SHANDONG CHENMING PAPER HOLDINGS LTD v. ARJOWIGGINS HKK 2 LTD

CACV 158/2017

[2021] HKCA 1281

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 158 OF 2017

(ON APPEAL FROM HCMP 3060 OF 2016)

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J U D G M E N T

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The Court:

1.  On 5 August 2020, we handed down our Judgment (“the CA Judgment”) dismissing the appeal of the plaintiff against the Judgment of Harris J dated 14 June 2017 (“the CFI Judgment”).  This is the plaintiff’s application for leave to appeal to the Court of Final Appeal.

2.  By the CFI Judgment, Harris J dismissed the plaintiff’s application for a declaration that, since the plaintiff is an unregistered company, the defendant would not be able to satisfy the 3 core requirements for the Hong Kong Court to exercise its jurisdiction to wind up the plaintiff in Hong Kong pursuant to section 327(3) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32.  

3.  In paragraph 39 of the CA Judgment, we agreed with Harris J that there is in the present case a sufficient likelihood of benefit to the defendant so as to justify the court in exercising its jurisdiction over the plaintiff under section 327.

4.  The questions in the Notice of Motion said to be of great general or public importance are as follows:

“(1) Should the HK Court exercise its winding-up jurisdiction over foreign companies on the basis that a “benefit” is made out under the 2^nd core requirement if such “benefit” does not arise as a consequence of the winding-up order being made, but rather, would only ever be realized if the winding-up order is either avoided or discharged?

Put another way, is the “leverage” created by the prospect of a winding-up (as opposed to the making of a winding-up order) a legitimate form of “benefit” under the 2^nd core requirement?

(2) Should the HK Court, in determining whether a “benefit” is made out under the 2^nd core requirement (or otherwise in deciding whether or not to seize jurisdiction):

(a) focus only on the existence of a (potential) “benefit” accruing to the petitioner; or

(b) evaluate whether seizing jurisdiction would confer a “benefit” (as opposed to imposing a detriment) on the stakeholders of the company as a whole?

(3) Should the English law position that, generally speaking, the Court would not regard a creditors’ petition for the winding-up of a clearly solvent company as abusive (if correct at all) be adopted when the HK Court has to decide whether or not to seize jurisdiction to wind-up a foreign company, especially when the foreign company has no meaningful assets in HK and thus such a winding-up would not lead to any recovery?

(4)  In determining whether or not to seize extraordinary jurisdiction to wind-up foreign companies, when the HK Court is faced with an issue where there is a known divergence of views in different jurisdictions (eg, whether or not a solvent company should be wound-up on a creditors’ winding-up), should the HK Court simply apply its own view, or should the HK Court, out of comity and deference, only seize jurisdiction if it can be shown that such views are not only held in HK but also in lex incorporationis?”

5.  In response to the Notice of Motion, the defendant submits that the questions do not arise on the facts of this case, are not reasonably arguable, and/or do not involve questions of great general public importance.

6.  Leave to appeal to the Court of Final Appeal will not be granted where the question said to arise is academic as between the parties (see: Deacons v White & Case (2003) 6 HKCFAR 322 [34]). Nor when the question is not reasonably arguable (see: Chinachem Charitable Foundation Ltd v Chan Chun Chuen (2011) 14 HKCFAR 798 [36]).

Question (1)

7.  Proposed question (1) asks whether the Court can exercise its jurisdiction on the basis of a benefit which was pre-winding up, namely the threat or prospect of a winding-up, and not a benefit which was a consequence of an order for winding-up.

8.  This question does not arise on the facts of this case.  As the court below identified and as this Court explained at length, there is a real benefit to be derived from an order for winding-up, rather than the mere prospect of one.  See: CFI Judgment §§29-30; CA Judgment §31 (“the winding-up order would have produced a real and substantial benefit”).

9.  Further, the plaintiff’s present arguments had been raised before this Court and already refuted.  See: CA Judgment §32 (“no evidence to suggest … the defendant was other than genuine in its desire to obtain a winding-up order”), §33 (a creditor with an undisputed debt is “entitled to present a winding up petition ex debito justitiae”), and §34 (“there is a real possibility of benefit to the defendant in the making of a winding-up order … This is not … affected by the possibility that the defendant might obtain the benefit of payment of its award at an earlier stage”).

10.  We do not think the plaintiff’s contention in relation to this question is reasonably arguable.  For this reason, we decline to grant leave to appeal for this question.

Question (2)

11.  Proposed question (2) in effect contends that the Court should ignore any benefit particular to the petitioning creditor and should look only at benefits which will accrue to all the creditors.

12.  We agree with the defendant that this question is not reasonably arguable.  The 2^nd criterion has been definitively stated, and has always been stated, as “whether there is a reasonable possibility that the winding-up order would benefit those applying for it”. See: CA Judgment §4 (quoting Re Beauty China [2009] 6 HKC 351 [23] and Kam Leung Siu Kwan v Kam Kwan Lai (2015) 18 HKCFAR 501 [20]).

13.  The plaintiff’s present arguments had been raised before this Court and already refuted.  See: CA Judgment §36 (and the authorities cited therein) and §37 (on the alleged detriment to creditors). 

Question (3)

14.  Proposed question (3) in effect alleges that allowing a petition against a solvent company is only an “English law position” and should not be followed in Hong Kong.

15.  The question is again unarguable.  The Court of Final Appeal has already noted that Hong Kong law allows a creditor to petition for a winding-up in order to “obtain payment of a debt”.  See: Kam Leung Siu Kwan, Ibid [27].

16.  In any event, we agree that the plaintiff’s arguments confuse two different matters, namely, jurisdiction (whether the Court can and will entertain a petition) and discretion (whether the Court will grant the relief sought under the petition).  To say that the Court may, in the circumstances of a particular case, decline to wind up a solvent company is very different from saying that it has no jurisdiction to do so.

Question (4)

17.  Proposed question (4) argues that the Hong Kong Court shall exercise jurisdiction only if the Court of the place of incorporation holds the same view, in other words, that the law of the place of incorporation, ie, lex incorporationis, allows for the winding-up of a solvent company.

18.  We agree this question does not arise on the facts of this case and, moreover, is not reasonably arguable.  The plaintiff has never raised this issue before and there is no evidence that the lex incorporationis (PRC law) disallows the winding-up of a solvent company.

19.  In any event, the 3 core requirements are well settled law.  Those are the restraints the Hong Kong Court impose on itself for applying Hong Kong law to a foreign company.  There is no additional requirement that Hong Kong law must be the same as the lex incorporationis.

“Or Otherwise” Ground

20.  The plaintiff also relies on the “or otherwise” limb in seeking leave to appeal.  However, this Court’s practice is to reserve such ground for the consideration of the Appeal Committee.

Conclusion

21.  For the reasons stated above, we dismiss the Notice of Motion of 19 August 2020.  We also order the plaintiff to pay the costs of the defendant in the application.  Having considered the Statement of Costs of the defendant, we fix such costs at $130,000.