KEYNE LTD v. JOVIAL PARADISE LTD

HCMP 1042/2024 & HCMP 1565/2024
(Heard together)

[2025] HKCFI 1684

HCMP 1042/2024

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1042 OF 2024

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HCMP 1565/2024

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1565 OF 2024

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(Heard Together)

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JUDGMENT

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1.  There are two Summonses before the Court. They were filed on 21 June 2024 and 21 August 2024 respectively in HCMP 1042/2024 (“Action I”) and HCMP 1565/2024 (“Action II”) by the Plaintiff (“Company”) seeking interlocutory injunctions to restrain the Defendant (“Jovial”) from presenting any winding up petition against it based on the statutory demand served on it on 22 May 2024 (“May SD”) (Action I) and 24 July 2024 (“July SD”) (Action II).

2.  The SDs relate to the same debt, namely, a HK$25m loan (“Loan”) which had been assigned to Jovial as security for loan facility of US$88m under a Facility Agreement dated 22 June 2018 (as amended on 28 September 2018) (“FA”).  The May SD concerns the entirety of the Loan.  The July SD relates to a smaller claim of HK$8.23m as an alternative.   

Issues

3.  It is Jovial’s primary case that the full amount of the Loan is outstanding.  Alternatively, even if the Court accepts the Company’s case that it had made partial repayment of HK$16.77m under the Loan (which Jovial denies), there remains a sum of HK$8.23m (as per the July SD) which is indisputably owed.

4.  The Company has adduced no evidence and advanced no submission on any substantive defence.  It appears from the viva voce submissions of Ms Lin, who appeared with Mr Yu for the Company, that the issues in these applications are as follows :

(1A)  The Master Assignment Agreement dated 25 June 2018 (“MA”) under which the Loan was assigned to Jovial was one of the security documents executed under the FA.  Jovial is relying on the same event of default (as it is relying in these proceedings) to seek to enforce the FA in HCA 1937/2023 (“Related Action”). 

(1B)   The Company contends that by reason of the dispute(s) over the FA in the Related Action and the MA being part of the FA, the determination of its liability under the MA should await the resolution of the Related Action. 

(2)  The Company’s alleged repayment of HK$16.77m.

(3)  A charge over 173,121,000 shares of the Company (“Shares”), which belong to Mr Bao Dongqiang (“Bao”).

(4)  An undertaking of financial support to the Company made by Jiangsu Jin Da Di Real Estate Development Co Ltd (“JJDD”), which is related to the major shareholder of the Company, Mr Zhu Boheng (“ZBH”).

Background

5.  Pursuant to the FA, Jovial had advanced in total US$78.8m under a term loan facility of US$88m to Ever Harmony Enterprises Ltd (“Ever Harmony”) and Keyne Holdings Ltd (“Holdings”) as borrowers, with Peter Zhu (“Zhu”), ZBH, and Qian Ling Ling (“Qian”) as guarantors.  For convenience, the borrowers and guarantors are hereafter referred to collectively as the “Counterparties”.

6.  One of the condition precedent documents executed under the FA was the MA.  In simple terms, the Counterparties, each as an assignor, assigned all the “related party loans”, which were set out in Schedule 4 to the MA, to Jovial.  This included the Loan which was owed by the Company to Holdings.

7.  On 30 November 2019, Ever Harmony and Holdings defaulted in payment of interest under the FA.  This constituted an event of default, which triggered an entitlement on Jovial’s part to enforce all the related party loans assigned to it under the MA, including the Loan.

8.  On 29 November 2023, Jovial commenced the Related Action to recover the principal and interest due under the FA from Ever Harmony and Holdings as borrowers and Zhu, ZBH and Qian as guarantors.  The amount claimed was US$192m.

9.  On 3 July 2024, Jovial obtained a Default Judgment in the Related Action against the Counterparties by reason of their failure to comply with an Unless Order dated 4 March 2024 to file of their Defence by 4 pm on 2 April 2024.

10.  On 28 March 2024, the Counterparties applied by Summons to challenge Hong Kong Court’s jurisdiction in the Related Action, alternatively to seek a stay on forum non conveniens grounds.  The Summons, together with an application by the Counterparties dated 12 July 2024 to set aside the Default Judgment, were heard by ST Poon J who dismissed both applications as per the Decision dated 4 December 2024 (“Decision”).

11.  It is clear from the Decision that the Court found no merit in: (a) the jurisdictional challenge because the FA, which was governed by Hong Kong law, contained a Jurisdiction Clause in favour of the exclusive jurisdiction of the Hong Kong Court; and (b) the set aside application because the Counterparties did not put forward any substantive defence to Jovial’s claims.

12.  There is on foot an appeal against the refusal to set aside the Default Judgment (CACV 3/2025).

13.  Meanwhile, on 22 May 2024, Jovial served the May SD on the Company demanding payment of the sum of HK$25m.  On 19 June 2024, the Company commenced Action I and on 21 June 2024 filed an injunction application to restrain Jovial from presenting a winding up petition based on the May SD.  The Company contended that on 6 occasions between 17 September 2020 and 10 February 2021 it had made partial repayments of the Loan to Jovial totalling US$2.15m (equivalent to HK$16.77m).

14.  Jovial does not dispute that these payments were received.  Its case is that these were payments made by the Company on behalf of Ever Harmony and Holdings to reduce the outstanding indebtedness owed by them under the FA, and not as partial repayments of the Loan. 

15.  Further, Jovial says that even proceeding on the basis that partial repayments had been made, the Company still owes it HK$8.23m.  The July SD was thus issued on 24 July 2024 to give rise to an alternative basis to wind up the Company.

16.  On the same day, Jovial proposed to the Company to amend Action I and the Injunction Summons issued thereunder to replace all references to the May SD with the July SD to save time and costs, as well as indicated that it would be prepared to give an undertaking not to present any winding up petition based on the July SD pending the determination of the (amended) Summons.

17.  After giving a holding reply on 25 July 2024, the Company commenced Action II on 21 August 2024 and made an ex parte (on notice) injunction application to restrain Jovial from presenting a winding up petition based on the July SD.

18.  Pursuant to the directions of the Companies Judge dated 22 August 2024, both of the Injunctions Summonses are to be heard together, with Jovial’s undertaking to the Court not to present a winding up petition against the Company pending determination of the Summonses.

19.  The Company is listed on the HKSE.  The trading of its shares has been suspended by reason of delay in the publication of its financial results. 

Applicable principles

20.  The following principles are not in disputed :

(1)  In order to obtain a quia timet injunction to prevent the presentation of a winding up petition, the company has to show that the petition against it would be an abuse of process.  Great circumspection must be exercised for the grant of such injunction, for the right to petition for winding up in appropriate circumstances is a right conferred by statute, and a would-be petitioner should not be restrained from exercising it except on clear and persuasive grounds: Re Sinom (Hong Kong) Ltd [2009] 5 HKLRD 487 at [9]-[10].

(2)  To show that the presentation of a winding up petition would be an abuse of process, it is not sufficient for the company to demonstrate that it has a bona fide defence on substantial grounds against the petition.  It has to demonstrate that the creditor knows or should know that there is a genuine defence to the claim at the time when the company’s injunction application is issued: Alco Holdings Ltd v World Crown Investments Ltd [2023] 1 HKLRD 335 at [4].

Analysis

21.  It should first be mentioned that the Company had included in the Hearing Bundles an Affidavit of Lau Kim Pang Rebecca filed on 3 April 2025 in CACV 3/2025.  Jovial takes issue with the introduction of new evidence, which was filed in another action, at the eleventh hour without the leave of the Court.  Ms Lin informed the Court that the new material is only background material.  I see no warrant for the late introduction of additional background material the relevance of which is not readily apparent.  Such material is therefore excluded for the purposes of these applications.

22.  On Issues (1A) and (1B), first and foremost, there is not one iota of evidence to suggest that Ever Harmony and Holdings were not in default with interest payment under the FA.  Plainly, that was an “Event of Default” as defined under the FA.  The terms defined under the FA were incorporated into the MA by reason of Clause 1.2 thereof. 

23.  Second, I agree with Mr Chang SC, who appeared with Ms Au for Jovial, that Jovial (as creditor) has the right to choose between suing the primary debtors or the guarantors or enforcing the securities in its hand.  These remedies can be exercised at any time or times simultaneously or contemporaneously or successively or not at all: see China and South Sea Bank Ltd v Tan Soon Gin [1990] 1 AC 536 at 545C-D.

24.  Third, the Company has shown no substantive defence to Jovial’s claims.  The same is true for the Counterparties in the Related Action.

25.  In the premises, I am unable to see any substance in these issues.

26.  In respect of Issue (2), taken at the highest, it constitutes no defence to the July SD. 

27.  There are factual disputes between the parties on whether the 6 payments totalling US$2.15m were or were not partial repayments of the Loan.  It is not the function of these applications to determine such disputes.  However, what is clear is that it is at least reasonably arguable[1] that the objective circumstances surrounding the payments suggest that they were not repayments of the Loan.  Instead, they were payments made by the Company on behalf of Ever Harmony and Holdings to reduce the outstanding indebtedness under the FA and/or to delay enforcement action by Jovial under the same. 

28.  The Company has to show that a winding up petition against it by Jovial based on the May SD would be an abuse of process.  In light of the fact that Jovial has a reasonably arguable case that the 6 payments were not repayments of the Loan, I am far being persuaded that Jovial knows or should know that the Company has a genuine defence based on the alleged partial payments.  In the premises, I am unable to agree that a winding up petition based on the May SD would be an abuse of process.

29.  As regards Issue (3), I agree with Mr Chang that the evidence of Bao by way of his Affirmation filed on 21 October 2024, paras 11 to 14, is in agreement with Jovial’s case, namely, that Bao was required to deliver the certificate in respect of the Shares to Jovial pursuant to a Share Security Agreement signed between him and Jovial back in 26 October 2018 as part of the security package for the FA.  Bao was unable to do so until 2023 because he had misplaced the original share certificate and had to apply for a replacement.  Bao also explained that the exercise was delayed due to the COVID pandemic.

30.  What is important, and has not been explained by the Company, is how the security represented by the Shares in the hands of Jovial can constitute repayment of the Loan as alleged by the Company.  As explained above, Jovial has the option but not the obligation to realise the security in repayment (or partial repayment) of the Loan.

31.  In the premises, I can see nothing in this Issue.

32.  Finally, I am unable to see how the undertaking of financial support of not less than RMB 9m by JJDD (Issue (4)) is of assistance to the Company.  To begin with, one would have thought that the Company badly needs financial support to pay off at least the HK$8.23m owed under the Loan.  It remains outstanding and the Company is liable to enforcement action by Jovial.  Hence, JJDD’s undertaking should be viewed with healthy scepticism.

33.  Further, I agree with Mr Chang that JJDD’s undertaking is at best further security offered by a third party.  There is no obligation on Jovial’s part to agree to accept the security and in any way forego its right of recourse against the Company.

Disposition

34.  For these reasons, both Summonses are dismissed.  The parties had agreed that the Actions should also be dismissed in the event of dismissal of the Summonses.  Action I and Action II are accordingly dismissed.  As for costs, there is no issue that costs should follow the event.  I order that the costs of both Actions, including the costs of both Summonses, be paid by the Company to Jovial with a certificate for 2 counsel.

35.  It must be mentioned that the Company’s failure to positively respond to Jovial’s offer to substitute the May SD with the July SD (see paras 16 to 18 above) had no doubt resulted in increased costs and unnecessary waste of the Court’s resources.  Such behaviour must be disapproved by the Court, and if disapproval does not result in sensible litigation conduct costs sanction, including wasted costs, may follow. 

36.  Lastly, I am grateful to counsel for their assistance.