HONGKONG JHC CO LTD (IN LIQUIDATION) v. PEKING UNIVERSITY FOUNDER GROUP COMPANY LTD

CACV 184, 185 & 186/2023, [2024] HKCA 445

On appeal from [2023] HKCFI 1350

(Heard together)

CACV 184/2023

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 184 OF 2023

(ON APPEAL FROM HCA NO 778 OF 2021)

________________________

________________________

AND

CACV 185/2023

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 185 OF 2023

(ON APPEAL FROM HCA NO 1418 OF 2021)

________________________

________________________

AND

CACV 186/2023

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 186 OF 2023

(ON APPEAL FROM HCA NO 1442 OF 2021)

________________________

________________________

(Heard together)

________________

J U D G M E N T

________________

Hon Kwan VP:

1.  On 18 May 2023, Harris J handed down his judgment (“Judgment”)[1] in four actions brought against Peking University Founder Group Company Limited (“PUFG” or “Company”). He dismissed three of the actions brought by Nuoxi Capital Limited (“Nuoxi”; the plaintiff in HCA 778/2021), HongKong JHC Co Limited (“HKJHC”; the plaintiff in HCA 1418/2021) and Kunzhi Limited (“Kunzhi”; the plaintiff in HCA 1442/2021). He made a declaration in favour of the plaintiff in the fourth action (HCA 798/2021), Founder Information (Hong Kong) Limited (“FIHK”), that PUFG breached the Keepwell Deeds dated 17 April 2018 and 21 May 2018 and caused loss to FIHK in the sum of the US$ equivalent as at 31 December 2019 of RMB 1,154,012,000.

2.  Nuoxi, HKJHC and Kunzhi brought these appeals (CACV 184, 185 and 186/2023) against the Judgment. They appeared by Mr Mark Phillips, KC[2]. Mr Tom Smith, KC appeared for PUFG[3].

3.  These actions concern the enforceability of Keepwell Deeds, which have been commonly used in financing arrangements entered into by business groups in Mainland China and foreign lenders. The use of Keepwell Deeds has declined since January 2017 when the State Administration of Foreign Exchange (“SAFE”) lifted the limitation on repatriating proceeds raised overseas by Mainland companies, which had necessitated the use of foreign subsidiaries and a security structure, with the Mainland parent companies issuing the Keepwell Deeds. This is the first time Keepwell Deeds came to be considered by the courts in Hong Kong[4]. The total claims of the three plaintiffs against PUFG are in the region of US$1.7 billion.

Background

4.  I adopt the background matters set out in the Judgment and other materials not in dispute.

5.  PUFG, which is incorporated in the Mainland, is the holding company for a group with a wide range of businesses (“PU Group”). PUFG was founded by Peking University, which is wholly owned by the Ministry of Finance of the People’s Republic of China (“PRC”) and controlled by the Ministry of Education of the PRC. In April 2018, 70% of the issued shares of PUFG was held by Peking University through its wholly owned subsidiary. The remaining 30% was held by a holding company controlled by the employees of the PU Group.

6.  All four plaintiffs are members of the PU Group. Nuoxi is incorporated in the British Virgin Islands (“BVI”) and a wholly owned subsidiary of HKJHC. Kunzhi is also incorporated in the BVI and a wholly owned subsidiary of FIHK. HKJHC and FIHK are incorporated in Hong Kong.

7.  In April 2017 and January 2018, Nuoxi issued US$900 million of bonds (collectively “Nuoxi Bonds”) due in 2020, 2021 and 2023, constituted by trust deeds dated 20 April 2017 and 24 January 2018. HKJHC guaranteed Nuoxi’s liability under the Nuoxi Bonds.

8.  In April and May 2018, Kunzhi issued US$800 million of bonds (collectively “Kunzhi Bonds”) due in 2020 and 2021, constituted by trust deeds dated 17 April 2018 and 21 May 2018. Kunzhi’s liability under the Kunzhi Bonds was guaranteed by FIHK.

9.  Nuoxi and Kunzhi will be referred to as “Issuers” and HKJHC and FIHK as “Guarantors”, and the bonds issued by the Issuers will be referred to collectively as “Bonds”. The trustee of the trust deeds for the Bonds was the Bank of New York Mellon, London branch (“Trustee”) and the trust deeds will be referred to as “Trust Deeds”. The parties to the Trust Deeds were the Issuer, the Guarantor, the Company and the Trustee.

10.  The Issuers have defaulted on their obligations under the Bonds and the Guarantors have not honoured their respective guarantees. Nuoxi, Kunzhi, HKJHC and FIHK are all in liquidation since 2021. Their liquidators brought these actions against PUFG.

11.  PUFG entered into two Keepwell Deeds dated 20 April 2017 and 24 January 2018 in relation to the Nuoxi Bonds (“1^st Nuoxi Keepwell Deed” and “2^nd Nuoxi Keepwell Deed”) and two Keepwell Deeds dated 17 April 2018 and 21 May 2018 for the Kunzhi Bonds (“1^st Kunzhi Keepwell Deed” and “2^nd Kunzhi Keepwell Deed”). The four deeds will be referred to collectively as “Keepwell Deeds”. In gist, the Keepwell Deeds required PUFG to cause each of Nuoxi, Kunzhi, HKJHC and FIHK (1) to have a Consolidated Net Equity of at least US$1 at all times; (2) to have sufficient liquidity to ensure timely payment by each of Nuoxi, Kunzhi, HKJHC and FIHK of any amounts payable under the Bonds or guarantees; and (3) HKJHC to have an aggregate Total Equity of at least HK$9,980,000 at all times. The plaintiffs contend that as a consequence of Nuoxi and Kunzhi’s defaults under the Bonds and HKJHC and FIHK’s failure to honour the guarantees, PUFG defaulted on its obligations under the Keepwell Deeds.

12.  In addition, Nuoxi, HKJHC, PUFG and the Trustee for the Nuoxi Bonds entered into two Deeds of Equity Interest Purchase Undertaking dated 20 April 2017 and 24 January 2018. Likewise, Kunzhi, FIHK, PUFG and the Trustee for the Kunzhi Bonds also entered into two Deeds of Equity Interest Purchase Undertaking dated 17 April 2018 and 21 May 2018. These deeds will be referred to collectively as “EIPUs”.

13.  Each of the Trust Deeds, the Bonds conditions, the Keepwell Deeds and EIPUs are governed by English law and are subject to the exclusive jurisdiction of the Hong Kong courts.

14.  The failure of Nuoxi and Kunzhi to honour their payment obligations arose from the deteriorating financial state of the PU Group. On 19 February 2020, the Beijing First Intermediate People’s Court (“Beijing Court”) issued an order on the application of the Bank of Beijing Co., Ltd that PUFG commence reorganisation pursuant to the Enterprise Bankruptcy Law (“EBL”) and appointed a liquidation group (“Administrator”) to supervise the reorganisation and carry out the functions described in its decision of the same date. The Administrator comprised a panel of 12 members. On 21 February 2020, the Beijing Court issued an announcement directing creditors of PUFG to submit their claims to the Administrator.

15.  On 20 November 2020, HKJHC submitted a claim in the Company’s reorganisation of approximately RMB 6.3 billion in respect of the 1^st Nuoxi Keepwell Deed and 2^nd Nuoxi Keepwell Deed. On 29 January 2021, Kunzhi submitted a claim in the Company’s reorganisation of approximately RMB 5.7 billion in respect of the 1^st Kunzhi Keepwell Deed and 2^nd Kunzhi Keepwell Deed. On 4 February 2021, Nuoxi submitted a claim in the Company’s reorganisation for RMB 6.3 billion in respect of the 1^st Nuoxi Keepwell Deed and the 2^nd Nuoxi Keepwell Deed. FIHK submitted a claim in the Company’s reorganisation on 9 April 2021 of approximately RMB 5.7 billion in respect of the 1^st Kunzhi Keepwell Deed and 2^nd Kunzhi Keepwell Deed.

16.  On 26 May 2021, Nuoxi, HKJHC, Kunzhi and FIHK received a copy of PUFG’s list of creditors as of 24 May 2021 and their corresponding claim amounts, which showed that each of the claims of Nuoxi, Kunzhi and FIHK relating to the Nuoxi Bonds and Kunzhi Bonds had been fully rejected, whilst HKJHC’s claims were not included in the list. It would appear that the Administrator has not adjudicated HKJHC’s claims.

17.  The Administrator did not inform Nuoxi, Kunzhi and FIHK of the reasons for rejecting their claims. It was not until PUFG filed evidence in support of its application to stay the present proceedings that PUFG sought to explain the reasons of the Administrator for rejecting the claims. The explanation was contained in a report by Zhang Xin[5] dated 11 November 2021. In short, it was the Administrator’s view, with which Zhang Xin agreed, that as the PU Group was insolvent at the relevant times, regulatory approvals from SAFE required for the Keepwell providers to transfer funds that would enable them to perform the obligations under the Keepwell Deeds and the EIPUs could not have been obtained. Hence, by virtue of clause 2.2 in these contractual documents dealing with regulatory approvals, there was no breach of the Keepwell Deeds or the EIPUs.

18.  At the second meeting of PUFG’s creditors on 28 May 2021, the Administrator confirmed that it decided to reject the claims submitted by Nuoxi, FIHK and Kunzhi and the creditors’ meeting confirmed the Administrator’s decision and approved the restructuring plan. The Beijing Court approved the restructuring plan on 5 July 2021.

19.  On 7 June 2021, Nuoxi, Kunzhi and FIHK all lodged objections to the Administrator in accordance with the EBL.

20.  As at the time of the hearing of these appeals in January 2024, we were given to understand that the Administrator has not adjudicated on the objections lodged by Nuoxi, Kunzhi and FIHK. Should the Administrator overrule the objections lodged, Nuoxi, Kunzhi and FIHK will have 15 days to appeal to the Beijing Court. An action filed with the People’s Court that has accepted the application for bankruptcy would result in a hearing de novo of the creditor’s claim.

21.  On 20 May 2021, Nuoxi issued and served the writ in HCA 778/2021 against PUFG in connection with claims arising from the Nuoxi Bonds. HKJHC issued and served the writ in HCA 1418/2021 against PUFG in connection with claims arising from the Nuoxi Bonds on 17 September 2021. Kunzhi issued and served the writ in HCA 1442/2021 against PUFG in connection with claims arising from the Kunzhi Bonds on 21 September 2021.

22.  In November 2021, PUFG issued a summons in each of the actions and the action brought by FIHK in HCA 798/2021 seeking a stay of all the actions in order that the disputes between the parties are resolved in the reorganisation proceedings taking place before the Beijing Court. The Administrator also issued an originating summons seeking an order of recognition and assistance with a general stay of proceedings against the Company including these actions. Save for the general stay of proceedings, the other orders sought by the Administrator were not controversial. The application to stay these actions was refused by the judge on 17 December 2021 (“Stay Decision”)[6]. PUFG sought leave to appeal against the Stay Decision. The Court of Appeal refused to grant leave to appeal on 11 October 2022 (“CA Stay Decision”)[7].

23.  The trial of these actions before the judge took place in January and February 2023.

The contractual obligations

24.  The judge explained the contractual documentation and claims by reference to the claims brought by Nuoxi in HCA 778/2021, as the contractual documentation and claims in the other actions are the same with just one material exception to be mentioned below.

25.  The obligations of Nuoxi and HKJHC in relation to the Nuoxi Bonds as stipulated in the Trust Deeds are summarised by the judge as follows:

(1)  By clause 2.2 of each of the Trust Deeds, Nuoxi (and also pursuant to clause 5, HKJHC as Guarantor) covenant to pay the Trustee upon the Nuoxi Bonds becoming due.

(2)  Clause 1.1 of each of the Trust Deeds define an “Event of Default” as an event described in Condition 9 of corresponding Nuoxi Bond Conditions.

(3)  By clause 2.4 of each of the Trust Deeds, at any time after an Event of Default has occurred, the Trustee may by notice in writing to Nuoxi and HKJHC require them to make all subsequent payments in respect of the corresponding Nuoxi Bonds to or to the order of the Trustee.

(4)  By clause 5 of each of the Trust Deeds, HKJHC gave an unconditional and irrevocable guarantee that if Nuoxi does not pay any sum expressed to be payable by it under the corresponding Trust Deed and Nuoxi Bonds by the time and on the date specified for such payment (whether on the normal due date, on acceleration or otherwise), HKJHC will be liable as principal debtor to pay that sum to or to the order of the Trustee.

(5)  By clause 9 of each of the Trust Deeds, Nuoxi (failing which, HKJHC) is liable to pay the Trustee’s remuneration for its services as Trustee, and expenses for preparation, execution, and performance of duties under the relevant Trust Deed, relevant Agency Agreement[8], relevant Keepwell Deed, the relevant EIPU and the relevant one of the Nuoxi Bonds.

26.  Recital (C) of each of the Trust Deeds provides that:

(1)  PUFG will enter into a Keepwell Deed with Nuoxi, HKJHC and the Trustee whereby PUFG would undertake to inter alia provide financial support to HKJHC and Nuoxi in order that they have sufficient funds to meet their respective payment obligations under the corresponding Nuoxi Bonds and the Guarantee (as defined in clauses 1.1 and 5 of the relevant Trust Deed);

(2)  PUFG will also enter into an EIPU with Nuoxi, HKJHC and the Trustee, and PUFG undertakes to assist Nuoxi and HKJHC in meeting their obligations under the Nuoxi Bonds and HKJHC’s Guarantee whereby PUFG agrees to purchase equity interests of subsidiaries of the HKJHC and PUFG incorporated outside the PRC.

27.  Pursuant to each of the Keepwell Deeds:

(1)  By clause 4.1(i) of each of the Nuoxi Keepwell Deeds, PUFG undertakes that it shall cause each of Nuoxi and HKJHC to have a Consolidated Net Worth[9] of at least US$1 (or its equivalent in any other currency) at all times.

(2)  By clause 4.1(ii) of each of the Nuoxi Keepwell Deeds, the Company undertakes that it shall cause each of Nuoxi and HKJHC to have sufficient liquidity to ensure timely payment by each of Nuoxi and HKJHC of any amounts payable under or in respect of the relevant one of the Nuoxi Bonds, and the corresponding Guarantee in accordance with the Nuoxi Bond Conditions and/or the relevant Trust Deed, and otherwise under the relevant Trust Deed and the relevant Agency Agreement.

(3)  By clause 4.1(iii) of each of the Nuoxi Keepwell Deeds, PUFG undertakes that it shall cause HKJHC to have an aggregate Total Equity (as defined in clause 4.2) “of at least HK$9,980,000 at all times.” The Kunzhi Keepwell Deeds do not contain the same provision. This is the only material difference between the Nuoxi Keepwell Deeds and the Kunzhi Keepwell Deeds.

(4)  By clauses 6.2(a) and 6.2(d) of each of the Nuoxi Keepwell Deeds, if an Event of Default has occurred, PUFG shall as soon as practicable grant to Nuoxi a standby facility (“Standby Facility”) pursuant to which PUFG will remit to an account of Nuoxi as soon as practicable an amount sufficient to allow Nuoxi to satisfy the payment obligations set out in clause 6.3 after conversion (if required) (“Standby Facility Amount”) and cause Nuoxi to use the Standby Facility Amount to discharge its obligations under the corresponding Nuoxi Bonds, Trust Deed, Agency Agreement, EIPU and Nuoxi Keepwell Deeds.

(5)  By clause 6.3 of each of the Nuoxi Keepwell Deeds, in the case of an Event of Default, the Standby Facility Amount remitted under clause 6.2 must (after taking into account exchange rate movements) be sufficient to enable Nuoxi to discharge in full:

(a)  its obligations under or in respect of the corresponding Nuoxi Bonds in accordance with the corresponding Nuoxi Bond Conditions and/or the relevant Trust Deed, and otherwise under the relevant Trust Deed and the relevant Agency Agreement (which obligations include the principal amount of the corresponding Nuoxi Bonds then outstanding and any interest due and unpaid and/or accrued but unpaid); and

(b)  fees, costs, expenses and other amounts payable to the Trustee and/or the Trustee’s agents under or in connection with the corresponding Nuoxi Bonds, Trust Deed, Agency Agreement, EIPU and/or Keepwell Deed and that which may be incurred as notified by the Trustee.

(6)  Pursuant to clause 9 of the Nuoxi Keepwell Deeds, they shall remain in full force and effect so long as any of the corresponding Nuoxi Bonds are outstanding.

(7)  By clause 12 of the Nuoxi Keepwell Deeds, PUFG undertook, for so long as any of the corresponding Nuoxi Bonds are outstanding, to inter alia:

(a)  cause each of Nuoxi and HKJHC to remain in full compliance with the terms and conditions of the corresponding Nuoxi Bonds, Guarantee, Trust Deed and all applicable laws, rules and regulations in relation to the corresponding Nuoxi Bonds in the BVI (in the case of Nuoxi) or Hong Kong (in the case of HKJHC) (clause 12(ii) of the Nuoxi Keepwell Deeds);

(b)  promptly to take any and all action necessary to comply with its obligations under the Nuoxi Keepwell Deeds (clause 12(iii));

(c)  to cause each of Nuoxi and HKJHC to take all action necessary in a timely manner to comply with its obligations under the Nuoxi Keepwell Deeds (see clause 12(iv)).

28.  By clause 3.1 of each of the EIPUs, following receipt by PUFG of a written Purchase Notice (“Purchase Notice”) by the Trustee in accordance with the corresponding Trust Deed, PUFG undertook to purchase:

(1)  the Equity Interest[10] held by HKJHC and/or any other Subsidiaries[11] of PUFG incorporated outside the PRC (as designated by PUFG and notified in writing to the Trustee within three Business Days after the date of the Purchase Notice) (clause 3.1(i)); or

(2)  absent such designation and notification, the Equity Interest held by all the Subsidiaries of PUFG incorporated outside the PRC (clause 3.1(ii)),

in either case for a purchase price to be determined in accordance with clause 3.3 of each EIPU and pursuant to closing arrangements specified in clause 3.2 of each EIPU.

29.  By clause 3.3 of each EIPU, PUFG shall determine the purchase price of the Equity Interest within ten business days after the date of the relevant Purchase Notice (“Purchase Price”) and other applicable terms, provided that the Purchase Price shall be no less than the aggregate of the following amounts (“Shortfall Amount”):

(1)  the amount sufficient to enable Nuoxi and HKJHC to discharge their respective obligations under the corresponding Nuoxi Bonds, Guarantee and Trust Deed, in full (clause 3.3(a)); plus

(2)  the interest payable in respect of one interest period on the corresponding Nuoxi Bonds then outstanding as at the date of that Purchase Notice (clause 3.3(b)); plus

(3)  all fees, costs and expenses and other amounts payable in connection with the corresponding Nuoxi Bonds, Trust Deed, Keepwell Deed and/or EIPU as at the date of the Purchase Notice, and all future expenses and costs which may be incurred as notified by the Trustee in that Purchase Notice (clause 3.3(c)).

30.  Pursuant to clause 3.3, absent a determination by PUFG of the Purchase Price within ten Business Days after the date of the Purchase Notice, the Purchase Price shall be the Shortfall Amount. Further and also pursuant to clause 3.5 of the EIPU, PUFG shall inter alia use its best efforts to do all such things and take all such actions as may be necessary to procure the completion of the purchase in any event within six months from the date of a Purchase Notice, and to procure the remittance of the Purchase Price to or to the order of the Relevant Transferor in accordance with the EIPU.

31.  Condition 9 of the Nuoxi Bond Conditions provides that various matters constitute an Event of Default in relation to the Nuoxi Bonds:

(1)  A failure to pay the principal of or any premium on any of the corresponding Nuoxi Bonds when due or there is a failure to pay interest on any of the corresponding Nuoxi Bonds when due and such failure continues for a period of seven days: Condition 9(a).

(2)  The following cross-defaults by members of the PU Group: (i) any other present or future indebtedness of PUFG, Nuoxi, HKJHC or any of their respective Subsidiaries for or in respect of moneys borrowed or raised becomes (or becomes capable of being declared) due and payable prior to its stated maturity by reason of any actual default, event of default or the like; or (ii) any such indebtedness is not paid when due or, as the case may be, within any originally applicable grace period; or (iii) PUFG, Nuoxi, HKJHC or any of their respective Subsidiaries fails to pay when due any amount payable by it under any present or future guarantee for, or indemnity in respect of, any moneys borrowed or raised provided that the aggregate amount of the relevant indebtedness, guarantees and indemnities in respect of which one or more of the events mentioned above have occurred equals or exceeds US$25,000,000 or its equivalent: Condition 9(c).

32.  Also pursuant to Condition 9 of the Nuoxi Bond Conditions, if any Event of Default occurs, the Trustee may in certain circumstances give written notice to Nuoxi, HKJHC and PUFG declaring that the Nuoxi Bonds are, and they shall immediately become, due and payable at their principal amount together with accrued interest.

Events of Default

33.  It is Nuoxi’s pleaded case[12] that a number of Events of Default have occurred since around February 2020. They are not in dispute and are summarised in the Judgment as follows:

(1)  On 21 February 2020 (the day when the Beijing Court issued an announcement directing creditors of PUFG to submit claims to the Administrator), PUFG defaulted in payment of sums due pursuant to a super short-term commercial paper. This constituted an Event of Default pursuant to Condition 9(c) of the Nuoxi Bond Conditions.

(2)  There was a cross-default in February 2020 as a result of non-payment of interest by Subsidiaries in connection with US$310,000,000 floating rate Guaranteed Bonds due 2021 issued by Kunzhi and guaranteed by FIHK. This cross-default constituted an Event of Default pursuant to Condition 9(c) of the Nuoxi Bond Conditions.

(3)  On or before 18 March 2020, Peking University Science Park Construction & Development Company Limited, PUFG, and Peking University Resources Group Co., Ltd. (“Science Park Company”) failed to perform their payment obligations under certain Science Park Company asset-backed notes. This was a cross-default and constituted an Event of Default pursuant to Condition 9(c) of the Nuoxi Bonds.

(4)  Neither Nuoxi nor HKJHC was able to pay the principal and interest due on 20 April 2020 under the 2020 Bonds, and the default continued for more than seven days. This was an Event of Default under Condition 9(a) of the Nuoxi Bond Conditions relating to the 2020 Bonds, and Condition 9(c) of the Nuoxi Bond Conditions relating to the 2021 Bonds and 2023 Bonds.

(5)  There was a cross-default in May 2020 as a result of non-payment of interest by Subsidiaries in connection with the US$310,000,000 floating rate Guaranteed Bonds due 2021 issued by Kunzhi and guaranteed by FIHK. This cross-default constituted an Event of Default pursuant to Condition 9(c) of the Nuoxi Bond Conditions.

(6)  Neither Nuoxi nor HKJHC was able to pay interest due on 24 July 2020, under the 2021 Bonds and 2023 Bonds, and the default continued for more than seven days. This was an Event of Default under Condition 9(a) and/or 9(c) of the Nuoxi Bond Conditions relating to the 2021 Bonds and 2023 Bonds.

34.  Pursuant to Condition 9 of the Nuoxi Bond Conditions relating to the 2020 Bonds, on 16 April 2020, the Trustee issued a written notice to Nuoxi, HKJHC and PUFG in relation to the 2020 Bonds (“2020 April Written Notice”) referring to the Event of Default that had occurred in (2) described above. It is Nuoxi’s case that as a consequence of the 2020 April Written Notice, the 2020 Bonds became immediately due and payable at their principal amount together with accrued interest (the latter calculated as at 15 April 2020 as being US$6,672,000, and which would continue to accrue until payment was made as provided in the relevant Nuoxi Bond Conditions). The Trustee formally demanded payment of the total amount, which as at that date was US$306,672,000.

35.  Also pursuant to Condition 9 of the Nuoxi Bond Conditions, on 16 April 2020 the Trustee issued two further written notices to Nuoxi, HKJHC and PUFG in relation to the 2021 Bonds and 2023 Bonds (“2021 April Written Notice” and “2023 April Written Notice”) referring to the same Event of Default.

36.  It is Nuoxi’s case that as a consequence of the 2021 April Written Notice, the 2021 Bonds became immediately due and payable at their principal amount together with accrued interest (the latter calculated as at 15 April 2020 as being US$2,116,000, and which would continue to accrue until payment was made as provided in the relevant Nuoxi Bond Conditions). The Trustee formally demanded payment of the total amount, which as at that date was US$202,116,000.

37.  It is also Nuoxi’s case that pursuant to the 2023 April Written Notice, the 2023 Bonds became immediately due and payable at their principal amount together with accrued interest (the latter calculated as at 15 April 2020 as being US$4,816,000, and which would continue to accrue until payment was made as provided in the relevant Nuoxi Bond Conditions). The Trustee formally demanded payment of the total amount, which as at that date was US$404,816,000.

38.  Nuoxi claims that as at 16 April 2020, it was liable under the Trust Deeds to pay at least the aforesaid principal and interest, and the Trustee’s Costs, in relation to all of the Nuoxi Bonds. These allegations, and the similar claims advanced in the other three actions, are admitted by PUFG[13].

39.  Pursuant to clause 6.1 of each of the Trust Deeds, on 30 March 2020, the Trustee issued three Purchase Notices to PUFG (with copies to Nuoxi and HKJHC) relating to the 2020 Bonds, 2021 Bonds and 2023 Bonds as specified in the EIPUs. Pursuant to each of the Purchase Notices the Trustee notified PUFG that an Event of Default had occurred pursuant to Condition 9 of the Nuoxi Bond Conditions relating to either the 2020 Bonds, 2021 Bonds, or the 2023 Bonds, and reminded PUFG of its obligation under clause 3.1 of the relevant EIPU to purchase the Equity Interest. The Trustee further specified that for the purposes of calculating the Purchase Price as at the date of the Purchase Notice, the Shortfall Amounts were as follows: in relation to the 2020, 2021 and 2023 Bonds, at least US$313,061,500, US$206,524,000 and US$414,724,000 respectively (comprised of principal and payable interest), as well as fees, costs, expenses and other amounts payable as at the date of the Purchase Notice, plus provision for other fees, costs, expenses and all other amounts that may be incurred after the date of the Purchase Notice.

40.  PUFG did not, in accordance with clause 3.1 of the EIPUs, designate or notify within three business days of receipt of either of the Purchase Notices which Equity Interest it would purchase. Neither did it, as required by clause 3.3 of the EIPUs, determine the Purchase Price within ten business days after the date of the Purchase Notices.

41.  It is Nuoxi’s case that pursuant to clauses 3.1 to 3.3 of the EIPUs, PUFG has since at least late April 2020 been liable to purchase the Equity Interest held by all of PUFG’s subsidiaries incorporated outside the Mainland, in the minimum of the Shortfall Amount (being the Purchase Price) as calculated in relation to each of the 2020 Bonds, 2021 Bonds and the 2023 Bonds. The Shortfall Amount and Purchase Price calculated by Nuoxi in accordance with clause 3.3 of each EIPU is:

(1)  at least US$313,061,500 in relation to the 2020 Bonds;

(2)  at least US$206,524,000 in relation to the 2021 Bonds; and

(3)  at least US$414,724,000 in relation to the 2023 Bonds.

42.  Further, Nuoxi says that pursuant to clause 3.5 of the EIPUs, PUFG has been obliged since at least 30 March 2020 to use its best efforts to do all things and take all action necessary and desirable to procure the completion of the acquisition of the Equity Interests as soon as reasonably practicable, and in any event within six months from 30 March 2020, and to procure the remittance of each of the Purchase Prices (being each of the Shortfall Amounts) to or to the order of a Relevant Transferor in accordance with the EIPU. This has not happened.

43.  The plaintiffs allege that as a consequence of PUFG’s failure to comply with the Keepwell Deeds and the EIPUs they have suffered the loss described below.

44.  In the case of Nuoxi and HKJHC, the loss is said to be as at 19 May 2021[14] at least US$963,456,001, which comprises:

(1)  the principal amount of US$321,693,000 of the 2020 Bonds, together with accrued contractual interest thereon up until 19 May 2021 of US$21,693,000 (which includes the contractual interest calculated up to 15 April 2020 of US$6,672,000);

(2)  the principal amount of US$212,402,000 of the 2021 Bonds, together with accrued contractual interest thereon up to 19 May 2021 of US$12,402,000 (which includes the contractual interest calculated up to 15 April 2020 of US$2,116,000);

(3)  the principal amount of US$428,236,000 of the 2023 Bonds, together with accrued contractual interest thereon up to 19 May 2021 of US$28,236,000 (which includes contractual interest calculated up to 15 April 2020 of US$4,816,000);

(4)  the sum of at least US$375,000 being the outstanding Trustee’s Costs, pursuant to clause 9 of the Trust Deed, which the Trustee has incurred with respect to the 2020 Bonds up until 1 February 2021; and

(5)  the sum of at least US$750,001 being the outstanding Trustee’s Costs, pursuant to clause 9 of the Trust Deed, which the Trustee has incurred with respect to the 2021 Bonds and 2023 Bonds up until 1 February 2021.

45.  In the case of Kunzhi and FIHK, the loss is said to be as at 1 February 2021[15], at least the sum of US$857,427,830, which comprises:

(1)  the principal amount of US$490,000,000 of the 2020 Bonds, together with accrued contractual interest thereon up to until 1 February 2021 of US$39,557,700 (which includes the contractual interest calculated up to 15 April 2020 of US$15,141,000);

(2)  the principal amount of US$310,000,000 of the 2021 Bonds, together with accrued contractual interest thereon up to 1 February 2021 of US$17,245,300 (which includes the contractual interest calculated up to 15 April 2020 of US$2,647,400);

(3)  the sum of at least US$312,415 being the outstanding Trustee’s Costs, pursuant to clause 9 of the Trust Deed, which the Trustee has incurred with respect to the 2020 Bonds up until 1 February 2021; and

(4)  the sum of at least US$312,415 being the outstanding Trustee’s Costs, pursuant to clause 9 of the Trust Deed, which the Trustee has incurred with respect to the 2021 Bonds up until 1 February 2021.

46.  The plaintiffs initially sought judgment for the sums. In the course of resisting the application for stay of proceedings, they changed their position and made clear they do not seek a judgment for a sum of money that they can enforce outside the Mainland or of which they can seek recognition and enforcement in the Mainland. They amended the prayer for relief to seek instead declarations that the Keepwell Deeds had been breached resulting in the losses as described above. The purpose is to seek a judgment on which they can rely as evidence to prove their claims in the reorganisation proceedings to which PUFG is subject in the Mainland.

47.  As noted by the judge, the dates on which it is said that the Keepwell Deeds and the EIPUs were breached are identified with precision and all occurred after 19 February 2020[16] (the date when the Beijing Court ordered the commencement of the restructuring process of PUFG). Neither the occurrence of the events, nor the dates on which they took place, is controversial. First, the earliest Events of Default took place on 21 February 2020. Secondly, the Trustee issued a notice of default (the 2020 April Written Notice) on 16 April 2020 and the 2020 Bonds became immediately repayable. On the same day, notices of default were given in respect of the 2021 Bonds and 2023 Bonds. The three series of Nuoxi Bonds all became immediately payable on 16 April 2020. Thirdly, on 30 March 2020, the Trustee issued three Purchase Notices pursuant to the Trust Deeds, reminding PUFG of its obligations under the EIPUs. It is Nuoxi’s case that “since at least late April 2020” PUFG has been liable to purchase the Equity Interests. It is not in dispute that PUFG failed to put Nuoxi and the other Issuers in funds in order that they could comply with their obligations under the Bonds or purchase the Equity Interests.

Material provisions in the Keepwell Deeds

48.  Although the provisions in the Keepwell Deeds have been summarised in the Judgment, for ease of reference the material provisions in the Nuoxi Keepwell Deeds to be discussed later are set out in full:

“1. INTERPRETATION

1.1 Definitions

The following expressions have the following meanings:

Approval Authorities means any supranational, national, state, municipal, provincial or local government (including any subdivision, court, administrative agency or commission or other authority thereof) or any quasi-governmental or private body exercising any regulatory, taxing, importing or other governmental or quasi-governmental authority whose licences, authorisations, registrations or other approvals are necessary for undertaking the transactions contemplated by this Deed;”

“2. OVERRIDING PRINCIPLES

2.1 Not a Guarantee

This Deed is not, and nothing herein contained and nothing done pursuant hereto by the Company shall be deemed to constitute, or shall be construed as, or shall be deemed an evidence of, a guarantee by or any legal binding obligation of the Company of the payment of any obligation, responsibilities, indebtedness or liability, of any kind or character whatsoever, of the Issuer or the Guarantor under the laws of any jurisdiction, including the PRC.

2.2 Regulatory Approvals

Notwithstanding anything contained in this Deed, if, and to the extent that the Company is required to obtain necessary approvals, consents, licences, orders, permits and any other authorisations from the relevant Approval Authorities (the Relevant Approvals) in order to comply with its obligations under this Deed, the performance of such obligation shall always be qualified by, and subject to, the Company having obtained such Relevant Approvals. In this regard, the Company undertakes to use its best efforts to obtain such Relevant Approvals within the time stipulated by the relevant Approval Authorities, if applicable.”[17]

“4. MAINTENANCE OF CONSOLIDATED NET WORTH; LIQUIDITY

4.1 The Company undertakes that it shall cause:

(i) each of the Issuer and the Guarantor to have a Consolidated Net Worth of at least US$1.00 at all times;

(ii) each of the Issuer and the Guarantor to have sufficient liquidity to ensure timely payment by each of the Issuer and the Guarantor of any amounts payable under or in respect of the Bonds and the Guarantee in accordance with the terms and conditions of the Bonds and/or the Trust Deed and otherwise under the Trust Deed and the Agency Agreement; and

(iii) the Guarantor to have an aggregate Total Equity of at least HK$9,980,000 at all times.

If the Issuer or the Guarantor at any time determines that it will have insufficient liquidity to meet its payment obligations as they fall due, then the Issuer and/or the Guarantor shall promptly notify the Company of the shortfall and the Company will make available to the Issuer or the Guarantor, before the due date of the relevant payment obligations, funds sufficient to enable the Issuer or the Guarantor (as the case may be) to pay such payment obligations in full as they fall due. The Issuer or the Guarantor shall use any funds made available to it by the Company in accordance with this Deed solely for the payment when due of such payment obligations under the Bonds, the Guarantee or the Trust Deed (as the case may be).

4.2 The Guarantor undertakes that its aggregate Total Equity will not be less than HK$9,980,000 at all times.

For purposes of this Deed:

Consolidated Net Worth means, (i) in respect of the Issuer, the excess of total assets of the Issuer and its consolidated Subsidiaries over total liabilities of the Issuer and its consolidated Subsidiaries; and (ii) in respect of the Guarantor, the excess of total assets of the Guarantor and its consolidated Subsidiaries over total liabilities of the Guarantor and its consolidated Subsidiaries, total assets and total liabilities each to be determined in accordance with the Hong Kong Financial Reporting Standards consistently applied;

Total Equity means, the line item with the corresponding caption in the consolidated statement of financial position of the Guarantor, comprising the aggregate of:

(i) the amount paid up or credited as paid up on the issued ordinary share capital of the Guarantor;

(ii) the amount standing to the credit of the consolidated reserve of the Guarantor and its Subsidiaries; and

(iii) the amount attributable to non-controlling interests.”

The Judgment

49.  PUFG raised these defences at the trial:

(1)  The plaintiffs’ claims have been discharged by the proofs of debt they filed in the Mainland reorganisation proceedings.

(2)  No declaratory relief should be granted to the plaintiffs when it is not demonstrated that such a declaration by the Hong Kong court would be of use in the Mainland.

(3)  Under the Keepwell Deeds and the EIPUs, PUFG’s obligation, if any, is qualified (or contingent) by clause 2.2 and it is under no obligation or liability if it lacks the “Relevant Approvals”. The claims brought were all for breaches that occurred after the commencement of reorganisation proceedings in the Beijing Court on 19 February 2020. There is no real prospect of obtaining relevant approvals (despite the obligation to use best efforts) once the reorganisation proceedings had commenced. PUFG’s obligation has not arisen on the facts of the case in light of the Mainland law evidence.

(4)  The plaintiffs have suffered no loss.

50.  The defences in (1) and (2) were advanced by PUFG in its application to stay these actions and were rejected by the judge in the Stay Decision, which was upheld by the CA Stay Decision. Despite the plaintiffs’ objection of res judicata, the judge permitted PUFG to reargue these issues and rejected its arguments in the Judgment.

51.  The judge rejected the argument that the plaintiffs’ claims have been discharged by the proofs of debt they filed in the reorganisation proceedings. He held that PUFG has failed to distinguish between a submission for the purposes of determining what a creditor is entitled to recover in an insolvency process and the determination of a right outside an insolvency process, which may subsequently be used to advance a claim in that insolvency process. The plaintiffs are not seeking a judgment, which they can enforce outside the reorganisation under the EBL taking place in the Mainland. What they seek is a judgment, which is to assist them in advancing a claim in the reorganisation[18].

52.  As to the utility of a declaration by the Hong Kong court in advancing the plaintiffs’ claims in the reorganisation, the judge referred to the expert evidence of Professor Shi Jingxia (“Professor Shi”) for PUFG and concluded that it cannot sensibly be said that a judgment from the Hong Kong court will be of no utility to the Beijing Court[19].

53.  The judge then turned to the two remaining defences. He pointed out three disputes concerning the construction of the Keepwell Deeds and the EIPUs:

“The first concerns whether or not clause 4.1 of the Keepwell Deeds required the Company to be given notice that one or other of the Issuers or Guarantors required financial assistance before its obligations under clause 4.1 arose. The second concerns whether or not clause 2.2 in both the Keepwell Deeds and the EIPUs operates as a condition precedent to the obligations under clause 4 arising. The third concerns what the obligation in clause 2.2, which provides that the Company must use its ‘best efforts’ to obtain the necessary approvals and consents, requires of the Company.”[20]

54.  He made these observations about the contractual documentation[21]:

(1)  The Keepwell Deeds and the EIPUs form part of one financial transaction. The court can and should have regard to other agreements and documents that form part of a composite transaction in assessing what the objectives and expectations of the parties to individual agreements forming part of the transaction are likely to have been, and to have regard to the character and components of the larger transaction in assessing the meaning and application of contentious provisions.

(2)  The objective of PUFG, as the holding company of the PU Group, was to procure investors to lend US$ for the tenor of the Bonds. To do this it was necessary for the PU Group to use offshore companies, with no material assets, to issue the Bonds. Owing to financial regulations in the Mainland which create difficulties for a company to transfer currency out of the Mainland, the PU Group was not able to provide guarantees from onshore companies holding assets in the Mainland, and hence the Keepwell Deeds and the EIPUs were devised as a novel form of security.

(3)  It was made clear to lenders in the Offering Circular[22] there might be difficulties in PUFG complying with its obligations under the Keepwell Deeds and EIPUs if to do so required approvals from Mainland regulators and Government departments. Further, the Keepwell Deed provides no mechanism for the Trustee to monitor compliance. Breaches of the Keepwell Deed were only likely to come to light after PUFG was in serious financial difficulties. By that time, and, in particular, if PUFG had been put into reorganisation in the Mainland pursuant to the EBL, it was inherently unlikely that regulatory approval for transfers necessary to pay liabilities under the Bonds and the Guarantees would be approved.

(4)  Notwithstanding these inherent shortcomings, it must reasonably be assumed that the Keepwell Deeds and the EIPUs were intended to create substantive rights, even if in practice they had less financial value than purchasers of the Bonds assumed, and any qualification to such rights was likely to be carefully circumscribed.

55.  The judge made these findings about the obligations in clauses 4.1(i), (ii) and (iii) of the Keepwell Deeds.

56.  In respect of the obligation in clause 4.1(i), Nuoxi and Kunzhi claimed that PUFG had breached its obligations to them from 31 October 2020 as the management accounts available for the period ending on 31 October 2020 for both companies showed Nuoxi and Kunzhi having deficits of US$15,144,797.88 and HK$1,107,761,683 respectively[23].

57.  The judge found that PUFG failed to comply with clause 4.1(i) of the 1^st and 2^nd Nuoxi Keepwell Deeds from 31 October 2020 by virtue of Nuoxi not having a Consolidated Net Worth of US$1. He found that PUFG failed to comply with clause 4.1(i) of the 1^st and 2^nd Kunzhi Keepwell Deeds from 31 October 2020 by virtue of Kunzhi not having a Consolidated Total Equity of US$1[24].

58.  In respect of the Guarantors, it was pleaded[25] that PUFG breached its obligations under clause 4.1(i) as it has not caused HKJHC to have a consolidated net worth of US$1 at all times from 30 June 2020, relying on the unaudited financial accounts of HKJHC as showing that it had a consolidated net worth of US$18,975,399 as at 30 June 2020, which is reduced to a deficit of US$908,232,601 after taking into account the liability under the Guarantee, when it was called by the Trustee on 16 April 2020. PUFG has not disputed HKJHC’s liability under the Guarantee. The judge found that as at 16 April 2020 HKJHC had a Consolidated Net Worth of less than US$1 and it follows that the pleaded case that at all material times from 30 June 2020 HKJHC did not have a Consolidated Net Worth of US$1 is established[26].

59.  In the case of FIHK it was pleaded[27] that at all material times from 31 December 2019 it did not have a Consolidated Net Worth of US$1, relying on FIHK’s reports and consolidated financial statements, which showed a deficit of RMB1,154,012,000. The judge found that at all material times from 31 December 2019 FIHK did not have a consolidated net worth of US$1, as at 31 December 2019 FIHK had negative Consolidated Net Equity of RMB1,154,012,000, which at the current exchange rate is approximately US$166,670,837[28].

60.  Clause 4.1(ii) required PUFG to cause each of Nuoxi and HKJHC to have sufficient liquidity to make payments as they fell due. The judge found that PUFG failed to comply with clause 4.1(ii) after the Events of Default occurred, which was after 19 February 2020[29].

61.  Clause 4.1(iii) only applies to HKJHC and requires it “to have an aggregate Total Equity of at least HK$9,980,000 at all times” for both the 1^st Nuoxi Keepwell Deed and the 2^nd Nuoxi Keepwell Deed. It was alleged that PUFG failed to ensure that HKJHC had a net worth of at least HK$9,980,000 in that its unaudited financial statements showed as at 30 June 2020 its Total Equity was a deficit of approximately HK$7,055,196,256, being the amount of the paid up capital of US$9,980,000 and retained profits of US$8,995,399 less HKJHC’s liability under the Guarantees of US$927,208,000[30]. This has not been disputed by PUFG and the judge found that it failed to comply with clause 4.1(iii) from 30 June 2020[31].

62.  The judge rejected the argument of PUFG that clause 4.1 required PUFG to be given notice that the plaintiffs required finance and as it never received the notice referred to in clause 4.1 its obligations were not engaged. He held that the correct construction is that the obligation to ensure that the Issuers and Guarantors have sufficient liquidity to meet their obligations is engaged when PUFG is aware that either the Issuers or the Guarantors require additional liquidity and the material question is whether or not PUFG did have the requisite knowledge. It was clear on the evidence that PUFG must have been aware of their financial position by late 2019 as it clearly faced serious financial problems that led to the Bank of Beijing commencing proceedings against it[32].

63.  The judge also rejected the argument that clause 2.2 is a condition precedent to the obligations under clause 4 arising. The primary obligations created by the Keepwell Deeds and the EIPUs were the steps that those deeds required PUFG to take to ensure that Nuoxi and Kunzhi could make the repayments required by the terms of the Bonds. If, however, despite using its best efforts (as required by clause 2.2) the necessary regulatory approvals could not be obtained PUFG is relieved of its obligations. He held that clause 2.2 is in the nature of a defence[33]. It is for PUFG to prove on the balance of probabilities that despite using its best efforts it could not obtain the necessary regulatory approvals required to make the payments, which clause 4 of the Keepwell Deeds and the EIPUs required.

64.  The judge found that PUFG took no steps at any time to obtain the approvals, consents, licences, orders, permits or any other authorisations as might prove necessary for complying with its obligations under the 1^st Nuoxi Keepwell Deed, the 2^nd Nuoxi Keepwell Deed, the 1^st Kunzhi Keepwell Deed or the 2^nd Kunzhi Keepwell Deed, or took any steps at any time to consider what approvals might be required in order for it to comply with its obligations under any of the four Keepwell Deeds, the four EIPUs or what the prospects were of obtaining such approvals as might be required[34].

65.  The judge then considered how a “best efforts” obligation in clause 2.2 applies if no efforts were taken. PUFG argued if the necessary approvals could never have been obtained the failure to make any effort to obtain them does not prevent it from relying on clause 2.2 because it made no difference to the outcome. The judge accepted that is correct as a broad principle. However, an obligor who had taken no steps to comply with a “best efforts/endeavours” obligation will have to prove by cogent evidence that this is the case. Generally, this will require the obligor to show what it would have had to do to comply with its obligation and further show why it would have been prevented from doing so[35].

66.  He took the view there is a material difference between what PUFG has to show in respect of a failure to comply with the Keepwell Deeds or the EIPUs before the reorganisation commenced on 19 February 2020 and after it had commenced. Once PUFG was in reorganisation there was no realistic likelihood of approvals being given to transfers out of the Mainland. This would simply have depleted assets available to the Administrator and the Company, which would otherwise be available to Mainland creditors or financing and implementing the reorganisation. The position was different before the reorganisation[36].

67.  In respect of FIHK, as it did not have a Consolidated Net Equity of US$1 as at 31 December 2019 but a deficit of approximately US$166,670,837, PUFG was in breach of the Keepwell Deed at that date. PUFG has not explained why it had taken no effort to ensure clause 4.1(i) was complied with at the end of December 2019, which was before the reorganisation commenced. The judge found that PUFG has failed to prove it used its best efforts to obtain the necessary approvals and, as it had not complied with its obligations under the Keepwell Deeds and the EIPUs, PUFG breached its obligations under clause 4.1(i) of the Kunzhi Keepwell Deeds in respect of FIHK[37].

68.  No factual evidence was adduced by PUFG as to how it intended to finance Nuoxi and Kunzhi’s repayment obligations. According to the expert evidence of Ma Shaobo[38] (“Ma”), who gave evidence for PUFG, the most likely method of repayment of the principal was to issue a new bond to refinance the existing bond. He identified further methods, namely, the repurchase of onshore foreign direct investment (presumably denominated in a foreign currency) or to make use of cash to support overseas investment or to move the fund offshore to support overseas project. It remained unclear how interest might be paid[39].

69.  Notwithstanding the absence of factual evidence from PUFG, the judge took the view that necessary approvals for the Keepwell Deeds, Guarantees and EIPUs had been obtained from NDRC. It did not appear to be in dispute that regulatory approval would have been necessary to exchange RMB into US$ and transfer the US$ out of the Mainland or to transfer RMB to Hong Kong with a view to its exchange into US$ and its subsequent use to pay foreign creditors sums due under the Keepwell Deeds or the Guarantees. The judge thought it highly probable that PUFG would have had difficulty in obtaining the necessary approvals once it became subject to the reorganisation proceedings in February 2020[40]. He concluded that realistically, absent the Administrator supporting an application for approval to transfer US$ out of the Mainland as part of the reorganisation plan’s implementation, regulatory approval was very unlikely to be obtained[41].

70.  The judge rejected the argument of PUFG that once the Administrator had been appointed it became one of the “Approval Authorities” under clause 2.2 and it would not give (and of course did not give) approval to any payments being made pursuant to the Keepwell Deeds or EIPUs. Whether the Administrator should be treated as an Approval Authority is a question of English law. The judge held that in the context of clause 2.2, the term is plainly intended to refer to “PRC governmental authorities, including the NDRC, the MOFCOM and the SAFE and their respective local counterparts”[42] and it did not include the Administrator[43].

71.  The judge therefore found that PUFG is only liable for a breach of the Keepwell Deeds in respect of FIHK. In the absence of any evidence from PUFG, the consequence of that breach is that PUFG caused loss to FIHK at the amount FIHK should have but did not receive, namely, RMB1,154,012,000 (the negative Consolidated Net Equity of FIHK as at 31 December 2019)[44]. If it was determined in the other three actions that the pleaded breaches had occurred, the judge would have found that the resulting loss was as claimed[45].

The issues on appeal

72.  The plaintiffs raised five broad grounds of appeal:

Ground 1:  the judge failed to recognise the nature of PUFG’s obligation under clause 4.1(i) of the Keepwell Deeds (“the Balance Sheet Obligation”).

Ground 2:  he failed to evaluate the nature of PUFG’s obligation under clause 4.1(ii) of the Keepwell Deeds (“the Liquidity Payment Obligation”).

Ground 3:  he failed to deal with the plaintiffs’ arguments on modes of performance not requiring Relevant Approvals.

Ground 4:  he failed to provide a fair opportunity and/or fair trial to the plaintiffs in breach of natural justice[46].

Ground 5:  he failed to conclude that the plaintiffs’ pleadings are broad enough and not defective.

73.  PUFG contended in the respondent’s notice that the Judgment should be affirmed on these additional or alternative grounds:

RN Ground 1:  the plaintiffs’ claims have been discharged by their submission of proofs of debt in the reorganisation of PUFG in the Mainland and the rejection of their proofs of debt.

RN Ground 2:  the impossibility of obtaining regulatory approval should be affirmed on these additional grounds:

(1)  regulatory approvals cannot be obtained to the extent that transactions are not authentic;

(2)  the Administrator was an Approval Authority and would not have granted the necessary approvals;

(3)  no approval would have been granted in circumstances where the relevant contracts were terminated on 19 April 2020 by reason of the operation of Article 18 of the EBL;

(4)  insofar as PUFG is allegedly obliged to make a gift or to purchase assets at an artificially inflated price, it would not have been able to obtain regulatory approval; insofar as PUFG is allegedly obliged to lend or purchase assets at fair value, the non-performance of PUFG caused no loss.

RN Ground 3:  there was no causation of loss for these reasons:

(1)  any breach by PUFG caused no loss, for the reasons in RN Ground 2;

(2)  any benefit derived by the plaintiffs would have been “clawed back” as a result of PRC insolvency law and Articles 2, 31 and 32 of the EBL;

(3)  failure to inject liquidity into the plaintiffs could only cause loss to the bondholders and not the plaintiffs and the alleged insolvency of the plaintiffs does not give rise to any actionable loss.

74.  The issues raised on both sides will be considered in the order set out above.

Ground 1: failure to recognise the Balance Sheet Obligation in clause 4.1(i)

75.  The arguments in Ground 1 were not raised before the judge. The plaintiffs contended that if their arguments in this ground are upheld, these appeals should be allowed.

76.  Mr Phillips’ submissions may be stated as follows.

77.  The obligation of PUFG in clause 4.1(i) of the Keepwell Deeds is to cause each of the plaintiffs to have a Consolidated Net Worth and/or Consolidated Total Equity of at least US$1 at all times (the Balance Sheet Obligation)[47]. It is an obligation owed to Nuoxi, Kunzhi and HKJHC. It is not a guarantee. That contractual undertaking gives rise to a liability of PUFG due to the plaintiffs at all times. If at any time the plaintiffs’ total assets did not exceed their total liabilities by US$1, PUFG owed an obligation to the plaintiffs to re-balance the balance sheet plus US$1. This is a ‘see to it’ obligation[48] that would give rise to a claim in damages for failing to ‘see to it’ that Nuoxi, HKJHC and Kunzhi had the requisite consolidated net worth outside an insolvency, and a provable debt equal to the damages claim inside an insolvency. If PUFG were to perform the Balance Sheet Obligation, this would mean that Nuoxi, HKJHC and Kunzhi would have assets out of which they could discharge their obligations.

78.  The obligation of PUFG in clause 4.1(ii) is to cause each of the plaintiffs to have sufficient liquidity to ensure timely payment by each of them of any amounts payable under or in respect of the Bonds and the Guarantee and/or the Trust Deed (the Liquidity Payment Obligation), and PUFG is required to make payments to the plaintiffs sufficient to ensure timely payment by the plaintiffs of their obligations. The Liquidity Payment Obligation is a payment obligation. That would give rise to a claim for breach of the obligation to make payments outside an insolvency, and a provable debt equal to the unpaid sums inside an insolvency.

79.  The two obligations are legally and conceptually distinct. Importantly, the Balance Sheet Obligation is not dependent upon the Relevant Approvals in clause 2.2. Clause 2.2 only applies to payments, and only to payments made in a way that gives rise to the need to obtain Relevant Approvals. The liability under the Balance Sheet Obligation did not require a payment. It existed at all times, from the moment the contracts were entered into. It did not depend on PUFG making any payments, nor did it require payments to be made in a particular currency or in a particular jurisdiction. PUFG’s actual ability to perform is irrelevant.

80.  The obvious way for PUFG to cause Nuoxi, HKJHC and Kunzhi to have the requisite consolidated net worth is to put an asset equal to the deficiency on the balance sheet. That would be done by accepting a debt. It could be done by issuing a debt instrument, or by admitting the debt in a form that satisfied the consolidated net worth test in accordance with the Hong Kong Financial Reporting Standards.

81.  Reliance was placed on these statements in the judgment of the UK Supreme Court in In re Nortel GmbH [2014] AC 209, with emphasis on the parts as italicised:

“75 Where a liability arises after the insolvency event as a result of a contract entered into by a company, there is no real problem. The contract, in so far as it imposes any actual or contingent liabilities on the company, can fairly be said to impose the incurred obligation. Accordingly, in such a case the question whether the liability falls within paragraph (b)[49] will depend on whether the contract was entered into before or after the insolvency event.” (per Lord Neuberger of Abbotsbury PSC)

“131 The paradigm case of an ‘obligation’ within the sub-paragraph[50] is a contract which was already in existence before the company went into liquidation. … Yet when one asks what it is about a contract that qualifies it as a relevant source of obligation, the answer must be that where a subsisting contract gives rise to a contingent debt or liability, a legal relationship between the company and the creditor exists from the moment that the contract is made and before the contingency occurs. …” (per Lord Sumption JSC)

82.  The source of the obligation in this instance is the Keepwell Deeds and this gives rise to a debt or liability. What one needs to do is to determine the nature of the obligation and consequent liability when PUFG went into reorganisation on 19 February 2020. Insolvency brings into effect a mechanism for the enforcement of claims against PUFG. The claims under the Keepwell Deeds are unaffected by the insolvency. Following the insolvency, the plaintiffs’ claims that the sums that would have been due had PUFG performed the contracts, were provable. Provable claims include any liability capable of being expressed in money terms[51]. The liabilities of PUFG to the plaintiffs under clauses 4.1(i) and (ii) were liabilities capable of being expressed in money terms.

83.  Mr Phillips prayed in aid these statements of Lord Hoffmann in Wight v Eckhardt Marine GmbH [2004] 1 AC 147:

“26. … It is first necessary to remember that a winding-up order is not the equivalent of a judgment against the company which converts the creditor’s claim into something juridically different, like a judgment debt. Winding up is, as Brightman LJ said in In re Lines Bros Ltd [1983] Ch 1, 20, ‘a process of collective enforcement of debts’. The creditor who petitions for a winding up is ‘not engaged in proceedings to establish the company’s liability or the quantum of the liability (although liability and quantum may be put in issue) but to enforce the liability.’

27. The winding up leaves the debts of the creditors untouched. It only affects the way in which they can be enforced. When the order is made, ordinary proceedings against the company are stayed (although the stay can be enforced only against creditors subject to the personal jurisdiction of the court). The creditors are confined to a collective enforcement procedure that results in pari passu distribution of the company’s assets. The winding up does not either create new substantive rights in the creditors or destroy the old ones. Their debts, if they are owing, remain debts throughout. They are discharged by the winding up only to the extent that they are paid out of dividends. …”

84.  As the winding up does not destroy old rights, it cannot be argued that because PUFG is in liquidation, it cannot perform its contractual obligation by contending that Relevant Approvals cannot be obtained post liquidation. An insolvency does not deprive a creditor of their rights unless there is a statutory or contractual provision that deprives them, as in Wight v Eckhardt Marine GmbH where the creditor’s rights were extinguished by a scheme that transferred their claim to a new bank which satisfied their claim.

85.  The liability under the Balance Sheet Obligation did not need to be established in an action or converted into a judgment debt in order to be provable in an insolvency. The quantum of that liability was the sum the plaintiffs required to meet their liabilities plus US$1. The reorganisation did not change the contractual rights of the plaintiffs, it only meant that the plaintiffs had different rights of enforcement.

86.  There is no need to show a breach to establish the provable debt. It is a ‘see to it’ obligation that gives rise to a claim for damages. There is no need to have a breach of that obligation before the insolvency because the question of whether a breach occurs before or after the commencement of insolvency is only relevant to whether or not Relevant Approvals could be obtained. As the Balance Sheet Obligation is not a payment obligation, there was no question of Relevant Approvals and the question of when there may have been a breach was immaterial.

87.  It was pleaded by PUFG that “the Administrator was not permitted under PRC law to allow PUFG to continue to perform the Keepwell Deeds and EIPUs in circumstances where such performance would not benefit the collective interests of the creditors as a whole”[52]. That confuses the Balance Sheet Obligation and making payments under the Keepwell Deeds.

88.  The matters pleaded by PUFG[53] are all relevant to payment obligations. PUFG only sought to challenge its ability to satisfy the Balance Sheet Obligation by making payments in US dollars and proceeded on the false premise that performance of that obligation required payment of US dollars for which Relevant Approvals would be required. But no permissions were required to submit a proof of debt in PUFG’s reorganisation or to receive dividends in that reorganisation. The plaintiffs’ claims were provable in PUFG’s reorganisation from 21 February 2020 when the Beijing Court issued an announcement directing creditors to submit their claims to the Administrator. There is no pleaded defence to PUFG’s liability under the Balance Sheet Obligation. PUFG cannot show that the liabilities under the Keepwell Deeds, that had existed from the moment the contracts were entered into, had no value because performance was impossible.

89.  The judge conflated the Balance Sheet Obligation with a payment obligation, as being satisfied only by an actual payment in US dollars, and hence focused on the wrong question whether PUFG’s payment obligations under the Keepwell Deeds could be performed following the reorganisation of PUFG. He decided that if Relevant Approvals for payment in US dollars could not be obtained once the insolvency had commenced, there was no underlying provable debt, and hence the insolvency of PUFG deprived the plaintiffs of their rights in that performance was rendered impossible. The correct question is the “provable liability” of PUFG to maintain the plaintiffs’ balance sheets and/or to maintain the plaintiffs’ liquidity. The judge made an impermissible leap of logic from there being an inability to perform obligations under the contract to there being no liability at all under the contract. It makes no commercial sense as the effect is that when PUFG went into reorganisation, its liabilities to the plaintiffs under the Keepwell Deeds were wiped clean.

90.  The short and conclusive answer, as Mr Phillips argued, is that PUFG accepted a contractual liability to each of the plaintiffs to cause each of them to have a Consolidated Net Worth and/or Consolidated Total Equity of at least US$1 at all times and to provide the plaintiffs with liquidity to meet their obligations as they fell due. This contractual liability is a provable claim in the insolvency of PUFG like any other contractual liability, and the date on which the liability is calculated is the date on which all provable debts are calculated and valued, namely, the commencement of insolvency.

91.  The plaintiffs do not claim payment under the contracts. They claim declarations as to the debts due under the contracts for the purposes of proof (US$963,456,001 due to Nuoxi and HKJHC as at 19 May 2021; US$857,427,830 due to Kunzhi as at 1 February 2021). The judge erroneously took those dates as evidence of a breach giving rise to liability, but after the commencement of reorganisation on 19 February 2020, this was evidence of the quantum of PUFG’s liability. It was evidence of what the damages would be in a damages claim for breach of a ‘see to it’ obligation. The provable sums are to be ascertained as a matter of fact, which will include determining the sums due from PUFG by reference to events subsequent to the commencement of reorganisation. The liabilities under the Bonds and the consequential claims against PUFG were determinable by reference to Nuoxi, Kunzhi and PUFG’s defaults. Those defaults go to the determination of value not of liability. Valuation is done at the moment of the commencement of insolvency to ensure a pari passu distribution, but when it comes to distribution subsequent facts will be taken into account by the hindsight principle[54]. Hindsight is also used to help determine the value of the debt at the commencement of insolvency.

92.  I do not agree with Mr Phillips there is no need to establish a breach of the obligation in clause 4.1(i) to give rise to a claim in damages that would be a provable debt in insolvency. Nor do I agree that in considering any breach of the obligation in clause 4.1(i), it is not necessary to take into account the effect of clause 2.2. To the extent that Relevant Approvals were required for PUFG to comply with its undertaking in clause 4.1(i), it is correct to approach the matter on the basis that clause 2.2 would apply to the alleged breaches. I agree largely with the submissions of Mr Smith. My reasons are as follows.

93.  Mr Phillips recognised that the obligation in clause 4.1(i) is not a guarantee but a ‘see to it’ obligation. Clause 2.1 expressly provides: “This Deed is not, and nothing herein contained and nothing done pursuant hereto by [PUFG] shall be deemed to constitute, or shall be construed as, or shall be deemed an evidence of, a guarantee by or any legal binding obligation of [PUFG] of the payment of any obligation, responsibilities, indebtedness or liability, of any kind or character whatsoever, of the Issuer or the Guarantor under the laws of any jurisdiction, including the PRC.” This is also made clear in those parts of the Offering Circular set out in an earlier footnote.

94.  The obligation in clause 4.1(i) is not a warranty or guarantee as to the existence of a particular state of events (that the Consolidated Net Worth/Consolidated Total Equity of the Issuer and the Guarantor was at least US$1 at all times), such that if the state of events does not exist, there is automatically a claim for breach of warranty or guarantee without the need to prove anything further.

95.  For a claim to arise under clause 4.1(i), there must be a breach of the ‘see to it’ obligation. The ‘see to it’ obligation itself does not give rise to a claim for damages without breach. It is not necessary that the breach must first be established in an action, as long as breach is eventually shown so as to give rise to liability.

96.  On the proper construction of the Keepwell Deeds, clause 2.2 must be taken into account in considering the question of breach. By its express terms, clause 2.2 applies to the performance of PUFG’s “obligations under this Deed”. The obligation in clause 4.1(i) to “cause” the Issuer and the Guarantor to have a Consolidated Net Worth/Consolidated Total Equity of at least US$1 at all times is such an obligation. This undertaking to “cause” the Issuer and the Guarantor to be in such a position requires PUFG to perform acts to ensure that they have a certain level of Consolidated Net Worth/Consolidated Total Equity. This is borne out by Recital (C) to the Keepwell Deeds, which provides that PUFG “intends to assist the Issuer and the Guarantor in meeting their obligations under the Bonds and the Guarantee by entering into this Deed”. It does not follow from the premise that as the obligation in clause 4.1(i) does not require a payment to be made, there is no question of Relevant Approvals. Clause 2.2 is potentially relevant as to the extent that Relevant Approvals are required for PUFG to comply with its undertaking in clause 4.1(i), it would be applicable to the extent as required.

97.  Contrary to Mr Phillips’ contention, it does make commercial sense for clause 2.2 to be taken into account in considering whether there is breach of the undertaking in clause 4.1(i). The purpose of clause 2.2 is to prevent PUFG from being in breach in circumstances where it was unable to comply with its undertakings because of the need for and the absence of Relevant Approvals. This consideration applies to the undertaking in clause 4.1(i) as much as to the undertaking in clause 4.1(ii).

98.  Mr Smith made the point that Mr Phillips’ argument, which was not raised before the judge, is not how the plaintiffs pleaded their case. The plaintiffs pleaded that PUFG acted in breach of its obligation under clause 4.1(i) “from 31 October 2020”[55], and in breach of its obligations under clauses 4.1(i) and (iii) “from 30 June 2020”[56]. To make good their pleaded case, the plaintiffs would need to prove not only that the respective obligations existed from the dates as pleaded, but also that PUFG had failed to perform the obligations. It is inconsistent with the pleaded case to make a leap from the existence of the obligations immediately to the conclusion that there are provable debts in the insolvency. It is also contrary to the pleaded case to assert that the alleged defaults go to the determination of value not of liability. That seems to me to be right.

99.  For all the above reasons, the contentions in Ground 1 are rejected.

Ground 2: failure to evaluate the Liquidity Payment Obligation in clause 4.1(ii)

100.  The arguments advanced in Ground 2 were also not raised below. It was contended that these appeals should be allowed if Ground 2 should be upheld.

101.  In respect of the obligation in clause 4.1(ii), Mr Phillips submitted that this is both a ‘see to it’ obligation (to see to it that the Issuer and Guarantor had sufficient liquidity to meet payments when due) and a conditional payment obligation (a promise to make payments in particular events).

102.  He made the point that the difference in the ability of PUFG to make payments and the different mechanisms for payment prior to and following insolvency should be borne in mind.

103.  Prior to the insolvency, the evidence did not support the proposition there were no modes of performance for which Relevant Approvals could be obtained. Prior to the reorganisation of PUFG, it had performed its obligation under clause 4.1(ii). Such approvals as were necessary were and/or could be obtained, and the arrangements in the Keepwell Deeds worked. The mechanism for payment prior to insolvency were those provided under the contract. The dates on which payments fell due, and the quantum of the payment obligations were determined by the contracts.

104.  Following insolvency, PUFG could no longer meet payment obligations by making payments in performance of the contracts. Obligations that exist under contracts at the start of an insolvency are provable. The sums that would have become payable had PUFG remained solvent would go to determine the value of the provable liabilities under the contracts on 19 February 2020. The payment obligations were replaced by the obligation to admit debts to proof and to pay dividends accordingly. On PUFG entering the reorganisation, the effect of the EBL was to render the contractual payment obligations unenforceable against PUFG and instead the plaintiffs had claims to prove in the reorganisation like any other creditor. The processes that would apply to enforcement by the plaintiffs of claims against PUFG prior to insolvency were replaced by the collective enforcement process through the proving provisions of the reorganisation. There is a different payment mechanism.

105.  Mr Phillips submitted that the judge failed to recognise that the existence of the obligation in clause 4.1(ii) was not conditional upon Relevant Approvals, but clause 2.2 recognises that Relevant Approvals might be required for some modes of performance. Importantly, the judge missed the point that the mechanism for payment changed in a fundamental way on insolvency. He submitted that the judge applied a fact consequent on the insolvency (namely, whether Relevant Approvals could be obtained) to a fiction (namely, that payments would be made on the dates and for the amounts under the contracts).

106.  Mr Phillips argued that Relevant Approvals are relevant only to performance of a payment obligation prior to the insolvency process. On the reorganisation of PUFG, clause 2.2 became irrelevant because the admission of a proof of debt or the payment of dividends in an insolvency was not a circumstance in which PUFG was “required to obtain necessary approvals, consents, licences, orders, permits and any other authorisations from the relevant Approval Authorities … in order to comply with its obligations under this Deed”, as provided in clause 2.2. Following 19 February 2020, there was no question of PUFG making payments under the Keepwell Deeds. And as the reorganisation plan of PUFG provides for payment onshore in the Mainland in RMB, the mode of performance under the plan would not require Relevant Approvals. Hence, the contentions of PUFG that it could not make payments under the Keepwell Deeds or the EIPUs following its reorganisation, or that it could not have obtained Relevant Approvals, are all beside the point.

107.  Further, he contended that the judge’s finding that PUFG had used “best efforts” because it was common ground that PUFG could not have obtained Relevant Approvals was misconceived and irrelevant for the same reason.

108.  I do not agree with Mr Phillips that clause 2.2 was not engaged in relation to the obligation in clause 4.1(ii) once PUFG entered into reorganisation. He sought to give a literal interpretation to the words “in order to comply with its obligations under this Deed” as covering only the performance of the obligation in clause 4.1(ii) prior to insolvency.

109.  The process of proving in an insolvency is a means of enforcing an existing liability owed by the debtor. It is essential for the creditor to have an existing valid money claim which is capable of being enforced. As succinctly put by Mr Smith, the process of proving does not itself create such a money claim, nor is it a means by which the debtor performs an existing obligation. It is a means of enforcing a liability to pay money that already exists.

110.  It is not correct to say that the effect of PUFG entering into reorganisation was to “replace” the payment obligations in clause 4.1(ii) with an obligation to admit debts to proof and to pay dividends accordingly. A single obligation was created by the undertaking in clause 4.1(ii). The effect of entering into reorganisation was to alter the available means of enforcing any money claim arising out of that obligation which has to be done through the collective process of submitting a proof of debt. It remains necessary for the plaintiffs to demonstrate they have a valid money claim in respect of that obligation in clause 4.1(ii) that is capable of being enforced.

111.  The existence of a valid money claim in respect of the obligation in clause 4.1(ii) remains dependent on the plaintiffs being able to demonstrate there was a breach which has caused them loss and therefore gives rise to a valid claim for damages. Similarly as in Ground 1, to the extent that Relevant Approvals were required for PUFG to comply with its undertaking in clause 4.1(ii), this requires consideration to be given whether or not clause 2.2 would apply and whether it can be said there was a breach by PUFG of clause 4.1(ii). I do not think the judge was in error in taking into account clause 2.2 in considering the alleged breaches of the obligation in clause 4.1(ii).

112.  Further, as rightly submitted by Mr Smith, the plaintiffs’ argument that the payment obligations were replaced by the obligation to admit debts to proof and to pay dividends on insolvency and clause 2.2 is therefore irrelevant does not reflect the way in which the plaintiffs pleaded their case. It was pleaded that PUFG acted in breach of its obligation under clause 4.1(ii) “from at least 16 April 2020.”[57] The plaintiffs’ pleaded case is that there were breaches at particular point(s) in time after 19 February 2020 giving rise to damages. It is not their pleaded case that their claims are based on a provable debt that existed as at 19 February 2020. The later breaches are not merely evidence of quantum, as contended by Mr Phillips, but an essential element of the pleaded case. Further, the pleaded allegations of breach do not consist of an alleged failure to admit a proof of debt but the allegations are that PUFG failed to ensure that the plaintiffs had sufficient liquidity to satisfy the sums due under the Bonds[58]. In other words, the supposed provable obligation as at 19 February 2020 has not been pleaded. The case sought to be advanced in Ground 2 is not properly open to the plaintiffs on the pleadings.

113.  Mr Smith also made the point that the declaration sought in the Notice of Appeal[59] (“A declaration that the Defendant breached the Keepwell Deeds … and the EIPU … and caused loss to the Plaintiff in the sum of US$963,456,001 …”) is inconsistent with the case sought to be advanced in Ground 2. The sum of US$963,456,001 is the amount pleaded as the liabilities due as at 19 May 2021[60], not the liabilities as at 19 February 2020. Mr Smith made a similar point about the Notice of Appeal regarding the alleged breach of the obligation in clause 4.1(i). This caused Mr Phillips to make an application during the hearing to amend the draft declarations that the plaintiffs would seek on appeal. This is to be dealt with in the latter part of this judgment.

114.  For all the above reasons, Ground 2 is rejected.

Ground 3:  failure to deal with arguments on modes of performance not requiring Relevant Approvals

115.  In the event that Grounds 1 and 2 are rejected, the plaintiffs rely on Ground 3. On the analysis of Mr Phillips, Ground 3 is relevant only to the obligation in clause 4.1(ii).

116.  The plaintiffs contended that contrary to the judge’s reasoning, obtaining Relevant Approvals was not the sole mode of performance. The language in the opening words of clause 2.2 (“if and to the extent that [PUFG] is required to obtain necessary approvals”) makes clear that in order to perform PUFG’s obligations under the Keepwell Deed, PUFG might, but not necessarily will, need Relevant Approvals. The Relevant Approvals that might be required only fall within the scope of clause 2.2 “if and to the extent that [PUFG] is required” to obtain them to comply[61]. The question whether Relevant Approvals are required for a particular mode of performance requires an analysis of what is the mode of performance. If there is an obligation to obtain Relevant Approvals, there is a “best efforts” obligation in clause 2.2.

117.  Modes of performance that would not have required Relevant Approvals included utilising offshore assets, asking a third-party entity not restricted by any PRC law to provide financial support to the plaintiffs, depositing RMB into a PRC bank account as required under the Standby Facility in compliance with clause 6.2 of the Keepwell Deeds. Nor are Relevant Approvals required if the Administrator pays a dividend to the plaintiffs in the reorganisation of PUFG[62]. It was argued that if no Relevant Approvals were required, the alleged difficulties of obtaining Relevant Approvals, including whether approval would be given following an insolvency, did not arise.

118.  Mr Phillips further submitted that PUFG has not adduced any sufficient evidence to prove that it put in its “best efforts” to make arrangements prior to its financial difficulties to perform the contracts. To the contrary, the evidence of Ms Du Juan (“Ms Du”)[63] and Zhang Xin showed that PUFG did not do anything, let alone, enough. What the evidence showed was that PUFG could have refinanced and procured offshore subsidiaries to transfer funds to the plaintiffs:

(1)  Ms Du gave evidence her understanding was that when repayment of the Bonds was required, the intention was that PUFG would cause its overseas subsidiaries to arrange for the repayment[64]. Hence, offshore funds could have been used to effect the repayment without the need for seeking any Relevant Approvals in the Mainland.

(2)  Prior to the reorganisation of PUFG in February 2020, PUFG actually started to make arrangements in April 2019 for issuing new bonds to repay the old bonds. By doing so, offshore assets could have been raised to discharge PUFG’s obligations, and Relevant Approvals would not have been necessary. It was only because the reorganisation came earlier than the new bond issuances that PUFG did not refinance[65].

(3)  Zhang Xin also accepted that if the mode of repayment was by PUFG’s offshore assets, there was no need to seek any Relevant Approvals[66].

119.  Mr Smith submitted that the above arguments are not open to the plaintiffs on the pleadings. The plaintiffs did not plead any case that PUFG did not need to obtain Relevant Approvals in order to comply with its obligations under the Keepwell Deeds and the EIPUs because it could have performed by one or more of the methods identified in the submissions of Mr Phillips. PUFG had averred in §17(c) of the defence that PUFG’s alleged obligations under the Keepwell Deeds did not arise as “(a) the performance of the alleged obligations required Relevant Approvals, and (b) PUFG has not, and could not, have obtained the Relevant Approvals”. A similar averment was made in §18(b) of the defence regarding PUFG’s alleged obligations in the EIPUs. In the reply, the plaintiffs did not plead any case in response to §17(c) or §18(b).

120.  Mr Smith also made the point there was no expert evidence adduced by either the plaintiffs or PUFG whether Relevant Approvals were required for the purposes of the use of PUFG’s offshore assets to meet its obligations under the Keepwell Deeds and the EIPUs, as this did not feature in the respective lists of issues for experts lodged by the parties. Moreover, the plaintiffs’ own expert, Madam Liu Hongyu (“Madam Liu”), did not provide any evidence as to whether or not approvals were required for the purposes of transfers of offshore assets. Rather, the evidence was provided on the premise that the performance by PUFG of the Keepwell Deeds and the EIPUs would require the use of funds held onshore[67].

121.  Mr Smith further contended that the Administrator was an Approval Authority within the meaning of clause 1.1 in the Keepwell Deed and the Administrator would not and could not grant approvals after the commencement of reorganisation for the performance of the Keepwell Deeds and the EIPUs by any means, and Ground 3 is also unsustainable for this reason. This contention will be considered in RN Ground 2(2).

122.  In light of the above criticisms regarding the pleadings and evidence in the expert reports, Mr Phillips provided to this court a list of references on other modes of performance that would not have required Relevant Approvals in the opening and closing submissions at the trial and the oral evidence of Ms Du and Zhang Xin:

(1)  In the oral opening of the plaintiffs, it was submitted by Mr Wong, SC it is the plaintiffs’ case that the Keepwell Deeds could be performed in other ways which do not involve transmitting onshore assets out of the Mainland and hence Relevant Approvals would not be necessary[68].

(2)  Mr Wong further submitted in the oral opening that the relevant extract of the Offering Circular envisaged that there are more than one source of repayment and gave the example of FIHK which received dividend payments from onshore reorganisation[69].

(3)  In his written opening submissions, it was repeatedly mentioned that there are different modes PUFG could perform its obligations under the Keepwell Deeds and EIPUs and examples were given of other potential modes of performance (such as asking a third-party lender or entity not restricted by any Mainland law to provide financial support to the plaintiffs). It was submitted that the Keepwell Deeds and EIPUs never made seeking approval compulsory and/or the only mode of performing PUFG’s contractual obligations[70].

(4)  Ms Du admitted under cross-examination there is no restriction in the Offering Circular or the Keepwell Deeds that the performance by PUFG could only be done through the transmission of money from Mainland to overseas[71]. She also agreed there are a number of ways for PUFG to arrange sufficient funds[72].

(5)  Ms Du testified that the intention of PUFG was that when repayment of the Bonds was required, PUFG could and would coordinate the overseas subsidiaries’ resources to arrange for repayment[73]. It follows that offshore funds could also have been used to effect the repayment without the need for seeking any approvals in the Mainland.

(6)  Ms Du also acknowledged that PUFG actually started to make arrangements in 2019 for issuing new bonds to repay the old bonds[74]. By doing so, offshore assets could have been raised through the issuance of new bonds to discharge PUFG’s obligations under the Keepwell Deeds and EIPUs, and it would not be necessary to obtain Relevant Approvals.

(7)  Zhang Xin admitted in cross-examination no approval is needed if repayment is done using offshore funds. He admitted specifically the only scenario where approval will be required will be when onshore remittance is required and confirmed this in re-examination[75].

(8)  Zhang Xin also mentioned that as a matter of practice, the issuance of this type of bonds will be refinanced when the bonds mature, and a new bond will be issued to refinance, to repay the existing bond[76].

(9)  In the oral closing submissions, Mr Wong summarised the plaintiffs’ line of arguments including the submission that there are multiple modes of performance and the burden is on PUFG to adduce evidence to establish that the only mode of performance would require Relevant Approvals[77].

(10)  The plaintiffs’ written closing submissions repeated the opening submissions, namely that there were different modes PUFG could perform its obligations under the Keepwell Deeds and EIPUs, and cited the evidence in cross-examination of PUFG’s factual and expert witnesses[78].

123.  Mr Phillips also made the point that in §89 of the Judgment, the judge mentioned three modes that repayment of the principal might be financed: issuing a new bond to refinance repayment of the existing bond; repurchase of onshore foreign direct investment, presumably denominated in a foreign currency; and making use of cash to support overseas investment or moving the fund offshore to support overseas project[79]. However, the judge did not rule that these modes of performance would require Relevant Approvals. He should have found on the evidence that issuing new bonds for repaying existing bonds was viable (Ms Du’s evidence) and payments made entirely onshore does not require Relevant Approvals (Zhang Xin’s evidence that the only mode which required approval is a remittance from onshore to offshore).

124.  I agree with Mr Phillips on the proper construction of clause 2.2. To perform PUFG’s obligations under the Keepwell Deeds, Relevant Approvals might, but not necessarily will, be required. This is borne out by the words “if and to the extent that [PUFG] is required to obtain necessary approvals”. Mr Smith has not argued to the contrary.

125.  I do not agree with Mr Smith it is not open to the plaintiffs to advance the arguments in Ground 3 because of the lack of pleading in the plaintiffs’ reply. It is clear from the references given by Mr Phillips that these arguments were raised by the plaintiffs in their opening and closing submissions and took up an important part of the plaintiffs’ contentions. They were not fleeting references as suggested by Mr Smith. These arguments were the plaintiffs’ answer to the defence raised by PUFG that its obligations under the Keepwell Deeds and EIPUs were qualified by clause 2.2 and it was under no obligation to perform as Relevant Approvals could not be obtained. In the absence of specific plea in the reply of alternative modes of performance not requiring Relevant Approvals, it is still incumbent on PUFG to establish the applicability of clause 2.2 and as this provision is in the nature of an escape clause it is for PUFG to bring itself strictly within the provision.

126.  The subject of alternative modes of performance not requiring Relevant Approvals was canvassed with factual and expert witnesses in their oral evidence, without any objection from PUFG. The relevant evidence has been summarised. There is no unfairness to PUFG as it is clear from the very first paragraph of the plaintiffs’ opening submission that they would be taking the point PUFG could not escape its contractual obligations by asserting that “one of the modes of performance of its obligations is allegedly impossible under Mainland law”.

127.  As noted by the judge, PUFG had adduced no factual evidence as to how it had intended to finance the plaintiffs’ repayment obligations and the expert evidence is “largely hypothetical”[80]. Having observed that the evidence mentioned three modes of how repayment of the principal might be financed, the judge did not rule whether these modes of performance would require Relevant Approvals. Instead, he found in §90 of the Judgment that “regulatory approval would have been necessary to exchange RMB into US$ and transfer the US$ out of the Mainland or to transfer RMB to Hong Kong with a view to its exchange into US$ and its subsequent use to pay foreign creditors sums due under the Keepwell Deeds or the Guarantees”. He then made the finding that it would be “highly probable that [PUFG] would have had difficulty in obtaining the necessary approvals once [PUFG] became subject to the reorganisation proceedings in February [2020]” and “realistically, absent the Administrator supporting an application for approval to transfer US$ out of the Mainland as part of the reorganisation plan’s implementation, regulatory approval was very unlikely to be obtained.”

128.  Mr Smith sought to argue even though the judge made no finding if the three modes of financing repayment of the principal mentioned in §89 of the Judgment would require Relevant Approval, issuing new bonds to repay existing bonds is of no relevance once reorganisation has commenced. As for the other two modes, he submitted they would involve movement of funds onshore to offshore and so would require Relevant Approval. It is unsatisfactory this was not further explored in the evidence and that could be why the judge did not analyse these modes of performance.

129.  The judge’s finding in §90 was on the premise that the mode of performance would require the remittance of onshore funds out of the Mainland for which Relevant Approval must be and was unlikely to be obtained after the commencement of reorganisation. The three modes of performance he mentioned were not the only alternatives raised in the trial. He failed to take into account the possibility of other modes of performance canvassed in the evidence and submissions that would not require Relevant Approvals. On the evidence of Ms Du, steps had been taken for issuing new bonds to repay the existing bonds and Relevant Approvals would not have been necessary had the issuance of new bond not been left for so long after the arrangements were made in April 2019. Had the judge taken into consideration relevant evidence, he could not have been satisfied that PUFG has established that it would come within the escape clause in clause 2.2.

130.  It was contended by PUFG that by operation of Article 18 of the EBL, the Keepwell Deeds and EIPUs were terminated on 19 April 2020, two months after the commencement of the reorganisation[81]. As a result, PUFG was not obliged to perform the Keepwell Deeds and EIPUs following termination. Assuming this to be correct for the time, the judge has found that prior to 19 April 2020, PUFG was in breach of its contractual obligations. On 16 April 2020, the Trustee issued to Nuoxi, HKJHC and PUFG the 2020 April Written Notice, the 2021 April Written Notice and the 2023 April Written Notice. As a result, the 2020 Bonds, the 2021 Bonds and the 2023 Bonds became immediately due and payable at their principal amounts with accrued interests. The Trustee demanded payment of the total amounts due as at that date in the sums of US$306,672,000, US$202,116,000 and US$404,816,000 and no payment was made[82].

131.  The judge did not set out the relevant figures for the Kunzhi Bonds in respect of the liability arising as at 16 April 2020, except to say that the allegations and claims are similar to the Nuoxi Bonds and are admitted by PUFG[83]. In respect of the Kunzhi Bonds, on 16 April 2020 the Trustee issued to Kunzhi, FIHK and PUFG written notices, as a result of which the Kunzhi Bonds became immediately due and payable at the principal amounts with accrued interests. The Trustee demanded payment of the total amounts due as at that date in the sums of US$312,647,400 and US$505,141,000 and no payment was made[84].

132.  For the above reasons, the judge’s holding absolving PUFG from breach of its contractual obligations cannot be supported, subject to consideration of the contention of PUFG that the Administrator was an Approval Authority. If liability is established, the appropriate declaration will be considered later.

Ground 4:  breach of requirement for fair trial and natural justice

133.  The plaintiffs’ complaint that the judge acted in breach of natural justice and of their right to a fair trial is premised on the judge’s reliance on the evidence and submissions in a subsequent case brought by the trustee of another Keepwell Deed against Tsinghua Unigroup Co Ltd (“Tsinghua”), which the plaintiffs contend was improper.

134.  The judge heard the Tsinghua trial right after the trial of the present actions. The same counsel and solicitors for PUFG appeared for Tsinghua. The plaintiffs’ legal representatives were not present at the Tsinghua trial[85]. During that trial, the judge heard evidence from Ma who had given expert evidence for PUFG earlier. The plaintiffs’ contention is that Ma’s evidence at the Tsinghua trial and the submissions of Tsinghua’s counsel differed in a material respect to the evidence given and the submissions made by PUFG at the earlier trial.

135.  In the Tsinghua Judgment, which was handed down about a month after the Judgment, the judge stated in §3: “Given the similarities between the PUFG and Tsinghua cases, there are issues to which the [Tsinghua] action gives rise that [he has] already considered and decided in the [Judgment], which [he] wrote taking into account the submissions made on behalf of Tsinghua.” The judge went on to state that the Tsinghua Judgment should be read with the Judgment as he has not repeated matters he addressed fully in the Judgment.

136.  The plaintiffs complain that they were not afforded a fair or proper opportunity to make further submissions on the inconsistent and contradictory evidence of Ma in the Tsinghua trial, and they only became aware of this after the Tsinghua Judgment was delivered. The inconsistency in Ma’s evidence was mentioned in this manner in §43 of the Tsinghua Judgment:

“Mr Ma’s evidence differed in one material respect to Mr Yang’s[86] evidence, and what I had understood to be accepted in Peking Founder, namely, that Regulatory Approvals were not required for transfers between offshore subsidiaries of the Group. It was Mr Ma’s evidence in cross-examination that he thought it probably correct that before the end of 2017 no Regulatory Approvals were required to make offshore-to-offshore transfers, however, following publication of NDRC Order 11 in 2018 approvals were required[87]. Consequently, it was his evidence that the difficulties in obtaining the approvals could not be circumvented by using, if there were any, offshore assets to perform Tsinghua’s obligations under the Keepwell Deed and the EIPU. It was Mr Yang’s evidence in cross-examination that offshore interest obligations were financed with offshore funds; and there were a lot of such transfers. Mr Yang said that Regulatory Approvals was not sought for these transfers. This was not a matter on which he was asked questions in re-examination.”

137.  Mr Phillips submitted that at the trial of the present actions, the accepted position on the evidence was that Relevant Approvals were not required for transfers between offshore companies. Ma gave different and inconsistent evidence at the Tsinghua trial that Relevant Approvals were required. In the Judgment, the judge did not consider whether payment could be effected using overseas foreign accounts that would not require Relevant Approvals, and only considered whether a breach was established before or after the reorganisation of PUFG. The importance the judge placed on the demarcation between pre and post-reorganisation breaches of PUFG was based on an “unarticulated assumption” that all modes of performance by PUFG under the Keepwell Deeds and EIPUs would require Relevant Approvals. This unarticulated assumption was said to be consistent only with the acceptance of Ma’s new evidence in the Tsinghua trial, which contradicted the accepted position on the evidence in the present case.

138.  Mr Phillips further submitted that as shown by the closing submissions of PUFG[88], its counsel was already aware at the time that different evidence would be given at the Tsinghua trial.

139.  In the course of drafting the Judgment, the judge noticed that the Kunzhi management accounts for 2017 and 2018 apparently showed it had a deficit at the time the Keepwell Deeds were executed, suggesting that PUFG had failed to ensure clause 4.1(i) was complied with and that this could have nothing to do with the obtaining of approvals. By a letter dated 27 February 2023, he directed both parties to file further submissions addressing this matter. It was contended that the judge’s direction was “implicitly premised” on the unarticulated assumption aforesaid. As the plaintiffs were unaware of the change of Ma’s evidence in the Tsinghua trial, they did not respond to this when they made further submissions as directed by the judge.

140.  It was submitted that the judge wrongly took into account Ma’s crucial inconsistent evidence at the Tsinghua trial when adjudicating the present actions and that the plaintiffs were denied their basic right to make submissions on the above matters in breach of natural justice. He should have held a further hearing to consider the impact of Ma’s new evidence.

141.  A supplementary notice of appeal was filed on 5 July 2023 raising this contention. The plaintiffs’ solicitors also wrote to the judge’s clerk on 20 July 2023 requesting for documents and submissions in the Tsinghua trial, and transcripts of the pre-trial review of these actions and the Tsinghua action.

142.  In the letter of reply dated 24 July 2023, the judge allowed the transcript of the pre-trial review to be released. The judge also responded to the contention in the supplementary notice of appeal that the court’s letter dated 27 February 2023 was written because of any assumption about the need or otherwise for Relevant Approvals for transfers between offshore entities. He stated that the letter was written out of an entirely different concern, namely, that the plaintiffs had not advanced a claim for breach of the Keepwell Deeds prior to the commencement of reorganisation despite the management accounts that suggested the Deeds might have been breached at an earlier date, as explained in §65 of the Judgment.

143.  Mr Phillips submitted that this court should not consider the above letter because the judge was functus and it was inappropriate for him to comment on the supplementary notice of appeal.

144.  The plaintiffs’ contentions are of no merit.

145.  At the pre-trial preview of these actions, the judge had discussed with the parties various case management matters that would arise on the basis of the present actions and the Tsinghua action being tried back to back. The plaintiffs had no objection that the expert witnesses in the two actions should be able to see the respective reports, and arrangements would be made for provision of the transcripts of the expert evidence[89]. This would seem a sensible way of handling the two sets of proceedings, in light of the substantial overlap of issues and the similarity in the expert evidence to be adduced. Mr Phillips has not suggested any unfairness in the judge trying the two sets of proceedings back to back. The plaintiffs might have been unaware of the inconsistent evidence given by Ma in the Tsinghua trial. Nevertheless, they were provided with the daily transcripts of the trial by the plaintiff in the Tsinghua action and were in a position to ascertain what he had said in the subsequent trial and at liberty to make such submissions as appropriate. It is far-fetched to suggest they were denied the opportunity to make submissions on his inconsistent evidence.

146.  On a proper reading of the Judgment and the Tsinghua Judgment, the judge did not make an “unarticulated assumption” that all modes of performance under the Keepwell Deeds and EIPUs required Relevant Approvals. Nor could it be said that any such assumption was supported by the judge’s acceptance of Ma’s inconsistent evidence in the Tsinghua trial. This is demonstrated in §45 of the Tsinghua Judgment, as the judge has found, notwithstanding Ma’s new evidence as quoted earlier in §43 of that judgment:

“Tsinghua’s evidence falls far short of demonstrating there was any impediment to using offshore assets and, in particular, that it did not do so because it assumed that Regulatory Approvals were required that they could not be obtained; on the contrary it is clear from Mr Yang’s evidence that this was not a consideration and Tsinghua was unaware that approvals for offshore-to-offshore transfers might be required.”

147.  See also §46 of the Tsinghua Judgment[90].

148.  On any view, Ma’s inconsistent evidence has just not assumed the kind of importance now sought to be placed by the plaintiffs.

149.  As for the judge giving directions by the letter dated 27 February 2023 for supplemental submissions to be filed, the reason for his doing so was already given in §63 of the Judgment. It is unnecessary for him to mention this again in the letter dated 24 July 2023 when he had sight of the supplementary notice of appeal. There is no basis to suggest that contrary to the reason given in the Judgment, his direction for supplemental submissions was “implicitly premised” on any unarticulated assumption.

150.  Ground 4 is therefore rejected.

Ground 5:  failure to conclude plaintiffs’ pleadings are broad enough and not defective

151.  This ground concerns the holding in §65 of the Judgment that on the plaintiffs’ pleading, it is not open to them to argue that clause 4.1(i) was breached in 2017 or 2018, as the pleaded breach of that clause is that PUFG had not caused Kunzhi “to have a Consolidated Total Equity of at least US$1 at all times from 31 October 2020, which is the most recent management accounts of [Kunzhi] made available to the [joint liquidators of Kunzhi].”[91]

152.  The contention is that this holding is in error and it is wrong to conclude that the plaintiffs’ pleadings did not entitle the court to find PUFG liable for failing to perform its obligations owed to the plaintiffs prior to its reorganisation on 19 February 2020.

153.  The arguments are along these lines:

(1)  PUFG’s obligations under clause 4.1(i) are of a continuing nature. For such continuing obligations, the plaintiffs did not have to specifically pinpoint the timing of a breach. Further, the provable liability arose on 19 February 2020, at the commencement of reorganisation of PUFG.

(2)  Evidence of the extent to which the plaintiffs were balance sheet insolvent as at 19 February 2020 includes not only evidence of a breach on a particular date but evidence from which the court and the Administrator can adjudicate the size of the balance sheet insolvency. The dates on which breaches can be demonstrated do not go to liability but to quantum. Subsequent events are evidence of the quantum of that liability. If, from at least 31 October 2020, there was evidence that the plaintiffs were at least by then balance sheet insolvent, that insolvency is evidence of the quantum the contractual liability was under clause 4.1(i) on 19 February 2020.

(3)  In any event, the plaintiffs pleaded that PUFG owed obligations to each of them under clause 4.1(i) “at all times”[92]. That obligation existed from the signing of the Keepwell Deeds and continued.

(4)  As to the obligations under clause 4.1(ii), the liability to make liquidity payments existed under the contract on 19 February 2020. It is pleaded that PUFG has “since at least 16 April 2020 breached its obligations to [Nuoxi] under clause 4.1(ii) … as it has not caused either [Nuoxi] or HKJHC to have sufficient liquidity to ensure timely payment by each of [Nuoxi] and HKJHC of the amounts payable under or in respect of all of the Nuoxi Bonds”[93]. The failure to meet the liquidity requirements in April 2020 is evidence of the quantum of the liability under clause 4.1(ii) on 19 February 2020.

(5)  By referencing the latest management accounts (eg in the case of Nuoxi, made up to 31 October 2020) available to the liquidators, the plaintiffs pleaded that PUFG had breached such obligations, that the breaches had not been cured before 31 October 2020 and PUFG continued to be in breach. The reference to the latest management accounts was for showing the quantum of the plaintiffs’ entitlement for formulating and granting reliefs and should not be applied against the plaintiffs to limit their claims.

(6)  The cases of the plaintiffs are indistinguishable from that of FIHK, in which the judge granted declarations in favour of FIHK.

154.  This ground is of no merit.

155.  As the judge has noted in §39 of the Judgment, “the dates on which it is said the Keepwell Deeds and the EIPUs were breached are identified with precision and occurred after 19 February 2020”. The pleadings do not permit the plaintiffs to advance a case that the breaches occurred prior to or arose on 19 February 2020.

156.  It was acknowledged by the plaintiffs’ trial counsel that the pleaded allegations of breach in each of the amended statements of claim are confined to “since at least late April 2020” because the plaintiffs have no idea as to what happened on the financial position before[94]. Having specifically pleaded the dates in April 2020, it is not open to them to rely on the words “at least” to assert breaches on any number of unspecified and unparticularised prior dates. Besides, “at least” would have meant “at the earliest”, ie that the breaches did not take place before April 2020.

157.  The particulars of breaches pleaded by the plaintiffs were all directed at breaches said to have occurred after the commencement of reorganisation.

158.  In respect of clause 4.1(i), it was pleaded that “PUFG has breached its obligations to the Plaintiff under Clause 4.1(i) of the Keepwell Deeds, as it has not caused the Plaintiff to have a Consolidated Net Worth … of at least US$1.00 at all times from 31 October 2020”[95]. The relevance of 31 October 2020 is that this is the date of the most recent management accounts for Nuoxi and Kunzhi identified by the liquidators. Similarly, for HKJHC, it was pleaded that “PUFG has breached its obligations to the Plaintiff under Clause 4.1(i) … of the Keepwell Deeds, as it has not caused the Plaintiff to have a Consolidated Net Worth … of at least US$1.00 and Total Equity of at least HK$9,980,000 at all times from 30 June 2020”[96], with 30 June 2020 being the date of the most recent unaudited financial statements of HKJHC made available to the liquidators. No other basis for the allegation that clause 4.1(i) had been breached was pleaded. The plea that PUFG owed obligations under clause 4.1(i) “at all times” is irrelevant.

159.  As to clause 4.1(ii), it was pleaded that “PUFG has since at least 16 April 2020 breached its obligations to [Nuoxi] under Clause 4.1(ii) of the Keepwell Deeds, as it has not caused either [Nuoxi] or HKJHC to have sufficient liquidity …”[97]. The relevance of 16 April 2020 is that this was the date when written notice was issued under the Nuoxi Bonds referring to the occurrence of Events of Default and demanding payment of the outstanding sum due under the Bonds[98].

160.  As for the contention that “provable liability” arose on commencement of the reorganisation on 19 February 2020 and there is no need to show a breach to establish a provable debt, this has been rejected for the reasons given under Grounds 1 and 2.

RN Ground 1:  plaintiffs’ claims have been discharged by submission of proofs of debt in the reorganisation and their rejection

161.  In its application to stay these actions, PUFG had unsuccessfully raised the issue of submission to Mainland jurisdiction by filing proofs of debt, see the Stay Decision at §§28 to 42, which was upheld by the CA Stay Decision. The plaintiffs objected to PUFG raising the issue at the trial on the ground of res judicata. Despite the plaintiffs’ objection, the judge permitted PUFG to argue the defence that the plaintiffs’ claims have been discharged by the proofs of debt they filed in the reorganisation proceedings and the rejection thereof. The judge took the view that the additional authorities relied on by PUFG at the trial failed to address the distinction in §31 of the Stay Decision. The plaintiffs are invoking the “purely adjudicatory jurisdiction”[99] of the Hong Kong courts in these actions to assist them in advancing their claims in the Mainland reorganisation proceedings. They are not seeking a judgment which they can enforce outside the reorganisation proceedings[100]. His rejection of this line of defence is the subject of challenge by PUFG in RN Ground 1, which is relied on as an additional basis for rejecting the plaintiffs’ claims.

162.  The arguments of PUFG may be summarised as follows.

163.  Reliance is placed on the principle conveniently stated in Erste Group Bank AG v ‘VMZ Red October’ [2015] 1 CLC 706 at §51:

“… a foreign creditor submits to the jurisdiction of the court supervising a company’s insolvency by proving in that insolvency. That, by itself, is sufficient without more (and irrespective of whether the proof has been accepted or a dividend has been received) to require the creditor to have all questions, of whatever kind, as against the debtor resolved within the insolvency as administered by the court of the jurisdiction of that insolvency.”

164.  The rationale for the principle is that by submitting a proof in an insolvency process, a creditor takes the benefit of that process and must not be permitted to take such benefit without taking the burden (Rubin v Eurofinance SA [2013] 1 AC 236 at §165, quoting from Ex p Robertson; In re Morton (1875) LR 20 Eq 733 at 737 to 738, per Bacon CJ). The burden in this instance includes the requirement to abide by the determinations made in the insolvency proceedings, and to contest the determinations in accordance with the procedure applicable to those proceedings.

165.  Hence, by submitting their proofs of debt in the reorganisation proceedings, the plaintiffs are obliged to “have all questions, of whatever kind, as against the debtor resolved within the insolvency as administered by the court of the jurisdiction of that insolvency.” This includes the question of whether PUFG owed the alleged obligations to the plaintiffs. For Nuoxi, FIHK and Kunzhi, the Administrator has answered that question against them. As for HKJHC, its claim has apparently not been adjudicated as it had failed to file its proof of debt within time[101]. The plaintiffs are bound by the Administrator’s determinations unless and until they are reversed by the Administrator on the objections lodged by the plaintiffs or by the Beijing Court on appeal from the Administrator’s adjudication.

166.  As for the “purely adjudicatory jurisdiction” invoked by the plaintiffs in seeking a declaratory judgment from the Hong Kong courts and the distinction drawn in §31 of the Stay Decision, Mr Smith accepted that this might be permissible if the plaintiffs had merely submitted the proofs of debt. The situation is different after the Administrator had adjudicated on the proofs of debt and rejected the claims. He submitted that in these circumstances, the plaintiffs’ attempts to obtain relief from the Hong Kong courts to establish the validity of their claims are directly contrary to the Administrator’s determinations and are therefore vexatious, oppressive, inconsistent and incompatible with the reorganisation proceedings. The correct course is to lodge an appeal to the Beijing Court in the event that the plaintiffs’ objections are overruled by the Administrator.

167.  Further, it is misconceived for the plaintiffs to seek a declaration from the Hong Kong courts to “assist” the Beijing Court[102]. There is in general a disinclination on the part of the courts to give what amounts to advisory opinion on issues for the benefit of foreign courts, particularly when such opinion has not been solicited by the foreign court[103].

168.  Mr Smith further submitted there is no issue estoppel in this instance. The issue on the stay application was whether the Hong Kong courts should refrain from determining the merits of the plaintiffs’ claim and PUFG’s defences, and the Stay Decision only determined that the plaintiffs were not barred from bringing these actions. It did not determine the issue of whether the Hong Kong court should grant the substantive relief sought by the plaintiffs. Besides, the Stay Decision is an interlocutory judgment, no substantive rights were asserted by the Administrator in seeking a case management direction to stay all proceedings against PUFG[104] and there was no final determination to give rise to an issue estoppel.

169.  The plaintiffs argued that issue estoppel can arise in interlocutory proceedings, depending on the nature and substance of the determination. When the same issue has been expressly determined in earlier interlocutory proceedings and the determination is necessary to the decision and fundamental to it, this will found an issue estoppel[105]. The point about the plaintiffs’ subsisting rights to commence these actions after submitting proofs of debt was argued three times and rejected. It is necessary to the determination in the Stay Decision.

170.  Mr Phillips also referred to the views of the plaintiffs’ expert on PRC law to the effect that the jurisdiction of the bankruptcy court is not exclusive[106]. This is not particularly helpful as the plaintiffs acknowledged that whether the plaintiffs’ claims have been discharged by the submission and rejection of their proofs of debt in the reorganisation proceedings is a matter of English law.

171.  It is unnecessary to reach a firm view if there is issue estoppel in this situation, although I am inclined to think that the plaintiffs should not be permitted to argue the point again. I do not agree with Mr Smith that the Administrator’s rejection of the proofs of debt should be a distinguishing feature, as the operation of the principle does not depend on “whether the proof has been accepted or a dividend has been received” (Erste Group Bank AG at §51). I do not think there is any answer to the distinction drawn by the judge in §31 of the Stay Decision, nor do I think it vexatious or oppressive to the Administrator or other interested parties for the plaintiffs to seek a declaratory judgment in the Hong Kong court to assist them to advance their claims in the reorganisation proceedings. Notwithstanding the general disclination of the courts to give advisory opinion on issues for the benefit of foreign courts, there are instances where that had been done, where it was shown that English proceedings would likely serve a valuable function in aid of the disposal of foreign proceedings, as where English law was the governing law for the resolution of the dispute and the issue was of some complexity[107].

172.  For the above reasons, RN Ground 1 fails.

RN Ground 2:  impossibility of regulatory approval

173.  PUFG contended that the judge’s finding of impossibility of obtaining regulatory approvals should be affirmed on four additional grounds:

(1)  regulatory approvals would not have been granted for transactions that were not authentic;

(2)  the Administrator was an Approval Authority and would not have granted the approvals;

(3)  the Keepwell Deeds and EIPUs were already terminated on 19 April 2020 by the operation of Article 18 of the EBL; and

(4)  insofar as PUFG was obliged to make a gift or to purchase assets at an artificially inflated price, regulatory approval would not have been granted; insofar as PUFG was obliged to lend or purchase at fair value, its non-performance would have caused no loss.

174.  I turn to consider these additional grounds.

RN Ground 2(1):  inauthentic transactions

175.  According to the evidence of Zhang Xin, even if PUFG had not gone into reorganisation, it would have been very unlikely to obtain the Relevant Approvals, as it is necessary to have an overseas investment project in the first place[108]. The regulatory authorities would scrutinise whether PUFG had an authentic overseas investment project. If PUFG stated that the intended overseas investment was to repay existing bonds, the authorities would not treat this as a genuine overseas investment project. The fact that PUFG was acquiring the equity interest of its offshore subsidiary would not be sufficient to meet the requirements of an authentic investment project[109].

176.  Likewise, Ma gave evidence that even if PUFG was not insolvent, there could still be obstacles such as “whether there is an actual overseas project and if that overseas project is in accordance with the country’s direction on assets.”[110] Any overseas lending to the Issuers or the Guarantors under the Keepwell Deeds would have been to provide liquidity for the repayment of the offshore bonds and would not be considered by the regulatory authorities to be a loan to support the operation and development of the Issuers or the Guarantors. Besides, SAFE would not have approved any overseas lending which exceeded 30% of the lender’s equity (this threshold was adjusted to 50% after January 2019). Due to PUFG’s financial difficulties, its equity would have been considered zero or close to zero. There was virtually no prospect of SAFE allowing quota registration for the performance of the Keepwell Deeds through overseas lending[111].

177.  Mr Smith referred to clause 6.4 of the Keepwell Deeds and clause 3.3 of the EIPUs and submitted that these provisions require the use of artificial transactions[112]. So even if PUFG was not insolvent, approvals would not have been granted as the authorities would consider whether the transaction proposed was a genuine loan or overseas investment as opposed to merely a mechanism for repaying existing bonds. Further, according to the evidence of Zhang Xin, the transaction would be scrutinised as a discrete application rather than in the context of the entire Keepwell arrangement[113].

178.  Mr Phillips submitted that the judge did not make a finding that Relevant Approvals would not have been granted even if PUFG had not gone into reorganisation, having regard to the totality of the evidence. He drew our attention to other evidence that militated against the evidence relied on by PUFG.

179.  Firstly, Ma’s answers in cross-examination clearly showed it was possible to obtain approvals prior to PUFG’s financial difficulties and there were instances of Keepwell arrangements being performed using onshore assets[114].

180.  Secondly, Ma mentioned there was a third way or option to repay the debts, namely, to use onshore funds to support overseas investments or projects[115]. The burden is on PUFG to show that the third way or option could not apply but there is no or no sufficient evidence from PUFG’s experts showing that the offshore businesses (the Guarantor’s business) could not fulfil the requirement of genuine and compliant overseas investment or project[116].

181.  I agree with the plaintiffs that in light of the above, it would not be appropriate to make the finding that the judge did not make.

RN Ground 2(2):  the Administrator as Approval Authority

182.  PUFG contended that the Administrator falls within the definition of “Approval Authorities”, which is defined in clause 1.1 of the Keepwell Deeds to mean “any supranational, national, state, municipal, provincial or local government (including any subdivision, court, administrative agency or commission or other authority thereof) or any quasi-governmental or private body exercising any regulatory, taxing, importing or other governmental or quasi-governmental authority whose licences, authorisations, registrations or other approvals are necessary for undertaking the transactions contemplated by this Deed.”

183.  The judge was referred by the parties to the evidence of the Mainland experts but noted that whether an insolvency officer, which is in substance the Administrator’s capacity, comes within the term “Approval Authority” is a question of English law. He took the view that an “authority” is not as a matter of language a term which is normally used to describe a liquidator or similar officer. He held that in the context of clause 2.2, “authority” is plainly intended to refer to “PRC governmental authorities, including the NDRC, the MOFCOM and the SAFE and their respective local counterparts”[117], to quote from the Offering Circular. He ruled that “Approval Authorities” did not include the Administrator[118].

184.  Mr Smith argued to the contrary.

185.  He pointed out that the Administrator is an officer of the Beijing Court exercising governmental or quasi-governmental authority delegated by the Beijing Court. According to Professor Shi[119], the Administrator is a statutory body that does not represent the interests of any specific party but the interests of all participants in bankruptcy proceedings, including the government, the PRC courts, creditors, debtors and employees. Its members comprised representatives of various PRC governmental organs including the People’s Bank of China, the People’s Government of Beijing Municipality, the China Banking and Insurance Regulatory Commission, the Beijing Municipal Human Resources and Social Security Bureau, the Beijing Municipal Commission of Planning and Natural Resources, the Beijing Municipal Bureau of Local Financial Supervision and Administration, the State Taxation Administration and the China Securities Regulatory Commission[120].

186.  As for the Administrator’s duties, they are prescribed by the EBL. They are set out in the decision of the Beijing Court dated 19 February 2020[121]. The Administrator is required to report its work to the People’s Court and is subject to supervision by the creditors’ meeting and the creditors’ committee[122]. It is a third party which has been given control of PUFG under the EBL. According to the evidence of the experts, it does not simply take the role of the board of directors[123], and it has a separate legal personality from PUFG[124]. The Administrator’s approval is required before PUFG can deal with its assets, and any payment made pursuant to the Keepwell Deeds and EIPUs would require the Administrator’s approval after the commencement of reorganisation[125], apart from other approvals to be obtained.

187.  Hence, Mr Smith submitted that the Administrator is either (a) part of the Beijing Court as an officer and/or delegate of the Court (and therefore within the definition of “government” in clause 1.1), (b) a quasi-governmental body, or (c) a private body, in each case exercising “any regulatory, taxing, importing or other governmental or quasi-governmental authority” and “whose licences, authorisations, registrations or other approvals are necessary for undertaking the transactions contemplated by this Deed”.

188.  There is evidence that the Administrator would not have granted such approvals for the performance of the Keepwell Deeds and EIPUs after the commencement of reorganisation[126], nor would it allow PUFG to seek approvals from NDRC, MOFCOM and SAFE[127].

189.  Mr Phillips pointed out that the experts were in agreement that the Administrator had stepped into the shoes of PUFG upon the reorganisation, that the Administrator did step into the shoes of the board of directors and that it was for the Administrator to make decisions for PUFG after the commencement of reorganisation[128]. He submitted that as a matter of common sense, the Administrator could not be the “Approval Authority” at the same time. And it is illogical that notwithstanding the Administrator had stepped into the shoes of the board of directors, they would still have to apply to themselves for approvals.

190.  I agree with the judge that notwithstanding the breadth of the definition of “Approval Authorities”, this term should not include the Administrator and is plainly intended to refer to those governmental authorities in the PRC as stated in the Offering Circular. The definition of “Approval Authorities” in clause 1.1 should be read with the provision for Relevant Approvals in clause 2.2. I do not think it is envisaged that Relevant Approvals would have covered approvals required from the Administrator as a result of the Administrator stepping into the shoes of the board of directors, just as approvals from the board of directors would not have been caught by Relevant Approvals.

191.  I agree also with Mr Phillips that it would make no sense to require the Administrator to seek initial approval from themselves. It is telling that the Administrator did not conduct themselves in this manner. According to the evidence of Li Wei (one of the lawyers working for the Administrator), their responsibility was to make an application to the regulatory department if there is a decision from the Beijing Court confirming the debt of the creditor[129].

192.  RN Ground 2(2) is rejected.

RN Ground 2(3):  termination of the contracts by operation of the EBL

193.  Mr Smith contended that as the plaintiffs have submitted claims in the reorganisation proceedings, they have submitted to the jurisdiction of the Beijing Court and ought to be taken to have accepted that their contractual rights under the Keepwell Deeds and EIPUs would be governed by PRC law. Reliance was placed on Article 18 of the EBL which provides inter alia as follows:

“After the people’s court accepts an application for bankruptcy, the administrator shall have the right to decide to rescind or continue to perform a contract that is concluded before the acceptance yet remains to be fulfilled by both the debtor and the other party and shall notify the other party of his decision. Where the administrator fails to notify the other party within two months from the date when the bankruptcy application is accepted or to give any reply to the exhortation made by the other party with 30 days from the date the exhortation is made, the contract shall be deemed to be rescinded.”

194.  The Administrator did not, within two months after the commencement of the reorganisation on 19 February 2020, notify any party of its decision to continue to perform the Keepwell Deeds or the EIPUs. By the operation of Article 18, these contracts are deemed to be terminated on 19 April 2020. Hence, PUFG was not obliged to perform these contracts, or take any steps to obtain Relevant Approvals and it could not have obtained any Relevant Approvals.

195.  In his written submissions, Mr Phillips made the point that even after PUFG has entered reorganisation, it is clear on the evidence that payment of dividends could still be effected. This does not appear to me to be germane to the contentions raised under this ground.

196.  In his oral submissions, he sought to rely on Article 53 of the EBL, which provides as follows:

“Where an administrator or debtor revokes a contract according to the provisions of this Law, the other party may declare his claims on the basis of his right to compensation for the damages caused by the revocation.”

197.  PUFG pleaded termination pursuant to Article 18 in its defence (§22(c)). The plaintiffs’ reply pleaded that the Keepwell Deeds and EIPUs were not terminated as they were not executory contracts as prescribed by Article 18 or that if they were terminated the plaintiffs are entitled to compensation under Article 53 (§§7(c)(i) and (ii)). In the rejoinder, PUFG pleaded that the Guarantor and the Trustee had not performed their respective obligations in full under the contracts but no particulars were given (§6).

198.  The plaintiff’s expert witness, Madam Liu, opined that whether the contracts were executory in the sense that both sides had not fully completed their obligations is a question of English law, on which she does not express an opinion[130].

199.  PUFG’s expert witness, Professor Shi, considered that neither the plaintiffs (the Issuers and the Guarantors) nor PUFG had fully performed their obligations. She went on to say that “the scope of application of Article 18 and the mechanism of automatic termination of contracts by operation of the EBL is not entirely clear in practice”[131].

200.  The judge did not make any findings on whether the relevant contracts were terminated on 19 April 2020 by reason of Article 18, given his finding that it was highly probable PUFG would have had difficulty in obtaining Relevant Approvals once it became subject to the reorganisation proceedings in February 2020.

201.  This point was dealt with in the written closing submissions of PUFG at the trial but did not appear to have been addressed at all in the written opening and closing submissions of the plaintiffs. It was very lightly argued before us.

202.  I would decline to make any ruling on the applicability of Article 18 and the termination of the contracts thereunder for these reasons.

203.  On the evidence of Professor Shi, “the scope of application of Article 18 and the regime of automatic termination of contracts by operation of the EBL is not entirely clear under PRC law”[132]. Whether the contracts fell within Article 18 and were terminated is a matter of PRC law. It is for the Beijing Court, as the court supervising the reorganisation, to decide if Article 18 should apply. If the contracts should fall within Article 18, the effect in the reorganisation proceedings would be as provided in the article even though the contracts are governed by English law, and notwithstanding clause 9 of the Keepwell Deeds. They would be treated as having been terminated on 19 April 2020 for the purpose of the reorganisation. As for the plaintiffs’ contention they would have a claim for compensation under Article 53 in that situation, this is also a matter of PRC law.

204.  The plaintiffs brought these actions to seek declarations on matters governed by English law in an attempt to assist the Beijing Court in dealing with their claims. In light of the rather unsatisfactory state of the evidence and submissions before us, it would not be appropriate or helpful for us to express an opinion on the operation and effect of Articles 18 and 53 of the EBL. I have found earlier that the plaintiffs should succeed on Ground 3 in respect of the breaches found to exist prior to 19 April 2020. Article 18 would have no bearing on this conclusion.

RN Ground 2(4)

205.  Regarding the artificial nature if PUFG was obliged to make a gift or purchase assets at an inflated price to perform its obligations under the Keepwell Deeds and EIPUs, and it is unlikely that regulatory approval would have been granted, this is merely another way of putting the arguments in RN Ground 2(1) concerning inauthentic transactions.

206.  As for the contention that no loss would be caused if PUFG was to perform its obligations by lending or purchasing at fair value, I fail to see why PUFG’s non-performance would have caused no loss to the plaintiffs in reality.

RN Ground 3:  no causation of loss

207.  In addition to the contentions in RN Ground 2(4), Mr Smith argued that any benefit derived by the plaintiffs would have been “clawed back” as a result of PRC insolvency law and Articles 2, 31, 32 and 128 of the EBL. The judge did not make any findings on this, in light of his finding on the impossibility of obtaining Relevant Approvals.

208.  It was submitted that under the principles of PRC insolvency law and the relevant provisions of the EBL, a debtor is prohibited from making preferential payments to a particular creditor, as long as the conditions in Article 2 are satisfied (ie the debtor is unable to pay off its debts and his assets are not enough for paying off all the debts, or he apparently lacks the ability to pay off his debts). According to Article 31, within one year before a PRC court accepts an application for bankruptcy, if the debtor makes transactions at an “obviously unreasonable price”, the administrator shall have the right to request the court for avoidance of such transactions. Article 32 prohibits preferential payments within six months before the court accepts the application for bankruptcy. Pursuant to Article 128, where a debtor commits an act in Article 31 or 32, thereby undermining the interests of his creditors, the legal representative of the debtor and the person directly responsible shall bear the liability for compensation.

209.  It was argued that as PUFG was obviously incapable of paying off its debts in the period leading up to the reorganisation proceedings, it was prohibited from making preferential payments to the Issuer and the Guarantor or taking steps for this purpose, (including applying for approvals) since 19 August 2019, and from transferring its assets free of charge or making transactions at an obviously unreasonable price or providing guarantees to third party debts since 19 February 2019.

210.  Further, even if the EBL does not have the effect of prohibiting PUFG from making the above transactions, they are subject to clawbacks by the Administrator and the Issuer and the Guarantor would therefore not suffer any damages.

211.  In any event, a failure to inject liquidity into the plaintiffs (whether by way of loan or purchasing their assets) could only cause loss to the bondholders (acting via the Trustee) and not the plaintiffs, because the plaintiffs’ own net balance sheet position would not be affected. Insofar as the plaintiffs’ pleaded case[133] is that the loss caused to the plaintiffs was the plaintiffs’ insolvency, a failure to lend to the plaintiffs would not cause loss (as the net balance sheet position would have been the same), and the plaintiffs would have been insolvent in any event. The alleged insolvency in any event does not give rise to any actionable loss, citing in support Stanford International Bank Ltd (in liquidation) v HSBC Bank Plc [2022] UKSC 34 at §§26 to 31, 40, 55 to 57.

212.  I would deal with the last point first. The judge has considered the argument of PUFG at §92 of the Judgment. PUFG argued that if it had transferred monies to an Issuer or Guarantor, it would have been treated as a loan with the consequence that the net balance sheet position would not have improved. The judge thought the argument is flawed. If the advance made by PUFG did not improve the net balance sheet position because of the way the advance was treated in the books of the Issuer or the Guarantor, the Consolidated Net Equity would have remained at a deficit. The Keepwell Deeds required PUFG to ensure that the Consolidated Net Worth and/or the Consolidated Total Equity of the Issuer or the Guarantor was US$1, and if that meant PUFG had to make a gift to the Issuer or the Guarantor to achieve that result, that was what was required. This also disposes of the argument that the Issuers and the Guarantors do not have standing to sue, because any breach of the Keepwell Deeds or EIPUs only caused loss to the bondholders.

213.  I agree with the judge. I do not think the passages cited in Stanford International Bank Ltd dealing with damage suffered on the basis of loss of a chance and the discussion of the net loss rule on the facts of that case are applicable to the present situation.

214.  As for the “claw back” principle under PRC insolvency law and the EBL, Mr Phillips submitted it has no relevance to whether the plaintiffs had suffered loss and damage under English law. If he is right about this, no more would need to be said. If he is wrong about this, this is a question of PRC law and is best left to be resolved in the Beijing Court if the matter should be brought up in the reorganisation proceedings.

The appropriate declaration

215.  In light of the criticism that the declaration sought in the pleadings and the Notice of Appeal is inconsistent with the plaintiffs’ case argued on appeal in Ground 2, Mr Phillips applied to amend the declarations the plaintiffs would seek on appeal. The revised draft declarations read as follows:

“1. By reason of Clause 4.1(i) of the Keepwell Deeds, on 19 February 2020, PUFG was liable to Nuoxi, Kunzhi and HKJHC to cause Nuoxi and Kunzhi to have a Consolidated Net Worth of at least US$1, and cause HKJHC to have a Consolidated Net Worth of at least HK$9,980,000.

2. The quantum of the sums due under (1) above were those required to cause Nuoxi and Kunzhi to have a Consolidated Net Worth of at least US$1, and cause HKJHC to have a Consolidated Net Worth of at least HK$9,980,000. On the materials available to the Court, those sums are US$963,456,001 in the cases of Nuoxi and HKJHC and US$857,427,830 in the case of Kunzhi.

3. By reason of Clause 4.1(ii) of the Keepwell Deeds, on 19 February 2020, PUFG was liable to Nuoxi, Kunzhi and HKJHC to cause Nuoxi, Kunzhi and HKJHC to have sufficient liquidity to ensure timely payments by each of them of any amount payable under or in respect of the Bonds and Guarantee in accordance with the terms and conditions of the Bonds and/or the Trust Deed and otherwise under the Trust Deed and the Agency Agreement.

4. The quantum of the sums due under (3) above was the sums that would have been required to cause Nuoxi, Kunzhi and HKJHC to have sufficient liquidity to meet the obligations identified in (3) above. On the materials available to the Court, those sums are US$963,456,001 in the cases of Nuoxi and HKJHC and US$857,427,830 in the case of Kunzhi.”

216.  Mr Smith opposed the application to amend the Notice of Appeal to seek the revised draft declarations. He advanced four reasons.

217.  First, the revised declaratory relief has not been pleaded and is inconsistent with the plaintiffs’ pleaded case. The pleaded cases have always been that there were breaches at particular points in time after 19 February 2020 giving rise to damages[134]. It has never been the pleaded cases that the plaintiffs’ claims are based on a provable debt or obligation that existed as at 19 February 2020.

218.  Second, the revised declaratory relief is inconsistent with the proofs of debt in the PRC. The proofs of debt refer to “default” in March 2020 by the Issuers and PUFG’s supposed obligations after the default. The proofs of debt are not based on the state of affairs as at 19 February 2020.

219.  Third, the revised declarations are of doubtful utility. The forms of the declarations are unclear and unfocussed. Paragraphs 1 and 3 simply restate the content of clauses 4.1(i) and (iii) in slightly different terms and are liable to introduce confusion. A declaration that there should be a particular amount due “on the materials available to the Court” is unhelpful and of no utility, when Mr Phillips rightly accepted that not all evidence is before the Hong Kong court. It would require an investigation of what material was and was not before the Hong Kong court. It is highly doubtful if the declaration, which is not consistent with the proofs of debt in the PRC, is of any use at all. Further, PUFG is deprived of the opportunity to adduce evidence on PRC law as to the utility of the revised declaration.

220.  Fourth, the figures in the revised declaration are self-evidently wrong. The figures of US$963,456,001 and US$857,427,830 are premised upon the alleged breaches pleaded for other specific dates after 19 February 2020 and cannot reflect PUFG’s supposed obligations as at 19 February 2020. To give an example, the figure of US$963,456,001 as pleaded included contractual interest calculated up to 15 April 2020 and outstanding Trustee’s costs up until 1 February 2021. Further, the figure of US$963,456,001 is inconsistent with the plaintiffs’ own case on appeal which says that the amount of the debt owed under clause 4.1(i) is subject to deduction for the amount of the plaintiffs’ assets including any sums received under clause 4.1(ii)[135].

221.  All these are valid criticisms. The revised declarations would not be appropriate.

222.  In light of the conclusion that liability is established as Ground 3 is made out and RN Ground 2(2) is rejected, I would grant declaratory relief in these terms:

(1)  In the case of HCA 778/2021 and HCA 1418/2021, there would be a declaration that PUFG breached the Nuoxi Keepwell Deeds on 16 April 2020 and became liable to Nuoxi and HKJHC in the sums of US$306,672,000, US$202,116,000 and US$404,816,000 as on that date.

(2)  In the case of HCA 1442/2021, there would be a declaration that PUFG breached the Kunzhi Keepwell Deeds on 16 April 2020 and became liable to Kunzhi in the sums of US$312,647,400 and US$505,141,000.

Conclusion and costs

223.  For the above reasons, the plaintiffs’ appeals in CACV 184, 185 and 186/2023 are allowed. The judge’s orders dismissing the claims in HCA 778/2021, HCA 1418/2021 and HCA 1442/2021 are set aside and substituted with the declarations as set out above.

224.  I would make these costs orders nisi.

225.  For the costs of these appeals, I would order PUFG to pay part of the plaintiffs’ costs, considering that the plaintiffs are successful overall and that they have failed on some of the grounds of appeal. I would order PUFG to pay 50% of the plaintiffs’ costs. I would grant a certificate for three counsel.

226.  The judge ordered the plaintiffs to pay the costs of PUFG in HCA 778/2021, HCA 1418/2021 and HCA 1442/2021, having dismissed the plaintiffs’ claims. This costs order would be set aside and replaced with an order that PUFG should pay the plaintiffs’ costs of these actions, with a certificate for three counsel.

Hon G Lam JA:

227.  I agree with the judgment of Kwan VP.

Hon Chow JA:

228.  I agree with the judgment of Kwan VP.