Quest Investments Ltd v. Lee Wai Tung

HCMP 538/20 19

[2020] HKCFI 1516

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 538 OF 2019

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J U D G M E N T

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1.On 18 March 2019, Ms Lee Wai‑tung (“the Respondent”) served via her solicitors a statutory demand (“Statutory Demand”) on Quest Investments Limited (“the Company”), comprising the sum of principal of HK$8.4 million plus interest, in total exceeding HK$14 million.

2.It is said to be based on a loan agreement dated 15 January 2016 (“the Loan Agreement”).  This was later supplemented and supplemented again at a later date but this is not relevant for the purpose of the present proceedings.  The original lender in that case was a Company called “CLC Finance Limited” (“CLC”).  That loan was later assigned to the Respondent.

3.The Respondent is a resident of Hong Kong and is relying on the debt which arose as a result of the Loan Agreement as an assignee.

4.The Company is registered in Australia and has its shares listed on the Australian Securities Exchange.  At the material time, the Company had four directors:  Mr Chiang Wee Tiong (“Mr Chiang”), Wong Hung Ngok, Dr Kim Chan Koh, and one Mr Grant Anthony Robertson (“Mr Robertson”).

5.On 12 April 2019, the Company commenced the present proceedings seeking to restrain the Respondent from “presenting a winding‑up petition having served the plaintiff with a statutory demand dated 18 March 2019”.

6.The matter was first fixed for a call-over hearing on 18 April 2019 before Chow J.  Upon the parties’ joint application via their solicitors, it was agreed that the call‑over hearing would be vacated and directions were given for the filing of evidence.  It was further agreed that the hearing of the Company’s application would be adjourned for argument to a date to be fixed, with three hours reserved.  Today is the hearing of the substantive argument.

7.I am told by counsel appearing before me that, notwithstanding no formal undertaking had been provided by the Respondent to the effect that no winding‑up petition would be filed pending the determination of these proceedings, the Respondent decided to await the outcome of these proceedings before proceeding any further in filing a petition.

8.In short, the factual dispute which leads to the legal argument raised by the Company is that, although on its face the Company is the borrower, in fact, it is not and it was agreed that it would not be.

9.This dispute is raised in the evidence and, to a large extent, this mirrors the evidence which was filed in earlier proceedings, namely HCA 1977/2017 (“the CLC litigation”), whereby CLC had sued both the Company as borrower and Mr Chiang as guarantor.  Those proceedings did not ultimately proceed as a result of the Respondent acquiring the debt from CLC.

10.I will set out below and analyse the evidence filed in those proceedings which were exhibited in the present proceedings in more detail.

11.Mr Byron Chiu, who appeared for the Company, made succinct and persuasive submissions on behalf of the Company, to the effect that the injunction should be granted on either of two bases.  The first basis is on the basis that the debt is disputed on bona fide grounds and therefore the Respondent should be restrained from issuing a petition (“the Disputed Debt Basis”).  Alternatively, he relied on the jurisdictional ground, whereby it was suggested that, given the lack of sufficient connection between the Company and Hong Kong, that the Respondent should be restrained in filing a winding-up petition (“the Jurisdictional Basis”).

12.His submissions are summarised in his skeletons submissions as follows:

“4.1 First, the SD (and accordingly a winding up petition based thereon) is based on the Alleged Debt which is bona fide disputed on substantial grounds.

(a) It has been the common understanding between all relevant parties, including as between (1) CLC and P, as well as (2) D and P, that P is not to be held responsible for making repayments under the Alleged Loan.

(b) Rather, CLC (and subsequently D) would only hold Lok Wai Ming (‘Lok’) and Raymond Chiu (‘Chiu’), who were involved in Gold Lord Investment Inc (‘Gold Lord’), responsible for making repayments in respect of the Alleged Loan.

(c) P relies on the sham doctrine and contends that the Alleged Loan is not enforceable as against P, whether by CLC (then) or by D as the assignee under the Assignment.

(d) Further, CLC and accordingly D are estopped from enforcing the Alleged Loan as against P.

4.2 Secondly, in respect of P, there is no ‘good reason to exercise an abnormal jurisdiction [to wind up a foreign incorporated Company] even though it is one which statue has expressly conferred on the court’ – D has not, and cannot, demonstrate that the three core requirements (as confirmed in Kam Leung Siu Kwan v Kam Kwan Lai (2015) 18 HKCFAR 501 (‘Yung Kee’) are satisfied so as to justify the Court’s exercise of discretion to wind up P under s.327 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (‘C(WUMP)O’) (Cap 32).”

13.I will first deal with the Disputed Debt Basis, and thereafter with the Jurisdictional Basis.

APPLICABLE LEGAL PRINCIPLES

Principles pertaining to the Disputed Debt Basis and injunctions to restrain winding‑up

14.The applicable principles in this area of the law were recently and succinctly summarised by Deputy High Court Judge Keith Yeung, SC (as he then was) in Addchance Limited v Herojoy Trading Limited (unreported judgment dated 30 April 2019).

“42. The law as regards an application for an injunction to restrain the presentation of a winding up petition was summarized by Chow J in Re Grande Holdings Ltd HCMP 2369/2017 (unreported, 22 December 2017) at paragraph 14, that

‘(1) The court will grant an injunction to restrain the presentation of a winding-up petition which it considers would be an abuse of the court’s process.

(2) It is an abuse of process to present a winding‑up petition based on a claim of which there is a bona fide dispute on substantial grounds.

(3) The threshold for resisting a petition (requiring proof of a bona fide defence) is higher than that for resisting an application for summary judgment (requiring proof of a fair probability of establishing a bona fide defence), but the difference between the two tests is, in most cases, likely to be more a matter of semantics than substance.

(4) Petitions are not meant for the purpose of debt collection and the winding-up jurisdiction of the court would be exercised only in clear cases. Where oral evidence is required to decide a real and substantial dispute of fact, the court will generally dismiss the petition.

(5) The onus is on the Company to put forward credible evidence that demonstrates sound reasons to think that the asserted facts may be proved at the trial.’

43. On the court’s approach where a debt is said to be bone fide disputed on substantial grounds, Peter Ng J explained in Re Hong Kong Investments Group Ltd [2018] HKCFI 984 (at paragraph 13) as follows:

‘In the context of a winding‑up petition, the court’s approach where a debt is said to be bona fide disputed on substantial grounds can be summarized as follows:

(1) The burden is on the Company to establish that there is a genuine dispute of the debt on substantial grounds. In this context, ‘substantial’ means having substance and not frivolous.

(2) The court should look at the Company’s evidence against so much of the background and evidence that is not disputed or not capable of being disputed in good faith; in other words, the evidence is not to be approached with a wholly uncritical eye.

(3) The court would caution itself against unsubstantiated and unparticularized assertions. It is incumbent on the Company to put forward “sufficiently precise factual evidence” to substantiate its allegations.

(4) The court does not try the dispute on affidavit but is to determine whether a substantial dispute exists. In so doing,the court necessarily has to take a view on the evidence, to see if the Company is merely “raising a cloud of objections on affidavits” or whether there really is substance in the dispute raised by the Company.’”

Applicable principles pertaining to the Jurisdictional Basis

15.The Hong Kong court undoubtedly has the jurisdiction in an appropriate case to wind up a non-Hong Kong incorporated company. The applicable principles were recently and comprehensively summarised in the judgment of Harris J, the Companies Judge, in Shandong Chenming Paper Holdings Limited v Arjowiggins HKK 2 Limited [2017] 4 HKLRD 84 at page 89 to page 94, paragraph 11 to paragraph 13.

“[11] The Companies Court has had to consider the circumstances in which it has jurisdiction to wind up a foreign incorporated Company in a number of decisions in recent years. The majority of cases in which the issue has arisen concern insolvent companies. However, in Kam Leung Siu Kwan v Kam Kwan Lai [1] (‘Yung Kee’) the issue arose in the context of a solvent Company and a shareholders’ dispute and the case reached the Court of Final Appeal. In [18] to [24] of the judgment Chief Justice Ma and Lord Millett summarise the relevant principles:

‘D. Section 327(3)(c)

18. Section 327(1) and (3) are in the following terms:

(1) Subject to the provisions of this Part, any unregistered Company may be wound up under this Ordinance, …

(3) The circumstances in which an unregistered Company may be wound up are as follows:

(a) if the Company is dissolved, or has ceased to carry on business, or is carrying on business only for the purpose of winding up its affairs;

(b) if the Company is unable to pay its debts;

(c) if the court is of opinion that it is just and equitable that the Company should be wound up.

19. As the courts below observed this is a discretionary jurisdiction, though this does not follow from the word “may”. This word merely means “is liable to” and is appropriate to describe the conferment of jurisdiction. Nevertheless the most appropriate jurisdiction in which to wind up a Company is the jurisdiction where it is incorporated, and the jurisdiction to wind up a foreign Company has often been described as “exorbitant” or as “usurping” the functions of the courts of the country of incorporation.[2] These expressions are, however, unhelpful and potentially misleading except as a reminder that there must be good reason to exercise an abnormal jurisdiction even though it is one which statute has expressly conferred on the court. It is well established that there must be some connection between the foreign Company and the jurisdiction other than the petitioner’s decision, which would be present in every case, to present a winding-up petition there rather than in the country of incorporation.[3]

20. In these circumstances the courts have adopted some necessary self‑imposed constraints on the making of a winding‑up order against a foreign Company. There is no need to show that the Company has ever had a place of business within the jurisdiction or has ever carried on business there.[4] As the law has developed, however, the Courts have laid down three socalled core requirements which must be satisfied before the court will exercise its statutory jurisdiction to windup a foreign Company. These were summarised by Susan Kwan J (as she then was) in Re Beauty China Holdings Ltd[5] as follows:

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

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

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

In the present appeal, the parties have focused on only the first of these core requirements.

21. Some Courts have treated these core requirements as going to the jurisdiction of the court under s.327(3)(c). In our view, it is better to treat them as a part of the court’s discretion. The origin of these requirements, which have been adopted in other cases both in England and Hong Kong, is to be found in the judgment of Knox J in Re Real Estate Development Co.[6] In that case Knox J said that the proposition that there must be a sufficient connection between the Company and the jurisdiction in which it is sought to wind it up prompted the question: sufficient for what? He answered the question by saying that the connection must be:

sufficient to justify the court setting in motion its winding-up procedures over a body which prima facie is beyond the limits of territoriality.

22. That case and Beauty China Holdings Ltd were both concerned with creditors’ petitions to wind up the Company on the grounds of insolvency. In such cases there is a substantial overlap between the different requirements, for the presence of significant assets within the jurisdiction normally means that a winding-up order is likely to benefit the creditors applying for it. But their presence within the jurisdiction is not essential; it is sufficient that the petitioner will derive significant benefit from a winding‑up order in the local jurisdiction even though the Company is incorporated elsewhere.

23. While the benefit to a petitioning creditor will normally consist of the appointment of a liquidator with access to the Company’s assets for distribution to the creditors, it is not necessary that the benefit should be derived from its assets or be channelled through the hands of a liquidator. In Re Eloc Electro‑Optieck and Communicatie BV[7] Nourse J made a winding‑up order against a Company incorporated in the Netherlands which had traded in England but had ceased business some years before, had never had a place of business within the jurisdiction and no longer had assets there. The petitioners were two former employees who had been dismissed by the Company. They had applied to the Department of Trade and Industry for payment out of the redundancy fund but under the statutory provisions no payment could be made until the Company was wound up. Finding that there was a reasonable possibility that the petitioners would derive a benefit from the making of a winding-up order, the Judge said:[8]

The benefit would consist of assets coming into the hands of the petitioners not from the Company but from an outside source which can only be tapped if an order is made. In the light of that consideration and of the facts, first, that the Company did carry on business in England and Wales, secondly, that it employed the petitioners in that business, and, thirdly, that the potential source of assets is directly related to that employment, there is, in my judgment, sufficient to found the jurisdiction of the court. To put it another way, it would, in my judgment, be a lamentable state of affairs if the court’s jurisdiction was excluded by the mere technicality that the assets, in respect of which the reasonable possibility of benefit accruing to the petitioners derived, belonged not to the Company but to an outside source. I think that support for this view is to be found in the fourth and fifth essentials in Megarry J’s summary [1973] Ch 75, 92:

(4) It suffices if the assets of the Company within the jurisdiction are of any nature; they need not be “commercial” assets, or assets which indicate that the Company formerly carried on business here.

(5) The assets need not be assets which will be distributable to creditors by the liquidator in the winding up: it suffices if by the making of the winding up order they will be of benefit to a creditor or creditors in some other way.

That shows, first, that the assets can be of any nature and, secondly, that the consequential benefit accruing to a creditor or creditors need not be channelled through the hands of the liquidator. To my mind that confirms that the ownership of the assets by the Company is not a matter of crucial importance (our emphasis).

24. In our view the question in the case of a creditor’s petition is whether there is a sufficient connection between the Company and this jurisdiction to justify the court in ordering a Company to be wound up despite the fact that it is incorporated elsewhere; and that in deciding that question the fact that there is a reasonable prospect that the petitioner will derive a sufficient benefit from the making of a winding‑up order, whether by the distribution of its assets or otherwise, will always be necessary and will often be sufficient.’

[12] Commonly, the benefit to be derived from making a windingup order will be the opportunity for a liquidator to realise assets within the jurisdiction. Mr Poon referred me to the decision of Sir Richard Scott VC in Banco Nacional de Cuba v Cosmos Trading Corp [9]to emphasis this point in which the Vice Chancellor says this at 819g-820b:

‘In my opinion, the courts of this country should hesitate very long before subjecting foreign companies with no assets here to the winding‑up procedures of this country. Of course if a foreign Company does have assets in this country, the assets may need to be distributed among creditors, and a winding-up order here, sometimes ancillary to a principal winding up in the place of incorporation of the foreign Company, may be necessary. But a winding‑up order here, while the foreign Company continues to trade in its country of incorporation and elsewhere in the world, is in my view thoroughly undesirable. I would not say a winding‑up order in those circumstances could never be right, but I do say that exceptional circumstances and exceptional justification would be necessary. After all, if we presume to make a winding-up order in respect of a foreign Company which is continuing to trade in its place of incorporation and elsewhere in the world, where will our winding‑up order be recognised? What effect will it have? These questions are difficult to answer and, absent some international convention regarding the winding up of foreign companies, I think no satisfactory answer can be given.

It is, moreover, somewhat of a weakness in our own winding‑up law that it is not possible to have a winding‑up of a foreign Company limited to its activities and assets in this jurisdiction. It has been held on a number of occasions, and is clear law, that once a winding‑up order is made in this jurisdiction it purports to have worldwide effect. Hence the problems that arise if the order is made in respect of a foreign Company that is continuing to trade. In any event, BNC has no assets in this jurisdiction and even a winding‑up order limited to this jurisdiction would not have Cosmos.’

[13] Although, the presence of assets within the jurisdiction will be the most common way of satisfying the second requirement as the Chief Justice and Lord Millett explain in [22] of Yung Kee, it is not essential.  In China Medical Technologies Inc[10]I found that the opportunity for a liquidator to investigate misappropriation and misapplication of a Company’s assets including examination pursuant to section 221 of the Companies Ordinance (Cap 32) was capable of being sufficient benefit.  What is required is for it to be demonstrated that there is a reasonable prospect that the petitioner will derive a benefit consistent with the statutory purpose of the winding-up jurisdiction.  Generally, such a benefit is likely to be connected with either the realisation of assets for the benefit of creditors or the broader purpose of investigating the circumstances in which the Company has come to be put into liquidation[11].  So long as it is demonstrated that on the balance of probabilities there is a reasonable prospect that a benefit will result, which falls within these categories and that it is sufficiently substantial to justify an order, which engages the Hong Kong insolvency regime, the second core requirement will be satisfied.”

16.It seems to me that those principles are of particular relevance here given that this decision dealt with a creditor’s winding up of a non‑Hong Kong company rather than an application by a contributory to wind up a solvent non-Hong Kong company.

17.I should also mention that at paragraph 32 of the judgment, his Lordship suggested that, in appropriate circumstances, the question of jurisdiction to wind up a non‑Hong Kong company should also be dealt with at the same time as the question of whether or not there was a disputed debt i.e. now, rather than necessarily adjourning this matter to the determination of the petition proper.

18.I respectfully agree.  In most cases, one can see the sense of dealing with this issue prior to a petition being filed.  In a case where it is quite obvious that the Hong Kong court would not exercise its jurisdiction to wind up a non‑Hong Kong company in that the three core requirements clearly cannot be satisfied, it would be unfair and undesirable to allow such petitions to proceed, only for these to be dismissed later, as the filing of a petition would have serious consequences for the Company in question, not least that banks would often freeze the bank accounts of the said Company in the absence of a validation order.

19.Whether this is something which should be dealt with at a hearing such as the present or in separate proceedings is a matter which will depend on the facts of the case.  I will come back to this later.

Applicable principles on assignment/sham doctrine/estoppel

20.As rightly pointed out by the learned editors of the Law of Personal Property, 2^nd Edition, at paragraph 22-001:

“It is an elementary proposition that the assignor may not transfer rights greater than those the assignor has. This proposition is a particular situation of the rule of ‘nemo dat quod non habet’. It is not the same as the proposition that an obligor should be no worse off as a result of the assignment. Both propositions apply equally in the case of statutory and equitable assignment. Part of the explanation why obligors often insist on non-assignment clauses is to ensure they are not disadvantaged by an assignment.”

21.As I understand it, effectively the assignee steps into the assignor’s shoes and the obligor’s obligations are the same.  In other words, he remains in his own shoes.  The position of the Respondent in this case is the same as CLC’s position would have been, but for the existence of the assignment.

22.Insofar as sham transactions are concerned, I consider the following passages in the judgment of Harris J in Re China Shanshui Investment Company Limited (unreported judgment dated 28 September 2016) to be of assistance.  His Lordship there was dealing with the striking out of a winding‑up petition.  The principles are for present purposes identical.

“5. Where the parties to a transaction have a common intention that the document that they sign is not to create the legal rights and obligations it gives the appearance of creating, the documents does not bind the parties: Snook v London West Riding Investments Ltd . The test is subjective and in assessing what the parties intended the court may consider extrinsic and circumstantial evidence: Hitch v Stone.

6. As Au‑Yeung J notes in H v W & others the court does not lightly find a transaction to be a sham. There is a strong presumption that documents record genuine transactions. To rebut this presumption requires cogent evidence. If the court is invited to draw inferences these must be drawn from factual findings, which are supported by evidence.

7. In the present context the court is not required to make any findings.  However, it follows from the above principles that in order to find that there is a bona fide defence on substantial grounds I have to be satisfied that the evidence before me demonstrates that the Company has a credible case that it was not intended that the advances were loans repayable on demand, which should go to trial.”

23.Finally, I note that, as an alternative, the Company also relies on a defence of estoppel.  I raised this matter with Mr Chiu and he fairly confirmed that ultimately whether the Company was relying on a defence of sham or whether it was relying on estoppel, the factual foundation would be identical.  There must be evidence pointing to a representation that although the documents pointed to the Company being the borrower, it was in fact agreed that this was not the case.

DISCUSSION

24.In deciding whether or not a bona fide dispute on substantial grounds has been demonstrated, I have reminded myself of the principles as set out in the Addchance judgment. 

25.One has to consider what evidence is relevant and, to a large extent, that would be evidence of contemporaneous dealings and communications as between CLC and the Company.  As the Respondent came into the picture much later, it would obviously not be in a position to deny the Company’s case because, on the Company’s case, those representations were in effect made by CLC.

26.I should note that, on its face, there is nothing to suggest that the Respondent is other than a party who acquired the debt at arm’s length and in good faith.  On its case, it was motivated to enter into the acquisition by what it considered to be an attractive rate of interest. In the same vein, Mr Kwok’s sworn evidence for CLC was that the withdrawal of the proceedings against the Company and Mr Chiang were by reason only of the Respondent having acquired the debt from CLC.

27.As the Company is raising a defence of a sham or at least estoppel based on representation that, notwithstanding what the documents say, the Company is in effect not the real borrower and it was not intended and not agreed that the Company would repay the loan - rather, one Mr Lok Wai‑ming and Raymond Chiu would be the real borrower - one has to consider what evidence is probative of that fact.

28.A lot of the evidence produced could be and in fact was consistent with either (1) that there was a sham or representation to the effect that the loan was repayable by the Company, but also consistent with (2) the proposition that in fact the documentation reflected the real agreement between the Company and CLC.

29.As one would expect, on the face of the Loan Agreement, the Company is the borrower and CLC is the lender.  In the same vein, board resolutions were signed by the directors of the Company to allow the Company to enter into the Loan Agreement.  This in itself is unremarkable because it is obviously both consistent with the Company’s case and the Respondent’s case.  Even if there was a sham, or a representation that the Company would not be the real borrower and would not have to repay the loan, those documents would still be in existence.

30.I also note that clause 2.4 of the Loan Agreement provided as follows:

“The purpose of the loan is for: (i) financing the acquisition of Gold Lord Investments Inc from Lok Wai-ming announced by the Company on 24 November 2015 and (ii) for repayment of a loan due to Mr Chiang Wee Tiong from the borrower.”

31.Again, I consider that this could be consistent with either party’s case and thus not particularly probative.

32.I was also referred to other forms, whether application forms for the loan or earlier paperwork which ultimately led to the entering into the Loan Agreement.  I do not consider those to be of great moment for the same reason that the paperwork and that this particular paperwork would reflect ultimately what the Loan Agreement recorded and therefore, in itself this would not point to either the Company’s case necessarily being true or that the Respondent and CLC’s case to be true.  One would expect these documents simply to reflect the state of affairs as recorded in the Loan Agreement.

33.The Company prayed in aid the following:

(i)     The evidence filed by Mr Hoo in the CLC litigation.  In particular, it highlighted the following paragraphs in Mr Hoo’s first affirmation.

“3. In brief, in or about May 2015, QST, being a company listed on the Australian Stock Exchange (ASX), entered into an agreement to acquire Gold Lord Investments Inc, a Vanuatu registered company, (‘GoldLord’) which through its subsidiaries owned a goldmine and mining rights in Guizhou Province in the PRC. As part of the said agreement, the two principals of GoldLord agreed personally to pay for the transaction costs, which included payments for various services needed to meet the regulatory requirements, including due diligence, valuer and legal expenses (‘The Transaction Costs’).

4. Acting as the agent for the two principals of GoldLord, being Lok Wai Ming (‘Lok’) and Raymond Chiu (‘Chiu’) (both residents of Hong Kong), I had several meetings to discuss the funding with Lok and/or Chiu and with Chiang Wee Tiong (‘Chiang’), being a director of QST and the 2^nd Defendant in these proceedings, to discuss how the Transaction Costs would be funded. At one of those meetings in November/December 2015 at which I was present, Chiang told Lok that the amount required to pay the Transaction Costs, as required under the terms of a subscription agreement entered into by Lok (as the major shareholder of GoldLord) earlier in November 2015 for shares in QST to be issued to Lok (‘the Subscription Agreement’), would be no less than A$1million. I was asked by Lok and Chiu to take steps to secure a loan on their behalf to cover the Transaction Costs and, at or around the beginning of December 2015, I approached CLC on behalf of Lok and Chiu to negotiate a loan to enable them to pay the Transaction Costs. Later that month, I informed QST and Lok and Chiu that I had been successful in getting CLC to agree in principal to make a loan of HK$8.4million.

5. It was always intended that since Lok and Chiu were responsible for paying the Transaction Costs, Lok would himself take out the necessary loan, and this was made clear at a meeting held at CLC’s office in mid-December 2015, at which I attended with Lok and Chiu. Chiang also attended the meeting in order to produce evidence of QST’s take‑over of GoldLord. At that meeting Ms Clarea Au (‘Ms Au’), who I understand is the main owner of CLC even though not a named director, set out the terms of the loan and said that CLC would revert after completing their internal paperwork.

6. At the beginning of January 2016, I had a telephone conversation with Anthony Kwok (‘Mr Kwok’), being a director of CLC, who told me that, due to CLC’s internal procedures/requirements and the fact that the loan monies would be paid by Lok to QST in order for Lok to comply with his obligations under the Subscription Agreement, CLC would want the loan agreement to be in the name of QST with Chiang held out as a guarantor.  Mr Kwok told me that this would be just for internal purposes, and that CLC appreciated that Lok was in reality the borrower.  After my telephone conversation with Mr Kwok, a further meeting was held with Ms Au at CLC’s office at which Chiang reiterated to Ms Au that, although QST would sign the loan agreement, it would be on the basis that the loan was in fact the responsibility of Lok and Chiu.  After Ms Au acknowledged her understanding of the position, the loan agreement was executed on or about 15 January 2016.”

(ii)    This was corroborated and consistent with the sworn evidence of Mr Chiang.

34.I note that, in respect of Mr Chiang’s claims, that after CLC had commenced proceedings he had contacted Mr Kwok and after discussions he agreed that CLC would not press ahead with the action provided arrangements were made to immediately pay two months’ interest.

35.Heavy reliance was also placed on an email sent by Mr Robertson, one of the Company’s directors, to Mr Tony Hoo, which was copied to Mr Chiang.  The email stated as follows.

“Dear Tony,

I refer to the proposed assignment of the debt of Quest Investments Limited (on behalf of Raymond) as Borrower and CLC Finance Ltd as Lender to Ms Li and understand as follows:

1. you have procured a Ms Li to take an assignment of the debt;

2. Ms Li has deposited HKD10.6 million into the trust account of Bosco Tso to discharge all principal and interest due to CLC Finance Ltd;

3. you have requested Eric Heung to act for Mr Chiang in this matter;

4. CLC Finance Ltd will agreed to the assignment subject to the proceeding instituted by it against Quest Investments Limited and Mr Chiang being dismissed with each party agreeing to pay their own costs;

5. Ms Li has agreed to accept repayment of the moneys on completion of the Lok Transaction (estimated to be about 6 months),

6. Raymond’s liability remains unchanged and he will pay all interest on the loan;

7. costs and fees in this matter will be borne by Raymond; and,

8. settlement is planned Friday 15 June 2018.”

36.Mr Hu then on 15 June 2018 replied and, for present purposes, the main point is that he confirmed that the contents of the mail to be correct.  As I indicated to Mr Chiu during the hearing, it seemed to me that the email was not unequivocal and it was arguably consistent with either the Company’s case or CLC’s case, in that while the Company was legally obliged to pay it, it could have expected, as a matter of reality, for either Mr Lok or Mr Chiu to transfer funds to it so that the Company would then pay CLC.

37.It seems to me to be of relevance that:

(1)    Mr Grant, or indeed any of the other officers of the Company, apart from Mr Chiang, had not filed sworn evidence to the effect that they were aware that in January 2016 or thereafter, shortly thereafter, the Loan Agreement was in fact a sham.

(2)    There were no contemporaneous records or even a side agreement to record the fact that in fact the Company was not to be made liable. Given the significance to the Company and the fact that it is not suggested that CLC was previously close to it or close to any of its directors such that nothing in writing was necessary and it could simply be trusted, it seems very unlikely that such an arrangement would have been reached.

(3)    As accepted by the Company, the bulk of the loan (at least HK$6.2 million) was paid directly by CLC to the Company rather than Mr Lok or Mr Chiu.  In addition, certain payments of interest were exhibited, showing that the interest had been paid by the Company.

(4)    After letter of demands were issued by CLC’s solicitors in May 2017, there was no contemporaneous response suggesting that there was in fact a side agreement or that the Loan Agreement was a sham.  If the Company’s case were true, one would have expected the Company to raise the matter either immediately or soon after, because, on its case, CLC’s chasing for the money and commencing proceedings would be dishonest and unacceptable and yet not a word was uttered.

38.I note that in Mr Chiang’s affirmation he stated that he was surprised that proceedings were commenced in August 2017 and therefore he expressed his displeasure regarding the fact that such proceedings had been commenced.  It is very odd and there is no proper explanation for the fact that he would not have wanted at least by that time to put on record the Company’s version of the story and therefore that the Loan Agreement was not enforceable against the Company.

39.Finally, I note that even after the Order 14 application was made, the Company, which was by then legally represented, did not on its face protest about the fact that proceedings were commenced but rather it was proposing to pay some interest in order to avoid the litigation. On 30 November 2017, the Company offered to pay by instalments interest and even “the total amount of the loan”.

40.All in all, having considered the Company’s case in detail, including the sworn evidence of Mr Chiang and Mr Hoo as well as the email by Mr Grant to Mr Hu, and bearing in mind the relatively low threshold which a Company has to show in such proceedings, weighing this against the undisputed and indisputable evidence as well as the contemporaneous evidence, I am not satisfied that the Company has demonstrated a bona fide dispute on substantial grounds.

41.Subject to what I will say about the Jurisdiction Basis, I would thus dismiss the originating summons.

JURISDICTION BASIS

42.The only part of the sworn evidence which directly deals with the question of Hong Kong being the appropriate forum to wind up this non‑Hong Kong Company is to be found at paragraph 17 of the first affirmation of Mr Chiang filed in these proceedings.  He stated as follows:

“I understand from ANA that QST will also be objecting to winding-up petition being presented on the ground that this is not a case where the court should use its discretionary power to wind up a foreign‑registered Company. However, I am told by ANA that this is a matter to be dealt with in counsel’s submission to be presented at the hearing for QST’s application for an injunction.”

43.Given the way the evidence had been mounted by the Company, this is not a matter which was substantively dealt with either by the Respondent’s reply or in the evidence of the Company in further reply.

44.I therefore do not think that the question of jurisdiction is a matter which should be dealt with in these proceedings rather than in the petition, should the Respondent proceed to apply to wind up the Company in Hong Kong.  Whether the Respondent should seek to wind up the Company in Hong Kong or in the place of incorporation is a matter for it and for her advisors.

CONCLUSION AND COSTS

45.It seems to me therefore that the originating summons taken out by the Company should be dismissed.

46.Having heard the parties and considered the gross sum schedule prepared by the Respondent, I consider it appropriate to make a gross sum assessment. I order that the costs of these proceedings to be paid by the Company to the defendant in the sum of HK$300,000, to be payable within 21 days of today.

Mr Byron Chiu, instructed by Arun Nigam Associates, for the plaintiff

Mr David W K Tang, instructed by Tso Au Yim & Yeung, for the defendant