GE TRANSPORTATION (SHENYANG) CO, LTD v. A-POWER ENERGY GENERATION SYSTEMS,LTD AND OTHERS

HCA 1720/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1720 OF 2013

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1. This was an application by summons by GE Transportation (Shenyang) Co Ltd (“the plaintiff”) for default judgment against two of the six defendants in this action pursuant to Rules of the High Court, Order 19, rule 7.  At the conclusion of the hearing, I granted judgment.  My reasons appear below.

Introduction

2. The plaintiff issued the writ endorsed with the statement of claim against six defendants on 11 September 2013.  Head Dragon Holdings Ltd, the 2^nd defendant (“Head Dragon”) and Asia New Energy Group Ltd, the 3^rd defendant (“ANE”) are companies incorporated in Hong Kong.  The judgment sought was against Head Dragon and ANE only.

3. The 1^st defendant, A-Power Energy Generation Systems, Ltd (“A-Power”), is a BVI company whose shares were listed on the NASDAQ until their de-listing on 13 April 2012.  It is the parent company of Head Dragon.  Head Dragon had a wholly owned subsidiary, namely, Liaoning Hi-Tech Energy Group Co Ltd (“Liaoning”), a company incorporated in the PRC.

4. The 4^th defendant, Lu Jinxiang (“Lu”) was Chairman of the board, CEO and legal representative of A-Power, the sole director of Head Dragon and a director and chairman of Liaoning.  Until 10 January 2009, Lu was also a director of ANE and held 90% of its shares which were then transferred to a Samoan entity.

5. The 5^th defendant, Zhang Yuqiang (“Zhang”) is and was since 3 May 2012 the legal representative of Liaoning replacing Lu.

6. The writ endorsed with the statement of claim has been served on Head Dragon and ANE.  Neither has filed an acknowledgement of service or defence due respectively on 25 September 2013 and 23 October 2013.

7. The summonses under Order 19, rule 7 were issued on 29 October 2013 and served on Head Dragon and ANE on 28 January 2014.

8. A-Power has been served with the concurrent writ indorsed with the statement of claim.  It has failed to file an acknowledgement of service or defence.

9. The remaining defendants, Lu, Zhang and Liaoning are being served in the PRC with the concurrent writs indorsed with the statement of claim through Mainland judicial authorities but no confirmation of service has yet been received.

This application

10. The plaintiff sought to set aside a Share Transfer Agreement dated 3 May 2012 (“the Agreement”) made between Head Dragon and ANE (whereby Head Dragon agreed to transfer the entire shareholding in Liaoning to ANE) and for damages for conspiracy and/or inducing a breach of contract.  Since no defence has been filed within time, the plaintiff was entitled to apply for judgment under Order 19, rule 7.

11. It is well settled that under this rule, the court must give judgment according to the pleadings alone.

The plaintiff's case

12. Reduced to its bare bones, the plaintiff’s case as pleaded in its statement of claim may be summarised as follows:

1)  The plaintiff is the assignee of the rights of the vendor under a purchase agreement dated 3 March 2009 and has since 27 May 2010 been entitled to the benefit of a guarantee executed by A-Power guaranteeing the purchaser’s obligations under the purchase agreement.  A-Power’s most valuable asset consisted of the Liaoning shares held indirectly via its wholly-owned subsidiary Head Dragon.

2)  Defaults began occurring in June 2010 and a first demand payment under the guarantee for US$9 million was served on A-Power in September 2010 and a notice of arbitration was issued against A-Power in June 2011.  

3)  On 16 April 2012, the arbitral tribunal made an Interim Order restraining A-Power from disposing of or in any way dealing with any of its assets up to a value of US$323 million and specifically required A-Power to ensure that its subsidiaries including Head Dragon not remove, encumber, dissipate etc assets up to that value.

4)  The interim order was served on, inter alia, A-Power, Lu and Head Dragon on 17 April 2012 who therefore had knowledge of the same and, on the same day, A-Power made a sworn statement valuing its assets at US$194,661,568.54 (approximately HK$1.5 billion).

5)  On 24 April 2012 the High Court made an order rendering the interim order enforceable as an order of the court.

6)  Less than 10 days later, Head Dragon (acting by Lu) and ANE (acting by Zhang) entered into the Agreement whereby Head Dragon’s 100% shareholding in Liaoning was transferred to ANE for RMB54 million to be payable on or before 15 May 2012.  

7)  It is the plaintiff’s case that the whole purpose of the agreement was to render A-Power judgment proof.  A-Power was insolvent at the date of the Agreement because immediately prior to the Agreement, it was indebted to the plaintiff under the guarantee for a sum in excess of US$328 million but it was worth no more than US$194 million.

8)  The tribunal rendered its Final Award on 8 August 2012 awarding the plaintiff in excess of US$361 million.

The order

13. Having read the statement of claim, I was satisfied that as pleaded, the plaintiff has made out a case that Head Dragon and ANE had full notice and knowledge of A-Power’s indebtedness to the plaintiff, that when they entered into the Agreement they knew that A-Power was insolvent and that the Liaoning shares held via Head Dragon were A-Power’s only appreciable assets.  The Agreement, made at a significant undervalue, was a disposition of property made with intent to defraud.  Pursuant to section 60 of the Conveyancing and Property Ordinance, Cap 219, it is voidable at the instance of the plaintiff who is the party prejudiced.

14. Accordingly, I ordered that the Agreement be set aside on that basis with the following consequential relief:

  i.  An order compelling ANE to disclose to the plaintiff by affirmation, within 14 days from the date of judgment, whether it is still the legal and/or beneficial owner of the shares in Liaoning or any part thereof, and if the latter, to identify which part thereof.

  ii.  If ANE is still the legal and/or beneficial owner of the shares in Liaoning or any part thereof, an order compelling ANE to take all necessary and reasonable steps to reinstate and/or restore Head Dragon as the legal and beneficial owner of the said shares.

  iii.  If ANE had transferred the shares in Liaoning or any part thereof, an order compelling ANE to disclose to the plaintiff by affirmation, within 14 days from the date of judgment, the details of such transfer(s), to whom such transfer(s) were made and the consideration for which such transfer(s) were made, and disclose to the plaintiff all relevant documents pertaining to end evidencing such transfer(s).

  iv.  The plaintiff be at liberty to apply to the court for further and consequential directions to enable it to be informed of the present ownership, whereabouts and status of the shares in Liaoning and to enable steps to be taken to reinstate Head Dragon as the legal and beneficial owner of the said shares.

15. The plaintiff also sought damages against Head Dragon and ANE for inducing A-Power to breach its obligations under the guarantee.  I was satisfied that both Head Dragon and ANE had the requisite knowledge and also the intention to procure the breach.  The whole point of the Agreement was to create this situation whereby A-Power would not be able to have recourse to the Liaoning shares to discharge its indebtedness to the plaintiff under the guarantee.  Accordingly, I also ordered that damages be assessed by a master.