RE INTERNATIONAL BUSINESS SETTLEMENT LTD

HCCW 427/2021

[2022] HKCFI 572

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING UP) PROCEEDINGS NO 427 OF 2021

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REASONS FOR JUDGMENT

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1.  By a petition presented on 16 November 2021 (“Petition”) the petitioner, 国际商业机器（中国）有限公司 (“P”), seeks a winding up order against International Business Settlement Limited (國際商業結算有限公司) (“Company”) on the ground that the Company is insolvent and unable to pay its debts. At the hearing, I made the usual winding up order against the Company. These are the reasons for my judgment.

2.  The Company was incorporated in Hong Kong on 25 January 2016 under the Companies Ordinance (Cap. 622).

3.  On 9 April 2020, a tribunal of the China International Economic and Trade Arbitration Commission (“CIETAC”) in Beijing made an award in respect P’s claim for outstanding service fees against the Company under a service agreement whereby the Company was ordered to pay US$2,983,008 (“Principal”) together with interest accrued, and costs in the sum of RMB514,637.35 (“1^st Award”).

4.  By ex parte originating summons filed on 15 December 2020 in HCCT 88/2020, P sought leave to enforce the 1^st Award in Hong Kong pursuant to ss.84 and 92 of the Arbitration Ordinance (Cap. 609).  On 14 January 2021, Mimmie Chan J granted leave to P to enforce the 1^st Award in the same manner as a judgment of the Court. The Company sought to set aside the Order by summons dated 3 February 2021 but withdrew the application on 1 September 2021.

5.  By judgment dated 6 September 2021, the Company was adjudged liable to pay P the sums due under the 1^st Award and the costs of HCCT 88/2020, to be taxed.

6.  On 1 September 2021, the Company obtained an award against P made by a CIETAC tribunal in which P was ordered to pay US$484,332.95, being refund of the amount prepaid (US$470,000) and costs (US$14,332.95) (“2^nd Award”).

7.  By written notice dated 6 September 2021 (“Set-off Notice”), P informed the Company that the 2^nd Award would be set-off against the following amounts payable under the 1^st Award: (1) interest on the Principal up to 21 September 2021 (US$364,778.63); (2) costs under the 1^st Award and interests thereon up to 21 September 2021 (US$84,443.90).  The remaining amount (US$35,110.42) (“Remainder”) would be set-off against the costs of HCCT 88/2020.

8.  There is no dispute that P was entitled to set-off the amount payable to the Company under the 2^nd Award, such right was expressly provided in the service agreement and was recognised in the 2^nd Award.

9.  After the above set-off, the Company remained indebted to P for the Principal and interest accrued thereon from 21 September 2021.

10.  On 30 September 2021, P caused a statutory demand (“SD”) to be served at Company’s registered office, requiring the Company to pay US$2,985,214.61 (“Debt”), which comprised of the Principal (US$2,983,008) and the interest accrued thereon from 21 September 2021 to 30 September 2021 (US$2,206.61).

11.  The Company did not comply with the SD, nor has it paid or offered to secure or compound for the Debt.  By virtue of section 178(1)(a) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32), the Company is deemed to be insolvent and unable to pay its debts.   

12.  At the eve of the hearing, the Company filed an affirmation of Chung Yau Tong (“Affirmation”) dated 18 February 2022 to oppose the Petition on the ground that there is a bona fide dispute on the Debt.  The Company raises 2 grounds in opposition to the Petition:

(1)  The Company has applied to the Beijing People’s Court to set aside the 2^nd Award on the basis that “the arbitral tribunal was in conflict of interest and unfair and partial and that there ought to be a re-arbitration for a grant of the full claimed amount by [the Company] which was US$7,843,503.05”.  The application was heard on 17 February 2022 and judgment is pending.

(2)  There is a bona fide dispute on the amount of the costs in HCCT 88/2020 and interest on the costs under the 1^st Award.

13.  It is well established that a petitioner whose debt is not in dispute is entitled ex debito justitiae to an order for the compulsory winding up of the company.  The burden is on the company to demonstrate by sufficiently precise factual evidence that there is a bona fide dispute on substantial grounds in respect of the debt or that there is some other reason for the Court not to make a winding up order against the company. 

14.  I do not think that there is any bona fide dispute on the Debt.  

15.  As regards the first ground, the Company is in effect alleging a cross-claim which it is said exceeds the Debt.  The burden is on the Company to demonstrate that its cross-claim is genuine, serious and based on substantial grounds with relevant supporting details (Re Sinom (HK) Ltd [2009] 5 HKLRD 487 §§11-16).  However, other than stating that it had applied to the Beijing court to set aside the 2^nd Award and it would claim the full amount of US$7,843,503.05 against the Company, no detail or documents in support were provided by the Company as to why it was entitled to claim such amount.

16.  In any event, even if the Company succeeds in setting aside the 2^nd Award, it will need to bring another arbitration against P to claim the amount and satisfy the tribunal that it is entitled to such claim[1]. This falls far short of demonstrating that the Company has a serious cross-claim against P for US$7.8 million.

17.  Mr Adrian Lai, counsel for P, cites Re China Medical and Bio Science Limited, HCCW 198/2008, 24 October 2008) and Guo Shun Kai v Wing Shing Chemical Co Ltd, HCCT 35/2012, 22 January 2014 where the Court observed that the mere fact that the company had applied to set aside the arbitral award does not affect the validity of, or the right of the party to enforce, the award in Hong Kong.  Mr Dicky Cheung, counsel for the Company, does not dispute this.  

18.  The second ground of opposition can be dealt with briefly.  As Mr Lai points out, the costs of HCCT 88/2020 ordered against the Company do not form part of the Debt.  The Remainder represents only about 1% of the Debt.  

19.  As regards the challenge on the rate of interest on the costs payable under the 1^st Award, even if the Company’s assertion that interest should not be calculated at China Loan Prime Rate were right, the amount of interest in dispute is only RMB 30,270.68, which is immaterial as compared to the Debt. 

20.  As there is no bona fide dispute on substantial ground in respect of the Debt and the Company has not offered to pay or secure the Debt (or any part thereof), P is entitled to seek an immediate winding up order against the Company.