SILVER STARLIGHT LTD v. CHINA CITIC BANK CORPORATION LTD, TIANJIN BRANCH

CACV 301/2021

[2021] HKCA 1248

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 301 OF 2021

(ON APPEAL FROM HCMP NO 222 OF 2021)

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R E A S O N S  F O R  J U D G M E N T

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Hon G Lam JA (giving the Reasons for Judgment of the Court):

Introduction

1.  This is an appeal by the plaintiff against the decision of Deputy Judge M K Liu[1] dismissing its application for an injunction to restrain the defendants from presenting a petition to wind up the plaintiff in Hong Kong.  The grounds for the plaintiff’s application were that, first, the core requirements for winding up a foreign company, as the plaintiff is, are not met, and secondly, the debts demanded by the defendants are bona fide disputed on substantial grounds.  The plaintiff also applied for leave to adduce new evidence for the purpose of the appeal.  That summons was listed at the same time as the appeal.

2.  At the hearing, we dismissed the application to adduce new evidence with costs on the indemnity basis, and dismissed the appeal with costs on the party and party basis, both with a certificate for two counsel.  The application made orally by the plaintiff immediately after the dismissal of the appeal for an interim stay pending an application for leave to appeal to the Court of Final Appeal was also refused.  These are the reasons for our decisions.

Background

3.  The plaintiff is a company incorporated in the British Virgin Islands (“BVI”), and wholly owned by Mr Pan Sutong (“Pan”).  The plaintiff holds shares (amounting to 35.59% of the issued share capital) in a company incorporated in Hong Kong called Goldin Properties Holdings Ltd (“Goldin Holdings”).  Goldin Holdings was, until its privatisation and delisting in August 2017, a listed company (stock code 00283.HK) on the Stock Exchange of Hong Kong.  The shares held by the plaintiff were those acquired by it as the offeror from the public shareholders during the privatisation exercise.  The other 64.41% of the shareholding in Goldin Holdings is held by Pan and two other BVI companies which are also wholly owned by him.

4.  Goldin Holdings holds a very substantial property development project in Tianjin which includes both commercial and residential properties (“Project”), through a corporate chain consisting of the following wholly‑owned subsidiaries: (1) Gold Novel Ltd, a BVI company registered in Hong Kong under Part XI of the predecessor Companies Ordinance (Cap 32), (2) Port Rich Ltd, a company incorporated in Hong Kong, (3) Proman International Ltd, another company incorporated in Hong Kong, (4) Goldin Properties (Tianjin) Co Ltd, a company incorporated in the Mainland and registered in Hong Kong under Part XI of the predecessor Companies Ordinance.  Goldin Properties (Tianjin) Co Ltd in turn holds two pieces of land in Tianjin which form part of the site of the Project, as well as four Mainland companies which hold various interests in the Project.

5.  The defendants are all banks or bank branches to be treated as separate banks for present purposes.  It is not in dispute that in May 2017, the 1^st and 2^nd defendant lent HK$8 billion to the plaintiff (HK$7.93 billion from the 1^st defendant and HK$70 million from the 2^nd defendant) pursuant to a facility agreement dated 15 May 2017, and the 3^rd defendant lent HK$4 billion to the plaintiff pursuant to another facility agreement of the same date.  As the terms of the two facility agreements are virtually identical, we shall simply refer to them as the “Facility Agreements”.

6.  The two loans were made principally for the purpose of financing the payment by the plaintiff of the consideration for the acquisition of the shares in Goldin Holdings from the public shareholders in the privatisation mentioned above.  The loans were for the term of 3 years, subject to an extension of 12 months at the borrower’s request upon certain conditions being satisfied.  Interest is payable at the specified rate every 3 months.  Upon the occurrence of any event of default (which includes the non‑payment of any amount due including interest), the agent (ie the 3^rd defendant) may declare all or part of the loans to be immediately due and payable.

7.  On the same date of the Facility Agreements, Pan executed a personal guarantee in favour of the lenders of the HK$8 billion loan (ie the 1^st and 2^nd defendants).  The plaintiff also executed a share charge charging its shares in Goldin Holdings in favour of the 1^st and 2^nd defendants as security for the HK$8 billion loan.

8.  Several months after the drawdown of the loans, on 30 November 2017, Goldin Properties (Tianjin) Co Ltd mortgaged the two pieces of land it owns in Tianjin in favour of the 1^st defendant as security for the HK$8 billion loan.

9.  Since November 2019, the plaintiff has been in default of payment of interest for both loans.  By solicitors’ letters dated 10 December 2019, the 3^rd defendant, as agent, gave notice to the plaintiff under the Facility Agreement for the HK$8 billion loan that because of the non‑payment of interest, the entire loan of HK$8 billion was immediately due and payable, and also gave notice to Pan as the guarantor.

10.  Following negotiations and other events in 2020, on 24 December 2020 the defendants’ solicitors issued a statutory demand to the plaintiff for the HK$8 billion loan on behalf of the 1^st and 2^nd defendants.  For reasons that are immaterial for present purposes, this was superseded by a subsequent statutory demand issued and served on the plaintiff on 11 January 2021, also in respect of the HK$8 billion loan.

11.  On 22 February 2021, the plaintiff issued its application by originating summons for an injunction to restrain the three defendants from presenting a winding‑up petition based on their statutory demand in respect of the HK$8 billion loan.  Two main grounds were advanced in support of the application: first, that the jurisdictional requirements for winding up a foreign company are not satisfied, and secondly, that there was a bona fide dispute of the debt on substantial grounds.

12.  In particular, Pan says that he initially did not wish to lay out as large an amount as HK$12 billion to privatise Goldin Holdings.  It was the CITIC group, which comprised the defendants, who offered to finance the privatisation with loans and, thereafter, to procure buyers to acquire properties in the Project.  It is said that in the course of the negotiations in around April or May 2017, he and representatives of the CITIC group (in particular, Mr Sun Deshun (“Sun”), the former chairman of the 1^st defendant) reached a verbal agreement (“Overall Agreement”) that: (1) the CITIC group would provide loan facilities in the aggregate amount of HK$12 billion to the plaintiff for acquiring Goldin Holdings shares in the hands of public investors for the purpose of the privatisation; (2) upon the privatisation of Goldin Holdings, the CITIC group would procure and arrange for buyers and/or investors to acquire land and properties in the Project; and (3) repayments by the plaintiff of its liabilities under the loan facilities extended by the CITIC group shall come from the proceeds of sale of the land and properties in the Project (whether procured and arranged by the CITIC group or otherwise).  It is also said that Sun represented to Pan that the defendants would first enforce their security over the mortgaged land for the repayment of their loans, and would only pursue the plaintiff and Pan for any amount outstanding thereafter (“Representation”).  It is said that the defendants’ intended recovery actions against the plaintiff (including a winding‑up petition) without first exhausting their security rights over the land would be a breach of the Overall Agreement and the Representation.  It is further said that the defendants had acted in breach by obstructing the realisation of the mortgaged land.

13.  In his judgment handed down on 3 June 2021 (“Judgment”), Deputy Judge M K Liu decided both points against the plaintiff and dismissed the originating summons.  The plaintiff appealed against the Judgment, contending it was erroneous on both issues.  The defendants filed a respondents’ notice of additional grounds for upholding the Judgment.  Urgent directions were given for the hearing of the appeal, with an interim order preventing the presentation of a petition pending the determination of the appeal.

Restraint of presentation of petition

14.  There is no dispute between the parties on the applicable principles for the grant of an injunction to prevent the presentation of a winding‑up petition.  They do not align with the American Cyanmid principles governing the grant of an ordinary interlocutory injunction,[2] but are based instead on the court’s inherent jurisdiction to prevent abuse of its process: see Re Sinom (Hong Kong) Ltd [2009] 5 HKLRD 487.  A company has to show that the presentation of a winding‑up petition against it would be an abuse of process, in order to obtain an injunction in advance to prevent it.  Great circumspection must be exercised in respect of the grant of such injunction, for the right to petition for winding‑up in appropriate circumstances is a right conferred by statute, and a would‑be petitioner should not be restrained from exercising it except on clear and persuasive grounds: Sinom, §10.  As Harris J observed in Hung Yip (HK) Engineering Co Ltd v Kinli Civil Engineering Ltd [2021] 1 HKLRD 860 at §14, the ability to present a petition promptly in the case of a company believed to be insolvent is important to creditors since by virtue of section 184(2) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32) (“Ordinance”), it is relevant to the date of commencement of the liquidation.  Subject to the need to satisfy the core requirements mentioned below, there is no suggestion from the plaintiff that any different principles apply in this regard in relation to the winding‑up of a foreign company.

The jurisdiction issue

15.  It is well established that as a matter of self‑imposed constraints, the Hong Kong courts generally require three so‑called core requirements to be satisfied before the court will exercise its statutory power to wind up a foreign company pursuant to section 327 of the Ordinance. They have been summarised as follows:[3]

“ (1) there had to be a sufficient connection with Hong Kong, but this did not necessarily have to consist in the presence of assets within the jurisdiction;

(2) there must be a reasonable possibility that the winding-up order would benefit those applying for it; and

(3) the court must be able to exercise jurisdiction over one or more persons in the distribution of the company’s assets.”

16.  There is no dispute either before the judge or in this court that the third requirement is satisfied.  The argument has centred around the judge’s decision that the first and second requirements were also met.  

The plaintiff’s burden

17.  As a preliminary point, the defendants contend, by their respondents’ notice, that the court should refuse to grant an injunction restraining the presentation of a winding‑up petition against a foreign company based on lack of jurisdiction unless it is plain and obvious that it would be impossible for the court to exercise its jurisdiction to wind up the company at the hearing of the petition. 

18.  There is in our view considerable force in this submission.  The jurisdiction to restrain is based on the power to prevent abuse, and it is ordinarily not an abuse to invoke the winding‑up remedy against a foreign company where it is arguable that the three core requirements can be satisfied.  Similarly, in Shandong Chenming Paper Holdings Ltd v Arjowiggins HKK 2 Ltd [2017] 4 HKLRD 84 at §32, Harris J held that normally the correct approach is that a creditor should not be prevented from issuing a petition unless it is clear that the petition is bound to fail (although for practical reasons he entertained the jurisdictional point on the company’s pre‑emptive application for declarations in that particular case).[4] 

19.  Accordingly, it seems to us that the injunction sought should not be granted on the jurisdictional ground unless the plaintiff can demonstrate that it is not reasonably arguable that the core requirements would be satisfied at the time of the hearing of the petition.  Mr William Wong SC who appeared for the plaintiff eventually accepted this burden, though he said that since both sides had filed evidence and the issue had been fully thrashed out, it was a matter that could and ought to be determined once and for all.

The first core requirement

20.  As to the first core requirement, the judge considered that it was satisfied having regard to three matters: (1) the plaintiff holds 35.59% in Goldin Holdings, such shares being an asset in Hong Kong; (2) Pan, the sole legal and beneficial owner of the plaintiff, is a Hong Kong resident; and (3) valuable and substantial assets are held by subsidiaries which are either Hong Kong companies or registered non‑Hong Kong companies with principal places of business and authorised representatives in Hong Kong.[5]

21.  As the first ground of its appeal, the plaintiff submits that the judge erred in thinking that the mere presence of assets in Hong Kong is sufficient to satisfy the first requirement.  It is also submitted that the location of the plaintiff’s owner is not a relevant factor, and that the fact that the chain of subsidiaries include Hong Kong companies and registered non‑Hong Kong companies is of little substance in showing a connection.

22.  The exercise in relation to the first requirement is to identify a sufficient connection between the plaintiff and Hong Kong to justify the court ordering it to be wound up despite the fact that it is incorporated in the BVI.  In the case of a creditor’s petition it has been said in Kam Leung Sui Kwan v Kam Kwan Lai (2015) 18 HKCFAR 501:

“ 24. … the fact that there is a reasonable prospect that the petitioner will derive a sufficient benefit from the making of a winding up order, whether by the distribution of its assets or otherwise, will always be necessary and will often be sufficient.”

“ 28. … Creditors seek a winding‑up order against the debtor in order to obtain payment in or towards satisfaction of their debts. The presence in Hong Kong of significant assets which may be made available to the liquidator for distribution among the creditors will usually suffice. The claim itself is usually simple to establish; the petitioner need prove only that he is owed a debt which is due and unpaid. If he considers it worthwhile he may chase the assets wherever they may be found and seek winding‑up orders in different jurisdictions until his debt is satisfied.”

23.  It is clear therefore that the presence of significant assets in Hong Kong which may be made available for distribution in the liquidation will usually suffice for the purpose of the first requirement in the case of a creditor’s petition.  The plaintiff here is a company brought into existence for the purpose of acquiring the publicly held shares in the privatisation of Goldin Holdings.  The principal significant commercial activity the plaintiff has engaged in was undertaken in Hong Kong, namely, the acquisition of those shares and the borrowing of funds for that purpose.  The shares have been held by the plaintiff since.  They are not an ephemeral asset that happened to be in this jurisdiction at a particular time.  They represent a substantial (35.59%) block in a company that has net assets of over HK$22.5 billion (according to the accounts made up to 31 March 2020). It seems to us that the judge, taking the view that the shareholding could be realised and distributed to the creditors, is entitled to place weight on the presence of this asset in Hong Kong for the purpose of the first requirement. 

24.  On behalf of the plaintiff Mr William Wong has placed much reliance on Re Real Estate Development Co [1991] BCLC 210, but that is a very different case.  There the creditor presented a petition in England to wind up a Kuwaiti company based on a French judgment registered in England.  The company had held 98 out of 100 shares in an English company called Shillington Ltd but had, prior to the petition, transferred those shares to another Kuwaiti company.  The petitioner hoped to have that transfer set aside and, indeed, it was in respect of that transfer that the petition was essentially presented (see p 212a), but the court held that a prospective action by the liquidator under section 172 of the Law of Property Act 1925[6] fell not to be treated as an asset locally situated at the date of the winding‑up petition (see p 222g).  The petition was dismissed for want of a sufficient connection with the jurisdiction.

25.  Re Gottinghen Trading Ltd [2012] 3 HKLRD 453, also relied on by the plaintiff, is again a very different case.  It concerned contributories’ petitions for winding up two foreign companies, rather than creditors’ petitions.  The only connection the companies had with Hong Kong was their bank accounts here.  Harris J did not consider that there was a sufficient connection, and dismissed the petitions. In their joint judgment in Kam Leung Sui Kwan, Ma CJ and Lord Millett NPJ described Gottinghen as “an extreme case for neither the company’s business nor either of the shareholders had any connection with Hong Kong”.[7]  This case provides no assistance to the plaintiff.  Indeed, the following passages in Harris J’s judgment suggest that the presence of assets within the jurisdiction is likely to be of far greater significance in a creditor’s petition:

“ 21. A creditor presenting a petition to wind up a company because a debt has not been paid is exercising a class right, namely, the right that any creditor, to whom at least a debt corresponding to the current level of minimum indebtedness is due and unpaid, has to present a petition for the winding up of the debtor company. In general terms the purpose of presenting a petition is to put into operation the process of court supervised compulsory liquidation of the company’s assets for the payment of all creditors on a pari passu basis. It is unsurprising, therefore, that when considering whether or not an unregistered company has sufficient connection with England or Hong Kong to justify the court exercising its jurisdiction under sections 221(1) and 327(1) respectively over insolvent companies, the focus has been on whether or not there are assets within the jurisdiction, which can be realized by a liquidator for the benefit of creditors. There would generally be little point in winding up an insolvent unregistered company in Hong Kong unless there are assets here.”

“ 24. In the case of petitions brought on the grounds of insolvency the connection will commonly be the presence of assets within the jurisdiction of an amount, which justifies a winding up in Hong Kong. In the case of a petition brought on the just and equitable ground and arising from a shareholders’ dispute the considerations will probably be different. The presence of assets will be a relevant consideration, but probably not as significant as in the case of a creditor’s petition.”

26.  Neither Re Real Estate Development Co nor Re Gottinghen Trading Ltd supports a general proposition of law that the presence of assets in the form of minority shareholding in a private company in Hong Kong cannot suffice to satisfy the first requirement.  Whether the requirement is satisfied in a particular case is a question of fact that depends on the circumstances of that case.

27.  As to the location of the plaintiff’s sole owner in this jurisdiction, it represents that the central management and control of the company resides in Hong Kong notwithstanding that it is incorporated in the BVI.  While this factor may be of greater weight in the case of a shareholder’s petition than a creditor’s petition, we do not accept the plaintiff’s submission that it is irrelevant to the first requirement.  As Mr Anson Wong SC pointed out, it was one of the factors taken into account by the court as establishing a sufficient nexus in the case of a creditor’s petition in Re Information Security One Ltd [2007] 3 HKLRD 780 at §9.

28.  The plaintiff’s submission that the fact that the corporate chain includes companies incorporated or registered in Hong Kong is “of little substance” is inconsequential.  Whether a sufficient connection exists is a question of degree that depends on the evaluation of the facts by the court in each case, and is to be approached by an appellate court as a conclusion akin to the exercise of discretion: ZJW v SY (Jurisdiction; Substantial connection) [2017] HKFLR 612, §§33 & 44; see also Kam Leung Sui Kwan, §36.  What weight is to be given to a particular factor in that exercise is a matter for the judge.  We can see no error in principle for the judge to take this fact into account.

29.  Overall, therefore, the plaintiff has in our view failed to show any reviewable error in the judge’s evaluation of the facts leading to his conclusion that the first requirement is satisfied.  The plaintiff has plainly been unable to demonstrate that a petition would be bound to fail for not meeting the first requirement.  Ground 1 therefore fails.

The second core requirement

30.  In respect of the second core requirement, the judge concluded that it was satisfied, since the 35.59% shareholding owned by the plaintiff in Goldin Holdings could be realised and distributed in the liquidation, irrespective of where the underlying assets indirectly held by Goldin Holdings were located.[8]

31.  By Grounds 2 and 3, the plaintiff contends that the shareholding in Goldin Holdings could not give rise to any reasonable possibility of sufficient benefit to the defendants.  It is stressed that the underlying assets are located in the Mainland and that a liquidator of the plaintiff, as a minority shareholder, would not be able to obtain the control of Goldin Holdings and would not be able to derive any direct benefit from the underlying assets in the Mainland.  It is submitted that no investor would be interested in purchasing a minority stake in Goldin Holdings and that the judge’s view that there would be investors interested is a speculative assumption.

32.  As mentioned above, the burden in the application before the judge was on the plaintiff to demonstrate that there was no reasonable possibility that a winding up order would benefit the defendants.  The shares in Goldin Holdings are freely transferable (and the plaintiff has made clear it does not take the point that a transfer may be blocked by Goldin Holdings’ board of directors).  Goldin Holdings has net assets of some HK$22.5 billion.  Although a minority shareholder in Goldin Holdings cannot change the composition of its board and acquire management control, a 35.59% block is a very significant holding sufficient to preclude any special resolution in general meetings.  The shares will entitle the holder to dividends as and when sufficient profits are generated downstream from the sale proceeds or rental income of the Project, and will also entitle the holder to wind up Goldin Holdings if proper grounds exist.  What may be said to be a speculative assumption is, with respect, the plaintiff’s submission that those shares will never find a buyer, rather than the judge’s reasoning.  No evidence has been placed before the court to substantiate it.  Even if a buyer could not be found at a satisfactory price, the shares could be distributed in specie to the creditors in a liquidation.  The plaintiff has in our view failed to show that it is plain and obvious that no reasonable possibility of benefit from a winding‑up exists. 

33.  The plaintiff places reliance on certain observations in Kam Leung Sui Kwan at §39 and Re China Huiyuan Juice Group Ltd [2021] 1 HKLRD 255 at §§34-44 to the effect that a liquidator appointed by a Hong Kong court may not be recognised in other jurisdictions including the Mainland.  This presents no insuperable hurdle in respect of the second core requirement in this case because the assets within the jurisdiction are the shares in Goldin Holdings and there is no basis to assert that it would be impossible to realise or derive benefit from these shares without taking control of the underlying assets.  In contrast, the asset held directly by the company in question in each of the two cases cited was shares in a BVI company. The courts in both cases referred to the potential difficulty for a liquidator of the holding company to obtain direct access to the assets held by the foreign subsidiaries.  Neither case supports a general proposition that the presence of assets in the form of a minority shareholding in a Hong Kong private company cannot suffice to meet the second requirement if the underlying assets further down the corporate chain are located outside the jurisdiction.

34.  By the respondents’ notice, the defendants contend that there is a real possibility the defendants would benefit from investigations by liquidators appointed in the winding‑up of the plaintiff into the business and affairs of the plaintiff and the downstream companies.  In particular, reference has been made to the fact shown in the audited accounts of Goldin Holdings that the amounts due from related companies or a shareholder had increased very substantially between 2017 and 2019.  It seems to us that the benefit here is tenuous.  In contrast to Re China Medical Technologies, Inc [2018] HKCA 111, the amounts due here were owed to Goldin Holdings, not the plaintiff.  A liquidator of the plaintiff will have no direct power to investigate the affairs of Goldin Holdings and its subsidiaries other than through the limited avenues open to him as a shareholder of 35.59%.  Further, the amounts due are already treated as assets of Goldin Holdings and taken into account in the benefit that may be derived from the realisation of the shares in Goldin Holdings.  There is no concrete basis to think that investigations would generate any separate discernible real benefit: Re China Huiyuan Juice Group Ltd, at §26.  In these circumstances we do not think that this point adds anything in favour of the defendants.

35.  For these reasons the plaintiff’s challenge in relation to the second core requirement also fails.

The bona fide dispute issue

36.  The last ground of appeal is raised against the judge’s conclusion that the plaintiff has failed to show a bone fide dispute of the debt on substantial grounds.

37.  In his Judgment, the judge directed himself by reference to Re Leung Cherng Jiunn [2016] 1 HKLRD 850 and Re Victor River Ltd [2021] HKCFI 886 on the principles as to whether a bone fide dispute of the debt on substantial grounds has been made out, and ultimately found that the allegation of the Overall Agreement was incredible.[9]

38.  The judge referred to the fact that there was not a single contemporaneous document, including internal document, that supported the existence of the Overall Agreement.  He found that the gist of the Overall Agreement was contradictory to the terms of the Facility Agreements which provided for a fixed final repayment date (ie 15 May 2020), imposed an obligation on the plaintiff to pay interest once every three months, entitled the defendants to seek immediate repayment of the entire loan when there was an event of default which included the plaintiff’s failure to pay interest, and provided that the defendants had “separate and independent” rights against the plaintiff and any security provider including Goldin Properties (Tianjin) Co Ltd, the mortgagor of the mortgaged land.  The judge found that the plaintiff’s allegations were inconsistent with the Personal Guarantee which provided that Pan waived any right to require the defendants to claim against other parties or enforce other securities before making a claim against him as guarantor.[10]

39.  The judge considered that the plaintiff’s allegations were inconsistent with the public announcement by Goldin Holdings in April 2017 that it had no intention or plan for any disposal of assets or business after the privatisation.  The communications between the plaintiff and the defendants from August 2019 to April 2020 as recorded in various documents would, in the judge’s view, not have been necessary if the Overall Agreement had existed.  The judge was also struck by the fact that the plaintiff had never raised the allegation of the Overall Agreement in its response to the defendants’ demands until Pan’s affirmation of 19 February 2021 made for the purpose of the application for injunction.  Finally the judge considered that the Overall Agreement did not make any commercial sense.[11]

The application to adduce new evidence

40.  We should mention at this juncture that the plaintiff sought to adduce, as evidence in the appeal, the 4^th affirmation of Pan dated 26 July 2021 which exhibited a copy of an affirmation of Peng Jianyin (“Peng”) dated 3 July 2021.  Peng was at the material times the General Manager of the 3^rd defendant but left its employ after June 2019.  Pan explained that he had asked Peng in early 2021 to make an affirmation for the plaintiff but Peng refused at that time.  According to Peng’s affirmation, he refused because, inter alia, he did not want to give evidence against his former employer.  Pan said that after the Judgment was handed down, he contacted Peng again, who then agreed to make an affirmation.

41.  Peng’s affirmation, made in California before a notary public, referred to a meeting in Hong Kong on 3 January 2017 between himself, Sun and Pan, in which Sun suggested that Pan privatise Goldin Holdings, using the Project as security for bank financing.  Peng said that Pan had expressed concerns during subsequent discussions of the terms and that Sun considered that charging the properties in the Project as the first source of repayment was feasible and that the defendants had the ability to arrange for major developers to cooperate or acquire the properties.  The plaintiff submits that Peng’s affirmation supports its case of the Overall Agreement.

42.  On 26 July 2021 the plaintiff lodged a summons for leave to adduce the new evidence for the appeal.  Directions were given on 28 July for it to heard at the same time as the appeal, and the summons was then formally filed and served on the defendants.

43.  The defendants opposed the application on the ground of the plaintiff’s delay and prejudice to the defendants, and also on the basis that the second and third conditions in Ladd v Marshall [1954] 1 WLR 1489 were not met.[12]

44.  It is remarkable that although Peng’s affirmation had already been made on 3 July 2021, the plaintiff did not take out an application to adduce it until 26 July and did not provide a copy to the defendants until 28 July.  There is no explanation whatsoever in the evidence for this delay.  This court has emphasised time and again the need for an application to adduce new evidence to be made promptly and without delay, and has warned that late applications with no satisfactory explanation of the delay would be refused on that ground alone: see Re Estate of Chiu Keung [2020] 3 HKLRD 779, §43; PW v PPTW [2015] 1 HKC 450, §§8‑12; Yifung Properties Ltd & others v Manchester Securities Corp & others (CACV 258 & 259/2015, 9 September 2016), §§43-44. 

45.  In the context of an urgent appeal, as here, where directions were given on 30 June 2021 for the fixing of a hearing date no later than 25 August, and the date of the appeal (ie 10 August) was fixed on 5 July with a deadline for the defendants to lodge their skeleton argument by 16 July, such a delay was highly prejudicial and in our view unacceptable.  As a result, the defendants were left with insufficient time to conduct full investigations and make a complete response.  Among other things, there were questions over the authenticity of Peng’s affirmation since it gave an address for Peng which appeared to be a dental clinic and it was signed with an English signature when Peng had never done so in the defendants’ records.  There had not been enough time for the defendants to investigate what proof of identity was shown by the deponent to the notary public.  In the circumstances of this case, we have no doubt that the summons should be dismissed on the ground of unexplained delay alone with indemnity costs.

46.  The defendants also submitted that Peng’s affirmation failed to produce any contemporaneous documents or deal with any of the reasons given by the judge for finding the alleged Overall Agreement unbelievable and that Peng’s assertions were inconsistent with the available contemporaneous documents.  As such, it is said that the new evidence would not have an important influence on the outcome.  We see some force in this submission but given our view above, it is unnecessary to undertake a detailed examination of the likely effect of the evidence on the result of the case.

47.  Further, when approached by the defendants in February 2021 for evidence for use in the litigation, Peng had actually replied that as they happened too long ago, he could not recall the events clearly. Peng’s affirmation did not mention this communication at all, nor did it explain why Peng was able to make the affirmation in July 2021 despite having stated in February 2021 that he could not recall the matters clearly.  In the absence of a credible and valid explanation, the defendants are, in our view, justified in submitting that the new evidence was not such as was presumably to be believed, thus failing also the third Ladd v Marshall condition.

Discussion

48.  Ground 4 therefore falls to be assessed only on the basis of the evidence before the judge.  The plaintiff does not dispute the legal principles relied on by the judge or challenge the observations made by the judge on the plaintiff’s case as summarised above, but submits that the Overall Agreement must be viewed in context as a “framework oral agreement informally reached between businessmen”.  It is said that there is no evidence from the defendants to refute the existence of the Overall Agreement on which the court can place any weight.  It is said that Sun only made a one‑page unsworn statement; Peng, the next most senior officer, did not give any evidence; and the evidence of two other officers (Wang Liwei and Wang Tong) did not directly refute the existence of the Overall Agreement.  Further, it is said that the plaintiff is a company with no business operation and no assets apart from its indirect interest in the Project and that the defendants must have known that the only way in which the plaintiff could repay the loans was from the sale of the properties in the Project or the mortgaged land, and that the Overall Agreement made a lot of sense against this background.

49.  We do not accept these arguments.  The defendants did adduce evidence from Sun (albeit in the form of a statement), Wang Liwei and Wang Tong, all of whom were involved in the events and positively denied that the Overall Agreement existed and denied having heard of it at the time. The judge considered the point that Sun’s evidence was unsworn but accepted the defendants’ explanation that as Sun was being held in custody it was not possible to obtain a notarised statement from him, and concluded that the plaintiff’s point had no merit.[13] The plaintiff relies on its expert opinion on Mainland law to the effect that it was permissible for Sun to make an affirmation whilst in custody, but the same opinion suggests that Sun could only see his own defence lawyers and his relatives.  The judge was in our view justified in questioning how Sun could make a statement for the defendants before a notary public in those circumstances.[14]

50.  As to the point that the plaintiff did not have trading operations or other assets, it does not follow from this that the defendants would logically look only to the Project for repayment of their loans.  In fact, as the judge noted, the contemporaneous documents show that the 1^st defendant took a dim view of the Project’s prospects and that the defendants agreed to extend the loans on the strength of the personal assets of Pan who guaranteed the loans.[15]  Although the term of the loan was three years, the plaintiff was required to pay interest every three months, which is inconsistent with the contention that the defendants could look only to the Project for repayment. 

51.  Finally, the point was made in the plaintiff’s skeleton argument (but not in the notice of appeal) that the Facility Agreements did not contain an overall entire agreement clause.  The judge did not find this to be a sufficient ground for inferring the existence of the Overall Agreement and the Representation.[16] We agree.  It is a matter capable of different explanations and in the light of all the points that militate against the plaintiff’s allegation, this can carry little weight.  The plaintiff’s counsel’s suggestion that there was a “deliberate attempt” to leave room for the Overall Agreement to operate is sheer speculation unsupported by any evidence.

52.  In conclusion, we see nothing wrong in the judge’s conclusion that the plaintiff’s allegation of the Overall Agreement and the Representation is not credible and raises no bona fide dispute of the debt on substantial grounds.

Interim stay

53.  After we announced the appeal was dismissed, counsel asked for an interim stay so that the defendants would be restrained from presenting a petition, pending an application for leave to appeal to the Court of Final Appeal.  The grounds advanced were that the appeal would be rendered nugatory without a stay and that the jurisdictional issue involved an important question of law, namely whether the mere presence of a minority (35.59%) shareholding held by the plaintiff in a Hong Kong company can satisfy the first and second core requirements if the ultimate underlying assets are located in the Mainland.

54.  Although an appeal in relation to the injunction sought could become pointless without a stay, the jurisdictional question may still arise in the context of the petition if one is presented.  If it is then resolved in the plaintiff’s favour, the petition will be dismissed.  The plaintiff, which is not a trading company, has not explained in the evidence what prejudice, if any, it will suffer from the presentation of a petition. All that counsel could say on its behalf was that its bank accounts would be frozen.  But the only bank accounts disclosed, according to the plaintiff’s own evidence, contain “minimal cash balances”.  In these circumstances we do not consider that proper grounds for a stay had been made out, and therefore refused to grant any stay.

Conclusion

55.  For these reasons we came to the decisions and made the orders described in §2 above.