GDH LTD v. CREDITOR CO LTD AND OTHERS

CACV 353/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 353 OF 2008

(ON APPEAL FROM HCA NO. 1462 OF 2006)

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J U D G M E N T

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Hon Ma CJHC:

1.  On 31 May 2010, this Court (Ma CJHC and Stone J) dismissed the appeal of thePlaintiff by counterclaim, Creditor Co. Limited (“Creditor Co”), against the decision of Deputy Judge Anthony To setting aside the service of a writ out of jurisdiction on the 2nd, 3rd and 4th Defendants by counterclaim (known as “the French banks”). Creditor Co now applies under section 22(1)(b) of the Hong Kong Court of Final Appeal Ordinance Cap. 484 for leave to appeal to the Court of Final Appeal.

2.  Five questions are identified in the Notice of Motion which are said to constitute questions of great general and public importance that should be submitted to the Court of Final Appeal for decision : ‑

“1. Whether the following obligations arise by operation of the general law, in contractual compositions or debt restructuring agreements involving repayment of any indebtedness of insolvent companies or persons : ‑

(1) All creditors and debtors should act towards each other with the utmost good faith or uberrimae fidei, and with transparency;

(2) No creditor is entitled to make a secret or private bargain and inducement, nor to achieve a greater advantage over other creditors;

(3) All creditors should be treated equally or pari passu; and

(4) Creditors and debtors of an insolvent company or person, and those administering its affairs in insolvency, are not entitled to effect transactions nor to distribute its assets to the prejudice of the general body of creditors.

2. If so, whether these obligations continue after such compositions or agreements are negotiated and concluded.

3. If so, for how long and to what extent such obligations continue, and whether they are absolute and reciprocal between all creditors and debtors, and those administering the affairs of an insolvent company or person.

4. Whether a breach of any such obligation in connection with the performance of a contractual composition or debt restructuring agreement is required to be taken into account by the court in : ‑

(1) Construing a contractual composition or debt restructuring agreement. In particular, in applying the principle of construction and substantive law, that no person is permitted to take advantage of its own wrong.

(2) Declaring that secret or private : (a) bargains or inducements, and (b) payments or distributions, in breach of the above obligations are unenforceable at common law as contrary to public policy.

5.      What relief may be granted by the court for breach of the above obligations.”

3.  In our judgment, leave should be refused : ‑

(1)       The first four questions (the fifth was merely consequential) involve propositions that can, for present purposes, be assumed to be uncontroversial, but whether they are relevant in any given case is entirely dependent on the facts and circumstances of that case.

(2)       What was critical in the present case was the true construction of the Debt Restructuring Agreement (“DRA”) dated 22 December 2000, and within that agreement, in particular, clause 10.1(c) thereof.

(3)       With respect to Creditor Co’s submissions at the appeal, the construction that was advanced was a strained one, and one that made no commercial sense.  In the present case, Creditor Co had complained that the French banks had failed to do something (namely, submit a proof of claim) that had had the effect of depriving other creditors of the benefit of certain monies (for which provision had been made under the DRA).  Yet, on a true construction of clause 10.1(c), that clause “in express terms permitted to happen what in fact happened” (paragraph 91 of the judgment). The alternative construction advanced by Creditor Co was that clause 10.1(c) only dealt with the “inadvertent” failure to submit a proof of claim.  This was a strained construction and defied commercial sense.  It is not a construction that could possibly be dictated by an application of the propositions now said to constitute questions of great general or public importance.  In these circumstances, the questions really do not arise for determination at all.

(4)       In any event, perhaps more important for today’s purposes, no question or principle of great general or public importance can be involved in what ultimately was an exercise in the construction of a “one‑off” clause in a unique contract.

4.  The “or otherwise” limb in section 22(1)(b) is also in my view, inapplicable.

5.  For these reasons, I would, for my part, dismiss the application.

Hon Le Pichon JA :

6.  I agree.

Hon Stone J :

7.  I also agree.  As author of the judgment presently under scrutiny upon this application for leave to the Court of Final Appeal, may I take this opportunity formally to record that in some 13 paragraphs in that judgment, reference is made to paragraph 10(c) instead of to the correct citation, namely paragraph 10.1(c), of the DRA. This error is entirely mine.