EAST CHAMPION LTD v. INTERNATIONAL BANK OF ASIA LTD

HCA2831/2003 & HCA 2832/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2831 OF 2003

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J U D G M E N T

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1. I have before me two applications, one is by the defendant, International Bank of Asia Limited ("the Bank") against the plaintiff, China United Holdings Limited for the discharge of an ex parte injunction. I have also before me an application by the plaintiff for inter partes continuation of the ex parte injunction. The injunction that was granted ex parte and sought to be continued by inter partes is to restrain the Bank from pursuing the statutory demand and pursue it to a winding-up and to set aside this statutory demand.

2. The narrow compass of dispute now before me is really as to the viability of the claim made by the plaintiff, China United Holdings Limited, together with three other plaintiffs, amongst them is East Champion Limited, in HCA No. 1589 of 2003 which was started in May 2003. The transaction which gave rise to the present dispute was a loan made by the Bank to the borrower, East Champion Limited, guaranteed by China United Holdings Limited, for the purchase of a property and the loan was given in the sum of $235 million. The purchase was made for $470 million. There was at the time a valuation of Vigers Hong Kong Limited in the sum of $470 million. The case of the plaintiff now is that there was an unlawful transaction with a deliberately inflated valuation in order to profit the various parties involved (who are various other defendants in HCA No. 1859 of 2003) and that the Bank was a dishonest participant in this and should have known about the gross over-valuation.

3. The narrow dispute now before me is the contention by the Bank that it is legitimate for the Bank to by-pass Order 14 in the counterclaim because the Bank, upon being sued in HCA No. 1589 of 2003 by the plaintiffs against seven defendants including the Bank, filed its Defence in June but did not put in any counterclaim. The counterclaim that should have been made, and could have been made, is the present claim of the Bank against the plaintiff in the sum of some $3 million being the outstanding sum under the loan which is guaranteed by the plaintiff. That $3 million claimed by the Bank against the plaintiff could have been and should have been the subject of the counterclaim in that HCA No. 1589, but it was not. Nor was any application made to strike out the claim of the plaintiffs against the Bank for being an abuse of the process or for disclosing no cause of action.

4. The Bank was content to let that action run and did not take out any counterclaim. But instead the Bank in July served a statutory demand and sought to proceed by way of a threat of a winding-up, which thereby led the plaintiff to issue the present proceedings, seeking injunction against the Bank, to restrain the Bank from proceeding with the threat of a winding-up petition.

5. The narrower issue before me is whether the plaintiff's claim against the Bank is really of no substance, cannot possibly succeed and therefore is not bona fide and, in those circumstances, the Bank should be allowed to proceed with its winding-up process. It is admitted that there is a cross-claim and if the cross-claim is genuine and bona fide, that would give rise to set-off, and therefore would provide the defence to the Bank's claim for the $3 million. So, the only issue is whether there is any substance or no arguable substance in the plaintiff's claim against the Bank.

6. It is said by Mr Jamison for the defendant that there is really no evidence to support the plaintiff's claim. I think the way I would approach it is this. On a creditor wishing to pursue the winding-up route as oppose to the normal High Court proceedings route, having regard to the great pressure that would be put on an alleged debtor by the winding-up route, when there is a dispute as to a debt, then unless it is obvious that there is no substance in the dispute, I think it salutary for a creditor to follow the normal route of going for a judgment. Here we have a situation where the alleged debtor, that is, the plaintiff here, had gone not only to the trouble but to a considerable expense of suing not just the Bank but six other defendants (altogether seven, including the Bank) for substantial sums to recover on a transaction which, the plaintiff said, obviously had caused it great damage. Then prima facie there is, it seems to me, in the absence of a strike out against such claim, a genuine dispute especially when pleadings have been filed and, according to Mr Jamison, it is intended that this would go further to discovery and with witness statements. It does not mean that the Bank would lose at the end of the day, nor does it mean that the plaintiffs will win at the end of the day, but it means that there is a genuine dispute. When there is a genuine dispute, then, it seems to me, it would be quite wrong for an alleged creditor to resort to a winding-up.

7. I think the cases that have been referred to, they are not unfamiliar to this Court and basically they all say the same thing. The Court is to prevent abuse and the fear of abuse is by an alleged creditor to use the machinery of the statutory notice and the threat of winding-up to put unnecessary and improper pressure on an alleged debtor. The material that is put before the Court certainly shows circumstances that it is perfectly arguable that the Bank is in fact facing a genuine, substantial claim. I do not think the case of the plaintiff is flimsy or without substance. In these circumstances, it seems to me that it is quite wrong for the steps taken by the Bank to be allowed to continue, namely to pursue the winding-up route.

8. I am therefore of the view that the injunction granted by Kwan J was quite right, quite proper, and I will continue the injunction order. Although there is an application to set aside based on two grounds : one is no substance and the other is material non-disclosure, having read the skeletons, I do not think there is any substance in the non-disclosure point. The application of the Bank to set aside the ex parte order is therefore dismissed.

9. The costs order should follow the event. I am proposing to make a gross sum assessment and I will hear the parties on this.