CITICORP INTERNATIONAL LTD v. TSINGHUA UNIGROUP CO., LTD

HCA 1269/2021

[2023] HKCFI 1572

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1269 OF 2021

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J U D G M E N T

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Introduction

1.  Commencing on 11 January 2023 I heard two trials back-to-back concerning the enforceability of keepwell deeds and equity interest purchase undertakings (“EIPU”) made by Mainland[1] companies in respect of the liabilities of subsidiaries under bonds issued by them, and guaranteed by other subsidiaries, to raise US$ in the international debt market. The first concerned Peking University Founder Group Company Limited (“PUFG”). PUFG is associated with Peking University and ultimately owned by a state-owned enterprise. I handed down my judgment in those four actions on 18 May 2023 (“Peking Founder”) [2]. The present action concerns Tsinghua Unigroup Co. Ltd (“Tsinghua”). Tsinghua is also associated with one of the Mainland’s most prestigious universities and is also ultimately owned by a state-owned enterprise.

2.  The issues dealt with in both trials are the same and the facts, although concerning unrelated business groups, are remarkably similar. For example, the contractual documentation is, save for matters like sums and dates, almost identical and a central event in both cases is the Beijing First Intermediate People’s Court (“Beijing Court”) placing PUFG and the Tsinghua in reorganisation pursuant to the Enterprise Bankruptcy Law (“EBL”). However, a major difference is that the default on bonds issued by the Tsinghua Group, which I describe in more detail later, which lead to the present claims took place before Tsinghua was ordered into reorganisation on 16 July 2021. This is not the case in Peking Founder.

3.  Given the similarities between the PUFG and Tsinghua cases there are issues to which the present action gives rise that I have already considered and decided in the Peking Founder judgment, which I wrote taking into account the submissions made on behalf of Tsinghua[3]. This judgment should be read with the Peking Founder judgment as I have not repeated matters I addressed fully in that judgment.

Background

4.  Tsinghua’s business is described as follows in the Offering Circular dated 3 December 2015 for the first of two tranches of bonds.

“The Group is a leading state-owned high-tech enterprise with strategic business segments covering including IC Chip, IT, energy and environment and other businesses, such as science parks, properties and hotels, computer application services and modern agriculture biological manufacturing. The Company, formerly known as Tsinghua University Sci-Tech General Company (清華大學科技開發總公司)，was established in 1988 by Tsinghua Holdings Co., Ltd. (‘Tsinghua Holdings’) (清華控股有限公司) (‘清華控股’) and adopted its current name as Tsinghua Unigroup Co., Lid. (‘Tsinghua Unigroup’) (紫光集國有限公司) (‘紫光集團’) in 2005. As at the date of this Offering Circular, the Company is 51 per cent. held by Tsinghua Holdings (清華控股) and 49 per cent. held by Beiling Jiankun Investment Group Co., Ltd. (北京健坤投資集團). Tsinghua Holdings (清華控股) is a wholly-owned subsidiary of Tsinghua University. Tsinghua University is controlled, administered and supervised by the Ministry of Education of PRC (‘Ministry of Education’) (中國教育部) (‘教育部’) and the Ministry of Finance of PRC (‘Ministry of Finance’) (中國財政部) (‘財政部’). It is mainly funded by the Ministry of Finance.

The Group considers its leading presence in both its IC Chip business (primarily operated by the Company’s controlled subsidiary, Spreadtrum Communications, Inc. (‘Spreadtrum Communications’) (展訊通信有限公司) (‘展訊通信’)) and IT business (primarily operated by the Company’s subsidiary, Unisplendour Corporation Limited (‘UNIS’) (紫光股份有限公司) (‘紫光股份’), which was acquired in April 2015) as its core strengths. Spreadtrum Communications (展訊通信) is a national and international leading mobile chip designer by output volume. In the IT business, UNIS (紫光股份) is a leading scanner provider by sales volume in China.

…

As at 31 December 2014, the Company had a total issued share capital of RMB670.0 million. The Group had total assets of approximately RMB26.1 billion and operating income of approximately RMB3.6 billion as at and for the year ended 31 December 2013 and had total assets of approximately RMB49.0 billion and operating income of approximately RMB12.3 billion as at and for the year ended 31 December 2014.”

5.  On 10 December 2015 Unigroup International Holdings Ltd (“Issuer”) issued US$350,000,000 6% Guaranteed Bonds due 2020. The Plaintiff, Citicorp International Limited was the trustee (“Trustee”) under the trust constituting the bonds, which was executed on 10 December 2015. This tranche of bonds was guaranteed by Tsinghua Unigroup International Co. Ltd (“Guarantor”). Both the Issuer and Guarantor are indirectly wholly owned subsidiaries of Tsinghua. The Issuer, the Guarantor, Tsinghua and the Trustee also executed on the same day a Keepwell Deed and an EIPU.

6.  On 11 April 2016, the Issuer issued US$100,000,000 6% Guaranteed Bonds due 2020. Pursuant to condition 15 of the 2020 Bonds Conditions, this further tranche of bonds were consolidated and formed a single series of bonds with the US$350,000,000 6% Guaranteed Bonds. It is not disputed that the Keepwell Deed and EIPU apply to all the 2020 Bonds collectively.

7.  By November 2020 Tsinghua was experiencing financial difficulties and on 10 November 2020 a Working Group was appointed over Tsinghua to address them. On 16 November 2020, Tsinghua failed to redeem RMB1,300,000,000 bonds issued in the Mainland, which had matured. On 7 December 2020, the Guarantor (as lender) entered into a loan agreement with Tsinghua (as borrower) to lend US$523,000,000 to Tsinghua (“Guarantor’s Loan Agreement”). Shortly after the Guarantor’s Loan Agreement was entered into, the 2020 Bonds defaulted.

8.  On 10 December 2020 (the maturity date of the 2020 Bonds) the Issuer and the Guarantor failed to redeem the principal amount of the 2020 Bonds. On 11 December 2020, the Issuer, the Guarantor and Tsinghua issued a letter to the Trustee informing it of the onshore bonds default on 16 November 2020 and the Issuer and the Guarantor’s failure to make payment of the principal due under the 2020 Bonds on 10 December 2020. The Issuer and the Guarantor had also failed to pay interest on the 2020 Bonds.

9.  On 30 December 2020, the Trustee issued a written notice to the Issuer, Guarantor and Tsinghua, declaring the 2020 Bonds to be immediately due and payable at their principal amount together with accrued interest. As I have already mentioned, some seven months later on 16 July 2021 Tsinghua entered reorganisation. On 23 July 2021, the Trustee issued a trigger notice to the Issuer, the Guarantor and Tsinghua pursuant to clause 7.2 of the Keepwell Deed seeking payment of the Principal and Interest (which at that date was US$462,676,000) plus US$6,000 for incurred fees and future fees and expenses to the Issuer and Guarantor to enable them to fulfil their obligations under the 2020 Bonds and a purchase notice pursuant to clause 3.1 of the EIPU.

10.  On 23 August 2021 the Trustee issued an updated trigger notice updating the payable amount to US$481,617,266.67 of principal and interest plus US$100,000 for incurred and future fees and expenses and an updated purchase notice pursuant to clause 3.1 of the EIPU.

11.  On 13 July 2022 the reorganisation was terminated and Tsinghua returned to operation as a going concern.

12.  There are no material disputed facts. The Trustee and Tsinghua both called one factual witness. No evidence was adduced by Tsinghua of any efforts to comply with the Keepwell Deed or the EIPU.

Contractual Documents

13.  As I have explained the contractual documents in the present case are the same as that in Peking Founder. They are governed by English law and contain Hong Kong exclusive jurisdiction clauses. The Keepwell Deed contains a provision in clause 4 in the following terms:

“4 Maintenance of Consolidated Net Worth; Liquidity

4.1 The Company undertakes that it shall cause:

(i) each of the Issuer and the Guarantor to have a Consolidated Net Worth of at least US$1.00 at all times;

(ii) each of the Issuer and the Guarantor to have sufficient liquidity to ensure timely payment by each of the Issuer and the Guarantor of any amounts payable under or in respect of the Bonds and the Guarantee in accordance with the terms and conditions of the Bonds and/or the Trust Deed and otherwise under the Trust Deed and the Agency Agreement; and

(iii) the Guarantor to have a Consolidated Net Worth of at least US$50,000,000 at all times.

If the Issuer or the Guarantor at any time determines that it will have insufficient liquidity to meet its payment obligations as they fall due, then the Issuer and/or the Guarantor shall promptly notify the Company of the shortfall and the Company will make available to the Issuer or the Guarantor, before the due date of the relevant payment obligations, funds sufficient to enable the Issuer or the Guarantor (as the case may be) to pay such payment obligations in full as they fall due. The Issuer or the Guarantor shall use any funds made available to it by the Company in accordance with this Deed solely for the payment when due of such payment obligations under the Bonds, the Guarantee or the Trust Deed (as the case may be).

4.2 The Company undertakes that its Consolidated Net Worth will not be less than US$1.00 at all times.

4.3 The Guarantor undertakes that its Consolidated Net Worth will not be less than US$50,000,000 at all times.

For the purposes of this Deed, ‘Consolidated Net Worth’ means, in respect of the Issuer, the Guarantor or the Company, the excess of total assets of the Issuer, the Guarantor or the Company and its consolidated Subsidiaries over total liabilities of the Issuer, the Guarantor or the Company and its consolidated Subsidiaries, total assets and total liabilities each to be determined in accordance with the Accounting Standards for Business Enterprises in the PRC consistently applied.”

14.  In the Peking Founder judgment [73] I reject the argument, as I do for the same reasons in the present case, that the final paragraph requires notice to be given to Tsinghua before the obligations contained in clauses 4.1, 4.2 and 4.3 are engaged.

15.  This obligation is, as in Peking Founder, subject to the following qualification contained in clause 2.2:

“2.2 Regulatory Approvals

Notwithstanding anything contained in this Deed, if, and to the extent that the Company is required to obtain any Regulatory Approvals in order to comply with its obligations under this Deed, the performance of such obligation shall always be qualified by, and subject to, the Company having obtained such Regulatory Approvals. In this regard, the Company undertakes to use its best efforts to obtain such Regulatory Approvals within the time stipulated by the relevant Approval Authorities, if applicable.”

16.  Sub-clause 2.1 makes it clear that the Keepwell Deed is not a guarantee.

17.  Clause 7 required the Issuer, the Guarantor and Tsinghua promptly to notify the Trustee of the occurrence of what are defined as a “Triggering Event”, which include an Event of Default, the Consolidated Net Worth of the Guarantor falling below US$50,000,000 and the Issuer or Guarantor determining they have insufficient liquidity to meet their obligations under the Bonds or the Guarantee or Trust Deed. If the Trustee received notice of a Triggering Event it may serve a Trigger Notice, on receipt of which the Issuer, the Guarantor and the Company agree, the Company is to establish a Standby Facility, which facilities the Issuer and/or Guarantor complying with their obligations. The obligation is subject to such Mainland Government approvals as may be required.

18.  Clause 15.1(iv) and (vi) provides:

“15.1 For so long as the Bonds are outstanding, the Company hereby undertakes:

(iv) to cause each of the Issuer and the Guarantor to remain in full compliance with the terms and conditions of the Bonds, the Guarantee, the Trust Deed (as applicable) and all applicable laws, rules and regulations in the British Virgin Islands;

…

(vi) to cause each of the Issuer and the Guarantor to take all action necessary in a timely manner to comply with its obligations under this Deed;…”

19.  The material terms of the EIPUs are contained in clauses 3.1 and 3.3 and are the same as in the Peking Founder case. Clause 3.1 is in the following terms:

“3.1 Agreement to Purchase: Upon the receipt of a written Purchase Notice provided by the Trustee in accordance with the Trust Deed given following notification to the Trustee of the occurrence of an Event of Default under the Bonds, the Company agrees that it shall, subject to obtaining all necessary approvals, consents, licences, orders, permits and any other authorisations from the relevant Approval Authorities (the ‘Relevant Approvals’), purchase (either by itself or through a PRC-incorporated Subsidiary of the Company as designated by it (the ‘Designated Purchaser’)) (the ‘Purchase’):

(i) the Equity Interest held by the Guarantor and/or any other Subsidiaries of the Company incorporated outside the PRC, as designated by the Company and notified in writing to the Trustee within three Business Days after the date of the Purchase Notice; or

(ii) in the absence of a designation and notification within three Business Days after the date of the Purchase Notice as provided in (i) above of this Clause 3.1, the Equity Interest held by all the Subsidiaries of the Company incorporated outside the PRC,

(each such designated entity in the case referred to in (i) of this Clause 3.1 or, as the case may be, each such Subsidiary in the case referred to in (ii) of this Clause 3.1, a ‘Relevant Transferor’)

in either such case at the Purchase Price (as determined under Clause 3.3) on the relevant Purchase Closing Date on the terms set out in this Deed and the Equity Interest Transfer Agreement.”

20.  Clause 3.3 provides the mechanism for determining the purchase price of the equity interests. In short it is an amount sufficient to allow the Issuer and Guarantor to discharge their obligations under the Bonds, the Guarantees and the Trust deed.

21.  As I have explained there is no evidence of the Company, the Issuer or the Guarantor ever making any efforts to comply with these obligations or, for that matter, giving any consideration to how they might do so. Tsinghua’s explanation for not doing so goes to the provisions of both the Keepwell Deed and the EIPU that make the obligations under them subject to Tsinghua obtaining any necessary “Regulatory Approvals”. Clause 2.2 of the Keepwell Deed and the EIPU are in the same terms:

“2.2 Regulatory Approvals: Notwithstanding anything contained in this Deed, if and to the extent that the Company is required to obtain any Regulatory Approvals in order to comply with its obligations under this Deed, the performance of such obligation shall always be qualified by, and subject to, the Company having obtained such Regulatory Approvals. In this regard, the Company undertakes to use its best efforts to obtain such Regulatory Approvals within the time stipulated by the relevant Approval Authorities, if applicable.”

22.  Tsinghua is required to use its best efforts to obtain such Regulatory Approvals as are required. This is the same as the equivalent provision in Peking Founder.

Alleged Breaches

23.  In [30] to [37] of the Amended Statement of Claim the Trustee pleads the breaches of the Bond (the failure to redeem on maturity on 10 December 2020), that the Bonds became immediately payable on 30 December 2020 in the sum of US$450,697,333.33 and the resulting Event of Default. They are expressly admitted in the Amended Defence. In [39] to [43] the Trustee pleads the issue of a Trigger Notice pursuant to clause 7.2 of the Keepwell Deed and a Purchase Notice pursuant to clause 6.1 of the Trust Deed and clause 3.1 of the EIPU on 23 July 2021. These and their alleged consequences are not admitted. The Company pleads that they took place after the reorganisation proceedings commenced 16 July 2021.

24.  In [49] of the Amended Statement of Claim the Trustee pleads that in breach of clause 4.1(ii) of the Keepwell Deed Tsinghua failed to cause each of the Issuer and the Guarantor to have sufficient liquidity to ensure timely payment of the principal and interest due under the Bonds. The Trustee also pleads that Tsinghua must have failed to cause the Guarantor to have a consolidated net worth of at least US$50,000,000 at all times.

25.  The Trustee also pleads its belief that Tsinghua must have failed to comply with clause 8.1 by not establishing a Standby Facility. In addition the Trustee pleads that it believes that in breach of clause 15(iv) to (vi) Tsinghua failed to ensure that the Issuer and Guarantor complied with their obligations under the Bonds and the Keepwell Deed and Tsinghua failed to comply with its obligations under the Keepwell Deed. In addition to relying on the failure of either the Issuer or the Guarantor to repay the Bonds to demonstrate these breaches the Trustee also relies on the Guarantor’s Loan Agreement made on 7 December 2020 I referred to in [7] pursuant to which the Guarantor lent US$523,000,000 to Tsinghua thus depleting, says the Trustee, the Guarantor’s assets and its ability to comply with its obligations under the Guarantee. Tsinghua pleads that the monies were obtained by the Guarantor from other Group companies and will be repaid in full under the reorganisation plan for the Tsinghua group.

26.  In [53] to [56] of the Amended Statement of Claim the Trustee pleads that in breach of its obligations under the EIPU following issue of the Purchase Notice Tsinghua failed to acquire the Equity Interest of subsidiaries incorporated outside the Mainland. It is not disputed that Tsinghua did not comply with the EIPU. Tsinghua contends that this was not a breach because it could never have obtained the necessary approvals.

27.  In my view the claims turn on the time when the breaches occured. In the case of the alleged breaches of clause 4 of the Keepwell Deed it is plainly claimed that the breaches occurred in December 2020; well before the reorganisation commenced. The claims for failing to comply with the Trigger Notice and the Purchase Notice arise after the reorganisation had commend, albeit only be one week. Tsinghua advance a number of defences, but the principal one is that it could not have obtained the necessary Regulatory Approvals. A number of other defences are also advanced. I will address them after I have dealt with the Regulatory Approvals defence.

Clause 2.2 and Regulatory Approvals

28.  In order to rely successfully on clause 2.2 it is necessary for Tsinghua to demonstrate that it could not obtain the necessary Regulatory Approvals despite using its best efforts. In the present case there is no evidence of Tsinghua giving any consideration to what Regulatory Approvals were required, let alone making any effort to obtain any. In Peking Founder[4] I explain what in my view a party has to demonstrate if, as in the present case, it made no effort to comply with a best efforts obligation, because whatever it did or did not do it would not have affected the outcome.

29.  What factual evidence has been filed on this issue comes from Yang Xiao Wen, who is a Senior Funding Manager of Tsinghua. Mr Yang says in [48] of his witness statement that “I believe there were in theory three ways for the Company to transfer funds to either the Guarantor or Issuer, under the Keepwell Deed and/or the EIPU”. One was the option envisaged by the EIPU, but, says Mr Yang, Tsinghua did not have any offshore subsidiaries which held equity interests in onshore companies. I note that Mr Yang says that it was unlikely that this would ever be the case as it would be more sensible for Tsinghua to own onshore subsidiaries directly (or presumably through intermediate onshore subsidiaries). Mr Yang also says that as both the Guarantor and the Issuer had no substantive operations it would not be possible to remit funds to them on the basis of transactions to buy goods or services in the ordinary course of business. The other two methods were to extend a loan or enter into an overseas direct investment. These two options would require, suggests Mr Yang, the following approvals:

“51(a) the State Administration of Foreign Exchange (SAFE), Ministry of Commerce (MOFCOM), National Development and Reform Commission of the PRC (NDRC) (which I will refer to as the Cross-border Regulators);

(b) the State, and in particular the Ministry of Education and the Ministry of Finance which control the Company; and

(c) the Administrator, which was appointed in respect of the Company by the Beijing Court on 16 July 2021.”

30.  As I explain in [91] of Peking Founder in my view the Administrator was not an approval authority under clause 2.2. Mr Yang goes onto suggest in [53] that “I do not believe it would have been possible for the Company to prepare an application and successfully obtain the Cross-border Regulators approval to transfer money to the Guarantor and Issuer for the purpose of helping them to repay an existing loan whether by way of a loan capital injection, or disguised as an equity interest purchase.” Mr Yang says that the possibility of making a loan would be dealt with by Tsinghua’s expert, although he says that he understands that SAFE would have required to see Tsinghua’s audited accounts for the year ending 2019 and these would have shown a net equity position of RMB4,497,705,726.48. So far as purchasing equity interests are concerned, Mr Yang says the Issuer had none and the Guarantor’s were worth much less that the Shortfall Amount, although he does not say what they were worth. Finally, Mr Yang says that as Tsinghua is a state-owned enterprise the approval of the Ministry of Education and/or the Ministry of Finance would be required. Mr Yang suggests that as any financing of the obligations under the Keepwell Deed or the EIPU would have resulted in a commercial loss approval would not have been given.

31.  It became clear during Mr Yang’s cross-examination that the explanations he advances in his first witness statement were entirely hypothetical because Tsinghua did not formulate a plan to ensure that the finance required by the Keepwell Deed was provided to the Issuer or Guarantor in 2020 and never explored with the Approval Authorities whether whatever consents were required were likely to be given. This was Mr Yang’s evidence:

“Q. But, surely, if arranging payment on this bond for which you were responsible was one of the things that needed to be done, you would have been setting in motion a few months prior to the due date all the necessary steps to arrange those payments?

A. What actually happened was that we did report to the senior management about the due date of this debt, but the senior management did not give a clear instruction.

Q. When did you report?

A. Well, we -- this involved the management of the company, like I mentioned earlier. We would have been monthly report of the plans involving funds and repayment of the debt, and we would also make an annual report to the senior management about the debt condition of the company during that particular year. So, as a matter of fact, the senior management knew that in that particular year, this debt is due, and the terms and how it was be repaid, the management knew.

Q. But what you’re telling us, Mr Yang, is that you received no instruction to go and make the arrangements to pay the debt?

A. Right.

Q. You never received an instruction to, for instance, make enquiries as to whether certain offshore funds could be used to satisfy the debt?

A. Right.

Q. You never received the instruction to explore or put in the keepwell or EIPU approvals?

A. Right.

Q. So for that reason, you never even attempted to draft up the application papers if it were, indeed, to be an onshore-to-offshore payment?

A. Right.”

“MS LAM: Mr Yang, isn’t the reality this: you said in your witness statement that it would have been impossible, I think, to obtain approval, for instance at paragraph 58 but also at other paragraphs in your statement?

A. Yes, based on my previous experience.

Q. But when it came to this particular debt and this particular payment, the company hadn’t made genuine efforts at all to seek any such approvals?

A. If you view from the consequence, the answer is agree.”

Clearly no consideration was given to finding a way of complying with the Keepwell Deed and I so find.

32.  Ms Lam also cross-examined Mr Yang on the Guarantor’s Loan Agreement dated 7 December 2020 between Tsinghua and the Guarantor pursuant to which the Guarantor lent US$523,000,000 to Tsinghua, and to which I have referred in [7] and [25], and an earlier agreement to which Mr Yang refers in his second witness statement made on 29 February 2020 (“February agreement”). The February agreement is short. It is a multi-party agreement between Tsinghua and a number of its subsidiaries. This included the Guarantor (Party B to the loan agreement). It records the Guarantor having lent money (as had Unis Technology Strategy Investment Limited, Party C) to Spreadtrum Hong Kong Limited (Party E). According to the February agreement the accumulated loan balance at, presumably, February 2020 was US$471,200,000. All this amount had been advanced by the Guarantor, although Schedule 1 of the February agreement records US$12,500,000 having been paid by the Guarantor on behalf of Party C. The recitals to the February agreement explain that Party E is unable to repay the loans, but intends to pay to Tsinghua a deposit of RMB3,365 billion (equivalent to US$471,200,000) within 120 days as security and which it would hold on behalf of the Guarantor and Party C, whilst Party E, the Guarantor and Party C negotiate a loan extension. The deposit would be made on Party E’s behalf by its parent company Spreadtrum Communications (Shanghai) Co., Ltd (Party D). Clause 4 of the February agreement provides that Party E would submit a medium to long term repayment plan to the Guarantor and Party C within six months of execution of the February agreement.

33.  Mr Yang says in his second witness statement that Tsinghua received the deposit and used it in the ordinary course of its business. In December 2020 Party E was in a position to repay the outstanding loans as well as an additional sum of US$15 million lent to it in March and April 2020 together with interest. In summary, Mr Yang says that the Party E repaid the outstanding loan to the Guarantor (including Party C’s part), the Guarantor then lent what it received to Tsinghua and then Tsinghua repaid Party D the RMB3,365 billion Party D had paid it by way of security deposit.

34.  The thrust of the cross-examination was that Tsinghua (on the no doubt correct assumption that it was Tsinghua as the holding company that determined such matters) decided to direct that the US$523,000,000 received by the Guarantor be paid to it to settle an intra Group debt rather than use it, or use part of it, to meet its obligations under the Keepwell Deed or EIPU. The relevant section of Mr Yang’s cross-examination was directed to Mr Yang’s evidence in [18] of his second witness statement, which I shall set out before the relevant cross-examination:

“18. Almost a year later, in early December 2020, Spreadtrum HK was in a position to repay the US$470 million loans (as well as the additional US$15 million previously advanced by Unis Technology). Together with interest, the outstanding loans from the Guarantor and Unis Technology collectively amounted to approximately US$523 million (the Loan Amount). As provided for in the Multipartite Agreement, upon repayment by Spreadtrum HK, the Company would have to repay the RMB3.3 billion to Spreadtrum Shanghai. Since the RMB3.3 billion had already been deployed, the parties agreed an arrangement which involved: (1) Spreadtrum HK repaying the Loan Amount to each of the Guarantor and Unis Technology, (2) Unis Technology transferring its portion of the Loan Amount to the Guarantor, for the Guarantor to on-transfer these monies to the Company; (3) the Guarantor similarly transferring its portion of the Loan Amount to the Company; and (4) the Company then repaying Spreadtrum Shanghai using the Loan Amount it received, with the transfer of the Loan Amount from the Guarantor to the Company recorded in the form of the Loan Agreement between the two parties.”

“Q. We were looking at paragraph 18 of your second witness statement.

A. I’ve finished reading.

Q. When you say in the latter half, ‘the parties agreed an arrangement’, that’s not entirely accurate, is it?

A. The whole arrangement have two part: one part is according to the agreement; the second part is the decision according to the senior management of the company.

Q. Yes, and the decision, according to the senior management of the company, was to pay the $523 million from the guarantor to the defendant. That had nothing to do with Spreadtrum, correct?

A. It’s related because it has two parts. One part of it is shown on the agreement, that is, the guarantor receive the money and pass it on to the defendant. And the other part is not reflected in the agreement, that is the part in relation to Spreadtrum Shanghai. At that time, the instruction that was given to me from the senior management of the company was that -- at that time, the instruction was that when guarantor receive the repayment from Spreadtrum Hong Kong, it should immediately transfer the money to the defendant company, and then defendant company would immediately use that money to repay the security to Spreadtrum Shanghai. If it was not done, then Spreadtrum Hong Kong would not return money to the guarantor in Hong Kong.

Q. I suggest to you, Mr Yang, that according to the documents that we have seen, there's no basis for this belief that you hold.

A. If it is based on the agreement, loan agreement clearly say that the purpose is to return the security.

Q. Mr Yang, turn to paragraph 27, please. I suggest to you that your belief as reflected in this paragraph has no basis.

A. I disagree. I would give the same answer.

Q. When did the company first know that Spreadtrum Hong Kong was in a position to repay its offshore liabilities?

A. I have no idea about that. I was only told by the senior management of the company.

Q. When did you receive the instruction to effect this series of transfers?

A. Early December of year 2020.

Q. Can you explain why this was after the August date that was originally envisaged in the multipartite agreement?

A. Like I said earlier, I did not take part in the multipartite agreement, so I don't know.

Q. Is the reality this: there were in fact offshore funds available to repay debts, but instead of utilising these funds to pay off the debts, for instance, to the plaintiff, the decision was made to shift those funds back onshore?

A. Disagree.

Q. I’d suggest to you that this whole arrangement benefits the group entities, including affiliate entities like Spreadtrum, at the expense of the offshore creditors.

A. I don’t agree with that.”

35.  I accept that it is implicit in the arrangement contained in the February agreement that if the Guarantor and Party C were repaid the sums owed to them by Party E, the security deposit paid to Tsinghua by Party D would be repayable. It does not follow that the repayment would be made by a transfer of the funds received by the Guarantor through Tsinghua to Party D. Neither has Tsinghua demonstrated that it was. The security deposit was in RMB. No explanation has been given for Tsinghua choosing to use US$ (which as this case demonstrates Mainland businesses wish to raise, but face difficulties in so doing) to settle a RMB loan. Be that as it may, it seems to me that the principal significance of the Guarantor’s Loan Agreement is that it demonstrates that in December 2020 Tsinghua had access to US$ that could have been used to comply with its obligations under the Keepwell Deed or EIPU and clearly did not consider doing so.

36.  In my view the “best efforts” obligation required Tsinghua to consider the options that might be available to it in order to comply with the Keepwell Deed and the EIPU. I accept that once Tsinghua was in reorganisation any effort would probably have been futile and Tsinghua would have been able to rely on clause 2.2 without demonstrating that it had done anything. However, as I have previously explained, before the reorganisation commenced it seems to me that the position was very different. In order to rely on clause 2.2 Tsinghua has to demonstrate what steps it took to comply and why they were unsuccessful. Tsinghua has failed to do so. It is not sufficient now to adduce expert evidence that suggests that getting the necessary approvals and consents would have been difficult. It first has to demonstrate what it did and thought at the time, which would provide a factual foundation on which experts could usefully opine.

37.  Tsinghua adduced evidence from a number of experts on Mainland law and foreign exchange control practice. Lan Jie is a partner in Haiwen. Ms Lan explains in detail the regulations and practices that regulate the transfer of monies out of the Mainland. As Tsinghua has not adduced any evidence as to how it dealt with foreign exchange transactions and the funding of its overseas subsidiaries Ms Lan’s evidence is largely hypothetical. The most relevant question that Ms Lan addresses is whether Tsinghua could have obtained the necessary approvals prior to the Onshore Bonds Default on 16 November 2020 and/or the appointment of the Working Group on 10 November 2020[5]. Mr Yang in his evidence said that it would take at least a month to plan for payment of interest on the Bonds and possibly longer for repayment of the principal. Mr Yang agreed with Ms Lam’s question that “.. certainly, in terms of seeking approvals and discussing with management, a clear period of time would be required?” The Bonds matured on 10 December 2020. Tsinghua must have known well before 10 November 2020 that it was experiencing financial problems and that it needed to put in place measures to facilitate repayment of the Bonds.

38.  Before commenting further on Ms Lan’s evidence I note that clause 4.1(ii) of the Keepwell Deed requires Tsinghua to ensure that the Issuer and/or the Guarantor has sufficient funds to repay the Bonds and there is no suggestion by Tsinghua that the Keepwell Deeds were unenforceable or that there was anything objectionable in Tsinghua (which it will be recalled is ultimately a state-owned enterprise) raising US$ to finance offshore business and investments.

39.  Ms Lan’s evidence was that each of the three possible ways[6] she had identified by which Tsinghua could provide finance assistance to the Issuer and/or the Guarantor to fund their obligations and allow Tsinghua to comply with its obligations under the Keepwell Deed and/or EIPU were unachievable. The three methods were, first, providing a loan to the Issuer or Guarantor and, secondly, making a capital injection into the Guarantor or subsidiaries of the Issuer or Guarantor and, thirdly, purchasing shares in onshore companies owned by the Issuer or Guarantor. Ms Lan explains the Regulatory Approvals that are required for each of them.

40.  As I have already explained Tsinghua has adduced no evidence of any consideration being given to a means by which the Issuer or the Guarantor could be put in funds, which would enable them to comply with their obligations under the Bonds or the guarantee and it has not adduced any evidence to explain why it did not. Also Tsinghua has adduced no evidence as to its financial state in late 2020 or attempted to demonstrate what if any options (which I recognise may have been limited) were available and the difficulties implementing them would have faced. Given the lack of any evidence of this sort Ms Lan’s evidence is hypothetical and unhelpfully lengthy and lacking in focus.

41.  It is not Tsinghua’s case that the Keepwell Deed and the EIPU were worthless window dressing and that a properly advised investor would have been told this. It is Tsinghua’s case that the Keepwell Deed and the EIPU were genuine methods for providing additional security to Bond holders, albeit that the Offering Circular made it clear that in some circumstances complying with them might prove difficult because Regulatory Approvals would be required. The Offering Circular in the “Important Notice” on page 1 states that each of the Issuer, the Guarantor and Tsinghua as made all reasonable inquiries and confirms, amongst other things, “(ii) the statements contained in this Offering Circular relating to the Group are in every material respect true and accurate and not misleading; (iii) the opinions and intentions expressed in this Offering Circular with regard to the Group are honestly held, have been reached after considering all relevant circumstances and are based on reasonable assumptions; (iv) there are no other facts in relation to the Issuer, the Guarantor, the Company, the Group, the Bonds, the Keepwell Deeds and the Deed of Equity Interest Purchase Undertaking and the Guarantee, the omission of which would, in the context of the issue and offering of the Bonds, make this Offering Circular, as a whole, misleading in any material respect; and (v) the Issuer, the Guarantor and the Company have made all reasonable enquiries to ascertain such facts and to verify the accuracy of all such information and statements. Each of the Issuer, the Guarantor and the Company accept responsibility accordingly.” Page 39 of the Offering Circular contains a section dealing with the Keepwell Deeds. It starts by telling prospective investors that “The Bonds have the benefit of the Company Keepwell Deeds and the Tsinghua Holdings Keepwell Deed.” The section contains an explanation of the matters that could restrict Tsinghua’s ability to perform its obligations under the Keepwell Deed. On page 40 it states “depending on the manner in which the Company or Tsinghua Holdings perform its respective obligations under each of the Keepwell Deeds in causing the Issuer or the Guarantor to obtain, before the due date of the relevant payment obligations, funds sufficient to meet its obligations under the Bonds or the Guarantee, such performance may be subject to obtaining prior consent, approvals, registration and/or filings from relevant PRC governmental authorities, including the NDRC, MOFCOM and SAFE.” A similar statement is made in respect of a grant to the Issuer of a standby facility. This envisages the possibility of Tsinghua performing its obligations under the Keepwell Deeds by transferring funds out of the Mainland. Although, prospective investors are warned that Tsinghua’s ability to do so may be affected by Mainland regulations clearly the Offering Circular gives the impression that obtaining the necessary Approvals is possible. The representations given by Tsinghua as to the accuracy of the contents of the Offering Circular require statements of this sort to be entirely accurate. Presumably the statements were made with the benefit of advice from lawyers and financial advisors familiar with transactions of this sort and the Mainland regulatory environment. In these circumstances it is perhaps not surprising that it is Tsinghua’s case that the Keepwell Deed was genuine and had value; to argue otherwise would suggest that the representations were false. However, the import of Ms Lan’s evidence is that regardless of Tsinghua’s financial circumstances and its reasons for deciding to fund the Issuer by a transfer of funds out of the Mainland, in practice Tsinghua would never have been able to obtain the necessary approvals. Ms Lan does not, in her very comprehensive and entirely negative assessment of the Mainland regulations and how they apply, identify any method by which at any time after the Bonds were issued Tsinghua could perform its obligations under the Keepwell Deed. This in itself calls into question the credibility and value of her evidence. It also seems to me inherently unlikely that the position was as problematic as Ms Lan suggests because there must be situations in which it would make sense for Mainland regulators to allow a Mainland company to transfer funds offshore to enable a subsidiary to repay bonds. The obvious example is a decision not to fund the repayment of maturing US$ bonds by requiring a subsidiary that has used the proceeds of the bonds to repay the intra group loan made to it by the issuer, because management take the view that (a) the funds are profitably deployed and (b) it is preferable to repay the bonds out of the group’s current RMB funds rather than issue new US$ bonds to repay the maturing bonds.

42.  Tsinghua also adduced evidence from Mr Ma Shaobo, who gave evidence on behalf of the Defendant in Peking Founder[7]. Amongst the issuers on which Mr Ma was asked to opine was the following “If the Defendant has submitted the application for the Keepwell Approval, will the Defendant be able to obtain such approval? In particular: (a) will the Defendant be able to obtain the Keepwell Approval prior to the Onshore Bond Default on 16 November 2020 and/or the appointment of the Working Group on 10 November 2020?” This question is followed by two further questions which are the same as this one except Mr Ma is asked to assume that an application for approval is sought after 10 November 2020 and then assume that the application is made after the completion of the reorganisation proceedings. Rather unhelpfully Mr Ma does not answer each question in turn. He gives one composite answer. Like Ms Lan he does not suggest any method by which funds could have been transferred out of the Mainland and the necessary approvals obtained. What he does is this: “I believe that there was no virtually no prospect of Tsinghua Unigroup obtaining the Relevant Approvals….”. If this is meant to be a comprehensive answer to the issue I have quoted and the answer is correct, it seems to me that the Offering Circular was materially misleading.

43.  Mr Ma’s evidence differed in one material respect to Mr Yang’s evidence, and what I had understood to be accepted in Peking Founder, namely, that Regulatory Approvals were not required for transfers between offshore subsidiaries of the Group. It was Mr Ma’s evidence in cross-examination that he thought it probably correct that before the end of 2017 no Regulatory Approvals were required to make offshore-to-offshore transfers, however, following publication of NDRC Order 11 in 2018 approvals were required. Consequently, it was his evidence that the difficulties in obtaining the approvals could not be circumvented by using, if there were any, offshore assets to perform Tsinghua’s obligations under the Keepwell Deed and the EIPU. It was Mr Yang’s evidence in cross-examination that offshore interest obligations were financed with offshore funds; and there were a lot of such transfers. Mr Yang said that Regulatory Approvals was not sought for these transfers. This was not a matter on which he was asked questions in re-examination.

44.  Ms Lan did not deal with this matter in her report. It was touched on by Fu Changyu, who is a partner in Zhong Lun Law Firm in Beijing and gave evidence on behalf of the Trustee, in [48]–[49] of his report, he suggests that offshore-to-offshore transfers needed approval by SAFE pursuant to SAFE’s Notice of Issues Relating to Foreign Exchange Management of Offshore Lending by Domestic Enterprises (Hui Fa [2009] No. 24, as amended 2015). Mr Fu does not suggest that he has experience of such transactions and or that approvals were required. His view is based on his reading of [8] and [9] of Regulation 24. These paragraphs do not expressly deal with offshore-to-offshore transfers. Mr Fu does not draw any distinction between a debt or asset owned by an offshore subsidiary and the effect, if any, that a transfer between offshore subsidiaries may have on the liabilities or assets of the onshore holding company. A transfer at subsidiary level may have no impact at all on the holding company’s own accounts or its consolidated financial statement. Importantly it would appear that in practice Tsinghua did not do what Mr Fu suggests it could have considered and Mr Ma, who I assume had read his report, did not suggest Mr Fu was incorrect. Mr Ma was the Director of the Investment Administration Division of SAFE when he left in 2010. This is yet another illustration of the difficulties in assessing Tsinghua’s case in the absence of any evidence of what Tsinghua did or did not do, contemplated doing or evidence about other cases, which demonstrate what had happened in comparable situations.

45.  Tsinghua’s evidence falls far short of demonstrating there was any impediment to using offshore assets and, in particular, that it did not do so because it assumed that Regulatory Approvals were required that they could not be obtained; on the contrary it is clear from Mr Yang’s evidence that this was not a consideration and Tsinghua was unaware that approvals for offshore-to-offshore transfers might be required. There is no suggestion that they were sought for the Guarantor’s Loan Agreement.

46.  Mr Ma rejected the suggestion that a regulator would have regard to considerations of the sort that I have described in [41]. It was his evidence that “This is not correct, because the authorities would not take a broad view to the overseas investment. It would only focus on a particular project and whether to approve it or not”. Ms Lam took Mr Ma to the NDRC’s Guide for Completing the Application Report for Overseas Investment Projects. This talks (on page 15) in terms of an applicant providing information about the “investment destination” and “the project”. This would suggest that the NDRC wanted to know the commercial rationale behind a proposed overseas investment project. Mr Ma remained of the view that “…. SAFE, when considering the approval, would only focus on the borrower and the lender and also the particular project, and other more complicated scenarios would not be taken into Consideration. Something like keepwell deed, these are something that SAFE and NDRC would not understand. They didn’t even know of the existence of this kind of contract”. Dealing with Mr Ma’s last point first, this would appear to be inaccurate. It was the evidence in Peking Founder that the NDRC had approved the Keepwell Deeds. There is no evidence about this matter in the present case. The more important matter is Mr Ma’s suggestion that SAFE would only focus on the position of the immediate borrower and the immediate lender. This is difficult to accept. Almost necessarily the issue which I am considering will arise when a Mainland business group decides to undertake a foreign business venture of some sort. These in my experience commonly involve more than one subsidiary. The present case is an example. The issuer raises funds in the overseas debt market and on-lends the proceeds to other subsidiaries, which will then use them to fund an investment that the subsidiary is undertaking. If the Mainland parent company or a Mainland intermediate subsidiary wish to lend further money to one of the subsidiaries involved explaining “the Project”, which the guidance notes require would necessarily mean explaining the broader business transaction; not just the terms of the loan. Part of the difficulty with assessing Tsinghua’s evidence is that, as I have previously observed, it is all hypothetical. Tsinghua has adduced no evidence in relation to the Bonds or any other project with which it has been involved to demonstrate how the regulatory system worked and neither have their experts. Like Ms Lan, Mr Ma does not suggest any circumstances in which Tsinghua might have been able to perform its obligations under the Keepwell Deeds. He said in cross-examination that “after I left SAFE, my scope of work in fact helped with the development of the keepwell deeds, and I participated in the execution of keepwell deeds, so I am very familiar with the attitude of the group of authorities towards keepwell deeds.” Mr Ma did not, however, give any examples of his dealing with the authorities in relation to keepwell deeds and his evidence in this regard is problematic particularly in relation to any keepwell deed executed after NDRC order 10 came into force, because it follows from his evidence that as from that date a company, which had given a keepwell deed would need approval for performance of it whether by transferring funds out of the Mainland or transfers between offshore subsidiaries and such approvals would never be obtained. Mr Ma does not, however, state this clearly. As I have already observed it is not Tsinghua’s case that the Keepwell Deed and EIPU were valueless from the outset or became valueless in 2018. The first reference to NDRC order 10 came in Mr Ma’s cross-examination.

47.  In my view it is clear that Tsinghua has failed to demonstrate that it was not possible for it to perform the Keepwell Deed and/or the EIPU during the period prior to the 10 November 2020 because it could not obtain the necessary Regulatory Approval. This in my view is the relevant period because in order to comply with the Keepwell Deed and the EIPU it would have been necessary for Tsinghua to have been considering its options at least a month in advance of the last date by which the Issuer and the Guarantor needed funds to pay the Bonds when they matured. Whatever the period might be it would have to take into account any need to obtain Regulatory Approvals. I think it is reasonable to assume that in practice rather longer than one month would need to be allowed.

Other Defences

48.  Tsinghua have advanced a number of other defences. Some of these are the same as those advanced in Peking Founder:

(1)  The Trustee’s claims have been discharged by reason of the submission of a proof of debt in reorganisation proceedings.

(2)  It was a condition precedent to Tsinghua being obliged to perform clause 4 that it receive a notice from the Issuer or the Guarantor that funds were required by them in order that clause 4.1 was complied with. This I rejected in [14].

(3)  By virtue of Article 18 of the EBL the Trustee has no cause of action after 16 September 2021, alternatively following completion of the reorganisation on 13 July 2022.

(4)  Clause 15 does not add anything to the Trustee’s principle claims.

(5)  Clause 8.1 is an agreement to agree and unenforceable, alternatively only arises after the commencement of the reorganisation by which time the necessary Approvals could not have been obtained and/or any breach caused no loss.

(6)  Clause 3.1 of the EIPU. The same defences as are advanced in respect of clause 4.1 of the Keepwell Deed.

(7)  The Loan was not a breach of the Keepwell Deed and did not in any event cause any loss.

(8)  Even if, as I find, Tsinghua was in breach of clause 4 and has not demonstrated that it could despite its best efforts have obtained the necessary approvals, it has not suffered any loss.

49.  The issues to which (3) to (7) above are directed do not in my view add anything to the Trustee’s principle claim that clause 4.1 of the Keepwell Deed has been breached, in which I have determined in the Trustee’s favour. It is only necessary to deal with (1) (discharge) and (8) (loss).

Has the Trustee’s claim been discharged?

50.  The Trustee’s claim in the reorganisation proceedings have not been determined they were given a “pending” status. It has no voting rights, no participation in any creditors’ meeting and no say on the substance of the restructuring plan. It has not been notified of any payment in the reorganisation due to it. Being given a “pending” status meant the Trustee had no involvement in the reorganisation process.

51.  Tsinghua’s case that by filing a proof of debt in the reorganisation process the Trustee’s claims were discharged in the sense that they could only be pursued in accordance with the EBL before the Beijing Court was rejected by me and the Court of Appeal in dismissing Tsinghua’s stay application[8]. Tsinghua wish to reargue this. As was the case in Peking Founder the point is taken against Tsinghua that the issue is res judicata. As in Peking Founder I will, however, address the issue, although only to reject Tsinghua’s submissions. I have addressed the issue in [43]–[44] of Peking Founder.

52.  The Trustee has not taken any steps before the Beijing Court. It was Ms Lan’s evidence that it could not do so until the proof was determined. However, I accept Professor Shi’s opinion that the Trustee cannot be prevented from attempting to advance a claim, which is being stymied by the Administrator’s failure to adjudicate it and that it could make an application to the Beijing Court. The fact is that the Trustee has not made an application to the Beijing Court and has effectively been excluded from any participation in the reorganisation. The evidence filed by Tsinghua in these proceedings advances no explanation for the Administrator’s failure to adjudicate the proof. Given the size and seriousness of the claim this invites suspicion about the motives of the Administrator and Tsinghua in dealing with this substantial claim from overseas creditors.

53.  As I have explained in my decisions in respect of the applications to stay both these proceedings and Peking Founder, I do not accept that there is an inflexible rule that submission of a proof of a debt, or something substantially the same, in a foreign insolvency process discharges the debt in the sense argued by Tsinghua, namely, that the claim for recovery of the debt is extinguished and replaced with a right to prove in the foreign insolvency process. Tsinghua’s argument ignores the distinction that I have sought to draw in the earlier decisions between taking steps outside a foreign insolvency proceeding with a view to advancing a claim made in foreign insolvency proceedings and taking steps outside the foreign insolvency process, which are inconsistent with notions of modified universalism; in practice attempting to recover more than the creditor would recover in the foreign insolvency process assuming a pari passu distribution. I agree with Allsop CJ in Akers[9] that there is no principle that by the minimum act of submission to a foreign insolvency proceeding exclusive jurisdiction is placed in the hands of the courts of that foreign jurisdiction. As is clear from Rubins[10] the filing of a proof of debt in a foreign insolvency proceeding is sufficient to demonstrate submission to the foreign process if that is in issue, but as a matter of the law of Hong Kong it is not a consequence of such submission that a domestic court that would otherwise have jurisdiction is necessarily deprived of it. It is the central tenet of modified universalism that normally in the transnational context there should be one court administering an insolvency process. This supports the conclusion that filing a proof of debt will be sufficient to justify the finding of submission to the foreign insolvency process where that is in issue, but it does not require it to be a rigid rule, which is applied without regard to the circumstances of a particular case. In my view, the additional authorities cited by Mr Maurellet do not support the alternative view; they do not explore the issue with which I am concerned. The material question is whether to allow a creditor to litigate a claim outside the foreign insolvency process is inconsistent with modified universalism. If it is inconsistent because, for example, it appears probable that the creditor will seek to rely on a decision of the domestic court to recover its debt outside the foreign insolvency process, and potentially to the prejudice of other creditors, it would be consistent with modified universalism for the domestic court to stay the proceedings before it and require the creditor to proceed in the foreign proceedings. If this is not the case then the domestic court may decide, as I (and the Court of Appeal) have done to date in these proceedings and Peking Founder, to allow the creditor to proceed with its action in Hong Kong.

54.  This approach does not mean that a creditor, whose claim is rejected by a foreign court has the option to have another go before a domestic court. If this matter had been fully argued before the Beijing Court with the Trustee’s participation, I anticipate that I would have readily granted a stay of these proceedings. The more nuanced argument advanced by Mr Maurellet that permitting this Action to proceed would suggest that if a claim is rejected by a liquidator or scheme administrator (much emphasis was placed in argument on the “Gibb’s point”, which I deal with in [43] of Peking Founder) a creditor has the option to seek to prove its claim before a court is to draw a bad analogy. A scheme is a highly sophisticated court supervised process for the adjustment of debt. A creditor will only submit a proof in a scheme if the scheme has first been sanctioned by the court. If the creditor considers that the scheme is unfair to it, it has the opportunity to attend court and object to its sanction. It could object on the grounds that the mechanism for resolving controversial proofs is unsuitable for determining its claim; and I am here assuming that it is a claim of considerable complexity. The present situation is entirely different. The Trustee has submitted a proof of debt to the Administrator, which the Administrator has not responded to.

55.  The fact that the Administrator did not determine the proof filed by the Trustee and no evidence has been filed to explain why, seems to me unhelpful to Tsinghua’s case. It suggests, as in my view is likely to be the case, that the novel and important issues, which this case gives rise were found very challenging by the Administrator and it was reluctant to determine them. As I have previously said in relation to the argument that the Beijing Court is perfectly well placed to decide the issues I have to determine, it seems to me plain that the Hong Kong Court, which was the Parties’ original court of choice, is better placed to deal with these issues. In my view that is a good reason to permit the Trustee to proceed with its claim in Hong Kong.

56.  I note that it has not been argued by Tsinghua that determining this Action in Hong Kong will prejudice the other creditors of Tsinghua or is in anyway other than that which I have just discussed, inconsistent with principles of modified universalism. What Tsinghua does argue is that by virtue of the reorganisation process completing the present position is different to that at the time of the stay application, because now it may be able to enforce any judgment in its favour (and unlike the Plaintiffs in Peking Founder it does not seek just a declaration). What Tsinghua seems to have in mind are fresh assets outside the Mainland as there is no suggestion that any judgment made by the Hong Kong Court would be enforceable in the Mainland. It does not seem to me that this is an argument that supports treating the filing of a proof in the reorganisation as a discharge of the claim. It was always open to the Trustee to proceed to seek a judgment in Hong Kong rather than filing a proof. The argument goes to a different issue, namely, should the Hong Kong Court have regard to modified universalism and tailor any judgment in order to restrict the Trustee’s ability to use it to avoid the Trustee achieving a better position than other creditors. This was not a matter that was fully ventilated before me. In its Closing Submissions Tsinghua state that it is still possible for the Trustee’s claim to be admitted in the reorganisation proceedings. This was consistent with Professor Shi’s evidence that pending claims are not extinguished by the reorganisation ending. It was Professor Shi’s evidence in answer to questions from Ms Lam that:

“Q. So to that extent, even upon the restructuring having been terminated, those pending claims are not extinguished. There’s still a possibility, and indeed it’s general practice, that those pending claims will be adjudicated, whether in the PRC or offshore, and then the necessary procedures can be effected such that the claims can then be recognised?

A. Yes, that’s correct, but the convention is that the claims should be confirmed by so-called the legally valid document.

Q. And the legally valid document is not confined to a document which is originating from the PRC judicial authorities; is that correct?

A. Yes. You are right, yes. But for a foreign judgment, for a judgment rendered by a foreign jurisdiction court, it shall be recognised and then can go to the administrator for repayment.

Q. When you say –

A. For example, through a recognition procedure.

Q. Which is the general procedure we just discussed in the civil procedural rules. Is that the case?

A. Yes.”

It appears from Professor Shi’s evidence that any judgment I give can be relied on by the Trustee in pressing the Administrator to adjudicate the pending claim. If it continues to fail to do so or rejects it, the Trustee can then commence proceedings before the Beijing Court and rely on my decision in support of its claim. This seems to me unobjectionable. In my view Tsinghua has not identified a reason for thinking that a judgment in the Trustee’s favour will allow it to obtain an advantage, which is incompatible with the principles of modified universalism.

Loss

57.  Tsinghua argues, of course correctly, that not only does the Trustee have to prove a breach of the Keepwell Deed, it also has to prove that the breach caused loss. Unlike the position in Peking Founder in which arguments were advanced on the basis that as the Plaintiffs were the Issuers and Guarantors regard had to be to what the balance sheet consequences would have been if they had been put in funds rather than the an assessment of the loss to the Bond holders, Tsinghua’s submissions were limited to the consequences of the Guarantor’s Loan Agreement referred to in [7]. In my view nothing turns on this. Its significance is that it demonstrates that during the relevant period the Tsinghua group had significant assets offshore available to pay creditors.

58.  It is not controversial that a party who sustains loss by virtue of a breach of contract is entitled to be placed in the same financial position he would have been in if the breach had not occurred. Generally, this is to be assessed at the earlier of the date the loss occurred or the date when damages are awarded[11]. Mr Maurellet argued that subsequent events can be taken into account, which impact on the loss caused by the breach. This is illustrated by the recent decision of the Privy Council in Stanford International Bank[12] and explained by Lord Leggatt by reference to by the House of Lord’s decision in Golden Strait Corp v Nippon Yusen Kubishika Kaisha[13]. Lord Leggatt says this in [44]–[45]:

“44. The outcome was that the owners rejected an offer which the charterers made on 7 February 2003 (after Morison J had delivered judgment) and the negotiations broke down (but that did not, as the arbitrator held, amount to a failure on the part of the owners to mitigate their loss). So the possible significance of the war clause was first raised by the owners, in the context of the proposed new charter, more than a year after the original repudiation, and at a time when the prospect of war in the Gulf was emerging as a real threat (hostilities began on 20 March 2003).

45. The arbitrator made a finding of fact (para 59) that at 17 December 2001 a reasonably well-informed person would have considered war or large-scale hostilities between the United States (and/or the United Kingdom) and Iraq as ‘merely a possibility’. I do not read that as meaning ‘less than a 50% prospect’. The whole thrust of the arbitrator’s findings, after hearing a good deal of evidence, is that it was at the date of repudiation the sort of outside possibility which would, in the commercial world, be severely discounted (or even entirely disregarded). That is strikingly confirmed, I think, by the fact that the war clause does not seem to have received even a passing mention in the first part of the arbitration and the consequent appeal to the Commercial Court. The issue in those proceedings was of course different; but if the charterers had seen the war clause as even a potentially live issue, their lawyers could have been expected to put down a marker as to the need to qualify the arbitrator’s unequivocal declaration, upheld in the Commercial Court, that the earliest date for redelivery would have been 6 December 2005.”

59.  The relevant question in the context of the Keepwell Deed (and the position is no different in respect of the EIPU) is what was lost by the failure to comply with the Keepwell Deed, the failure to comply being the failure to put the Issuer and/or the Guarantee in funds in order that they could pay the principal and interest due when they became due. There is no dispute that the Bonds matured and became payable on 10 December 2020. This is the date at which loss is to be assessed. The loss was the amount that should have been paid but was not.

60.  Tsinghua argues in respect of the claim arising from the Guarantor’s non-performance, that if the Court finds that the Guarantor’s Loan Agreement gave rise to a breach of the Keepwell Deed it did not cause any loss because the Guarantor is insolvent, and the amount of the loan has been admitted in full. As I have already found that the claim in respect of the Guarantor’s Loan Agreement adds nothing material to the Trustee’s claim this issue falls away, but if it had not in my view it would not have assisted Tsinghua because, consistent with its general approach, it has not adduced any evidence of its financial position either in November 2020 or after it went into reorganisation. It is not, therefore, possible to assess what loss was caused by the breach of the Keepwell Deed on any basis other than that if either the Issuer or Guarantor had been put in funds they would have been able to pay the amounts payable to the Trustee in full and the loss caused is the amount that should have been paid but was not.

61.  There is one final matter that I should address. In its Opening Tsinghua for the first time raised a technical issue, namely, that as the Trustee is suing in the capacity as a trustee it was required by RHC O6 r3 to plead that fact. Ms Lam accepted that this is correct, but invited the court to direct amendments to the Writ and Indorsement of Claim and the Amended Statement of Claim to correct this oversight. This I ordered during the Defendant’s Closing address, the application not being seriously contested by Mr Maurellet.

Disposition

62.  I will give judgment in the Trustee’s favour in the sum of US$483,843,533, which is the amount claimed in [48] of the Amended Statement of Claim and [1] of the Prayer, which consists of:

(1)  The principal amount of US$449,200 together with accrued contractual interest at the rate of 6% thereon pursuant to Condition 5 of the 2020 Bonds Conditions up to 20 September 2021 in the amount of US$34,513,533.33; and

(2)  US$130,000 being the outstanding Plaintiff’s costs pursuant to clause 9 of the Trust Deed, which the Plaintiff has incurred up until 20 September 2021.

I was not addressed on interest after 20 September 2021. I order interest at the judgment rate from the date of judgment.

63.  I make a costs order nisi that Tsinghua pay the Trustee’s costs, such costs to be taxed if not agreed with a certificate for two counsel.