RE GUY KWOK-HUNG LAM

HCB 4115/2020

[2021] HKCFI 2135

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 4115 OF 2020

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HCMP 1647/2020

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1647 OF 2020

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J U D G M E N T

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1.  There are 2 proceedings before the Court:

(1)  A petition presented by Tor Asia Credit Master Fund LP (“Petitioner”) on 15 June 2020 (as amended on 12 October 2020) (“Petition”) seeking a bankruptcy order against Mr Lam Kwok-Hung Guy (“Lam”).

(2)  An originating summons (“OS”) issued by the 1^st plaintiff, CP Global Inc. (receivers and managers appointed) (“Borrower”), and the 2^nd plaintiff, CP Assets Limited (“CP Assets”), (together “Ps”) on 5 October 2020 for an injunction against Lam and Ms Cindy Fung (“Fung”) (together “Ds”) to compel them (a) to deliver up the books, records and assets of the Borrower and CP Assets which are in their possession or control, (b) to allow the “Receivers” (as defined in §20(2) below) and the incumbent directors of Ps to have access to Ps’ business premises and assets, (c) to take steps to inform the registered agent and the bank to ignore Ds’ instructions and (d) to refrain from interfering with Ps’ relationships with their agent and bank or holding out as directors and representatives of Ps.  

A.     PRELIMINARIES

2.  The matters first came before this Court on 18 March 2021, but were adjourned to 9 June 2021, as it was clear from the 4 sets of skeletons then lodged by counsel[1] that the arguments (if all pursued) could not be completed within one day.  More importantly, neither team of counsel has sufficiently addressed an important point of law namely, whether in light of the “exclusive jurisdiction clause” (“EJC”) whereby the parties agreed to submit to the exclusive jurisdiction of the New York court for the purpose of all legal proceedings arising out of the Credit Agreement, it is open to the Petitioner to pursue the Petition in Hong Kong. 

3.  At the hearing on 18 March 2021, this Court indicated that it appears from the parties’ written submissions that Ps had the right to seek the relief sought in the OS and, in any event, it would be in the interests of all parties that the Receivers would be able to carry out their duties of managing the assets of Ps.  On these bases, Ds were invited to consider whether they would oppose the relief sought in the OS.  Upon taking further instructions, Mr John Hui (appearing with Mr Tommy Cheung) confirmed to the Court that Ds would not oppose the OS, but would reserve their right to argue on the costs of the OS.  Consequently, an order was made in terms of the OS, and the parties were directed to inform the Court whether they could reach any agreement on costs.

4.  By letter dated 25 March 2021, Messrs Robertsons (on behalf of Ds) informed the Court that no agreement had been reached, and the parties would argue on the costs of the OS at the adjourned hearing.

5.  Shortly before the adjourned hearing, on 31 May 2021, Lam filed notices of intention to act in person in both proceedings.  At the hearing, Lam appears in person. 

6.  As regards the costs of the OS, it has been agreed between Ps and Fung that there should be no order as to costs.  As for Lam, he maintains that Ps have no basis to pursue the relief sought in the OS for the same reasons he advanced in opposition to the Petition. 

B.     FACTUAL BACKGROUND

B1.    Parties

7.  The Petitioner is an exempted limited partnership formed and registered in the Cayman Islands.  The Borrower and its wholly owned subsidiary, CP Assets, are companies incorporated in the Cayman Islands. 

8.  The Borrower is the ultimate holding company of a group of companies engaging in the business of provision of aged care services in the Mainland (collectively “CP China Group”) and through CP Assets, holds 90.48% equity in CP Senior Care (Shenzhen) Co, Ltd (“CP Shenzhen”) which, in turn, holds 100% equity in a company which owns and operates elderly home referred to as “CP 5” and “CP 16” projects, and 90% indirect equity in CP Silver Beach Investment (Huidong) Co Ltd (“CP Silver Beach”) which owns and operates another elderly home referred to as “CP 18” project.   

9.  There is another group of companies providing aged care services in the United States of America (collectively “CP US Group”) with CP Holdings LLC (“CP Holdings”) at its apex. The CP US Group has been managed by Mr Andrew Oksner (“Oksner”) and Mr Bing Cong Lin who are their president/secretary or manager. 

10.  CP China Group and CP US Group will be referred to as “Groups”.  The charts showing the corporate structure of the Groups are annexed to this Judgment.

11.  Lam is a solicitor qualified to practise in Hong Kong.  He is the founder of the Groups.  He has 85% beneficial interest in CP Holdings and holds the only issued share in the Borrower (“Share”).  Until the enforcement of the “Equitable Mortgage” (as defined in §14(2) below) on 15 April 2020, Lam was the sole director of the Borrower and CP Assets and the Chairman of the Groups. 

12.  Fung is an employee based in Hong Kong and dealt with matters relating to the Groups.  Until 2 February 2021, she was a director of CP Shenzhen. 

B2.    Relevant agreements

13.  Pursuant to the credit and guaranty agreement dated 11 July 2017 entered into between, inter alios, the Borrower, the Petitioner (as lender), Lam (as personal guarantor) (“Credit Agreement”), the Petitioner advanced various term loans in the aggregate amount of US$29,500,000 (“Term Loans”) to the Borrower. 

14.  The Term Loans were secured by, inter alia, the following security executed in favour of the Petitioner:

(1)  The personal guarantee given by Lam under cl 10.01 of the Credit Agreement whereby he agreed to guarantee, as primary obligor, the payment in full of all amount due and owing by the Borrower without any demand or notice (“Guarantee”).

(2)  The equitable mortgage dated 11 July 2017 (“Equitable Mortgage”) executed by Lam whereby a first equitable mortgage was created over all of his interest and rights in the Share together with signed and undated letters of resignation as director of the Borrower and CP Assets and an irrevocable authorisation authorising the Petitioner to date such letters of authorisation upon an event of default.

(3)  The security agreement dated 11 July 2017 (“Security Agreement”) executed by the Borrower creating a charge over most of its assets (except the Share and other specified assets) (“Assets”).

(4)  The security and pledge agreement dated 11 July 2017 executed by CP Holdings and some of its subsidiaries over the issued equity interests they owned in the subsidiaries within the CP US Group together with the “Collateral” specified therein (“Security and Pledge Agreement”).

(5)  The equitable mortgage dated 12 August 2019 executed by the Borrower over all the issued shares in CP Assets. 

(6)  The equity pledge dated 12 August 2019 executed by CP Assets over the 90.48% equity in CP Shenzhen.

15.  The parties agreed to amend the Credit Agreement by entering into the following agreements:

(1)  an amendment and joinder to credit and guaranty agreement dated 31 July 2017 (“1^st Amendment Agreement”);

(2)  a second amendment to credit and guaranty agreement dated 6 December 2017 (“2^nd Amendment Agreement”); and

(3)  a waiver, third amendment and joinder to credit and guaranty agreement dated 22 June 2019 (“3^rd Amendment Agreement”).   

16.  Prior to entering into the 3^rd Amendment Agreement, there were multiple events of default including the Borrower’s failure to pay accrued cash interest by 31 December 2018 and 29 March 2019, and to repay the  Term Loans by their original due date of 12 July 2019.   

17.  Under the 3^rd Amendment Agreement the parties agreed, inter alia, that (1) there had been events of default under the Credit Agreement (as amended), (2) the Petitioner agreed to waive such events of default upon compliance with all the conditions stipulated in Part 2 therein, and (3) the Term Loans would become due and payable by 31 December 2019. 

18.  Under cl 2.04(b) of the Credit Agreement, the Borrower has the option to extend the maturity date of the Term Loans from 31 December 2019 to 13 July 2020 upon payment of an extension fee equivalent to 0.5% of the principal amount to be extended and the “Pay Down Amount” (as defined therein) on or before 31 December 2019.  The Borrower did not exercise the option.

B3.    Event of default

19.  The Borrower did not repay the Term Loans by 31 December 2019 which constituted an event of default under cl 2.04(a) and cl 9.01(a).  Nor did Lam repay the Term Loans. 

20.  On 15 April 2020, the Petitioner took steps to enforce the security provided by the various parties.  These included:

(1)  issuing notice to exercise its rights under the Security and Pledge Agreement to replace the managers/directors of the companies listed (all of which are companies within the CP US Group) with the new manager/director nominated by the Petitioner;

(2)  exercising the right under cl 9.1 of the Equitable Mortgage and cl 12.1 of the Security Agreement to appoint Mr John Batchelor and Mr Andrew Morrison (together “Receivers”) as the joint and several receivers and managers of the Share and the Assets; and

(3)  exercising the right under cl 7.2 of the Equitable Mortgage to accept Lam’s resignation as director of the Borrower.

21.  Also on 15 April 2020, the Receivers (qua agents of the sole shareholder of the Borrower) passed resolution to appoint FTI Director Services Limited as the sole director of the Borrower and accept the resignation of Lam as director of CP Assets.  The Borrower and Lam were notified of the appointments and changes on 15 and 16 April 2020.

B4.    Texas proceedings

22.  On 7 May 2020, Lam filed a petition in the District Court of Dallas County, Texas, against the Petitioner seeking, inter alia, a declaration that his obligations under the Credit Agreement are invalid, and that the Petitioner was not entitled to replace the managers/directors of the various companies within the CP US Group (“Texas proceedings”).   

23.  The Texas proceedings were amended on 21 May 2020 by joining Oksner as a defendant and adding new allegations that Oksner had acted in breach of his fiduciary duties owed to Lam and had conspired with the Petitioner to enable the latter to seize the assets of the Borrower, CP Holdings, their subsidiaries and Lam during the period from December 2019 to the date of appointment of the Receivers.  The alleged conspiracy involved Oksner:

(1)  delaying the closing of a US$10 million loan to be granted by Bank Leumi (“Leumi Loan”) no later than February 2020;

(2)  stopping Lam from entering into an agreement with, and signing a personal guarantee in favour of, Bank Leumi, which was one of the conditions precedent required by Bank Leumi; and

(3)  providing confidential and privileged information to the Petitioner. 

24.  On the basis of these allegations, Lam claims damages against Oksner and the Petitioner for loss of the assets provided as security for the Term Loans the value of which is said to be in excess of US$50 million. 

B5.    Statutory demand

25.  On 20 May 2020, the Petitioner served a statutory demand (“SD”) on Lam, requiring him to pay US$41,297,644.93 (“Debt”), being the outstanding principal (US$48,057,003.64) plus interest accrued up to 15 April 2020 (US$540,641.29) less the estimated value of the Equitable Mortgage (US$7,300,000.00).   

26.  Lam did not pay the Debt within the time stipulated.  On 15 June 2020, the Petition was presented in respect of the Debt, being the unsecured part of the debt owed by Lam, as required by s 6B(2) of the Bankruptcy Ordinance (Cap 6) (“BO”).  By virtue of s 6A(1)(a) of the BO, the Petitioner has discharged the onus of showing that Lam is unable to pay his debts as required by s 6(2)(c) of the BO. 

B6.    Cayman proceedings

27.  On 1 June 2020, Lam commenced proceedings in Cayman Islands to challenge the validity of the appointment of the Receivers, but he discontinued the proceedings on 21 October 2020. 

B7.    New York proceedings

28.  It was only until 14 April 2021 that Lam commenced proceedings in the New York courts against the Petitioner (“New York proceedings”).  In the New York proceedings, Lam alleges that:

(1)  the value of the assets owned by his company (presumably the Borrower) exceeds US$70 million[2];

(2)  a term sheet in respect of a US$22 million loan to be advanced to a subsidiary of CP Holdings (Pacrim US LLC) had been signed with Bank Leumi on 20 December 2019, which required, inter alia, (a) the Petitioner to subordinate part of its security to Bank Leumi and (b) Lam giving a “significant personal guarantee” to Bank Leumi.  Lam only signed a “limited guarantee agreement relating to the Bank Leumi financing” on 7 April 2020[3];

(3)  prior to appointment of the Receivers, the Petitioner had not provided any prior notice of any potential event of default to the Borrower, Lam or any of the guarantors[4];

(4)  the Petitioner was not entitled to seize the assets of the Borrower or to replace any of the managers/directors of the companies within the CP US Group as there “is no currently existing event of default that has not been waived” by the Petitioner, and the Petitioner should be “estopped from claiming any such event of default exists”[5].  For the same reasons, the Petitioner acted in breach of its contractual duties under the Credit Agreement[6]; and

(5)  the Petitioner failed to act in good faith in that it did not follow the “established pattern” in (a) raising concerns relating to potential events of default under the Credit Agreement, (b) providing notice to the Borrower and the guarantors of its concerns and issues, (c) making “reasonable accommodations to address the concerns” of the Petitioner, and (d) amending their agreements including through the execution of Waiver.  The Petitioner’s sudden attempt to declare an event of default on 15 April 2020 constituted “a breach of the implied covenant of good faith and fair dealing”[7]. For the same reasons, the Petitioner should be estopped from claiming that an event of default exists[8].

29.  On the basis of the above allegations, Lam claims (1) a declaration that there was no event of default under the Credit Agreement and the Petitioner was not entitled to appoint the Receivers or to take control over the assets provided as security for the Term Loans, (2) an injunction to enjoin the Petitioner from taking any action in breach of the contractual duties under the Credit Agreement, and (3) damages for “breach of the covenant of good faith and fair dealing”. 

30.  It is not in dispute that the conditions for the grant of the Leumi Loan (whether in the amount of US$10 million or US$22 million) have not been met, as the guarantee signed by Lam is a “limited guarantee” and the Petitioner never agreed to subordinate any part of the security it holds in favour of Bank Leumi. 

C.     DISCUSSION

C1.    Applicable principles

31.  The principle are not in dispute.  The burden is on Lam to demonstrate by sufficiently precise factual evidence that there is a bona fide dispute on substantial ground in respect of the Debt.  It is not enough to raise a cloud of objections on affidavit.  The Court would caution itself against unsubstantiated and unparticularized assertions (Re Cheung Chi Mang [2018] HKCFI 984, §13(3), per Ng J; Re Cheung Kwan [2020] HKCFI 1033, §§30-31).

C2.    Grounds in opposition

32.  In his written submissions, Mr John Hui (appearing with Mr Tommy Cheung) raises the following grounds in opposition to the Petition:

(1)  The Petitioner is a “fully secured creditor” and hence has no entitlement to issue the Petition (Secured Creditor ground).

(2)  The Term Loans are unenforceable by reason of their contravention of the Money Lenders Ordinance (Cap 163) (“MLO”) (MLO ground). 

(3)  The Petitioner has no present right to enforce the Term Loans by reason of the doctrines of estoppel and/or waiver (Estoppel ground).

(4)  Lam has a genuine counterclaim in conspiracy against the Petitioner with damages which exceed the Debt (Counterclaim ground).

(5)  The Petitioneris required to litigate the dispute in the New York court before coming to Hong Kong to invoke the bankruptcy regime (EJC ground).

(6)  The Court should exercise its residual discretion to dismiss the Petition having regard to (a) the points summarised in §(1), (3)-(5) above, (b) the value of the other security provided by the Borrower and other parties described in §14 above, and (c) the fact that Lam has been working very hard to re-finance the Term Loans and, as such, there is a real prospect of the Petitioner being able to obtain more recovery than seeking to bankrupt Lam (Discretion ground). 

33.  In his “Amended Notes” and oral submissions, Lam essentially repeats the same points made by Mr Hui.

C3.    EJC ground

34.  The Credit Agreement contains an EJC in this term:

“EACH PARTY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND OF THE SUPREME COURT OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY … FOR THE PURPOSES OF ALL LEGAL PROCEEDINGS arising out of or relating to this LOAN agreement or the other loan documents or the transactions contemplated hereby OR THEREBY …”.

35.  Mr Hui contends that freedom of contract should generally be respected by the Court, and an EJC should be strictly enforced (De Monsa Investments Ltd v Whole Win Management Fund Ltd (2013) 16 HKCFAR 419 at §100 per Litton PJ).  Reliance is placed on Re Southwest Pacific Bauxite (HK) Ltd [2018] 2 HKLRD 449 (Lasmos), where Harris J held that a winding up petition should generally be dismissed if (1) the company disputed the debt, (2) the contract contained an arbitration clause that covered any dispute relating to the debt, and (3) the company commenced the contractually mandated dispute resolution process and filed an affirmation in accordance with rule 32 of the Companies (Winding Up) Rules (Cap 32H) demonstrating this.  Such requirements are consistent with the principle that the Companies Court would hold a creditor to his contractual bargain to resolve any dispute by arbitration. 

36.  Mr Hui submits that the third requirement expounded in Lasmosis satisfied given that Lam has commenced the Texas proceedings to challenge the enforceability of the Term Loans. The Petitioner retorted by applying for dismissal of the proceedings on the ground that by reason of the EJC the proper forum for resolution of the dispute is New York court.  Having taken such a stance, the Petitioner cannot “blow hot and cold” and ask this Court to adjudicate the parties’ dispute in Hong Kong.  Given the complexity of the dispute between the parties, it is “fair and just” to compel the Petitioner to establish Lam’s liability under a “full-blown trial in New York (and/or other foreign jurisdictions) before invoking the draconian summary procedure of bankruptcy petition in Hong Kong”.   

37.  On the other hand, Mr Maurellet SC (leading Mr Nick Luxton) argues that the Court should not apply the Lasmos approach to the Petition for the following reasons:

(1)  there is a settled understanding of the law that an EJC does not prevent a winding up/bankruptcy petition from being presented in an appropriate jurisdiction (1^st point);

(2)  the Lasmos approach has not been applied, and should not be extended, to an EJC (2^nd point); and

(3)  the Lasmos case is also unsound on its own terms in the arbitration context (3^rd point).

38.  On the 1^st point, Mr Maurellet relies on the following passage in French, Applications to Wind Up Companies, 4^th ed, §7.637 where the learned editor states that an EJC does not preclude the Court from considering a winding up petition in this way:

“The fact that a creditor petitioner and the company sought to be wound up have agreed that a court outside England and Wales is to have exclusive jurisdiction to decide disputes about the debt on which the petition is based does not preclude the English court from deciding whether there is a dispute about the debt sufficient to prevent the winding-up petition proceeding.”

39.  The 2 cases referred to in French are:

(1)  BST Properties v Reorg Apport Penzugyi RT [2001] EWCA Civ 1997, where the loan agreement contained an EJC requiring the parties to litigate their dispute in Hungary (§15).  At the hearing below, Laddie J applied the test whether the petition debt was bona fide disputed on substantial grounds and concluded that the contention advanced by the company was incredible and dismissed the company’s application to strike out the petition. On appeal, Parker LJ agreed with the observations of Chadwick LJ[9] that the company had no prospect of success in the intended appeal against the order and held that the existence of the EJC “does not affect the question which was facing the Companies Court, namely whether the petition debt is bona fide disputed on substantial grounds” (§§28-31). 

(2)  Citigate Dewe Rogerson Limited v Artaban Public Affairs Sprl [2011] 1 BCLC 625 whereHHJ Hodge QC (as he then was) refused to grant an injunction to restrain the respondent from presenting a winding up petition against the applicant/company notwithstanding the agreement contained an EJC requiring the parties to litigate their dispute in Belgium and the respondent had already commenced proceedings in Belgium to claim (inter alia) the debt the subject matter of the statutory demand.  The learned Judge concluded that he did not regard the winding up petition was bound to fail (§43).  In dealing with the applicant/company’s contention that it was an abuse of process for the respondent to present a winding up petition in reliance on the debt, the Judge said (§35):

“… I have already decided that the appropriate, and only appropriate, forum for winding-up proceedings in relation to the company is the Companies Court in this jurisdiction. In those circumstances, it does not seem to me that it can constitute an abuse of the process, absent any bona fide dispute as to the validity of the invoices, for the respondent to invoke the winding-up jurisdiction of the Companies Court here. I simply cannot see that it is an abuse of the process for the respondent, if otherwise entitled, to invoke the class remedy inherent in its jurisdiction to wind up a company registered in England and Wales.” (underlined added)

40.  In both BST and Citigate, the approach of the English court is to ask whether there is a bona fide dispute on substantial ground in respect of the debt even though the agreement which gave rise to the debt contained an EJC.

41.  Mr Maurellet refers to the following cases where the courts in New South Wales and the BVI adopted the same approach as the English court notwithstanding that the agreement giving rise to the debt contained an EJC requiring the parties to litigate their dispute in other jurisdiction:

(1)  New South Wales: Re International Materials & Technologies Pty Ltd [2014] NSWSC 168, §16, Black J followed Reinsurance Australia Corporation Ltd v Odyssey Re (Bermuda) Ltd [2000] NSWSC 1118 where the Master held that the issue of a statutory demand was permissible notwithstanding that an EJC in favour of the English court (and the subsequent cases adopting the same approach).

(2)  BVI: De Wet v Vascon Trading Limited (BVIHCV (Com) 2011/0129, 6 December 2011), §§16-17, Bannister J followed inter alia the English authorities and held that the Court must first decide whether there is a dispute at all.  If the evidence discloses no ground for challenging the debt, it is irrelevant that there may be an EJC or an arbitration clause in the agreement.

42.  In all the above cases, the Courts did not regard the existence of an EJC in the agreement would prevent the creditor from presenting a winding up petition against the company.  Instead, the approach of the Courts was to ask whether the company had demonstrated by evidence that the debt was bona fide disputed on substantial grounds. 

43.  As regards the 2^nd point, Mr Maurellet contends that there are 3 additional and inter-related reasons for not applying the Lasmos approach to an EJC:-

(1)  First, there is no need for a creditor to first obtain judgment before presenting a petition (French, §7.39).  This is of fundamental importance to the creditor, as the date of bankruptcy/winding up is crucial for unwinding questionable transactions, and for staying other creditors’ piecemeal enforcement in favour of the collective mechanism (Hung Yip (HK) Engineering Co Ltd v Kinli Civil Engineering Ltd [2021] 1 HKLRD 860, §14).

(2)  A bare EJC (such as the present case) cannot be read to abandon the timely exercise of the right to present winding up petition or to defer it until a judgment is obtained, without clear words to require the creditor to do so.  It has been held that the more valuable a statutory right, the clearer the language will need to be to curtail or abandon the right, as a matter of general contractual principles (Bahamas Oil Refining Company International Limited v the Owners of the Cape Bari Tankschiffahrts [2016] UKPC 20 at §§31-32, 37 per Lord Clarke). 

(3)  It would have been easy to insert an express requirement on the creditor to first obtain judgment before presenting a petition but the EJC in this case did not do so.

44.  Further, Mr Maurellet contends that while there may be superficial similarities between an EJC and an arbitration clause in terms of their practical effect, the Court “should be cautious in cross-fertilizing the Lasmos approach developed in the specific context of arbitration clauses to EJCs”:-

(1)  The Commonwealth authorities are fairly settled in that an EJC would not by itself preclude a winding up order from being granted if there is no bona fide dispute.

(2)  In Salford Estates (No 2) Ltd v Altomart Ltd (No 2) [2015] Ch 589, the very case from which the Lasmos approach is derived, the English Court of Appeal also confined its policy-based analysis to arbitration clauses.

(3)  Harris J’s analysis was undoubtedly shaped by the policies underscoring the Arbitration Ordinance (Cap 609) and the primary aim of the Court to facilitate the arbitral process and “strongly supportive of the development of arbitration” (Lasmos §§15-21), broadly following Salford Estates (No 2) Ltd v Altomart Ltd (No 2) [2015] Ch 589.

(4)  In Joseph Ghossoub v Y&R Holdings Hong Kong Ltd (CACV 6/2017, 21 July 2017), the Court of Appeal recognised that the analogy between the two types of clauses is not exact (§37), as while (subject to limits of arbitrability) the parties can confer jurisdiction on a tribunal as they wish, parties are not at liberty to confer jurisdiction on the court by agreement where there is none. 

45.  Even if the EJC can be read to require the Petitioner to first obtain a judgment in accordance with the agreed forum, there is “strong cause” not to enforce an EJC (Joseph Ghossoub at §42).  The “strong cause” in the present case is that the clause improperly curtails the Petitioner’s statutory right to petition for Lam’s bankruptcy (§46(2)(a) below). 

46.  On the 3^rd point, Mr Maurellet submits that there are ample Hong Kong authorities that are at odds with the Lasmos analysis. 

(1)  As summarised in Re Asia Master Logistics Ltd [2020] 2 HKLRD 423, §57, pre-Lasmos, the Court invariably held that an arbitration clause per se cannot prevent a winding up order from being made (Re Sky Datamann (Hong Kong) Ltd (HCCW 487/2001, 29 January 2002) per Yuen J (as she then was); Re Jade Union Investment Ltd (HCCW 400/2003, 5 March 2004) per Barma J (as he then was); and Re Southern Materials Holding (HK) Co Ltd (HCCW 281/2007, 13 February 2008) per Kwan J (as she then was)).

(2)  Post-Lasmos, the Court has expressed doubts over the approach and the reasons may be summarised as follows:

(a)  It would be contrary to public policy to fetter the statutory right conferred on a creditor to petition for bankruptcy or winding up (But Ka Chon v Interactive Brokers LLC, [2019] 4 HKLRD 85, §§63-67; Re Sit Kwong Lam, [2019] 2 HKLRD 924, §26). 

(b)  A creditor seeking a winding up/bankruptcy order is pursuing a class remedy, not an order that the debtor pays the debt (Re Sky Datamann (Hong Kong) Ltd, §12; Re Jade Union Investment Ltd, §18).  Even if a winding up/bankruptcy order is made, the creditor still has to submit a proof of debt, along with other creditors and require adjudication, in which case the arbitration clause could bind the liquidator (Re Asia Master Logistics Ltd, §78).

(c)  The commencement of a winding up/bankruptcy petition does not involve breach of an arbitration agreement, as the Court does not determine dispute when ruling on a creditor’s locus to wind up/bankrupt a debtor (Re Asia Master Logistics Ltd, §71)

47.  I am inclined to agree with the 1^st point made by Mr Maurellet.  While generally the Court would give effect to the contractual bargain reached between the parties, it does not take away or fetter the jurisdiction of the Court to determine whether the company should be wound up if the creditor has the locus to present the petition.  The jurisdiction of the court to wind up a company is conferred by s 177(1)[10] of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32) (“CWUO”), which applies to all companies incorporated in Hong Kong.  The provisions of the CWUO (and of the Companies Ordinance (Cap 622) (“CO”)) are applicable to all companies incorporated in Hong Kong. This has been described as the “statutory conditions” in Re Peveril Gold Mines [1898] 1 Ch 122[11]:

“These companies are the creature of statute, and by the statute to which they owe their being they must be bound in regard to shareholders as well as in regard to creditors in all matters coming within the conditions of the memorandum of association. Shareholders in these companies require protection just as much as creditors – perhaps even more … Their security in a great measure depends on the directors adhering to the requirements of the [Companies] Act [1862]… Any article contrary to these sections [of the Companies Act] – any article which says that the company is formed on the condition that its life shall not be terminated when any of the circumstances mentioned in s.79[12] exist, or which limits the right of a contributory under s.82[13] to petition for a winding-up, would be an attempt to enforce on all the shareholders that which is at variance with the statutory conditions, and is invalid.” (underlined added) (per Lindley LJ at 131)

“… In my opinion, this condition is annexed to the incorporation of a company with limited liability – that the company may be wound up under the circumstances, and at the instance of persons, prescribed by the Act, and the articles of association cannot validly provide that the shareholders, who are entitled under s.82 to petition for a winding up, shall not do so except on certain conditions. It was admitted in argument that a provision that no creditor or no contributory should petition, or that the company itself should not petition for a winding up, would be invalid. In my opinion, s.82 has laid down an essential condition, and the articles cannot provide that it shall not be fulfilled …” (underlined added) (per Chitty LJ at 132)

48.  The creditor has locus to present a winding up petition if there is no bona fide dispute on substantial ground in respect of the debt (Mann v Goldstein [1968] 1 WLR 1091, 1095E-F, 1099A-B, per Ungoed-Thomas J; Re Hyundai Engineering & Construction Co Ltd [2002] 2 HKLRD 354, §§27-29, per Kwan J (as she then was)).  The same approach has been applied by the Court in dealing with bankruptcy petition (Re Leung Cherng Jiunn [2016] 1 HKLRD 850, at §27, per Kwan JA (as she then was); Re Soetrisno Farida [2019] HKCFI 2756, at §11, per Ng J). 

49.  In my view, the fact that the parties have agreed to an arbitration clause or an EJC is only a factor which would be taken into account by the Court when considering a winding up/bankruptcy petition.  An EJC does not per se prevent the Companies Court from considering the issue whether the creditor has the locus to present a winding up/bankruptcy petition.  This is because unless and until the company/debtor is able to demonstrate to the Court that there is a bona fide dispute on substantial ground in respect of the debt, there is no proper basis for the company to contend that there is a dispute which must be litigated in accordance with the contractually agreed forum.  Putting it in another way, it would be a pointless exercise to require the creditor to first obtain an award or a judgment from the agreed forum when there is no real dispute on the debt.  Of course, where the debt is bona fide disputed on substantial ground and the creditor is aware that of the existence of such dispute before presenting the petition, it would be an abuse of process for the creditor to pursue the petition, instead of litigating the dispute in the usual way or in accordance with the contractually agreed clause.   

50.  Having considered the allegations made by Lam in the New York proceedings, I do not think that there is any bona fide dispute that (1) there was event of default under the Credit Agreement and, therefore, the Petitioner was entitled to enforce the security provided by the various parties, and (2) Lam was liable but failed to repay the Term Loans to the Petitioner on or before 31 December 2019. 

51.  First, it is clear from Lam’s allegations that the fact that CP Holdings’ subsidiary was not able to obtain the Leumi Loan was the result of its inability to satisfy the conditions imposed by Bank Leumi.  Leaving aside the fact that it was Lam’s own decision to sign a “limited guarantee” (as opposed to the guarantee requested by Bank Leumi), there is no basis for Lam to allege that the Petitioner acted in breach of the Credit Agreement or any duty whatsoever, given that the Petitioner has no obligation to subordinate any part of the security it held in favour of Bank Leumi.

52.  Second, the allegation that the Petitioner did not provide any prior notice of any potential event of default to the Borrower or Lam is wholly without merit.  The Credit Agreement (as amended) expressly provides that the Term Loans shall be repaid by 31 December 2019 unless the Borrower exercises the option to extend the maturity date, which the Borrower never did.  I am unable to see how the Borrower and Lam can blame the Petitioner for not giving any notice when they were fully aware of but decided to let the event of default took place on 31 December 2019.  In any event, the Petitioner did not take the enforcement action until 4½ months later.  If the Borrower or Lam had the financial means to repay the Term Loans, they could have made the repayment during this time so as to avoid the enforcement action taken by the Petitioner. 

53.  Third, as can be seen from the allegations made in the New York proceedings, other than the bold assertions that (1) there was no event of default which had not been waived by the Petitioner; (2) the Petitioner acted in breach of its contractual duties; and (3) the Petitioner failed to act in breach of the so-called “implied covenant of good faith and fair dealing” in not following the alleged “established pattern”, Lam has not been able to articulate any legal basis, whether under the terms of the Credit Agreement or under New York law, which impose the alleged “contractual duties” or duty of “good faith” on the Petitioner. 

54.  In any event, the alleged duties or covenant are demurrable as they are inconsistent with or contradicted by:

(1)  the express term of the Credit Agreement in particular, cl 12.01, which provides that:

“No amendment or waiver of any provision of any Loan Document, and no consent to any departure by the Borrower or any other Loan Party therefrom, shall be effective unless in writing executed by (1) the [Petitioner] and the Borrower or the Loan Parties party to the applicable Loan Document”

(2)  the conduct of the parties in entering into the 1^st Amendment Agreement, the 2^nd Amendment Agreement and the 3^rd Amendment Agreement so as to vary the terms of the Credit Agreement and give effect to such amendments. 

C4.    Secured creditor ground

55.  Mr Hui contends that the Petitioner is a “fully secured creditor” and hence has no entitlement to present the Petition.  For this purpose, s 6B of the BO provides that:

“(1) A debt which is the debt, or one of the debts, in respect of which a creditor’s petition is presented need not be unsecured if either—

(a) the petition contains a statement by the person having the right to enforce the security that he is willing, in the event of a bankruptcy order being made, to give up his security for the benefit of all the bankrupt’s creditors; or

(b) the petition is expressed not to be made in respect of the secured part of the debt and contains a statement by that person of the estimated value at the date of the petition of the security for the secured part of the debt.”

56.  Reliance is placed on Re Li Wing Sang [2019] HKCFI 924 where DHCJ R Ismail SC quoted s 6B of the BO and stated (at §23) that a debtor may “challenge a bankruptcy petition on the basis that there are substantial grounds for thinking that the petitioner might be fully secured” and Platts v Western Trust [1996] BPIR 339, 349F, per Nourse LJ where similar statement was made.

57.  In my view, the Petition satisfies the requirement of s 6B:

(1)  For the purpose of s 6B, only the security provided by the debtor is relevant.  See the definition of “secured creditor” in s 2 of the BO. 

(2)  If a debt is a secured debt, a creditor may present a petition in respect of the unsecured part of the debt, which is in the nature of a liquidated sum (Re Kwok Chok Yee [2000] 2 HKC 543, 546, per Le Pichon J (as she then was). 

(3)  In §§34-38 of the Petition, the Petitioner describes the Equitable Mortgage provided by Lam and provides an estimate of its value at US$7.3 million. 

58.  Mr Hui submits that the standard of proof as to the value of the security is not high in that Lam only needs to show “at least a real issue as to whether, after giving proper credit for the value of the security, the debtor was indebted to the petitioner at all” (Re Choi Chi Kwun [2000] 3 HKC 503, §8).  He contends that the Share has been undervalued by the Petitioner in that:

(1)  according to the “Valuation Report of the Market Value of 100 Percent Equity Interest in [CP Shenzhen]” prepared by Jones Lang La Salle (“JLL”), as at 31 August 2020, the value of CP Shenzhen is RMB 592 million (or US$90 million); and

(2)  in the consolidated accounts audited by Messrs He Cheng Certified Public Accountants dated 3 March 2021 (“Audit Report”), taking into account the liabilities of the Borrower and its subsidiaries, the value of the Borrower is RMB 324,872,842.

59.  I am unable to accept Mr Hui’s contention.  As can be seen from the Audit Report, as at 3 March 2021, the Borrower (together with its subsidiaries) had net liabilities of RMB 251,720,358.  It was only after the auditors adopted the JLL’s valuation on CP Shenzhen that the value of the Borrower became RMB 324,872,842.

60.  I do not consider JLL’s valuation reflects the current market value of CP Shenzhen given that:

(1)  it was prepared on the bases that (a) the projected business of CP Shenzhen would be according to its proposed business plan; and (b) JLL had “relied on the management representation on the future production plan in our analysis model” and the accuracy and forecast provided by CP Shenzhen, and took no responsibility for the accuracy of the information;

(2)  the financial projection produced by the management (i.e. Lam) forecasted the revenue of CP Shenzhen for 2020 at RMB 12 million, and a sudden increase to RMB 73 million in 2021, and then RMB 117 million in 2022, before increasing to RMB 171 million by 2030.  This does not accord with the undisputed fact that the revenue of CP China Group has dropped substantially between 2018 and 2019 (with less than 20% occupancy), and Lam’s acceptance at the hearing that the business of CP China Group has been adversely affected by COIVD-19 and has been in a very bad shape.  No credible evidence has been adduced by Lam to show that the assumptions relied on by JLL are correct or can be substantiated.   

61.  More importantly, in assessing the value of the Share, it is necessary to take into account the liabilities of the Borrower and its subsidiaries.  In this regard, it is not in dispute that there are the following major liabilities owed by the companies concerned:

(1)  RMB 110 million owed by CP Silver Beach to Country Garden (the company which holds 10% equity in CP Silver Beach) and Country Garden already obtained a preservation order from the Mainland court in respect of such liability;

(2)  RMB 8,907,562 owed by CP Shenzhen to DBS Singapore branch; and

(3)  CP Assets owed US$5 million to Mobigator (HK) Ltd.

62.  For these reasons alone, I am not satisfied that the Petitioner’s estimate on the value of the Share can be said to be unreasonable or that it constitutes an undervalue. 

63.  Mr Maurellet submits that the estimated value of the Share (US$7.3 million) was arrived at by the Petitioner based on the limited financial information available to it and had taken into account the following factors:

(1)  A valuation report dated 4 August 2017 prepared by Cushman & Wakefield (“Cushman”), which assessed the value of CP 18 project as at 28 July 2017 at RMB 410 million based on an assumed occupancy rate of 90% by September 2020.

(2)  The Petitioner applied a 50% discount on Cushman’s valuation to reflect the fact that CP 18 project had underperformed.  This was acknowledged by the managers of CP 18 project in their emails dated 8 August 2019, where they said “Prior management was not realistic and too optimistic in their bed ramp-up schedule.”It also accords with the “CP China – 2019 Q3 Executive Report to Board of Directors”, which reported the occupancy rate as at 30 September 2019 at 17%.

(3)  The 50% discount also took into account that the sale of CP 18 project would be a “forced market sale” of the company holding the project and without cooperation from its management.  A “forced sale” approach to valuation is appropriate (Re Choi Chi Kwun [2000] 3 HKC 503, 507).

(4)  The forced sale value of the Share would be even lower given that the Petitioner does not hold any security over CP 18 project.   

64.  I note that the above points were canvassed at some length in the Petitioner’s affirmations, but Lam has not been able to articulate any credible basis to refute them.  In light of the enforcement action which has been or may be taken by the creditors against the Borrower and its subsidiaries (including CP 18 project), and the adverse consequence on such companies, it seems to me that the estimated value of the Share, as stated by the Petitioner, is reasonable.   

C5.    MLO ground

65.  Mr Hui contends that the Petitioner is a “money lender” within the meaning of the MLO and, as the Petitioner did not have a valid money lender licence, the Credit Agreement is not enforceable against Lam under s 23 of the MLO.  The bases for suggesting that the Petitioner is a money lender, as stated in Lam’s affirmation, are as follows:

(1)  The loan amount at stake advanced by the Petitioner is “usually high”. 

(2)  The loan documents employed by the Petitioner are usually drafted by professional and with sophisticated mechanisms.

(3)  The Petitioner is familiar with the uses of collaterals and/or guarantees.

(4)  The Petitioner’s officers work in their office in Hong Kong. 

(5)  Lam met with the Petitioner’s officers at its Hong Kong office throughout the negotiation and afterwards.

(6)  The funds borrowed under the Credit Agreement were received in Hong Kong through the Borrower’s bank account at DBS.

66.  I do not think that the MLO applies to the Credit Agreement for the following reasons.   

67.  Section 2 of the MLO contains the following definitions:

(1)  “company” is defined as including a body corporate “incorporated or established outside Hong Kong”.

(2)  “money lender” is defined as:

“means every person whose business (whether or not he carries on any other business) is that of making loans or who advertises or announces himself or holds himself out in any way as carrying on that business, but does not include – (a) a person specified in Part 1 of Schedule 1; or (b) as respects a loan specified in Part 2 of Schedule 1, any person who makes such loan”

68.  The Petitioner is not a person specified in Part 1 of Schedule 1.  It is necessary to consider whether the Term Loans fall within the meaning of “exempted loans”, which are set out in Part 2 of Schedule 1 to the MLO and include:

“2. A loan made to a company secured by a mortgage, charge, lien or other encumbrance –

…

(b) which would in the case of a company referred to paragraph (b) or (c) of the definition of company (公司) in section 2(1) –

…

(ii)  where the mortgage, charge, lien or encumbrance is created on or after that commencement date[14] [of the Companies Ordinance (Cap 622)], be able to be registered under the Companies Ordinance (Cap 622) if the company were incorporated under that Ordinance.”

69.  The Borrower is a “company” as defined in s 2 of the MLO.  The question is whether the Term Loans are secured by “a mortgage, charge, lien or other encumbrance” which were registrable under the CO if the company were incorporated thereunder.  The answer is plainly yes, given that the Term Loans are secured by a charge over most of the Borrower’s assets (see §14(3) above).  Such charge is registrable under s 334(1)(d)[15], (i)[16] and (j)[17] of the CO if the Borrower were incorporated under the CO.

70.  Having concluded that the Term Loans are exempted loans, it is strictly speaking unnecessary to consider the other submissions advanced by Mr Maurellet.  Nevertheless, I will deal with the other points briefly.

71.  Mr Maurellet submits that the MLO has no application to the Credit Agreement given that the proper law of the Agreement is not Hong Kong law.  Reliance is placed on Hong Kong Shanghai (Shipping) Ltd v The owners of the ships or vessels “Cavalry” [1987] HKLR 287, where Hunter J held (at 296I) that the MLO does not affect a loan agreement unless (1) the lender was carrying on business as a money lender in Hong Kong or advertising itself as so conducting itself; and(2) that objectively assessed the proper law of the contract is Hong Kong law.  The proper law of the Credit Agreement is not Hong Kong law given that:

(1)  Cl 12.16(a) of the Credit Agreement provides that the rights and obligations of the parties shall be governed by New York law.

(2)  Both the Petitioner and the Borrower are incorporated in the Cayman Islands.

(3)  The Term Loans were denominated in US dollars, and were advanced by the Petitioner to the Borrower and repaid by the Borrower through a bank account located in London, not in Hong Kong.  The repayments were to be made to the Petitioner’s “Lending Office”, which is not specified to be in Hong Kong.

72.  Mr Maurellet accepts that the agreed governing law is not determinative (Hong Kong Shanghai (Shipping) Ltd, at 294), but submits that in the absence of evidence that the parties deliberately intended to evade the MLO by choosing foreign law, the agreed governing law should be given due weight (Central Southwood Ltd v Ma Wai Kin [2019] HKDC 457 at §§67-69 (citing Golden Acres Ltd v Queensland Estates Pty Ltd [1969] Qd R 378)).  I agree. 

73.  I do not accept Lam’s assertion that the Petitioner carried on money lending business in Hong Kong given that:

(1)  The Petitioner is an investment fund registered with the Cayman Islands Monetary Authority.  Its business and affairs are managed by (a) Tor Asia Credit Fund GP Ltd (an exempted company incorporated in the Cayman Islands) as General Partner; and (b) Tor Investment Management LP (a Cayman Islands exempted limited partnership) as its investment manager, who makes all investment decisions in relation to the Petitioner.

(2)  Although Tor Investment Management (Hong Kong) Ltd (“TIMHK”) is the sub-advisor to the Petitioner and the investment manager, the sub-advisor does not have the power to bind the Petitioner to any loan agreement, or to make investment decisions on behalf of, or to act as an agent of the Petitioner.  The personnel referred to by Lam are employees of TIMHK. 

C6.    Estoppel ground

74.  Lam alleges that there was an agreed oral modification to the Credit Agreement.  He also relies on estoppel or waiver based on the same allegations. 

75.  Mr Hui submits that the law on estoppel is that summarised by the Court of Final Appeal in Luo Xing Juan v Estate of Hui Shui See(2009) 12 HKCFAR 1, at §§55-56.  In short, a promissory estoppel might arise where:

(1)  The parties were in a relationship involving enforceable or exercisable rights, duties or powers;

(2)  One party (the promisor) by words or conduct, conveyed or was reasonably understood to convey a clear and unequivocal promise or assurance to the other (the promisee) that the promisor would not enforce or exercise some of those rights, duties or powers; and

(3)  The promisee reasonably relied upon that promise and was induced to alter his position on the faith of it, so that it would be inequitable or unconscionable for the promisor to act inconsistently with the promise.

76.  As regards the defence of waiver, the elements are as follows (1) an unequivocal representation by the party either by words or conduct that it will forgo certain rights; and (2) the said party makes that representation when it is aware of (a) the facts that give rise to the rights that are being forgone, (b) the right to forgo those rights and (c) the connection between the two (Wilken & Ghaly: The Law of Waiver, Variation and Estoppel, 3^rd ed, at §4.45).

77.  Mr Maurellet submits (and I agree) that the rationale of a contractual provision requiring specified formalities to be observed for a variation is to “prevent attempts to undermine written agreements by informal means, a possibility which is open to abuse, for example in raising defences to summary judgment” (MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2019] AC 119, §12, per Lord Sumption JSC).  To support an estoppel defence, at the very least, (1) there would have to be some words or conduct unequivocally representing that the variation was valid despite its informality; and (2) something more would be required for this purpose than the informal promise itself (§16). 

78.  Mr Hui contends that the Credit Agreement is not enforceable against Lam because(1) the Petitioneris estopped from relying on any alleged event of default against him and/or(2)there is a waiver of the event of default in favour of Lam.  The “facts” refers to by Mr Hui are:

(1)  the same allegations made by Lam in the New York proceedings which I do not think constitute a bona fide dispute for the reasons stated in §§51 – 54 above; and

(2)  the allegation that throughout the negotiations with Bank Leumi, the Petitioner represented to Lam (through Oksner), orally and/or by conduct, that so long as Lam made arrangements to re-finance the Term Loans with “any financers”, the Petitioner would waive any events of default and/or would not enforce the Credit Agreement against Lam (“Representation”).

79.  In my view, the alleged Representation is incredible given that:

(1)  It is not supported by any documents;

(2)  It is contradicted by cl 12.01 of the Credit Agreement;

(3)  It is inconsistent with the parties’ conduct in entering into the 1^st, 2^nd and 3^rd Amendment Agreements to record and give effect to their agreement to waive the events of default and vary their obligations under the Credit Agreement; and

(4)  It does not sit well with the fact that until 7 May 2020 when the Texas proceedings were commenced, Lam has not challenged the Petitioner’s right to take the various enforcement actions, let alone alleges that the Petitioner had made the alleged Representation.   

80.  Further, as Mr Maurellet submits, the Representation is inherently improbable, having regard to the tenor of the following contemporaneous documents:

(1)  In its letter dated 13 November 2019 to Lam, the Petitioner referred to a meeting on 8 November 2019 where Lam stated that the Borrower might be unable to repay the Loan on 31 December 2019.  The Petitioner stated that it would not tolerate any failure to comply with the Credit Agreement, “particularly with respect to timely payment of the amounts set forth therein, and will aggressively exercise our rights as lender.”  The letter stated that there should be no amendment or waiver of the Petitioner’s rights under the Credit Agreement, nor waiver of any event of default.

(2)  In the email exchanged on 11-12 December 2019, Oksner asked whether the Petitioner had “some reconsideration regarding the loan’s [sic] upcoming maturity?  [Lam] has confirmed that he has no immediate liquidity.”  The Petitioner responded that it had not re-considered its plans, and Oksner acknowledged that fact.

(3)  On 15 April 2020, the Petitioner decided to enforce the Credit Agreement and appointed receivers to the Borrower and CP Assets.

C7.    Counterclaim ground

81.  It is well established that where a debtor seeks to rely on a cross claim to defeat a bankruptcy petition, he has to show both that (1) the cross claim has substance, and (2) the claim exceeds the amount of the petitioning debt (Re Shang Lili, HCB 5329/2014, 25 January 2016 at §§10 & 24, per Ng J).

82.  Lam relies on the cross-claim made against the Petitioner in the Texas proceedings.  In short, Lam alleges that the Petitioner tortiously interfered with Lam’s prospects of entering into contractual relations with Bank Leumi and/or conspired with Oksner to prevent the completion of the Leumi Loan. 

83.  For the reason stated in §51 above, I do not think there is any basis for Lam to allege that the failure to obtain the Leumi Loan was caused by the Petitioner, even assuming Lam is able to substantiate his allegations (which he has not). 

84.  Lastly, as Mr Maurellet submits, Lam has not articulated what loss he has suffered from the alleged conspiracy or breach of duties.  At its highest, his loss is in the nature of a reflective loss and cannot be recovered as a matter of law.  I agree.  I do not think that Lam is the proper claimant in the Texas proceedings, given that on his own case, the Leumi Loan is to be advanced to a subsidiary of CP Holdings, not Lam.  This means that there is no mutuality of the alleged cross-claim and the Debt.   

C8.    Discretion ground

85.  Mr Hui argues that the Court retains a “residual discretion” not to make a bankruptcy order even when all the requirements under s 6 of the BO are satisfied (Re Wan Po Jun Mary Pauline, ex p Au Yeung Yee Man HCB 144/2011, 11 April 2011), §11, per To J).

86.  The only new point raised by Mr Hui under this ground is based on Lam’s assertion that the Petitioner is a fully secured creditor by reason of the third party security created in favour of the Petitioner.  Reliance is placed on the Petitioner’s act in seizing the secured assets within the CP US Group, which is said to be worth US$49.5 million. 

87.  I do not think there is sufficiently precise factual evidence to show that the security provided by the third parties worth US$49.5 million.  In any event, it is well established that the existence of the security provided by other third party is not a valid ground in opposition to a bankruptcy petition.

D.     CONCLUSION AND ORDER

88.  For the above reasons, Lam has failed to show that there is a bona fide dispute on substantial ground in respect of the Debt.  I make the usual bankruptcy order against him.

89.  As the grounds raised by Lam in opposition to the OS are the same as those raised in opposition to the Petition, which I do not find to have any merit, it is appropriate to order the costs of and occasioned by the OS to be paid by Lam to Ps, to be taxed if not agreed and with certificate for 2 counsel.  There be no order as to costs as between Ps and Fung.

Appendices