RE HSIN CHONG CONSTRUCTION CO LTD

HCCW 239/2018

[2021] HKCFI 3451

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING‑UP PROCEEDINGS NO 239 OF 2018

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D E C I S I O N

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Introduction

1.  [1]On 18 January 2019, Osman Mohammed Arab and Lai Wing Lung were appointed as provisional liquidators (“PLs”) over the Company.  The Company is a construction contractor and the main contractor for the development of part of the West Kowloon Cultural District, namely, M+ Museum, which opened this month.  On 2 November 2020 the Company was wound up by the court.  On 17 June 2021 the PLs convened the first meeting of creditors.  West Kowloon Cultural District Authority (“WKCD”) had submitted a proof for the purposes of voting in the sum of HK$1,860,447,061.33 (“claim”).  The PLs admitted the proof for HK$1.  The majority of creditors in terms of value and number voted for the PLs to be appointed as Liquidators and for the formation of a committee of inspection (“COI”), whose members did not include WKCD.  WKCD voted against the appointment of the PLs as Liquidators and also wished to be appointed to the COI.  If WKCD’s proof had been admitted for the value of the claim this would have altered the outcome of the meeting.  WKCD’s preferred nominees would have been appointed as Liquidators and it would have been appointed to the COI.  WKCD are unhappy with the outcome of the meeting and have issued a summons seeking the following orders:

(1) A declaration that the Applicant was entitled to vote at the first meeting of creditors of the Company held on 17 June 2021 (the “Meeting”) and is entitled to do so at all future creditors’ meeting of the Company in respect of the full amount of its proof of debt in the sum of HK$1,860,447,061.33.

(2) An order that the resolution passed at the Meeting to appoint Osman Mohammed Arab and Lai Wing Lun, the JPLs, as joint and several provisional liquidators of the Company be set aside.

(3) An order that Mat Ng and Nigel Trayers be appointed as joint and several provisional liquidators of the Company.

(4) An order that the Applicant be appointed to the Committee of Inspection of the Company.

(5) In the alternative to [3] and [4] above, an order that a creditors’ meeting of the Company be reconvened on such time and date as the Court consider appropriate.

The Issue

2.  The determination of the application turns on whether or not WKCD’s claims are for a liquidated amount.  Rule 125 of the Companies (Winding-up) Rules, Cap 32H, provides:

“A creditor shall not vote in respect of any unliquidated or contingent debt, or any debt the value of which is not ascertained, nor shall a creditor vote in respect of any debt on or secured by a current bill of exchange or promissory note held by him unless he is willing to treat the liability to him thereon of every person who is liable thereon antecedently to the company, and against whom a bankruptcy order has not been made, as a security in his hands, and to estimate the value thereof, and for the purposes of voting, but not for the purposes of dividend, to deduct it from his proof.”

3.  In particular, what requires consideration is whether or not WKCD’s claim, or any part of it, constitutes a debt for an ascertained amount; for convenience I will refer to this as a “debt”.  If it does it follows that WKCD should have been able to vote the debt at the meeting of creditors.  If the claim although meritorious is for an uncertain amount, i.e. properly characterised as unliquidated or unascertained, the PLs were correct in only admitting it, as is the current practice, for the nominal amount of HK$1.

Insolvency set-off and the operation of Rule 125

4.  The application gives rise to an issue of some importance and interest, namely, whether if the Company has an unascertained cross-claim the consequence is that, regardless of whether or not WKCD’s claim is a debt, WKCD’s claim has to be treated as unliquidated, because the amount of the set-off is uncertain and necessarily the balance that is payable by the Company to WKCD is uncertain.  The issue arises as a consequence of section 35 of the Bankruptcy Ordinance, Cap 6, which by virtue of section 264 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32, applies to corporate insolvency.  Section 35 is in the following terms:

“Where there have been mutual credits, mutual debts or other mutual dealings between a bankrupt against whom a bankruptcy order is made under this Ordinance and any other person proving or claiming to prove a debt under the bankruptcy order, an account shall be taken of what is due from the one party to the other in respect of such mutual dealings and the sum due from the one party shall be set off against any sum due from the other party and the balance of the account, and no more, shall be claimed or paid on either side respectively; but a person shall not be entitled under this section to claim the benefit of any set-off against the property of a bankrupt in any case where he had, at the time of giving credit to the bankrupt, notice that the petition had been presented.”

5.  What is commonly referred to as insolvency set-off results in the creditor and debtor setting of the amounts that each owes the other at the date of liquidation and only the net amount being payable by whichever is the net debtor to the creditor[2]. Insolvency set-off is substantive not procedural[3]. The effect is that it establishes a new net balance, which replaces the earlier claim and cross-claim.  The cross-claim ceases to exist as a separate chose in action[4].

6.  Consistent with these principles in determining for how much a debt should be admitted for voting purposes a chairman must take into account any cross-claim which the Company has.  This is because Rule 128 requires a chairman to admit or reject a proof for voting purposes and by virtue of the principles explained in the previous paragraph this necessarily involves taking into account any cross-claim.[5]

7.  There is one authority in Hong Kong, which suggests that in applying Rules 125 and 128 the Chairman of the meeting must ignore insolvency set-off, namely, GMI Technology Inc v East China Digital Technology Limited[6], in which DHCJ To says this in [12]–[13]:

“12. Rule 128 also provides that the power of the chairman of a creditors’ meeting to admit or reject a proof of debt for the purpose of voting shall be subject to appeal to the court…

13.     A cross-claim from a company under liquidation against the creditor cannot be used to diminish the creditor’s claim when assessing for voting purpose…”

in reaching this decision, DHCJ To relied on two English decisions:  Emery v UCB Corporate Services Ltd[7] and Re Adlon Limited v Eileen Sale (As Liquidation of Kingstons Investments Ltd)[8].  In my view DHCJ To was with respect wrong.  As I explain in the following paragraphs Emery provides no support for this conclusion and the parts of Kingstons relied on were per incuriam and in my view incorrect.

8.  Emery did not involve bankruptcy proceedings and hence did not involve any insolvency set-off.  In Emery the individual debtors were indebted to a bank for a liquidated sum.  The bank appointed a receiver who then sold the debtors’ business.  The bank, after giving credit for the proceeds of sale obtained by the receiver, calculated that the debtors still owed it over £269,000.  The debtors disputed the validity of the receiver’s appointment and commenced an action against the bank claiming damages for losses which they said they had suffered on account of the bank’s unlawful conduct.  The debtors then proposed an individual voluntary arrangement (“IVA”) to restructure their debts.  The issue before the court was whether the bank was entitled to vote at the IVA creditors’ meeting.  The court held that the bank was entitled to vote.  For present purposes, the relevant passage is as follows[9]:

“Suppose that a customer has an account at a bank and it is overdrawn to the extent of X pounds. Suppose also that the customer has commenced an action against the bank claiming damages, for example, for negligent advice (possibly a more cogent example than the example of an action for libel which was discussed in the course of argument). If that is how matters stand, I assert that there is no doubt that the bank is a creditor of the customer, and the amount of the debt for which it is a creditor is X pounds. The fact that the customer may at some future date win its action against the bank and recover damages does not change the position that the bank is today his creditor for X pounds…

Mr and Mrs Emery say that the bank’s debt is within r 5.17(3) because it is unliquidated or of unascertained value.  Again I disagree.  The debt owed by them to the bank is liquidated and ascertained. Evidence which in itself was uncontradicted was adduced before Judge Chalkley. The evidence produced a statement of Mr and Mrs Emery’s loan account with the bank, and at the date at which the account was drawn up it showed a negative balance of £269,421.94.  That was a liquidated debt, and an ascertained debt.  There is something which is unliquidated and unascertained in this case, but it is not the debt which Mr and Mrs Emery owe to the bank, it is the cross-claim which they have for damages against the bank.  That may prove to be an excellent cross-claim when it comes to trial, but that possibility does not change the fact that the bank has a present debt owed to it by them, and that the present debt, even if only payable in the future, is liquidated and is of ascertained value.”

9.  As Emery concerned only an IVA which does not include a mandatory insolvency set-off regime, unsurprisingly the court did not mention any set-off between the bank’s claim and the debtors’ counterclaim for damages.  For present purposes, therefore, Emery is of no assistance.

10.  Kingstons concerned the calculation of a creditor’s vote at the creditors’ meeting to consider the appointment of liquidators in a creditors’ voluntary liquidation.  The creditor’s proof of debt in the sum of £1,214,237.51 consisted of three elements: (a) a judgment debt (“Judgment Sum”) (£361,575.65), (b) a claim for delay, damage, loss and expense (“DDLE Claim”) (£809,153.44), and (c) half of the retention sum under a building contract (“Moiety Claim”) (£43,508.38).

11.  The chairman allowed the creditor to vote for the sum of £858,240.52 comprised of the following three elements: (a) the Judgment Sum in full, (b) £496,663.87 in respect of the DDLE Claim, after setting off the company’s counterclaim in the sum of £312,489.60 in respect of the creditor’s defective building work, and (c) £1 in respect of the Moiety Claim on the basis that the Moiety Claim was an unliquidated claim.  The creditor took no issue with the set-off in respect of the DDLE Claim.  The creditor complained only about the chairman’s treatment of the Moiety Claim.  The court held that the chairman “misdirected herself in her treatment of the [Moiety Claim]”. The ratio of the court’s decision was this[10]:

“As it [Moiety Claim] was a liquidated claim, she had three options: to admit it, to reject it, or, if she was in doubt whether it should be admitted or rejected, to mark it as objected to and allow [the creditor] to vote in respect of it. In purporting to exercise a ‘discretion’ and placing a minimum value of £1 upon it, she misinterpreted the rules.”

12.  In the course of the court’s reasoning, the court made the following observation[11]:

“For the purposes of determining this appeal, … I shall proceed on the basis that the chairman of a creditors’ meeting of a company in CVL would not be precluded by operation of the ‘logically prior point’ identified in Emery v UCB from rejecting a liquidated claim for voting purposes in the light of a set-off or cross-claim which clearly equalled or exceeded it.”

The above observation was obiter because the court found that the evidence did not support any set-off against the Moiety Claim[12]:

“The respondents’ contention that the [M]oiety [C]laim was, as at the date of the meeting of 5 March 2014, met or extinguished by way of a set-off or cross-claim is not made out on the evidence before me. Even if one were to assume breach and causation in their favour, the evidence adduced by the Respondents on the quantum of any such set-off or cross-claim is woefully inadequate for its task …

The full amount of the alleged cross-claim indicated by Ms Virk’s statement of 12 November 2013 (namely, £312,489.60, inclusive of VAT) has already been applied by way of set-off against the DDLE Claim and there is no appeal from Ms Sale’s decision in respect of the balance of the DDLE Claim.  It is not open to the Respondents, therefore, to use the figure of £312,489.60 again, by way of set-off against the moiety claim.”

13.  The Registrar acknowledged that she had not had the benefit of full argument in respect of the assumption referred to in the first of the quotes in my previous paragraph[13]:

“In Stein v Blake, Lord Hoffmann himself acknowledged, however, that for certain purposes, claim and cross-claim must continue to be considered separately, giving ([1995] 2 BCLC 94 at 101, [1996] AC 243 at 255) the example of a liquidator issuing a claim for a sum due under a contract and the defendant counterclaiming for damages under that contract…

It seems to me that there are strong arguments in favour of treating the valuation of a debt for voting purposes as another such example of a situation in which claim and cross-claim should continue to be considered separately, notwithstanding r 4.90. In the context of the one day allocated for the determination of this appeal, however, it was not possible for Counsel to address me fully on this issue.  Emery v UCB was not addressed in the skeleton arguments of either Mr Shannon or Mr Weaver, Swissport was not cited at all, and Stein v Blake was only referred to by email after the hearing.”

14.  I agree with Mr Ho that the Registrar’s assumption was per incuriam for the following reasons.  First, the assumption ignored the necessary part of the proof admission process under rule 4.70 of the Insolvency Rules 1986 which provided:

“At any creditors’ meeting the chairman has power to admit or reject a creditor’s proof for the purpose of his entitlement to vote; and the power is exercisable with respect to the whole or any part of the proof.”

Admitting a creditor’s proof necessarily entails applying mandatory insolvency set-off.  As Lord Hoffmann explains in Stein v Blake[14]:

“[T]he taking of the account really means no more than the calculation of the balance due in accordance with the principles of insolvency law. An obvious occasion for making this calculation will be the lodging of a proof by a creditor against whom the bankrupt had a cross-claim …”.

15.  It is well established that only the net balance after insolvency set-off is provable, as demonstrated by brief reference to two authorities to which I have already referred. In Michael J Lonsdale (Electrical) Ltd v Bresco Electrical Services Ltd[15] Lord Briggs says this in [29]:

“… Within the liquidation, a net balance owing to the creditor must be pursued by proof of debt in the ordinary way…”

Similarly, in Stein v Blake[16], Lord Hoffmann explains

“Bankruptcy set-off, on the other hand, affects the substantive rights of the parties by enabling the bankrupt’s creditor to use his indebtedness to the bankrupt as a form of security. Instead of having to prove with other creditors for the whole of his debt in the bankruptcy, he can set off pound for pound what he owes the bankrupt and prove for or pay only the balance. So in Forster v Wilson (1843) 12 M. & W. 191, 204, Parke B. said that the purpose of insolvency set-off was ‘to do substantial justice between the parties.’ Although it is often said that the justice of the rule is obvious, it is worth noticing that it is by no means universal. (Wood on English and International Set-Off (1989), pp. 1165-1169, paras. 24-49 to 24-56.) It has however been part of the English law of bankruptcy since at least the time of the first Queen Elizabeth: see p. 282, para. 7-26.

… If, for example, the cross-claims produced a nil balance, one would hardly expect either the creditor to prove or the trustee to sue. But there could be no doubt that if the question subsequently needed to be decided, the two claims would be treated as having extinguished each other. The court said:

‘Even if one were to accept the dissenting view of Lord Cross of Chelsea in the National Westminster Case [1972] A.C. 785, 813-818 to the effect that the otherwise automatic operation of a provision such as [section 323] may be excluded by an antecedent agreement, it would be wrong to attribute to the legislature the illogical intent that a directive which was intended to be otherwise automatic in its operation and to apply in circumstances where set-off produced a nil balance should not operate at all unless and until either the bankrupt’s creditor saw fit to exercise the option of lodging a formal proof of debt or the trustee in bankruptcy instituted proceedings for recovery of a debt due to the bankrupt’”.

16.  Secondly, the assumption ignored the statutory regime concerning the admission of proofs of debt for voting purposes which incorporates set-off.  In respect of the administration procedure, rule 2.38(4) of the Insolvency Rules 1986 then provided:

“Votes are calculated according to the amount of a creditor’s claim as at the date on which the company entered administration, less any payments that have been made to him after that date in respect of his claim and any adjustment by way of set-off in accordance with Rule 2.85 as if that Rule were applied on the date that the votes are counted” (emphasis added).

17.  The meeting rules for the administration procedure had to explicitly provide for set-off because insolvency set-off did not automatically apply upon the commencement of administration; insolvency set-off would apply only when the administrator decided to make a distribution (rule 2.85 of the Insolvency Rules 1986).  But, as mentioned above, insolvency set-off would operate automatically upon a winding-up.

18.  Thirdly, the idea of “treating the valuation of a debt for voting purposes as … a situation in which claim and cross-claim should continue to be considered separately” despite insolvency set-off not only finds no support in Stein v Blake, but also contradicts the notion of aligning the weight of a creditor’s vote to the amount of his provable claim.  As Morritt J explains in Re Polly Peck International plc[17]:

“A majority in number only would obviously be unfair to a single substantial creditor; on the other hand, a majority in value would be unfair to a large number of small creditors. We are firmly of the view that the power of a creditor’s vote should be related to the value of his claim”

19.  Ignoring set-off for voting purposes risks conferring influence on creditors whose interests are not aligned with those of uncontroversial holders of debt.  It would in some circumstances confer an illegitimate voice on people who are not creditors because they are owed nothing after set-off.  Moreover, it is well established that “[insolvency] set-off is equivalent to payment”[18]. As Mr Ho submitted taken to its logical conclusion, the idea of ignoring set-off for voting purposes could mean that even creditors who for the purposes of determining whether they should receive any distribution are treated as having been paid would be entitled to vote at the meeting.  Although it might be argued that at the initial stage of the liquidation process allowing a creditor to vote even if it subsequently becomes clear he is due nothing simply reflects the robust nature of decisions to admit proofs for voting purpose, in my view to do so would be inconsistent with the substantive effect of insolvency set-off and would be to ignore the fact that the creditor would have a materially different interest in the liquidation process to that of other creditors, who do not face cross-claims, namely, he is also a debtor or at least a possible debtor.  If he admits a debt owed to the company there is no good reason for not setting it off.  If the company’s claim is controversial there seems to me no reason why the claim should not be assessed in the same way as a creditor’s claim and only taken into account if the chairman of the meeting is satisfied to the necessary standard in order to admit a proof.  I discuss what that standard is in [24]–[25].

20.  In my view the Registrar’s dictum is inconsistent with statute, authority and principle. It follows that DHCJ To’s decision in GMI was also per incuriam because the decision contained no analysis and merely adopted the English decisions unquestioningly.  With respect, to the Judge his conclusion that “as a matter of law … cross-claims do not have the effect of diminishing the debts”[19] was in my view wrong.  The position in my view is as follows.  The amount that can be voted is the net liquidated amount due to the creditor, if any, at the commencement of the liquidation.  This brings me to the next question: if the amount of the set-off is uncertain at the date a proof is lodged for voting purposes does this mean that there is no ascertained amount that can be voted or, as an alternative, can the Chairman admit the amount of the claim less the asserted cross-claim?  Mr Ho argued that the alternative was not open to the Chairman and explained why this was so by reference to the development of the relevant law in England.

Can a creditor vote a debt if it is subject to an unascertained cross-claim?

21.  The Insolvency Rules 1996 introduced an amendment to the existing Rule, which was substantially the same as our Rule 125. The new rule 4.67(3) is in the following terms:

“A creditor shall not vote in respect of a debt for an unliquidated amount, or any debt whose value is not ascertained, except where the chairman agrees to put upon the debt an estimated minimum value for the purpose of entitlement to vote and admits his proof for that purpose.”

22.  This allows the Chairman in the case of insolvency set-off arising from an unliquidated cross-claim to make an estimate of the likely minimum value of the creditor’s debt and allow the creditor to vote that amount.  This seems eminently sensible and reasonable, which probably explains why in the Law Reform Commission’s Recommendations on “The Winding-up Provisions of the Companies Ordinance” dated 27 July 1999 it was proposed that a similar amendment be made in Hong Kong.  This is explained in [27.21]–[27.23] of the Report:

“27.21 We received two submissions on this rule, which was not referred to in the Consultation Paper. Rule 125 specifies that a creditor shall not vote in respect of any unliquidated or contingent debt, or any debt the value of which is not ascertained, or on a debt secured by a current bill of exchange or promissory note.

27.22 The submissions made the point that although the rule itself appeared to be straightforward and clear, when applied in some windings-up, such as those of construction or shipping companies, it could create difficulties and prevent genuine creditors from voting. The submissions concluded that, as long as a creditor had a genuine claim and submitted a proper proof of debt, as required by rule 124, it was reasonable that he should be able to vote at the creditors’ meeting.

27.23  We agree.  We believe that the solution may be found in the Insolvency Rules, rule 4.67(3), which provides that a creditor shall not vote in respect of a debt for an unliquidated amount, or any debt whose value is not ascertained, except where the chairman agrees to put upon the debt an estimated minimum value and admits his proof for the purpose of entitlement to vote.  We recommend the adoption of this rule together with a recommendation made in the Commission’ s Report on Corporate Rescue and Insolvent Trading, which observed that there was no sacred formula that would satisfy the aspirations of all parties when valuing claims and that any valuation put on an unliquidated claim for the purposes of voting by the chairman at a meeting should not be overturned by the court unless it was manifestly unreasonable[20].”

23.  It is clear in my view from the Report that the Law Commission recognised that Rule 125 had a restrictive effect and prevented the Chairman from admitting claims for voting purposes if its value is unliquidated or unascertained and proposed that Rule 125 be amended along the lines of Rule 4.67(3) in England to remedy what reasonably might be thought is an unsatisfactory position.  However, this recommendation was not accepted.  The consequence is that where a company asserts a genuine cross-claim that is not ascertained at the time the Chairman is assessing whether or not to admit a proof for voting purposes, by virtue of insolvency set-off the creditor does not have an ascertained claim that can properly be admitted for voting purposes.  As Mr Ho accepted this is unsatisfactory, but it is a consequence of the interaction of insolvency set-off and Rule 125, which the Government chose not to address.  As in the present case it is not suggested by WKCD that the cross-claim is not genuine or can be ascertained it follows that in my view the Chairman was correct not to admit WKCD’s proof for voting purposes and WKCD’s application should be dismissed.  I will, however, briefly deal with other issues that arose before me and the points taken by the PLs concerning whether or not, ignoring the insolvency set-off issue, the claim was a debt.

Standard of Proof

24.  The first also arises from DHCJ To’s decision in GMI (supra).  In [11] the Deputy Judge says this about the approach to be taken by the Chairman when adjudicating a proof for voting purpose: “In such assessment, the benefit of the doubt should be resolved in favour of the creditor submitting the proof... If it is plain or obvious that a claim is good, the chairman must admit it.  If it is plain or obvious that it is bad, he must reject it.  If there is a question, a doubt, he shall admit it but mark it as objected to: Emery v UCB Corporate Services Ltd, quoting Re A Debtor (No 222 of 1990).” Linda Chan J took a different view in Barlow Investments Ltd v Cliftons Ltd[21] in which she says this in [49]–[50]:

“49. Second, the approach of the Court. It seems to me that there is a significant difference in the approach expounded in Re Days and Re Grande and that in GMI:

(1) In Re Days and Re Grande, the test is to ask whether on balance the claim is established, and a liquidator who has doubt about a debt is entitled to value it at $1 for voting purposes.

(2) By contrast, in GMI, the test is unless the liquidator is certain that the claim is unliquidated or unascertained, he must admit it for voting purpose even if he has doubt about the claim.

50. I prefer the approach in Re Days and Re Grande, which reflects the requirement of r 125 and is consistent with what I understand to be the usual practice of liquidators (including where the Official Receiver acts as liquidator) to admit a debt at $1 for voting purpose when the liquidator considers that there is doubt about the debt or that the value of the debt has not been ascertained at the time of the creditors’ meeting.”

25.  For reasons that will be apparent from my explanation of the significance of insolvency set-off, I agree with Linda Chan J.  The Chairman must determine whether or not on the balance of probabilities a claim or cross-claim for a liquidated or ascertained amount is established.  If it is not the proof should not be admitted for voting or valued at HK$1.

Is WKCD’s claim for a Liquidated amount?

26.  The next issue concerns whether WKCD’s claim is for a liquidated or ascertained amount.  As I have already mentioned the Company had contracted with WKCD to construct the M+ Museum. On 17 August 2020, WKCD terminated the Company’s employment under the contract dated 24 March 2015 (“Contract”) “on the basis that circumstances of default by you have occurred under Clause 73.1(a). You have become insolvent.”

27.  Pursuant to Clause 2.1 of the Contract, the Contract Administrator (“CA”) “shall carry out those duties and may exercise those powers specified in or necessarily to be implied from the Contract.  The Contract Administrator may be an employee of the Authority or a consultant or contractor”.  For the purpose of the administering the Contract, rather than appointing an employee of WKCD as CA, as it was entitled to do under the Contract, WKCD appointed an independent consultant firm.  The CA for the Contract is Mr John Blackwood, of Atkins China Ltd.  Clause 2.2 of the Contract provides that other than in relation to those matters referred to in Appendix 1 to the Form of Tender, for which the CA is obliged to act at the direction of WKCD, the CA “shall act fairly and reasonably within the provisions of the Contract”.

28.  On 15 June 2021, the CA issued Interim Certificate No. 34 (“CA’s Certificate”) pursuant to clauses 67.2 and 67.5, 74.3 and 75.3 of the Contract for the period up to 31 May 2021 which certifies that the net amount due from the Company to WKCD is HK$1,860,447,061.33.  The CA’s Certificate was issued by the CA under a covering letter dated 15 June 2021 to WKCD, copied to the Company, care of the PLs.  The CA’s Certificate was provided to the PLs along with WKCD’s Proof of Debt on 15 June 2021.  Accordingly, by reference to the Contract, as of the date of the meeting, the CA had certified that the Company is indebted to WKCD in the amount of HK$1,860,447,061.33 and (i) pursuant to Clause 74.3 the certified amount is a debt due by the Company to WKCD and (ii) pursuant to Clause 75.3, the CA’s Certificate binds the Company until otherwise agreed by the parties or resolved by way of the contractual dispute resolution mechanism.

29.  The CA’s Certificate states:

“Pursuant to Clauses 67.2 and 67.5, 74.3 and 75.3 of the Conditions of Contract we hereby issue this Interim Payment Certificate No 34 for work completed up to 31 May 2021.

The net amount due from Hsin Chong Construction Company Limited is:

Amount: (HK$1,860,447,061.33)”

30.  The attached valuation is as follows:

31.  This is a valuation by an independent certifier carried out in accordance with very detailed valuation provisions in the contract.  The valuation is clearly intended to produce a precise figure and does so.  Given the complicated nature of large scale construction projects inevitably there will be sections of the work, which lend themselves to disagreement over the correct valuation; variations to the scope of the original contract works being perhaps the most obvious example.  However, this does not mean that the valuation carried out by quantity surveyors in accordance with comprehensive valuation provisions and established valuation principles does not produce what can properly be characterised as a liquidated and ascertained amount in the sense that these terms are used in Rule 125.

32.  In Re Grande Holdings Ltd[22] the Court of Appeal considered the meaning of liquidated and ascertained sum in the context of a claim for sums said to be due on the closing out of complex derivates before their maturity.  The Court of Appeal took the view that despite the complexity of the valuation process, which by its nature involved putting a price on future, and necessarily uncertain events, the figure that was calculated was a liquidated and ascertained amount.  Having also heard Grande at first instance it seems to me that the character of the present valuation is at least as certain as the close-out valuation of the derivatives.  The Court of Appeal’s judgment does not distil its analysis of the authorities to particular propositions, but the following principles emerge from the discussion of primarily English authorities:

“6.5 … This can be found in the judgment of Patten LJ in McGuinness v Norwich and Peterborough Building Society [2012] 2 All ER (Comm) 265. After reviewing the authorities, Patten LJ stated that:

[36] These authorities indicate and I think establish that a debt for a liquidated sum must be a pre-ascertained liability under the agreement which gives rise to it. This can include a contractual liability where the amount due is to be ascertained in accordance with a contractual formula or contractual machinery which, when operated, will produce a figure.Ex p Ward is the obvious example of that. Claims in tort are invariably unliquidated because they require the assistance of a judicial process to ascertain the amount due by way of damages. In some cases the calculation of the award will be straightforward and obvious but the unliquidated nature of the claim excludes it from being a good petitioning creditor’s debt which satisfies the requirements of s.267.”

“6.11 …The judgment of Lord Neuberger of Abbotsbury MR is instructive:

[57] Just how clearly quantified a debt has to be before it is liquidated and ascertained is not a question which it is easy to answer. It is clear from rule 2.39(3) that it does not have to be undisputable. Some guidance may be found in Ex p Ruffle; In re Dummelow (1873) LR 8 Ch App 997, 1001 (a case concerning s.16(3) of the Bankruptcy Act 1869 (32 & 33 Vict c 71)), where Mellish LJ said that:

‘“an unliquidated debt” includes not only all cases of damages to be ascertained by a jury, but beyond that, extends to any debt where the creditor fairly admits that he cannot state the amount. In that case there must be some further inquiry before he can vote.’

However, there is little subsequent authority which takes matters much further. A claim for damages and a contingent claim have (unsurprisingly) been held to be unliquidated or unascertained claims: see In re Cranley Mansions Ltd [19941] 1 WLR 1610; Doorbar v Alltime Securities Ltd [1996] 1 WLR 456 and In re Newlands (Seaford) Educational Trust [2006] BPIR 1230.”

“6.12 As Lord Neuberger observed, the sum does not have to be undisputable in order to be a liquidated sum and the fact that the sums so ascertained may be subject to dispute would not undermine that conclusion because ‘to hold otherwise would involve confusing ascertainment with unchallengeability’”.

33.  What emerges from this is that if the claim is for a sum, which is the genuine product of an agreed valuation process, the fact that there is reason to think that the figure will change if a more detailed assessment of the valuation takes place than was produced under the contractual procedure that lead to the certified figure in the first place, does not mean that the amount certified is not liquidated or ascertained.

34.  If I had not reached the conclusion that I did in respect of the insolvency set-off I would have found that WKCD’s claim should have been admitted.  The amount for which it should have been admitted would depend on the amount that the PLs could fairly determine was on the balance of probabilities to be set-off.  If they were uncertain as to that amount, which I anticipate they would be, WKCD’s claim should be admitted in full.

Conclusion

35.  I dismiss WKCD’s application and make a costs order nisi that WKCD pay the Company’s costs such costs to be taxed if not agreed with a certificate for counsel and paid forthwith.  One of the creditors, AIG Insurance Hong Kong Limited, also appeared through counsel to oppose the application.  Unsurprisingly its submissions did not add very much to those of the PLs.  I will make a costs order nisi that AIG Insurance Hong Kong’s costs be paid out of the assets of the Company with a certificate for one counsel.