RE NT PHARMA INTERNATIONAL CO LTD

HCCW 288/2022

[2023] HKCFI 1623

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP)  PROCEEDINGS NO 288 OF 2022

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J U D G M E N T

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1.  There is before the court the petition presented by Novartis Pharma AG (“Petitioner”)  on 22 August 2022 seeking to wind up NT Pharma International Company Limited[1] (“Company”)  on insolvency ground (“Petition”).

2.  The Company does not dispute that it is indebted to the Petitioner in the amount of US$3,910,740.43 (“Debt”)  and has failed to comply with the statutory demand served upon it on 12 April 2022 (“SD”).  It opposes the Petition on the grounds that:

(1)  It has a cross-claim against the Petitioner for US$30 million which, if successful, would extinguish the Debt by way of set-off. The cross-claim arose out of the same agreements under which the parties agreed to submit their dispute to arbitration.  The Petitioner should be held to the contractual bargain and cannot ask the court to wind up the Company even if the Debt remains unpaid; and

(2)  The Debt is “now completely secured” by the amount paid into court.  There is no public interest or policy concern or any basis to contend that the Company abuses the process or acts in bad faith so as to bring the case into the exception discussed in Re Guy Kwok-Hung Lam [2023] HKCFA 9.

3.  The Petitioner contends that the court should make a winding-up order against the Company or alternatively, direct the amount paid into court be paid to the Petitioner given that:

(1)  the Company fails to discharge the burden of showing that it has a bona fide or serious cross-claim against the Petitioner;

(2)  if and insofar as the Guy Lam approach applies, the Company’s opposition to the Petition is frivolous; and

(3)  the court should not allow the Company to retain the Debt as security for its cross-claim.

A.  BACKGROUND

4.  The Company was incorporated on 9 July 2015 in Hong Kong.  Its principal activities are holding the intellectual property rights, marketing and distribution rights associated with the trademarks and brand names relating to commercialisation of Miacalcic Injection and Miacalcic Nasal Spray branded drugs for sub-licensing, exploitation and trading of the relevant branded products. 

5.  In April 2021, there was a change in control of the Company in that:

(1)  The Company was originally an indirect wholly owned subsidiary of China NT Pharma Group Company Limited (“NT China”), a listed company in Hong Kong. 

(2)  Pursuant to an agreement dated 21 April 2020 made between NT China and Beijing Konruns Pharmaceutical Co. Ltd (北京康辰藥業股份有限公司)  (“Konruns”), a listed company in Shanghai, the parties agreed that (a)  all the shares in the Company be sold and transferred to Beijing Kangchen Biological Technology Co Ltd (北京康辰生物科技有限公司)  (“Beijing Kangchen”), a wholly owned subsidiary of Konruns, and (b)  NT China would subscribe for 40% equity in Beijing Kangchen.  The transaction was completed on 23 April 2021.

(3)  On 4 November 2021, NT China transferred a further 13.7% equity in Beijing Kangchen to Konruns.  Since then, the equity in Beijing Kangchen has been held by Konruns and NT China as to 73.7% and 26.3% respectively.

A1.  Supply Agreements and the Debt

6.  By 2 supply agreements made on 18 May 2016 and 25 October 2017 (“Supply Agreements”)  the Petitioner and the Company agreed, inter alia, as follows:

(1)  The Company shall pay the Petitioner within 45 days after receipt of the invoice for the Miacalcic Spray supplied by the Petitioner (“Products”)  (clause 2.3);

(2)  The Supply Agreements shall be governed by the laws of Switzerland, and all disputes arising out of or in connection with the same shall be submitted to the International Court of Arbitration of the International Chamber of Commerce (“ICC”)  and shall be finally settled under the ICC Rules in force when the Notice of Arbitration is submitted (clause 16.1). 

7.  Pursuant to the Supply Agreements, from 3 April 2020 to 2 September 2020, the Petitioner supplied the Products and issued invoices to the Company for a total sum of US$3,647,597.96 (“Price”).

8.  On 28 January 2020 and 27 April 2020, the Petitioner and the Company entered into 2 “Side Letters to Supply Agreement” (together “Side Letters”)  whereby the Company acknowledged that it had not fulfilled the obligation to pick up the Products and agreed to pay the costs of storing the Products.  Between 16 June 2020 and 8 July 2020, the Petitioner issued invoices to the Company claiming storage costs of US$263,142.47 (“Storage Costs”).

9.  The Debt comprises the Price and the Storage Costs.   

A2.  SD and the Company’s Responses

10.  By letter dated 4 February 2021 to Konruns, the Petitioner referred to the first Supply Agreement (dated 18 May 2016)  and the Company’s failure to pay the Debt, and stated that if no payment was received within the next 15 days, it would seek “appropriate legal remedy” against the Company. 

11.  Mr. David Ng[2], the Chief Executive Officer of NT China, repeatedly acknowledged the liability of the Company to pay the Debt:

(1)  In his letter dated 11 February 2021, Mr. Ng stated that the outstanding invoices would be the responsibility of the Company and NT China only, and the Company would propose “a suggestion of arranged payments for the outstanding invoices”;

(2)  In his email to the Petitioner dated 12 February 2021, Mr. Ng said that he had “received the letter from [the Petitioner] and will work with [their] finance to provide [the Petitioner] with a payment solution”; and

(3)  In another email to the Petitioner dated 1 March 2021, Mr. Ng stated that “[NT China] is currently selling assets to solve [their] financial problems.  After [their] internal discussion and with [their]  best effort, [NT China] proposes a payment plan”, under which the Company would repay the Debt over a 36-months’ period with annual interest at 4%.

12.  Notwithstanding the above emails, the Company did not make any payment to the Petitioner. 

13.  On 12 April 2022, the SD was served on the Company.  In response, the Company through Messrs. Jun He Law Offices’ letter dated 2 June 2022, stated that the Petitioner was not entitled to commence any winding up proceedings against the Company for the following reasons (“JunHe’s Letter”):

(1)  By an Asset Purchase Agreement dated 25 October 2017 (“APA”)  entered into between (a)  Novartis AG and the Petitioner (together “Novartis”)  and (b)  the Company, the Company purchased, inter alia, the “Transferred Property”[3] which included the Miacalcic Spray (§2(1)-(2));

(2)  The Petitioner was aware that the only manufacturer of the Miacalcic Spray is Delpharm, a drug manufacturer in France (§2(3));

(3)  Sometime after completion of the purchase of the Miacalcic Spray, the Company discovered from Delpharm that the Miacalcic Spray could not be manufactured, exported and delivered to the Company without an export licence issued by The National Agency for the Safety of Medicines and Health Products of France (“ANSM”)  permitting Delpharm to supply and export the Miacalcic Spray to the Company.  This was material information relating to the “Transferred Assets” (“Information”)  (§2(4)-(6));

(4)  Novartis acted in breach of their warranty under clause 12.1 of the APA by withholding the Information from the Company before the closing date of the APA (§2(7));

(5)  The Company discovered that an export licence had been granted by ANSM in 2015 permitting Delpharm to supply the Miacalcic Spray exclusively to Novartis, which remained valid and subsisting.  To mitigate its loss and damages, the Company demanded Novartis to obtain the Miacalcic Spray from Delpharm and supply the same to the Company, particularly to China market and markets under the APA (§2(8)-(9));

(6)  “In breach of the APA and the Supply Agreement(s)  dated May 2016 and/or 25 October 2017”, Novartis refused to provide the Miacalcic Spray to the Company which resulted in the Company not being able to fulfil orders or tenders from various government authorities in China, Philippines and Switzerland (§2(10));

(7)  It was not until around October 2019 that the Petitioner agreed to supply the Miacalcic Spray to the Company by obtaining the same from Delpharm (§2(11)); and

(8)  As a result of the breach by Novartis, the Company has not been able to trade the Miacalcic Spray and has suffered loss and damage of not less than US$25 million during the period up to the time when Novartis “conceded and began supplying the Products to [the Company]” (§2(12)).

14.  The JunHe’s Letter ended by demanding the Petitioner to pay US$20 million to the Company “in full and final settlement of all claims between the parties” within 7 days failing which they would “prepare and serve Notice of Arbitration in accordance with the terms of the relevant agreements”. 

15.  The Company did not commence arbitration as it threatened to do in JunHe’s Letter.

A3.  Petition

16.  On 22 August 2022, the Petition was presented.  The affidavit verifying the Petition was filed on 26 August 2022 (“Muller 1^st”).

17.  On 16 September 2022, the Company filed an affirmation of Lee Ying[4] (“Lee 1^st”)  in support of its application for a validation order stating that:

(1)  The Petitioner “has not clearly explained how and why the alleged email sent by David Ng is binding on the Company”, as the only pleaded particulars of Mr. Ng is that he was the director and CEO of NT China, which had “parted with its interest in the Company since April 2020” (§11);

(2)  The Company intends to oppose the Petition and will file its affirmation in opposition with substantive grounds in due course (§14);

(3)  The Company is solvent and has been trading profitably in that:

(a)  according to the audited financial statements for the year ended 31 December 2021 (“2021 AFS”), its net assets was increased from RMB924,037,467 as at 31 December 2020 to RMB1,013,687,258 as at 31 December 2021 (§19);

(b)  according to the latest management accounts made up to 31 August 2022 (“Management Accounts”), the net assets of the Company was further increased to RMB1,048,083,839.61 (§20);

(c)  the present forecast and expectation of the Company is to meet the profit target of RMB100 million by the end of 2022 (§21); and

(d)  it had receivables and cash reserve of RMB88 million and HK$13 million respectively (§§22-23, 30).

18.  The validation order was disposed by consent which required, inter alia, the Company to maintain at least HK$10 million in its bank accounts. 

A4.  Arbitration and payment into court

19.  It was only until 27 October 2022 that the Company filed a Request for Arbitration (“Request”)  at the ICC against Novartis (“Arbitration”).  In the Request[5]:

(1)  The Company no longer disputes the Debt but states that Novartis acted in breach of the APA (§§38, 43);

(2)  The alleged breach was discovered in late 2018 and ceased by November 2019 (§§31, 46); and

(3)  As a result of such breach, the Company “estimates” that it has suffered loss in the sum of US$30 million (§51).  No particulars or evidence has been given, whether in the Request or elsewhere, to substantiate the cross-claim.   

20.  As Lee 2^nd was filed in breach of rule 32(1)  of the Companies (Winding up)  Rules[6], at the first hearing before this Court on 31 October 2022, leave was given to the Company to file Lee 2^nd conditional upon payment of HK$20 million into court within 42 days[7].  The amount was paid into court on 7 December 2022.

21.  On 12 December 2022, the Company filed Lee 3^rd stating that the ICC had accepted the Request on 28 October 2022 but Novartis requested for extension of time to file their Answers. 

22.  At the hearing on 30 January 2023, the Petition was adjourned to 27 February 2023 for the Petitioner to respond to Lee 3^rd, and the Company was reminded that it could avoid the prospect of being wound up by the court by paying the Debt. 

23.  On 22 February 2023, the Company sought leave to file Lee 4^th which exhibited an opinion rendered by Professor Jean-Paul Vulliety, a partner of the Company’s solicitors in the Arbitration (“Vulliety’s Opinion”), which states that as a matter of Swiss law, the Company is entitled to set-off the amount of its cross-claim against the Debt. 

24.  At the hearing on 27 February 2023, leave was given to the Company to file Lee 4^th conditional upon the Company paying the sum of HK$10,699,000 into court within 21 days thereof.  The Petition was adjourned for arguments with liberty to apply for further order to cater for the possibility that the condition is not complied with.  The Company paid the amount into court on 17 March 2023.  Consequently, by 17 March 2023, the Company paid an aggregate amount of HK$30,699,000 into court, equivalent to the Debt.   

B.  DISCUSSION

B1.  Petitioner’s right to present Petition

25.  In my view, the starting point is that the Petitioner has the right to serve the SD and to present the Petition against the Company as there is no dispute that the Debt is payable, and the Company failed to comply with the SD. The Company is deemed unable to pay its debts by virtue of s.178(1)(a)  of the Companies (Winding up and Miscellaneous Provisions)  Ordinance (Cap. 32).

26.  Mr Alan Kwong, counsel for the Company, contends that it is “abusive” for the Petitioner to insist that the Company be wound up, despite its solvency and “the fact that its claim has been fully secured or compounded for”.  I disagree.  The amount paid into court is not security, nor does it compound for the Debt. As explained by Ribeiro J (as he then was)  in Cheung Wah v China State Bank Ltd [1999] 4 HKC 185, 190C-F, the words “compound for” encompass offers to pay the debt for less than the full amount or in the full amount. 

27.  More importantly, as creditor of the Company, the Petitioner has the right to invoke the statutory demand mechanism and to present a winding up petition for the purpose of seeking payment of the Debt.  The principle has been explained by the CFA in Shandong Chenming Paper Holdings Ltd v. ARJOWIGGINS HKK 2 (2022)  25 HKCFAR 98, §§34, 37 in this way:

“34. The statutory demand mechanism is a ‘convenient’ method of establishing that a company is unable to pay its debts.[8] It operates as conclusive proof of the company’s inability to pay its debts for the purpose of establishing the court’s jurisdiction to make a winding-up order. Where the company is so deemed to be unable to pay its debts, it is perfectly proper for a creditor to present a winding-up petition in order to seek an order from the court to wind up the company. If the company is in fact solvent or has realisable assets, its winding up will eventually result in the creditor receiving a dividend from the company’s liquidator in satisfaction of the proof of debt lodged in the winding up, which may or may not satisfy the whole of that debt. Most creditors will no doubt hope that the matter is resolved more expeditiously. If the company is indeed solvent, the creditor will hope that the presentation of the petition itself will prompt the company to pay the debt before the matter proceeds to a winding up. As will be seen, case law recognises the propriety of the use of a winding-up petition as a means of applying commercial pressure to seek payment of an undisputed debt.”

“37. Failure to comply with a statutory demand therefore operates as conclusive proof of insolvency for the purposes of engaging the jurisdiction to wind up a company. That the jurisdiction may ultimately not be exercised in favour of the making of a winding-up order does not diminish the purpose and effect of the statutory demand mechanism. So understood, there is no tension between failure to comply with a statutory demand operating as conclusive proof of insolvency (regardless of whether the company is, in fact, solvent)  and the principle against using winding-up proceedings as a means of debt collection for disputed debts….” (underlined added)

B2.  Company’s cross-claim

28.  The next issue is whether the cross-claim relies on by the Company constitutes a valid ground for the court to dismiss or stay the Petition pending determination of the cross-claim in the Arbitration. 

29.  It is well-established that where, as here, a company opposes a winding up petition on the ground that it has a cross-claim against the petitioner which is greater than the petition debt:

(1)  The company bears the burden of establishing that the cross-claim is genuine, serious and of substance.  There must be supporting relevant details to demonstrate that the cross-claim is based on substantial ground (Re Hongkong Bai Yuan International Business Co., Ltd, [2022] HKCFI 960 §26[9]).

(2)  If the company’s cross-claim is closely connected with the petition debt which, if established, would give rise to an equitable set off against the debt, it would not be unjust for the court to take that claim into account.  This is because a winding up order has more serious consequences and the Companies Court is entitled to adopt a different approach (Re Silver Base International Development Co Ltd [2022] HKCLC 817,§§34-35[10]). 

30.  Mr Lai Chun Ho, counsel for the Petitioner, submits that an undisputed debt gives rise ex debito justitiæ to a winding-up order (Shandong Chenming, §39).  This right is not curtailed by the mere fact that the parties have entered into an arbitration agreement given that:

(1)  A statutory right is conferred on a creditor to petition for bankruptcy or winding up on the ground of insolvency.  It is contrary to public policy to preclude or fetter the exercise of this statutory right.  The statutory jurisdiction for winding up a company is satisfied if the creditor applies on the basis of a debt that is not disputed on genuine and substantial grounds.  The position is the same as regards the insolvency legislation in Hong Kong (But Ka Chon v.  Interactive Brokers LLC [2019] 4 HKLRD 85, §§63-66; Re Sit Kwong Lam (Debtor) [2019] 2 HKLRD 924, §§21-27). 

(2)  This aspect of the law is not changed by Guy Lam where the CFA said (§§97-100)  that the court will have jurisdiction to determine whether a debt is disputed on substantial grounds for the purpose of determining whether the statutory insolvency regime may be invoked. 

31.  Mr Lai argues that whilst Guy Lam recognizes that a dispute resolution agreement must be given due weight when the court hears a petition:

(1)  It also recognizes that there are strong public policy considerations why an insolvent individual or entity must not be allowed to continue to trade (§§99, 101, §§63-64 which summarise the creditor’s submissions).  

(2)  These public policy considerations should still be present in an “attenuated form” to “prevent a debtor from mounting a completely frivolous defence – an abuse of process designed to put off the evil day.” (§99).

(3)  In this regard, notwithstanding there is an interest in holding parties to their bargain, “[t]he public policy underpinning the legislative scheme of the court’s bankruptcy jurisdiction is still present.  The more obviously insubstantial the grounds for disputing the debt, the more it comes into prominence.” (§101). 

(4)  In other words, “a dispute that borders on the frivolous or abuse of process” (§105)  would be a countervailing factor for allowing the petition, notwithstanding the parties’ contractual agreement otherwise. 

32.  On the other hand, Mr Kwong submits that the “the default position” is that the parties should be held to the arbitration clause:

(1)  In an ordinary case where the underlying dispute of the petitioning debt was subject to an exclusive jurisdiction clause (“EJC”)  or an arbitration clause, the court should dismiss the petition unless there are countervailing factors, such as the risk of the debtor’s insolvency impacting third parties, the debtor’s reliance on disputes that border on the frivolous, or an occurrence of an abuse of process (Guy Lam §§56-58[11],73-79[12], 94-107).

(2)  The “Established Approach”, that is, “a petitioner will ordinarily be entitled to a bankruptcy order (or in the case of corporate insolvency, a winding up order)  if the petition debt is not subject to a bona fide dispute on substantial grounds” is not appropriate where an EJC is involved (Guy Lam, §§61, 96, 105).

33.  The above arguments are very similar to those advanced by counsel in Re Simplicity & Vogue Retailing (HK)  Co., Ltd [2023] HKCFI 1443, where I held (§§35-37)  that:

“35. It seems to me that the ratio in Guy Lam only applies to EJC, not arbitration clause. As far as arbitration clause is concerned, the approach of the Companies Court is guided by the principles stated in the CA’s judgments in But Ka Chon and Sit Kwong Lam v Petrolimex Singapore Pte Ltd [2019] 5 HKLRD 646, §§33-39, and in deciding whether to exercise its discretion to dismiss or stay a petition where the parties have agreed to an arbitration clause, the court will also consider whether the requirements in Lasmos are satisfied.

36. The only other point made by Mr Smith is the absence of any supporting creditor which, he submits, is one of the 2 requirements for a petitioner to come within the exception discussed in Guy Lam. I do not read the CFA judgment as laying down any general rule that if the agreement which gave rise to the petitioning debt contains an arbitration clause and there are no supporting creditors to the petition, the court must dismiss or stay the winding-up petition.

  37.  It does not seem to me to be right that once there is an arbitration clause in the agreement which gave rise to the petitioning debt, the Companies Court should invariably refuse to consider the merit of the ‘defence’ raised by the company and require the parties to litigate their dispute in arbitration.  There is no reason why the Companies Court should adopt such a mechanistic approach or fetter the exercise of its discretion in this way.  In my view, where, as here, the company raises a substantive ‘defence’ to the petitioning debt, the court should consider whether the ‘defence’ is one which can readily be shown to be wholly without merit.  If the court is able to come to that view without considering any detailed arguments or disputed evidence, it would have no difficulty in concluding that the ‘defence’ is one which ‘borders on the frivolous or abuse of process’ even if Guy Lam approach applies.  There is no proper basis to require the parties to refer their ‘dispute’ to arbitration in the absence of any genuine ‘dispute’ in respect of the debt.”  

34.  However, it seems to me that the real issue is not whether the court should follow the Guy Lam approach, but whether the Company should be allowed to withhold payment of the Debt until determination of its cross-claim in the Arbitration.  For the reasons explained in §§35-42 below, I do not think that the Company should be allowed to do so.   

35.  While Mr Kwong contends that “the parties shall be held to their contractual bargain”, he is unable to articulate any basis as to why the Company should not be held to the contractual bargain under the Supply Agreements and pay the Debt fallen due.  There is simply no provision in the Supply Agreements which gives a right to the Company to withhold payment of the Debt, still less until determination of its cross-claim under a different agreement (i.e. the APA). 

36.  Mr Lai points to Re Hongkong Bai Yuan §40; Re Silver Base §41 where this Court held that the company cannot withhold payment of a debt pending determination of a cross-claim arose out of a different contract.  In Silver Base, this Court said:

“(1)  In many of the cases in which the court has to consider whether the company has a serious cross-claim, the claim arose out of the same contract which gave rise to the petition debt. One can see that it would be unjust or inequitable to allow the petitioner to seek a winding up order against the company when the company has a serious cross-claim against the petitioner under the same contract. However, it seems to me that the same consideration does not apply, at any rate with the same force, when the cross-claim arose out of separate contract and has nothing to do with the debt in question.

(2)  In Re Hongkong Bai Yuan International Business Co., Ltd, [2022] HKCFI 960, §40, I held that even if the company has a serious cross-claim against the petitioner for breach of other contracts (Honesty Contracts)  entered into between them, it does not provide a valid basis for the company not to pay the petitioning debt admittedly owed to the petitioner pursuant to the subject contracts (Clarity Contracts)  until after determination of the company’s cross-claim. There are 2 reasons for this: (a)  it would be tantamount to conferring a right on the company to retain the petitioner’s money as a security for the company’s cross-claim; and (b)  the cross-claim arose out of different contracts and had nothing to do with the contract which gave rise to the debt.” (underlined added)

37.  Mr Kwong does not dispute the above principle but contends that the Debt and the cross-claim arose out of the “same agreement”[13], and the APA has to be read together with the Supply Agreements.  Reliance is placed on clause 18.1 (“Arbitration Clause”)  and clause 18.7 of the APA (“EAC”)  which states as follows:

“Entire Agreement. This Agreement (together with the License Agreement and the Supply Agreement[14])  constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, between the Parties with respect to the subject matter hereof. For avoidance of any possible doubt, the transactions as contemplated under the License Agreement shall be deemed as part of the transactions under this Agreement and terms or conditions as provided in this Agreement, to the extent they are pertaining to or in connection with the Licensed Assets, shall apply automatically to the transactions under the License Agreement.”

38.  Mr Lai does not dispute that the “Supply Agreement” referred to in the EAC is the Supply Agreements pursuant to which the Petitioner supplied the Products.  He submits that there is no connection between the Debt and the cross-claim, as the former arose out of the Supply Agreements while the latter arose out of the APA. 

39.  In my view, neither the Arbitration Clause nor the EAC have the effect of rendering the APA and the Supply Agreements to become the “same agreement” as submitted by Mr Kwong:

(1)  The Arbitration Clause requires the parties to submit their dispute “arising out of or in connection with this Agreement”, which is a reference to the APA.  This construction is reinforced by the reference to “the Supply or the Licensing Agreement” immediately after the words “this Agreement”.  If the meaning of “this Agreement” included the Supply Agreements, it would not be necessary to include “the Supply or the Licensing Agreement” immediately after “this Agreement”.

(2)  The first sentence of the EAC operates to exclude the parties from relying on any prior agreements, understandings with respect to the subject matter of the APA.  It does not contain any provision which makes the Supply Agreements to become the “same agreement” as the APA. 

(3)  As for the second sentence of the EAC, which states that “the transactions as contemplated under the License Agreement shall be deemed as part of the transactions under this Agreement [i.e. APA]”, it only refers to the License Agreement, but not the Supply Agreements. 

40.  It follows that there is no proper basis for the Company to contend that the Debt and the cross-claim arose out of the “same agreement”.  Indeed, had the parties intended the Supply Agreements and the APA be treated as the “same agreements” or that any amount due under one agreement should not be paid until determination of any claim under the other agreement, they could have included such provision in the Supply Agreements and/or the APA.  The parties did not do so.  There is no reason why the court should impose such provision or re-write the agreements for them. 

41.  Moreover, as submitted by Mr Lai, the Debt and the cross-claim are completely unrelated to each other in that:

(1)  The Debt arose out of the supply and storage of the Products from April to September 2020 pursuant to the Supply Agreements and the Side Letters. 

(2)  The cross-claim arose out of the alleged breach of the APA that was allegedly discovered in late 2018, and ceased by November 2019 when the Company obtained a new export licence from ANSM.

(3)  In other words, despite its knowledge of the alleged breach, the Company continued to buy the Products from the Petitioner from April to September 2020 without any complaint or problem.

42.  Further and in any event, there is no suggestion that the cross-claim would be stifled if the Company is required to pay the Debt now.  This is not surprising as it is the Company’s case that it is “immensely solvent” with very substantial net assets.  Nor is there any suggestion that the Petitioner would not be able to pay any damages which may be awarded against it in the Arbitration. 

43.  That being the position, I do not think that there is any proper basis to dismiss or stay the Petition.  It is not necessary to consider the respective contentions advanced by counsel on the merit of the cross-claim.  This is particularly so when the parties have already filed their pleadings in the Arbitration, and the same will be heard in June 2024. 

44.  Nevertheless, in case this matter goes further, I will briefly state my view on the cross-claim on the basis of the evidence and arguments adduced and advanced by the parties.   

45.  I do not think that the Company has discharged the burden of showing that it has a serious cross-claim against the Petitioner for US$30 million given that:

(1)  The Company has not given any particulars on the alleged loss of US$30 million.  Nor has the Company filed any evidence in support of the assertion that it has in fact suffered such loss.

(2)  By contrast, as one can see in the 2021 AFS, the Company remained profitable for the year ended 31 December 2020, which covered the period during the Company had allegedly suffered loss of profit (up to October 2019, according to the Company’s case).

(3)  No person who has personal knowledge of the facts giving rise to the cross-claim has come forth to file any affirmation.  Ms Lee Ying who made 4 affirmations in these proceedings, does not say that she has any personal knowledge of the facts relating to the cross-claim.

(4)  The Swiss law evidence adduced by the Company does not take the matter any further.  In fact, the experts are in agreement that the Debt can only be extinguished, and the set-off will ultimately be successful, to the extent that the Company establishes its cross-claim. 

C.  DISPOSITION AND COSTS

46.  For the above reasons, I do not think that there is any valid ground for the Company to oppose the Petition. 

47.  As the Company appears to have the means to pay the Debt, I will adjourn the Petition to 24 July 2023 at 9:30am. If the Company pays the Debt before the hearing, an application can be made by consent to have the Petition be dismissed.

48.  If the Company wants to use the amount paid into court to pay the Debt, an application can be made by consent for payment out. This is necessary as Mr Kwong does not accept that the court has jurisdiction to direct the sum paid into court to be paid out to the Petitioner, notwithstanding Mr Lai’s submission that the court has jurisdiction to do so under Order 22A rule 1[15]

49.  As for costs, there is a costs order nisi that the costs of and occasioned by the Petition up to and including the costs of the hearing on 24 May 2023, including the costs of the Official Receiver, be paid by the Company to the Petitioner, to be taxed if not agreed.