XINGAN LEAGUE NEWTON TRADING CO LTD v. HONG KONG GENGHIS KHAN GROUP LTD

HCCW 396/2019

[2021] HKCFI 1790

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO. 396 OF 2019

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BETWEEN

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J U D G M E N T

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1.  By petition dated 12 December 2019, the Petitioner (興安盟新礦貿易有限公司 Xingan League Newton Trading Company Limited) seeks to wind up the Company (Hong Kong Genghis Khan Group Limited 香港成吉思汗集團有限公司), on the ground of insolvency, under section 178(1)(a) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32).

2.  The Petitioner relies on a statutory demand served on 13 August 2019, for an alleged debt of HK$62,367,000 said to have arisen pursuant to an agreement dated 4 April 2018[1].

3.  The Company opposes the Petition on the ground that there is a bona fide dispute on substantial grounds as to the existence of the alleged debt.

4.  At the hearing before me, the Petitioner was represented by Mr Lau Ka Kin, and the Company was represented by Mr Bernard Mak and Ms Jacquelyn Ng.

A. THE COMPANY’S SUMMONS

5.  There was also returnable before me a summons taken out by the Company dated 27 April 2021 (the “Company’s Summons”), under Order 2 rule 5 and Order 41 rule 4 of the Rules of the High Court (“RHC”). The Company’s Summons sought: (i) leave to use the “Declaration of Ge Jian[2]” (the “Ge Declaration”) as  affidavit evidence in opposition to the Petition; and (ii) insofar as is necessary, relief from sanction such that the Company be at liberty to rely on the Ge Declaration as evidence in opposition.   

6.  The procedural history leading to the Company’s Summons, is somewhat complex. In outline:

(1) In July 2020, the Company filed affidavit evidence from its solicitor (“Leung 1”), which exhibited a draft unsworn affirmation (the “Unsworn Affirmation”) of Ms Xu Yonghui (“Ms Xu”). According to Leung 1, Ms Xu was the Company’s authorised representative, who was then in Shenzhen. Ms Xu would make an affirmation duly affirming the Unsworn Affirmation, as soon as practical when able to travel to Hong Kong.

(2) At a hearing on 13 July 2020, Harris J granted the Company leave to file and serve the affirmation of Ms Xu in the terms of the draft, within 14 days.

(3) The Company took out a summons dated 24 July 2020, seeking leave to serve and file Ms Xu’s affirmation within 7 days from the uplift of travel restrictions and/or compulsory quarantine arrangements imposed under Hong Kong legislation.  This was supported by a further affidavit from the Company’s solicitor (“Leung 2”) to the effect that: (i) due to current travel restrictions and compulsory quarantine arrangements, Ms Xu was unable to travel to Hong Kong to make her affirmation; and (ii) attempts had been made to have Ms Xu’s affirmation notarised at Shenzhen Notary Public Office, but various difficulties had been encountered.

(4) At a hearing of that summons on 7 August 2020, Harris J granted the Company leave to file and serve the affirmation of Ms Xu by 21 August 2020.

(5) The Company took out a summons dated 24 August 2020, seeking further time to file Ms Xu’s affirmation. The Company also took out a summons dated 8 September 2020, seeking leave to file and serve a witness statement of Ms Xu in opposition to the winding up petition[3].

(6) The said summonses were supported by a further affidavit from the Company’s solicitor (“Leung 3”), deposing to further failed attempt(s) to have Ms Xu’s affirmation notarised in Shenzhen[4].

(7) Those two summonses came before Linda Chan J on 11 September 2020, who made orders that inter alia:

(i) unless the Company do file and serve the affirmation of Ms Xu and an affirmation of Ge Jian to confirm the contents of Ms Xu’s affirmation by 5pm on 25 September 2020, the Respondent be debarred from filling any affirmation in opposition to the Petition (the “Unless Order”); and

(ii) the Petition be adjourned for substantive argument with 3 hours reserved.

(8) The parties relied on a transcript (the “Transcript”) of the hearing before Linda Chan J, from which the following points appear:

(i) The Company recognised that the use of a witness statement would not be usual, and that the Hong Kong Court often received affirmations duly notarised in the Mainland. However, in essence, Ms Xu had been genuinely trying to have her affirmation notarised in Shenzhen.

(ii) The Court was minded to grant some relief including because it was not a case of complete failure to comply with the requirement for the Company to file evidence, and there was not significant prejudice to the Petitioner, which had been put on notice of the Company’s case from an earlier stage.

(iii) Given the Petitioner’s complaint to the effect that Ms Xu was not a director, Mr Ge Jian (“Mr Ge”) should also file an affidavit to confirm what was said by Ms Xu. The Court considered that there should be an unless order.

(9) On 21 September 2020, the Company filed and served the Ge Declaration, which has the features summarised at paragraph 26 below. In essence, the wording of “affirmation” has, for the most part been changed to “declaration”; but the substantive content of the document/evidence mirrors, largely or entirely, the Unsworn Affirmation of Ms Xu.

(10) By letter dated 4 January 2021, the Petitioner’s solicitors alleged that the Unless Order had not been complied with, and that the Company was accordingly debarred from filing evidence in opposition. Correspondence ensued.

(11) The Company’s Summons was taken out in April 2021, supported by a further affirmation from the Company’s solicitor (“Leung 4”). According to Leung 4, attempts had been made to notarise an affirmation of Mr Ge in Inner Mongolia, but these were unsuccessful. Such attempts could only succeed upon the making of certain changes to the form of the affirmation; in essence the re-framing of the affirmation as a “declaration”. See further paragraph 27 below. 

7.  In summary, the Company argued:

(1) The Unless Order was not breached. The Ge Declaration was filed within the time limit under the Unless Order, and was sufficient to comply. There was no need for a separate affirmation from Ms Xu, since the content of the Ge Declaration was the same as the evidence from Ms Xu which had been intended to be filed. Various aspects of the Transcript suggested some flexibility in the intended approach. 

(2) Even if the Unless Order was breached, the Company applied for relief from sanction.

(3) Insofar as was necessary, the Company sought leave under Order 41 rule 4 of the RHC to rely on the Ge Declaration, notwithstanding any irregularity in its form.

8.  In summary, the Petitioner argued:

(1) There were two breaches of the Unless Order because: (i) no affirmation from Ms Xu was filed at all; and (ii) Mr Ge made only a “declaration”, which is not an affirmation.

(2) Relief from sanction should not be granted. Amongst other things, the Company’s application was late, and the supporting evidence came from the Company’s solicitor  rather than Ms Xu or Mr Ge[5]. In an event, the purported explanation of difficulties of notarisation in the Mainland, should be rejected.

(3) Order 41 rule 4 does not apply, and even if it did, the court should not exercise its discretion thereunder to grant leave in respect of the Ge Declaration. 

(4) Accordingly, the Company had filed no evidence in opposition to the Petition, which should succeed without more.

Principles on unless orders

9.  The parties cited a number of cases which set out the principles applicable to unless orders and applications for relief from sanction, including: Top One International (China) Property Group Co Ltd v Top One Property Group Ltd [2011] 1 HKLRD 606 per Fok J (as he then was) at §§32-41; Waddington Limited v Chan Chun Hoo Thomas [2018] HKCFI 1113 per Chow J (as he then was) at §§17-23; Chu George v Tan Giong Seng Johnson [2019] 5 HKLRD 323 per Peter Ng J at §§15-19; ; Silver Universe Investments Ltd v China Times Securities Ltd & Ors [2019] HKCFI 834 per Deputy High Court Judge Keith Yeung SC at §§18-24; Soemarto Sulistio & Anor v Stukan, Yetty Fang & Ors [2020] HKCFI 292 per Deputy High Court Judge To at §§15-21.

10.  I will not here repeat the principles set out in those cases.

First Issue: was there a breach of the Unless Order?

11.  The first issue for me to determine is whether the Unless Order was breached.

12.  That is separate to the (subsequent) issue of the court’s discretion whether to grant relief from sanction. Addressing this first issue does not entail any consideration whether there is any plausible explanation or justification for default, nor of the suitability of the sanction. The court should not re-write the unless order[6].

13.  Given the wording of the Unless Order, it is difficult to avoid the conclusion that there has been, at least technically, a breach; and I so conclude. That is because, as submitted by Mr Lau for the Petitioner, the Unless Order required two affirmations: one from Ms Xu and one from Mr Ge.

14.  On any view, the Company did not file an affirmation of Ms Xu, following the Unless Order.

15.  The question whether there was a second breach of the Unless Order on the basis that the Ge Declaration does not amount to an affirmation of Mr Ge, overlaps with issues considered below in relation to Order 41, rule 4.

16.  For the reasons set out below, I take the view that the Ge Declaration is capable of amounting to (and/or includes) an affirmation. For this reason, I do not consider that there was a second breach of the Unless Order, as alleged by the Petitioner[7].

Second Issue: should relief from sanction be granted?

17.  It follows from the above, that the sanction stated in the Unless Order follows automatically, unless the Company’s application for relief from sanction succeeds.

18.  There is contained in Order 2 rule 5 a list of matters to be taken into account when deciding whether to grant relief from sanction.

19.  I take into account these factors, the various evidence and arguments relied on by the parties, and the relevant matters referred to in the authorities cited above.

20.  Bearing in mind these factors, and in the exercise of my discretion, I will grant relief from sanction in the present case.

21.  That is because, in short:

(1) I consider the Company’s non-compliance by failing to file an affirmation from Ms Xu herself, to be rather technical. It appears from the Transcript that the requirement for two affirmations was a result of the Petitioner’s submissions that Mr Ge (being a director) should file evidence to confirm Ms Xu’s. Given that the Ge Declaration contains the same evidential material as Ms Xu’s Unsworn Affirmation, it would seem (subject to the points discussed below in relation to Order 41 rule 4) to fulfil the real purpose of the requirements for evidence in the Unless Order, even in the absence of evidence from Ms Xu herself.

(2) Further, whilst the sequence of events in relation to the Company’s evidence is somewhat unfortunate and unsatisfactory, I do not consider the Company’s evidence and explanations - as to the various difficulties said to have been encountered in notarising affirmations in Shenzhen, and then Inner Mongolia – to be so implausible that they should be rejected as fabrication. I have considered the Petitioner’s submissions to the effect that this evidence should not be accepted, or that the Company should have made further efforts. However, I am not convinced that the Company’s representatives would have incurred the risks of proceeding in the way that they have in respect of the Company’s evidence, had the alternative of swearing an affirmation in the usual way been readily available.

(3) The non-compliance by failure to file an affirmation from Ms Xu within the time limited in the Unless Order, has not of itself caused significant prejudice to the Petitioner, and does not appear to have delayed the hearing of the Petition. Further, the Petitioner has been made aware of the intended content of the Company’s evidence in opposition, from an early stage (in the Unsworn Affirmation); and the content of that intended evidence did not change substantially.

(4) I take into account the Petitioner’s complaint that the Company’s evidence on relief from sanction should have come directly from Ms Xu or Mr Ge rather than the Company’s solicitor; but am not persuaded that this is sufficient to alter my view. There is some degree of circularity in the point given the Company’s evidence as to the difficulties encountered in notarising on the Mainland. 

(5) The application for relief from sanction is, strictly speaking, late. However, given then point at (1) above, and that the Ge Declaration was filed within the time limited under the Unless Order, I do not think that this point weighs very heavily against the Company in this case[8].

(6) I take into account the importance of the need to ensure compliance with the court’s orders, the seriousness of the breach (see above), the seriousness of the sanction to the Company, the explanations given by the Company, and considerations of proportionality. In all the circumstances I consider that it is in the interests of justice and fairness that relief from sanction be granted.

Third Issue: Order 41 rule 4

22.  There are rather difficult issues as to whether: (i) the Ge Declaration is or can amount to an affirmation; and (ii) leave can and should be granted under Order 41, rule 4 of the RHC for the Company to rely on the Ge Declaration, notwithstanding irregularities in its form.

23.  Order 41, rule 4 provides: “An affidavit may, with the leave of  the Court, be filed or used in evidence notwithstanding any irregularity in the form thereof”.

24.  It appears that by virtue of section 3 of the Interpretation and General Clauses Ordinance (Cap.1), the provision applies also to an affirmation. The contrary was not argued before me.

25.  Pursuant to Order 41 rule 12(2) (as modified by the Hong Kong Reunification Ordinance and the Interpretation and General Clauses Ordinance), affidavits and affirmations sworn outside Hong Kong before a Chinese diplomatic or consular official or a notary public will be admissible in proceedings in Hong Kong: Top Flying Investment Limited v Open Mission Assets Limited [2006] 4 HKLRD 83 per Mr Recorder McCoy SC at §32.

26.  The following features of the Ge Declaration are notable (as per the agreed English translation, with emphasis added):

(1) It is entitled “Declaration of Ge Jian”.

(2) The preamble states: “I, GE JIAN of [address], do solemnly sincerely and truly affirm and say as follows:-”;

(3) Paragraph 1 states: “I … hereby make this declaration in opposition to the winding up petition…”.

(4) Paragraph 2 states: “Unless otherwise stated, the facts declared to hereinbelow are within my personal knowledge and are true. As to matters beyond my personal knowledge, they are derived from documents in my possession and are true and correct to the best of my knowledge, information and belief …”.

(5) The jurat at the end states “DECLARED at … ”, before specifying an address in Huhhot City, Inner Mongolia; rather than “AFFRIMED at…”.

(6) There is a notarial certificate which[9] identifies the applicant as Ge Jian and states his identity card number, identifies the notarial matters as “signature”, and states: “It is hereby certified that, on 18 September 2020, GE JIAN signed on the ‘Declaration of Ge Jian’ in my presence as a notary”. The certificate bears that address and chop of the Mengzhen Notary Public Office of Huhhot City, and the stamp/printed name of the notary.

27.  As noted above, Leung 4 contains evidence of the reasons for which Mr Ge’s evidence came to be filed in the form of a “declaration”. In short, following the Unless Order, an attempt was made to have notarised in Huhhot City an affirmation of Mr Ge following the usual form. However, the notarial office indicated that it would not notarise an affirmation in that form, but would only notarise a “declaration”. Accordingly, revisions were made to the original draft pursuant to the requirements of the notarial office (ie as per the Ge Declaration). Mr Ge then attended the notarial office where his signature was successfully notarised on the Ge Declaration.

28.  The Petitioner argued that Order 41, rule 4 is not engaged, since the defects in the form of the Ge Declaration are not mere irregularities, but are fundamental matters of substance; in particular because the very basis upon which the notary in Huhhot City agreed to notarise the document was that it was not an affirmation, but rather a declaration.

29.  The Petitioner also cited The Ka Wah Bank Ltd v Low Chung Song and Others HCA 4191/1987, 23 June 1988, in which Cruden J considered an affirmation which was purported to have been made in Taiwan before a person who was not authorised to take the affirmation outside Hong Kong, namely, a Hong Kong solicitor. The learned Judge held that this was not a defect which could be cured under Order 41, rule 4, reasoning as follows:

“32. … I am satisfied that the proper construction of those provisions is that a Hong Kong solicitor may not take an affirmation outside Hong Kong even for use in Hong Kong …

33. The failure to have the purported affirmations taken in Taiwan by an authorised person is a more serious breach of the Rules of the Supreme Court than the omission of a residential address. In my view it is not an irregularity which can be cured under Order 41 Rule 4. An affirmation is a solemn statement made by an affirmant in writing. It is usually intended to be used in Court proceedings which, when contentious, concern a dispute between parties. The formal requirements for an affirmation prescribed by law are to ensure, so far as it is procedurally possible, that the contents of an affirmation are accurate and truthful. The requirement for an affidavit to be sworn in accordance with a deponent’s religious belief or for an affirmation to be solemnly, sincerely and truly affirmed, serves that important purpose.

34. The requirement that the person who takes an affirmation must have the qualification of a commissioner for oaths, or similar recognised qualifications, is twofold. First, it is to ensure that the affirmation is taken in due form with the affirmant being made aware of the important nature of the document he is signing and the necessity for its contents to be accurate and truthful. Secondly, because the affirmation is taken by an officer of the Court of other recognised officer, the Court can rely upon the affirmation’s authenticity.

35. A purported affirmation taken by a person not lawfully empowered to do so, lacks both these important twofold qualities. A defect of this nature is a matter of substance. In my view it does not amount to a mere irregularity which can be cured under order 41 rule 4. The document simply falls far short of being an affirmation affected by irregularities. To the extent that it purports to be an affirmation, it fails to achieve that status and is a nullity …”.

30.  Mr Lau, for the Petitioner, also cited HKSAR v Chen Mei Ling and Another HCMA 329/2008, 14 November 2008, in which Deputy High Court Judge Mackintosh found that a particular affidavit had only irregularities in form such that leave should be given for it to be used, if necessary[10]. Mr Lau relied on §16, where the Court commented that Order 41, rule 4 presumes that the document has been properly sworn and has thereby become an affidavit; arguing that this was not the case[11].

31.  Mr Lau also argued that: (i) Linda Chan J previously disallowed reliance on a witness statement of Ms Xu (see above), which was said to bear certain similarities to the Ge Declaration; and (ii) the court should in any event not exercise its discretion under Order 41 rule 4, including because the Ge Declaration was said to contain demonstrable falsehoods.

32.  Mr Mak, for the Company, argued there were at most irregularities in the Ge Declaration, in respect of which leave could and should be granted under Order 41, rule 4. Amongst other things, the Ge Declaration included key wording normally found in an affirmation, including appropriate undertakings as to truthfulness.

33.  Mr Mak relied in particular on Fort Crown Investments Ltd v Tam Virginia t/a Star International Agency & Trading Services CACV 173 & 174/2005, 5 January 2006. The grounds of appeal in that case included that an application under section 96 of the Landlord and Tenant (Consolidation) Ordinance (Cap.7) was required to be supported by affidavit, but there had instead been two “homemade” documents entitled “Declaration”. The appeal was dismissed, with the following reasoning per Rogers VP at §3:

“But two matters emerge from that. The first is that one can discern, quite clearly, a claim to ownership of the relevant items. The second is that the declarations were properly made in accordance with the Oaths and Declarations Ordinance. Now it is said that these do not therefore constitute affidavits and a declaration is a different matter to an affidavit. That may be so but the effect of a declaration is very much the same as an affidavit. One can make an affirmation instead of an affidavit and a declaration is very little different from an affirmation. Coupled with that, the Claimant in fact gave evidence before the judge and the judge was perfectly entitled to short-circuit matters, if he saw fit. He might, for example, have said to the Claimant, if he was being fastidious, ‘Well, you must go and remake your declaration as an affirmation and then come back in five minutes’ time and I will listen to you’. He did not do that but he accepted his oral evidence. In fact, in the course of the hearing, it was referred to as being his affirmation. So in that respect, I see no difficulty as a matter of practicality. The Rules of Court, under Order 41 rule 4, allow or permit the use of an affidavit which might be in a defective or irregular form. In my view, the judge was, in the circumstances of a case like this, perfectly entitled to treat these declarations as affidavits …”.

34.  I do not find this point particularly easy to decide; but on balance I take the view that the Ge Declaration is capable of being treated as, or at least contains, an affirmation, such that Order 41 rule 4 can be invoked.

35.  Further, I take the view that the defects or unusual features in the Ge Declaration are properly to be treated as irregularities under Order 41 rule 4, and that I can and should exercise my discretion to permit reliance on the Ge Declaration notwithstanding them.

36.  My key reasons are as follows.

37.  First, and importantly, although the wording of the Ge Declaration has for the most part been changed from “affirmation” to “declaration”, the preamble contains the words set out at paragraph 26(2) above. These words are (very close to) the form in which an affirmation in writing is required to commence under section 7(4)(a) of the Oaths and Declarations Ordinance (Cap. 11) (the “ODO”).

38.  This is significant, as that wording governs and applies to the entire content of the document. For this reason, it seems to me that by signing the document Mr Ge was, amongst other things, confirming that he “solemnly sincerely and truly affirmed” the truth of its contents. In other words, the Ge Declaration includes an affirmation by Mr Ge in the required form, in respect of the truth of the evidence given[12]. 

39.  Second, and related, since the document contains a solemn statement (and indeed an “affirmation”) of the truth of its contents, it would appear, notwithstanding various departures from usual form, to fulfil the basic purpose and function of an affirmation and its formal requirements: see The Ka Wah Bank Ltd v Low Chung Song and Others (supra).

40.  Third, Mr Lau argued strenuously that since the notary had refused to notarise an affirmation, and would only notarise a declaration, it must follow that he was not authorised to notarise an affirmation: compare The Ka Wah Bank Ltd v Low Chung Song.

41.  However, this argument seems to assume that the notary in Huhhot City was, in distinguishing between an affirmation and a declaration, applying Hong Kong law concepts, and further, determining the point for the purposes of Hong Kong law. In reality, the notary would have been doing neither. For this reason, I doubt whether this line of argument adds very much to the analysis. It is for me to determine whether, as a matter of Hong Kong law, the Ge Declaration is or contains an affirmation. If it does (see above), then this conclusion is unaffected by the approach taken by the notary. The fact remains that the notary in Huhhot City notarised the document, such that the requirement for such notarisation in Order 41 rule 12(2) would appear to have been complied with[13].

42.  Fourth, whilst there are significant points of distinction from the present facts, I gain some fortification from Fort Crown Investments Ltd v Tam Virginia t/a Star International Agency & Trading Services (supra), where the Court of Appeal espoused some flexibility of approach under Order 41 rule 4, in terms of the treatment as affidavits of documents entitled “declaration”.

43.  Fifth, in light of the Company’s evidence referred to at paragraphs 21(2) and 27 above, I consider it preferable in the exercise of my discretion to permit reliance on the Ge Declaration notwithstanding irregularities in its form, rather than shut the Company out from filing such evidence for the purposes of an important hearing.

44.  For the above reasons, I grant to the Company leave to rely on the Ge Declaration, notwithstanding irregularities in its form.

B. SUBSTANCE OF THE PETITION

45.  On the winding-up petition, the sole substantive issue is whether the petition debt is disputed bona fide on substantial grounds.

46.  In this regard, the only point taken by the Company at the hearing was one of contractual construction.  

Principles

47.  The applicable principles were summarised by Deputy High Court Judge Sit SC in Re Asia View Enterprises Ltd [2020] HKCFI 2812, as follows:

(1) A petitioner who is owed an undisputed or indisputable debt is entitled to a winding up order ex debito justitiae.

(2) In order to successfully oppose a petition on the basis of a bona fide dispute to the debt on substantial grounds, the debtor has to adduce sufficiently precise evidence which is believable, and must establish that it has a defence of substance, not just a fair probability of one.

(3) Winding-up proceedings are summary in nature and are not meant to be used for the purpose of debt collection.  If the court is satisfied that there is a bona fide dispute on the debt, it will not usurp the function of a civil court and decide the disputes between the parties.

(4) The burden is on the company to establish that there is a genuine dispute of the debt on substantial grounds.  In this context, “substantial” means having substance and not frivolous.

(5) The court should look at the company’s evidence against so much of the background and evidence that is not disputed or not capable of being disputed in good faith. In other words, the evidence is not to be approached with a wholly uncritical eye.

(6) The court should caution itself against unsubstantiated and unparticularised assertions.  It is incumbent on the company to put forward sufficiently precise factual evidence to substantiate its allegations.

(7) The court does not try the dispute on affidavit but is to determine whether a substantial dispute exists.  In so doing, the court necessarily has to take a view on the evidence, to see if the company is merely “raising a cloud of objections on affidavits” or whether there really is substance in the dispute raised by the company.

Facts

48.  The relevant facts can be shortly stated.

49.  The Petitioner and 突泉縣慶波洗煤有限公司 (“Qingbo”) entered into an agreement dated 15 March 2018 (the “Coal SPA”) for the purchase by the Petitioner of certain coal from Qingbo.

50.  Under clause 8.8 of the Coal SPA, the Petitioner was to pay Qingbo RMB50,000,000 as security for its contractual performance (the “Security”).

51.  Clause 8.8.1 of the Coal SPA provided that: “…The … Security (or its remaining sum) will be returned to [the Petitioner] without interest within 10 bank working days upon termination of this agreement …”[14].

52.  Subsequently, a Trilateral Agreement on Authorised Money Collection dated 4 April 2018 (the “Trilateral Agreement”) was entered into between the Petitioner (as Party A), Qingbo (as Party B) and the Company (as Party C). The Trilateral Agreement referred to the Petitioner’s obligation to pay the Security to Qingbo under clause 8.8 of the Coal SPA. It provided, inter alia:

“2. [Qingbo] authorises [the Company] to receive on its behalf, payment from [the Petitioner] of the Security … being a sum in Hong Kong dollars equivalent to RMB50,000,000 …

3. [The Petitioner] and [Qingbo] agree that, upon [the Petitioner] making (or procuring its associate(s) to make) the relevant payment to [the Company] pursuant to Clause 2 herein, [the Petitioner] will be regarded as having discharged its obligation to provide the Security under section 8.8 of the [Coal] SPA.

4. The time for [the Petitioner] to pay [the Company] under Clause 2 hereof is within 5 working days after this agreement takes effect. [The Company’s] account for receiving payment is …

5. [Qingbo] agrees that, once the [Coal SPA] is terminated, [Qingbo] and [the Company] both agree (and [Qingbo] should cause [the Company] or other associates of [Qingbo] to do so), to return the Security in accordance with section 8.8.1 of the [Coal SPA], and within 10 working days of the termination of the [Coal SPA], return the Security received pursuant to Clause 2 hereof without interest to [the Petitioner] or such recipient(s) as it may designate by notice in writing from time to time; the [Petitioner] and [Qingbo] both agree that upon [Qingbo] causing the return of the Security in the way stated above, [Qingbo] will be regarded as having discharged its obligation to return the Security under section 8.8.1 of the SPA.

6. [The Company] completely understands and agrees to the above Clause”.

53.  The Petition proceeds on the basis that: (i) pursuant to the Trilateral Agreement, the Petitioner procured the payment of HK$62,367,000 to the Company; (ii) the Coal SPA expired or terminated on 31 December 2018; (iii) on 2 January 2019 the Petitioner sent a letter to the Company to request a refund pursuant to the Trilateral Agreement; (iv) a total of RMB17,000,000 has been refunded to the Petitioner between 5 March 2019 and 25 June 2019; (v) the sum of HK$42,537,000 remains due and owing.

54.  The single point taken by the Company at the hearing, was that on correct construction of the Trilateral Agreement, the obligation to return the Security to the Petitioner (or to procure that return) upon termination of the Coal SPA remained with Qingbo alone; and the Company incurred no separate or independent obligation to the Petitioner to return the Security.

55.  Rather than imposing such an obligation on the Company, the Tripartite Agreement served to (inter alia) acknowledge that: (i) payment of the Security by the Petitioner to Qingbo had the effect of discharging the Petitioner’s obligation to pay the Security under the Coal SPA; and (ii) the Company’s receipt of the Security was on Qingbo’s behalf.  

Arguments and Analysis

56.  The principles of contractual construction are well-known: see Eminent Investments (Asia Pacific) Limited v Dio Corporation (2020) 23 HKCFAR 487 at §§42-45.

57.  There was rather detailed debate on the express wording of the Trilateral Agreement, in particular clauses 5 and 6.

58.  Mr Lau, for the Petitioner, argued inter alia that:

(1) The express wording of clauses 5 and 6 supports the Petitioner’s construction of the Trilateral Agreement, that both Qingbo and the Company incurred obligations in respect of the return of the Security following termination of the Coal SPA. Mr Lau relied on, inter alia, the reference to “both agree” in clause 5, and to the Company’s agreement in clause 6.

(2) On the Company’s construction, there was no need for the Company to be made party to the Tripartite Agreement at all; since an acknowledgment that payment of the Security by the Petitioner to the Company was sufficient to discharge the Petitioner’s obligations under clause 8.8 of the Coal SPA, could be dealt with by an agreement or acknowledgement between the Petitioner and Qingbo only.

(3) Certain WeChat messages were said to show that the Company had been chasing the Petitioner for payment of the relevant funds before they were paid, since these were needed to pay the Company’s rent for certain premises. This was said to be consistent with and supportive of the Petitioner’s construction of the Trilateral Agreement.

59.  Mr Mak, for the Company, argued inter alia that:

(1) The express wording supported the Company’s construction of the Trilateral Agreement (in particular the provision at the start of clause 5 that “Qingbo agrees”; the various references to Qingbo causing the Company or others to refund the Security; and the last sentence of clause 5 referring to the Petitioner and Qingbo both agreeing).

(2) Clause 14.4 of the Coal SPA required revisions of that agreement to be in writing and signed. The Trilateral Agreement was entered into to record such an agreed revision. It was reasonable to include the Company as additional signatory, to recognise that payment from the Petitioner to the Company was made as payment of the Security under the Coal SPA.

(3) It was also in Qingbo’s interest to secure the Company’s recognition that it received the Security as Qingbo’s agent. The evidence showed that the Company had lent money to Qingbo, and that Qingbo had instructed the Company to use the Security sum as repayment of that loan. 

(4) At the hearing, Mr Mak argued that the express wording of clauses 5 and 6 was highly ambiguous and unclear; and the correct interpretation was a matter of bona fide dispute which could not be summarily resolved.  

(5) After termination of the Coal SPA, part repayment of the Security had been effected by Qingbo rather than the Company, which further supported the Company’s position.

60.  Having considered these arguments, I am not persuaded that this dispute as to construction of the Trilateral Agreement can be summarily resolved within the context of winding-up proceedings; or that it can fairly be said that there is not even a bona fide dispute as to the petition debt.

61.  There is some force in certain of the Petitioner’s arguments on construction.

62.  However, I consider that the express wording of the clauses 5 and 6 is far from clear on the key point of contention, and that different portions of those clauses pull in different directions: see especially paragraphs 58(1) and 59(1) above.

63.  In the circumstances of an unclearly drafted contract, and provisions which appear to be at least in part inconsistent with one another, the court would be assisted in the task of construction by a full picture of the contractual context and background.

64.  I am not convinced that I have before me that full picture.

65.  Further, there are dicta that the winding up procedure is only for “very clear cases”[15], and I do not think that this is such a case.

66.  Accordingly, I conclude that the Company has discharged its burden of showing a bona fide dispute on substantial grounds.

Relevance of the Ge Declaration

67.  Given the matters considered under section A above, I should also make clear that I would have reached the same conclusion on the Petition, even if the Ge Declaration had not been admitted into evidence. 

68.  That is because my conclusion on the Petition is based on ambiguity in the construction of the Trilateral Agreement, which document is referred to in the Petition, and is in any event in evidence.

C. DISPOSITION

The Company’s Summons

69.  As to the Company’s Summons, I make orders that:

(1) the Company be granted relief from the sanction referred to at paragraph 1 of the order of Linda Chan J dated 11 September 2020; and

(2) the Company have leave to rely on the Ge Declaration as evidence in opposition to the Petition, notwithstanding irregularities in its form.

70.  Although the Company has succeeded on its summons despite strenuous opposition, I consider it fair that the Company bear the Petitioner’s costs of the summons, to be taxed if not agreed. That is because the Unless Order was not, strictly speaking, complied with, and there are unsatisfactory/unfortunate features of the chronology with regard to the Company’s evidence.

71.  I make a costs order nisi to that effect.

The Petition

72.  For the above reasons, the Petition is dismissed.

73.  I make an order nisi that the costs of the Petition are to be paid by the Petitioner, and that the Official Receiver’s costs are to be paid out of the Petitioner’s deposit, the balance of which shall be returned to the Petitioner.