissible. Thank you.

A. Yes, that’s possible.”

The Beijing Court may disagree with a judgment of this Court in whole or in part, but I think it is reasonable to assume that it would be evidence, which would be accorded significant weight for the reasons explained in [62] of Peking Founder. In these circumstances it seems to me that a decision by this Court would have utility and aid Tsinghua in advancing its case in Beijing. What also became clear from Professor Shi’s evidence is that although protocols have been introduced in the Mainland to facilitate Mainland courts determining issues of foreign law, courts generally have little experience of doing so. There is no evidence before me to suggest that the Beijing Court has experience of determining issues of English law of the type that will need consideration in the present case.

11.  I now turn to the 1^st submission. Tsinghua argues that allowing Citigroup to obtain a judgment in its favour would be inconsistent with notions of modified universalism because it would allow Citigroup to enforce a judgment outside the Mainland and improve its position over that of Mainland creditors[4]. This seems to me a bad argument in the present case. There is no evidence that Tsinghua has any assets at all outside the Mainland. Even it has, the court could stay enforcement if the court determined it was appropriate and leave Citigroup to rely on the judgment as evidence to pursue its claim in the Mainland reorganisation.

12.  In my view Professor Shi’s opinion that Tsinghua could rely on a judgment of this Court disposes of the objection advanced in Peking Founder that led the Plaintiff in that case to indicate that it would only seek a declaration, namely, that a money judgment would not be enforceable or recognised by the Beijing Court. If the judgment is admissible as evidence it does not seem to me that it is necessary to limit the relief sought to a declaration in order to demonstrate (which I understood was the purpose of the Plaintiff in Peking Founder deciding so to do) that the purpose of the proceedings is not to obtain a judgment, which can be enforced in Beijing; it is to achieve the more modest aim of obtaining a judgment, which it can use as evidence to advance a claim brought before the Beijing Court pursuant to Article 21 of the EBL.

13.  The 2^nd objection is that if all that is sought is a declaration, the Action is objectionable because it does not satisfy the criteria recently explained in S v G[5] and Equis (Hong Kong) Limited v George Allen Cowan[6]. This objection falls away in the light of my conclusion in [12]. However, even if this were not the case it does not seem to me that the objection based on these two decisions has any substance. Tsinghua argues that two relevant principles emerge from the findings of the court in S v G and Equis. First, that it is objectionable for the court to grant declarations the purpose of which is to obtain an opinion that could be relied on before a foreign court. Secondly, that the court should not grant declarations which have no utility. The purpose of the Action is for Citigroup to obtain a judgment from the court agreed by the Parties, which demonstrates that the Keepwell Deed and the EIPU have been breached and that the breaches resulted in loss and to rely on the judgment as evidence to support its claim if necessary before the Beijing Court. Any judgment in its favour would not be advice to the Beijing Court. For reasons I have already explained in my view the judgment would have utility.

14.  The 4^th submission concerns the first principle referred to in [8], namely, whether Hong Kong is the natural or appropriate forum. This is determined by whether or not one views the claim as principally directed to establishing that there has been a breach of the Keepwell Deed and EIPU or as proving for a liquidated amount in the restructuring. In the first instance the purpose is the former, but ultimately Citigroup’s purpose is to prove successfully in the restructuring process. Hong Kong is the natural forum to determine the claim advanced in the Action. Beijing is the forum in which it will have to be established that Citigroup is entitled to have its claim admitted in Tsinghua’s restructuring. In my view Hong Kong is the appropriate forum in which to determine the claim in the Action, however, assuming for present purposes that Beijing is properly viewed as the more appropriate forum it is necessary to consider if Citigroup will be deprived of a legitimate juridical advantage. In my view it will be for the reasons summarised in [56] of my decision in Peking Founder and [10] and [12] of this decision.

15.  If the final principle is engaged, as for present purposes I shall assume that it is, it requires the court to balance the advantages of the alternative forum against the disadvantage Citigroup may suffer if the Action is stayed. In my view the balance lies in permitting the Action to continue. If Citigroup is unsuccessful, as it may be, that will dispose of the matter as it is inherently highly unlikely that Citigroup would attempt to circumvent the Hong Kong court’s decision by challenging a rejection of its proof of debt pursuant to Article 21 of the EBL. If it is successful Citigroup (and the Beijing Court) will have the advantage of the Hong Kong court’s decision as evidence to which the Beijing Court can have regard in determining whether or not to admit the proof.

Determination

16.  I, therefore, dismiss the application and make a costs order nisi that Tsinghua pays Citigroup’s costs forthwith with a certificate for two counsel, such costs to be taxed if not agreed.

17.  I will also grant an order in terms of the Defendant’s Summons dated 14 April 2022.