HSIN CHONG CONSTRUCTION CO LTD v. BUILD KING CONSTRUCTION LTD

CACV 321 /2019

[2020] HKCA 536

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 321 OF 2019

(ON APPEAL FROM HCCW NO 239 OF 2018)

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J U D G M E N T

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Hon Kwan VP (giving the Judgment of the Court):

1.  This is an application for leave to appeal to the Court of Final Appeal by the provisional liquidators of Hsin Chong Construction Company Limited (“the Company”).

2.  On 4 December 2019, we handed down our judgment (“CA Judgment”)^[1] dismissing the Company’s appeal against the decision of Deputy High Court Judge Le Pichon on 13 June 2019 (“CFI Judgment”)^[2].  By the CFI Judgment, the judge rejected all the Company’s contentions regarding clause 17 of the Joint Venture Agreement between the Company and Build King Construction Limited (“BK”) and held that the Supplemental Agreement between the parties (by which the Company agreed to dispose of its residual rights and interests in the joint venture to BK at $53.6 million) shall not be avoided by section 182 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32.

3.  By the intended appeal, the Company seeks to challenge only the judge’s exercise of discretion to validate the transaction in the Supplemental Agreement. The relevant parts of the judgments dealing with this subject are: CFI Judgment at §§85 to 97 and CA Judgment at §§56 to 62.

4.  In the Notice of Motion issued on 2 January 2020, the question involved in the intended appeal said to be of great general and public importance is stated as follows:

“In an application to the Court pursuant to section 182 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32) to validate a disposition of the property of a company which is subject to winding up proceedings, whether

(i) any ulterior purpose or agenda behind the disposition;

(ii) any impropriety associated with the treatment of the property being disposed of; and/or

(iii) any parties to the disposition of the Company’s property had any notice and/or knowledge (whether actual or constructive) of (i) and (ii) above

should be a relevant consideration in the Court’s exercise of discretion.”

5.  The Company also relies on the “or otherwise” limb, contending that both the CFI and CA Judgments had approached the question of validation on an erroneous legal test and/or manifestly incorrect factual assumptions, rendering this application fit for leave under this ground.

The question as framed

6.  The Company’s position is that the question as framed should be answered in the negative.  It is submitted that in the exercise of discretion whether to make a validation order, the question whether or not BK had any notice or knowledge (actual or constructive) of any ulterior purpose for the Supplemental Agreement or any associated impropriety is not the right question and in any event should not be determinative.  The right question is to consider whether the disposition was in the best interests of the Company’s unsecured creditors and whether the pari passu principle was violated.

7.  Mr John Hui contended on behalf of the Company that although the judge had asked the pertinent question whether the transaction sought to be validated would benefit the unsecured creditors, she had proceeded on manifestly incorrect factual assumptions, and, in upholding the judge’s decision, the Court of Appeal had failed to apply the correct legal test as mentioned above and instead asked itself whether BK had actual or constructive notice of any ulterior purpose or impropriety of the disposition.

8.  We think the question as framed and the contention arising are misconceived as they are premised on a misreading of the judgments.

9.  As pointed out by Mr Manzoni, SC for BK^[3], it has consistently been the Company’s case that the Supplemental Agreement should not be validated on the grounds that (1) BK knew or was at least put on notice that it was problematic to pay the consideration of $53.6 million not to the Company but to Cogent Spring Limited, a wholly owned sister company within the Hsin Chong Group; and (2) BK had actual or constructive notice that part of the proceeds would be applied by the Company to settle outstanding MPF contributions and employee wages in circumstances where the Company was prohibited to dispose of its property^[4].

10.  As the above matters were advanced as objections by the Company to BK’s application for validation, the judge and the Court of Appeal had to and did consider whether they were such as to affect the exercise of discretion in making a validation order.  Neither the judge, nor the Court of Appeal, had treated those matters as determinative.  There is no basis for the contention that the judge or the Court of Appeal had regarded BK’s lack of knowledge of the alleged ulterior purpose and/or impropriety as an independent or overriding “exonerating” factor in favour of validation.

11.  Moreover, as acknowledged by Mr Hui, the judge had asked the pertinent question whether the Supplemental Agreement would benefit the unsecured creditors.  She concluded that validating the transaction would serve the unsecured creditors’ interests, because of the immediacy of receipt of the fair consideration for the Company’s residual rights in the joint venture and the avoidance of the risk of a requirement to contribute to a loss on the project^[5]. The Court of Appeal addressed the judge’s application of the correct legal test to the facts and held that she had fully considered the circumstances and it had no basis to interfere with her exercise of discretion^[6].

12.  The intended appeal seeks to challenge the application of the law to the facts, which was based on the unique factual circumstances of this case.  A question of great general or public importance cannot arise from the holdings in the CA Judgment.  We decline to grant leave to appeal in respect of the question as framed.

13.  Mr Manzoni has also submitted that leave to appeal should be refused as the Supplemental Agreement was terminated after the CFI Judgment and the intended appeal is entirely academic.  As we had declined to address the argument that the appeal before us is academic^[7], we do not propose to deal with it. 

“Or otherwise” limb

14.  In contending that the judge had proceeded on wrong factual assumptions, Mr Hui seeks to re-argue factual matters which had been canvassed below and had been the subject of concurrent findings of fact, namely, that BK was not in a position to control or direct the Company’s application of the proceeds and that the unsecured creditors would not have been in a better position if the Company had reverted to enforcing its residual rights under the Joint Venture Agreement against BK.  “It is no part of the function of the Court of Final Appeal’s function to debate ‘yet again the factual findings made at first instance and previously reviewed by the Court of Appeal’ in the hope on the part of an appellant of finally obtaining favourable findings.” (Suen Shu Tai v Tam Fung Tai (No 2) (2015) 18 HKCFAR 491 at §3)

15.  In any event, it is well established that it is only in highly exceptional cases that leave to appeal would be granted on the “or otherwise” limb (Pearldelta Group Limited v Huge Winners International Limited & Ors, FAMV 1/2011, 5 May 2011, §7).

16.  We decline to grant leave on the “or otherwise” ground.

Conclusion and costs

17.  We dismiss the Company’s application for leave to appeal with costs. Having considered the statement of costs for summary assessment lodged by BK, we allow the costs recoverable by BK from the Company at $168,838.