RE XIWANG INVESTMENT COMPANY LTD

HCCW 30/2021

[2023] HKCFI 713

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 30 OF 2021

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JUDGMENT

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1.  This is the hearing of the Petitioner’s application to restore the Petition against the Company before the Companies Judge on a Monday morning.

2.  The substantive hearing of the Petition was originally set down for hearing on 26 October 2022. By a Consent Summons dated 25 October 2022, the parties invited the Court to make an Order that:

a. At para 1: The hearing on 26 October 2022 be vacated and adjourned to a date no earlier than 25 October 2023.

b. At para 2: Liberty to restore.

3.  The Court granted the Consent Order on 25 October 2022.

4.  Ms Yuen explains the reason for the present application is that the Company is in breach of a Standstill Agreement dated 24 October 2022 because after paying the 1st Principal Instalment of HK$5 million on 25 October 2022, the Company has failed to make any further payments to the Petitioner. According to the schedule set out in clause 2.1 of the Standstill Agreement, the Company, being a Judgment Debtor, had to pay an aggregate principal amount of HK$140 million by monthly instalments up to 20 December 2023.

5.  Ms Law frankly and properly indicates to this court there is no dispute as to the existence and terms of the Standstill Agreement or that the Company is in breach of it.

6.  The Company’s failure to adhere to the payment Schedule after the making of the Consent Order is of course unsatisfactory and understandably, the Petitioner wishes to restore the winding up petition against the Company as soon as practicable.

7.  The issue before this court is the proper construction of the Consent Order.

8.  There is no dispute between the parties as to the principles on the interpretation of documents and there is no need for this court to dwell on them at length.

9.  First, in the Judgment of Au-Yueng J in Re Chung Winston (a debtor) [2013] 2 HKLRD 649 at [30] and [31], the learned Judge observed:

“30. A consent order must be interpreted in the light of its factual matrix and construed as a commercial instrument. In ICS Ltd v West Bromwich Building Society [1998] 1 WLR 896, 912-3:

“(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.

(2) The background was famously referred to by Lord Wilberforce as the “matrix of fact”, but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.

‘…if detailed semantic and syntactic analysis of words in a commercial contract is going to lead to a conclusion that flouts business common sense, it must be made to yield to business common sense.’” (emphasis added)

31. In Sirius International Insurance Co v FAI General Insurance Ltd [2004] 1 WLR 3251, para 18-19, Lord Steyn says:

“The settlement contained in the Tomlin order must be construed as a commercial instrument. The aim of the inquiry is not to probe the real intentions of the parties but to ascertain the contextual meaning of the relevant contractual language. The inquiry is objective: the question is what a reasonable person, circumstanced as the actual parties were, would have understood the parties to have meant by the use of specific language. The answer to that question is to be gathered from the text under consideration and its relevant contextual scene.

There has been a shift from literal methods of interpretation towards a more commercial approach. … The tendency should therefore generally speaking be against literalism…”(emphasis added)

10.  Next, the presumption against surplusage, which “can carry greater weight in a bespoke contract in the context of a clause designed to meet the exigencies of a particular arrangement”: as referred to by Lam VP (as he then was) in Sino Channel Holdings Ltd v Vast Faith Investment Ltd [2020] 2 HKLRD 1286 at [45].

11.  Ms Yuen submits the Petitioner is entitled to invoke the “liberty to restore” under para 2 if the Company defaults in payment under the Standstill Agreement. In particular, she submits that the Consent Order (which is based on the Consent Summons prepared and agreed by the parties) must be construed against its factual matrix which includes the following:

a. The Standstill Agreement was signed on 24 October 2022. The Consent Summons was filed in accordance with Clause 2.5 thereof to seek a 12-month adjournment upon the Company’s due payment of the 1^st Principal Instalment.

b. Under Clause 2.4 of the Standstill Agreement, if the Company fails to pay any Principal Instalment by the due date, which constitutes a “Relevant Event”, any standstill in relation to the Petition shall be automatically cancelled as of such date and the Judgment Debt shall be enforceable in its original terms.

c. Clause 2.5 makes clear reference to the Petitioner’s right to restore or present a fresh petition at any time after a “Relevant Event” has occurred, even after the Petition has been withdrawn upon the Company paying an aggregate of HK$20 million of Principal Instalments.

12.  The Company disagrees. Ms Law submits that the ordinary and natural meaning of the words used in paras 1-2 of the Consent Order is plain.

a. Under para 1: The Hearing of the Petition is vacated and adjourned to a date no earlier than 25 October 2023.

b. Para 2 simply provides for “Liberty to restore”.

13.  Ms Law submits that what the Petitioner now proposes to do is to circumvent the parties’ clear agreement embodied in para 1 of the Consent Order by resorting to “Liberty to restore” such that the time frame in para 1 of “not earlier than 25 October 2023” can be ignored. Further, the Petitioner’s interpretation that it can invoke the “liberty to restore” if the Company defaults in payment under the Standstill Agreement is to unilaterally add words to para 2 which are not there. Lastly, she submits that the Petitioner’s interpretation appears to confer a benefit only on the Petitioner and not the Company ie to unilaterally restore the Petition on certain unspecified conditions.

14.  According to Ms Law, the proper construction of the Consent Order means either party would be at liberty to restore the Hearing of the Petition on a date no earlier than 25 October 2023.

15.  This court agrees that the Liberty to restore is there not just for the benefit of the Petitioner in the sense that either party should be able to invoke it if there is sufficient justification, but this court does not agree that the liberty to restore can only be invoked after 25 October 2023.

16.  Given that the Petition is adjourned only up to 25 October 2023, it goes without saying that any party can restore the Petition after that date, e.g. if either party wishes to restore the Petition for the purpose of arguing costs or for its dismissal or both. The Company’s construction of the Consent Order effectively means para 2 is redundant. In this regard, the presumption against surplusage is clearly relevant.

17.  Since the liberty to restore in para 2 is open-ended without any conditions limiting the circumstances under which it can be invoked, it is really up to either party to restore it upon good cause being shown.

18.  There is no dispute that the Consent Summons was filed under the Standstill Agreement so it seems entirely reasonable to construe it in light of the terms of the Standstill Agreement. In this regard, Clause 2.4 of the Standstill Agreement is obviously an important term since it provides what should happen if the Company defaults in making payment of any Principal Instalment by the due date under the Schedule ie any standstill in relation to the Petition shall be automatically cancelled, which is what happens here.

19.  The matter can be tested in this way: suppose 1 day after the Consent Order was made, the Company immediately repudiated the Standstill Agreement by declaring that it was not going to pay at all, is the Petitioner expected to wait for a year until after 25 October 2023 in order to restore the Petition? This is such a commercially absurd result that it is difficult for this court to accept this is what the parties have intended. But if the Company’s construction of the Consent Order is correct, this is going to be the result.

20.  Fortunately, the authorities do not compel this court to construe the Consent Order in this way. In fact, the opposite is true. As suggested by Lord Steyn in Sirius International Insurance Co v FAI General Insurance, there has been a shift from literal methods of interpretation towards a more commercial approach and the tendency should therefore generally speaking be against literalism.

21.  Adopting a more commercial approach, this court is of the view that in the circumstances of this case, the Petitioner is entitled to restore the Petition before the Companies Judge and shall so rule.