China Citic Bank Corporation Ltd Tianjin Branch and Others v. Silver Starlight Ltd

HCCW 295/2021
HCB 6548/2021
[2022] HKCFI 2076

HCCW 295/2021

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING UP) PROCEEDINGS NO 295 OF 2021

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BETWEEN

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HCB 6548/2021

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 6548 OF 2021

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(Heard together)

Before: Hon Linda Chan J in Court

Date of Hearing: 7 June 2022

Date of Judgment: 8 July 2022

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J U D G M E N T

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1.There are before the court 2 petitions presented by the 1^st to 3^rd Petitioners against (1) Silver Starlight Limited (“Company”) in HCCW 295/2021 (“HCCW”); and (2) Mr Pan Sutong (潘蘇通) (“Pan”) in HCB 6548/2021 (“HCB”), on the ground that they failed to comply with the statutory demands requiring them to pay HK$8 billion (“Debt”) which had fallen due on 10 December 2019.

2.The Debt is the unpaid principal advanced by the 1^st and 2^nd Petitioners to the Company under a facility agreement dated 15 May 2017 (“Facility Agreement”). Pan executed a personal guarantee dated 15 May 2017 in favour of the 3^rd Petitioner (as agent on behalf of the “Finance Party” [1]) agreeing to pay any amount owed by the Company under the Facility Agreement (“Guarantee”).

3.Prior to presentation of the petitions, both the Company and Pan had taken steps to challenge the locus of the Petitioners in presenting a petition against them on the ground that there is a bona fide dispute on substantial grounds in respect of the Debt and, in the case of the Company, it also disputed the jurisdiction of the court to make a winding up order against it. All the issues have been determined by the court against the Company and Pan, as further described in §§12 – 20 below.

A. BACKGROUND

4.The background and the disputes raised by the Company/Pan are set out in §§6-14 of the Judgment of DHCJ MK Liu in HCMP 222/2021 dated 3 June 2021 (“HCMP Judgment”) and §§3-13 of the Judgment of the Court of Appeal in CACV 301/2021 dated 25 August 2021 (“CACV Judgment”), being the Company’s appeal against the HCMP Judgment.

5.Pan is a Hong Kong resident. He is the sole legal and beneficial owner of the Company, which is incorporated in the BVI.

6.Goldin Properties Holdings Limited (“Goldin Holdings”):

(1) is a company incorporated in Hong Kong. It is an investment holding company and owns various subsidiaries which, in turn, hold many investments and assets including a property development project in Tianjin (“Tianjin Project”)[2];

(2) was a listed company in Hong Kong until completion of its privatization on 17 August 2017; and

(3) is wholly owned by Pan, with 4.811% held in his name, 35.59% held in the name of the Company and the remaining shares held in the name of 2 other BVI companies wholly owned by him[3].

7.The Debt arose out of a HK$8 billion loan advanced by the 1^st and 2^nd Petitioners (with the 3^rd Petitioner as agent) to the Company to facilitate the privatization of Goldin Holdings. There was another loan of HK$4 billion advanced by the 3^rd Petitioner to the Company to fund the privatization although this is not relied on by the Petitioners in the petitions.

8.The HK$8 billion loan was secured by, inter alia, (1) the Guarantee, (2) a share charge dated 15 May 2017 executed by the Company in respect of its shares in Goldin Holdings, and (3) a mortgage dated 30 November 2017 executed by Goldin Properties (Tianjin) Co. Ltd (“Goldin Tianjin”), an indirect wholly owned subsidiary of Goldin Holdings established in the Mainland, over 2 pieces of land (nos. 116051200046 and 116051200025) used in the Tianjin Project (“Mortgaged Lands”).

9.The Company failed to pay the interest due on the HK$8 billion loan. By notice dated 10 December 2019, the 3^rd Petitioner as agent declared that the principal and the accrued interest became due and payable immediately and the Company was required to pay all the amount due. Apart from paying part of the overdue interest on 8 January 2020 and 29 May 2020, no further payment was made by the Company. Irrespective of the acceleration notice, the HK$8 billion loan was due for repayment on 15 May 2020.

10.On 11 January 2021, the Petitioners served a statutory demand on the Company demanding payment of the Debt.

11.On 16 February 2021, the Petitioners served another statutory demand on Pan requiring him to pay the Debt.

A1. HCMP Judgment

12.By originating summons dated 22 February 2021 in HCMP 222/2021 (“HCMP”), the Company sought a final injunction to restrain the Petitioners from presenting a winding-up petition against it on the grounds[4] that: (1) the court has no jurisdiction to wind up the Company (“Jurisdiction Point”); and (2) the Debt is subject to a bona fide dispute (“Bona Fide Dispute Point”) relying on 2 main allegations: (a) there was an overall agreement made orally in or around April or May 2017 between Mr Sun Deshun, former chairman of the 1^st Petitioner (“Sun”), on behalf of the Petitioners and Pan (on behalf of the Company) (“Overall Agreement”) under which the Petitioners agreed that they would procure buyers to buy the properties on the Mortgaged Lands, and use the proceeds of sale to repay the loans; and (b) the Petitioners made a representation to the Company that the Petitioners would enforce their right to the security over the Mortgaged Lands first, and would only demand the Company/Pan for any outstanding amount under the Facility Agreement after enforcement of such security (“Representation”). The Petitioners acted in a way contrary to the Overall Agreement and the Representation by unreasonably obstructed the sale of properties in the Tianjin Project (“Unreasonable Obstruction”) and failed to realise the Mortgaged Lands to repay the Debt and, therefore, should not be entitled to enforce the Facility Agreement against the Company[5].

13.With the parties’ agreement, DHCJ MK Liu heard the substantive arguments on 31 May 2021 for the purpose of making a final determination on the matters set out in the originating summons[6]. In the HCMP Judgment, the Judge held against the Company on the Jurisdiction Point and the Bona Fide Dispute Point, and made the following determinations or findings on the issues raised by Pan on behalf of the Company:

(1) The court has sufficient basis to exercise its discretionary jurisdiction to wind up the Company as the first and second core requirements are satisfied; and the Company does not take issue with the third core requirement which is satisfied in any event (§§10-33).

(2) The existence of the Overall Agreement is incapable of being believed given that:

(a) it is not supported by any contemporaneous document;

(b) its gist is contradictory to the terms of the Facility Agreement and the Guarantee;

(c) it is inconsistent with the public announcement made by Goldin Holdings on 19 April 2017, which described the disposal of the properties on the Mortgaged Lands as an inseparable part of the privatization;

(d) it is inconsistent with the Company/Pan’s conduct in continuing to discuss with the Petitioners during the period from 7 August 2019 to 7 April 2020 for the purpose of restructuring the loan under the Facility Agreement and using Pan’s other personal assets to repay the same, all of which were done without any reference to the Overall Agreement;

(e) it is only in Pan 1^st that the Overall Agreement is mentioned for the first time, and Pan’s explanation for not mentioning it at an earlier time is not believable;

(f) it is Pan’s case that he would not have proceeded with the privatization but for the Overall Agreement made in April/May 2017, but according to the public announcements, the Company on 20 February 2017 had already applied to the 3^rd Petitioner for a loan for the purpose of the privatization. This was followed by a formal offer made by the Company on 29 March 2017 to purchase the shares held by the other shareholders of Goldin Holdings; and

(g) the Overall Agreement makes no commercial sense particularly when the contemporaneous documents show that the 1^st Petitioner took a dim view on the prospect of the Tianjin Project, and the 1^st and 2^nd Petitioners agreed to advance the loan on the strength of Pan’s other personal assets (§§41-52).

(3) The Unreasonable Obstruction falls away as it is based on the Overall Agreement which is unbelievable (§53).

(4) The Representation is unbelievable for the same reasons stated in §§41-48 in HCMP Judgment (§54).

(5) There is no merit in the point that the Petitioners should realise the Mortgaged Lands first. The Petitioners owe no such duty to the Company. Under clause 2.2 of the Facility Agreement, the Petitioners are entitled to seek recovery of the Debt without resorting to any of the securities held including the Mortgaged Lands (§55).

(6) In his unsworn statement, Sun denies that he made any representation or any agreement as alleged by the Company/Pan. There is no merit in the Company’s argument that Sun’s statement is insufficient for the purpose of rebutting the Company's case (§57).

(7) Neither clause 6.1 (which stipulates that the loan is for 3 years) nor clause 38.4 (entire agreement clause) can lend support to the existence of the Overall Agreement and the Representation (§§58-59).

A2. CACV Judgment

14.On 9 June 2021, the Company appealed against the HCMP Judgment in CACV 301/2021 (“CACV”). On 10 June 2021, the Company applied for a stay of execution of the HCMP Judgment pending determination of its appeal. The application was dismissed by DHCJ MK Liu on 16 June 2021 on the ground that the Company failed to show that it has an arguable appeal, but the Judge continued the stay for 28 days for the Company to seek a stay from the Court of Appeal.

15.The hearing of the appeal was expedited and scheduled to be heard on 10 August 2021. By summons dated 26 July 2021, the Company applied for leave to adduce Pan 4^th (which exhibited an affirmation made by Peng Jianyin (彭建寅) (“Peng”) dated 3 July 2021 (“Peng 1^st”). Peng was the General Manager of the 3^rd Petitioner but left its employ after June 2019) as evidence at the hearing of the appeal.

16.At the hearing of the appeal:

(1) counsel for the Company[7] urged the Court of Appeal to determine the Jurisdiction point once and for all given that the parties had filed evidence and the issue had been fully thrashed out (§19);

(2) the Company's application for leave to adduce Pan 4^th / Peng 1^st was dismissed for failing to satisfy the second and third conditions in Ladd v Marshall [1954] 1 WLR 1489 in that (a) there had been unexplained delay in making the application, and (b) Peng 1^st was not evidence as was presumably to be believed (§§40-47);

(3) the Company’s appeal was dismissed; and

(4) the Company’s application for an interim stay pending its application for leave to appeal to the Court of Final Appeal was also dismissed (§§53-54).

17.In the CACV Judgment, the Court of Appeal made the following determinations or findings on the issues raised by Pan on behalf of the Company:

(1) the Company failed to show any reviewable error in the Judge’s evaluation of the facts leading to the conclusion that the first core requirement is satisfied (§§20-29);

(2) the Company failed to show that the Judge erred in his conclusion that the second core requirement is satisfied, since the 35.59% shareholding in Goldin Holdings can be realized and distributed in liquidation, irrespective of where the underlying assets indirectly held by Goldin Holdings are located (§§30-35); and

(3) there is nothing wrong in the Judge’s conclusion that the Overall Agreement and the Representation is not credible and raises no bona fide dispute on the Debt on substantial grounds (§§36-39, 48-52).

A3. HCSD Judgment

18.In the meantime, on 5 March 2021, Pan applied to set aside the statutory demand served upon him in HCSD 3/2021 (“HCSD”), raising the Bona Fide Dispute Point based on the same allegations contained in his affirmations filed in HCMP[8].

19.Shortly before the substantive hearing in HCSD, on 7 September 2021, the Petitioners applied for leave to adduce evidence in reply to Peng 1^st essentially adopting the same response it filed in CACV on 4 August 2021 (“CACV Response”). On 4 October 2021, Pan applied for leave to file a 3^rd affirmation (“Pan 3^rd”) which exhibited a draft 2^nd affirmation of Peng (“Peng 2^nd”) and the transcript of a telephone recording between Peng and Pan on 27 September 2021 (“1^st Transcript”)[9].

20.HCSD and the summonses for leave to file further evidence were heard before DHCJ Le Pichon on 15 October 2021. In her judgment dated 19 November 2021 (“HCSD Judgment”), the Judge dismissed Pan’s application to set aside the statutory demand and made the following determinations or findings on the issues raised by the parties:

(1) Henderson v Henderson issue estoppel is founded on abuse of process and the essence of the doctrine is that a party ought generally not be permitted to raise in subsequent proceedings matters which that party could and should have raised in earlier proceedings. Whether or not there is Henderson abuse is to be determined by applying the broad merits-based approach as explained in Yifung Properties Ltd v James Nicholas Barrie Smith [2019] 1 HKLRD 36 (CA). A difference in parties is no bar to the application of the Henderson principle in appropriate circumstances (§§47-59).

(2) Even if there is “no privity of interest” and the Henderson abuse is not applicable, the court can still disallow a party to re-litigate an issue on the ground of abuse of process or a collateral attack on a judgment. The existence of special circumstances such as “additional evidence” that was not before the court in the earlier proceedings can constitute an exception (Capital Wealth Finance Co Ltd v Lai Yueh-Hsing & ors, HCA 686/2012, 31 July 2015, §§63-64) (§§60-62).

(3) In the HCMP Judgment, the court already decided that Pan’s allegations on the Overall Agreement and the Representation are not credible and do not constitute bona fide dispute on substantial grounds in respect of the Debt. The Court of Appeal affirmed the Judge’s conclusion. The Unreasonable Obstruction point falls away and in any event has not been challenged on appeal (§§63-64).

(4) Peng 1^st qualifies as “additional evidence”, while §§4-6 of Peng 2^nd deals with items (i) and (ii) of the Petitioners’ CACV Response and will be considered by the court. The rest of Peng 2^nd and the 1^st Transcript are elaborations of the matters contained in Peng 1^st and were known to him at the time Peng 1^st was made. No exceptional circumstances are put forward by Pan to justify why he should be allowed to adduce them as evidence (§§65-70).

(5) Except §§6-9 and §10(a)-(c) which respond to the issue of the authenticity of Peng 1^st, the rest of Pan 3^rd and the rest of the 1^st Transcript deal with matters which could and should have been addressed in Pan 2^nd. There are no genuine extenuating circumstances to justify the court taking them into account (§§71-72).

(6) There are serious doubts on the credibility and reliance of Peng’s evidence given that:

(a) the Court of Appeal highlighted the questions over the authenticity of Peng 1^st, but nothing in Peng 2^nd or the 1^st Transcript resolves that issue;

(b) although Peng 1^st was made one month after the HCMP Judgment, he does not address the inconsistencies between the Overall Agreement and the contemporaneous documents nor any of the reasons given by the Judge for concluding that the Overall Agreement is unbelievable;

(c) Peng’s assertions regarding a meeting on 3 January 2017 he attended with Sun and the arrangements to discuss with Sun Hongbin of Sunac on the cooperation of the Tianjin Project in February and March 2018 are contradicted by Goldin Tianjin’s declaration issued on 5 March 2018 confirming that there was no equity cooperation or intention of merger and acquisition in any form between Goldin and Sunac; and

(d) in Peng 1^st, he claims that the absence of a written agreement was due to the presence of a standard format for the Petitioners’ financing document. However, he offers an entirely different reason in Peng 2^nd, namely, that it would be inappropriate for Sun’s promise to be written in black and white (§§74-88).

(7) The additional evidence is “the very antithesis of credible evidence” and is insufficiently material to have any impact on the outcome of the Company/Pan’s case on the Overall Agreement (§§89-91).

(8) There is no reason for the court to reach a different conclusion on the issues decided in the earlier proceedings. Ms Eu’s belated “spin” on what is meant by the Overall Agreement namely, the nature of the Overall Agreement is being misunderstood and the negotiations and discussions during the period from 7 August 2019 to 7 April 2020 related to extension of time for payment of interest (referred to in §§47-48 of HCMP Judgment), is not remotely credible (§§92-98).

(9) The “prevention defence” is based on the same matters which underpin the Unreasonable Obstruction point. It is an abuse of process for Pan to seek to resuscitate the issue by a side wind (§§99-107).

(10) Even if it is open to Pan to re-argue the “prevention defence”, the Petitioners owed no duty to the surety to exercise their power of sale over the mortgaged securities and could decide in their own interest whether to sell and when to do so. The suggestion that the Petitioners were acting improperly by ganging up or colluding with other creditors to frustrate and obstruct the segregation and partition of the Mortgaged Lands for sale has no credible basis. In any event. It has not been shown that there is any causal link between the drop in value of the Mortgaged Lands and the Petitioners’ act or lack of action (§§108-122).

(11) Pan’s application to set aside the statutory demand is based on the same factual matrix as in HCMP. Applying the Yifung broad merit-based approach, the application is an attempt to make a collateral attack on the HCMP Judgment. It is an abuse of process for Pan to re-litigate settled issues. It would be manifestly unfair to the Petitioners and bring the administration of justice into disrepute (§§123-124).

(12) In any event, Pan failed to demonstrate that he has a defence of substance and the evidence adduced is far from “sufficiently precise factual evidence which is believable” (§125).

B. DISCUSSION

21.The determinations and findings in the HCMP Judgment, CACV Judgment and HCSD Judgment are binding upon the Company and Pan. Nevertheless, the Company/Pan saw fit to file voluminous evidence in opposition to the petitions which include:

(1) Pan’s affirmation dated 20 December 2021 made on behalf of the Company in HCCW (“Pan 1”) in which he seeks to dispute the Debt based on the same allegations raised in HCMP and HCSD and some new allegations which he claims could not have been made earlier[10].

(2) Peng 1^st, the 1^st Transcript and another transcript of the recording between Peng and Pan on 19 December 2021 (“2^nd Transcript”).

(3) Pan 1 as evidence in HCB (leave was given with the consent of the Petitioners, without prejudice to any legal issues that may be raised including the issue of admissibility of such evidence).

22.Mr Anson Wong SC[11], counsel for the Petitioners, submits that the principle of res judicata applies and the Company/Pan are precluded from arguing that the Debt is bona fide disputed on substantial grounds or that the 3 core requirements for the court to exercise its discretionary jurisdiction under s.327(3)(b) of the Companies (Winding up and Miscellaneous Provisions) Ordinance (Cap. 32) are not satisfied. In any event, Pan 1 is inadmissible in HCB.

23.On the other than, Mr Rimsky Yuen SC[12] submits that the res judicata principle does not apply to the Company/Pan given that (1) the test or threshold applied in HCMP and CACV are not the same as the test applicable to the hearing of the petitions, and (2) the court did not have the benefit of the evidence of Peng in full.

24.Accordingly, the issue which this court has to decide is whether the principle of res judicata, whether in the narrow sense (cause of action estoppel or issue estoppel) or in the wider sense (Henderson abuse), applies to the Company/Pan. If the principle applies, the Company/Pan are bound by the determinations and findings made by the court in the HCMP Judgment, CACV Judgment and the HCSD Judgment and cannot be heard to argue that there is a bona fide dispute on the Debt or that the 3 core requirements are not satisfied.

B1. Principles on res judicata

25.The principles are not in dispute and may be summarized as follows:

(1) A res judicata in the narrow sense may be a cause of action estoppel or an issue estoppel. The decision pronounced by the tribunal disposes once and for all the fundamental matters decided, and cannot be re-litigated between the parties and their privies (Spencer Bower and Handley: Res Judicata, 5^th ed, §§1.01, 1.05; Re GW Electronics Company Ltd [2021] HKCFI 1869, §22).

(2) To set up res judicata as an estoppel, it must be established that (a) the decision, whether domestic or foreign, was judicial in the relevant sense; (b) it was in fact pronounced; (c) the tribunal had jurisdiction over the parties and the subject matter; (d) the decision was final and on the merits; (e) it determined a question raised in the later litigation; and (f) the parties are the same or their privies, or the earlier decision was in rem (Spencer Bower and Handley §1.02; GW Electronics §23; Capital Wealth §21).

(3) Issue estoppel applies to fundamental issue determined in earlier proceedings which formed the basis of the judgment or as an essential step in the reasoning or the immediate foundation of the decision (Spencer Bower and Handle §8.01; GW Electronics §25, Capital Wealth §§23-24).

(4) For a party to be estopped by privity, he must have some kind of interest, legal or beneficial, in the previous litigation or its subject matter (Capital Wealth §§28-29).

(5) As for Henderson abuse, the essence of the doctrine is that a party ought generally not to be permitted to raise in subsequent proceedings matters which that party could and should have raised in the earlier proceedings. The abuse can take the form of the other party being “vexed”, “oppressed”, “unjustly harassed” or “unjustly hounded” by the subsequent set of proceedings, or bring the administration of justice into disrepute (Ko Hon Yue v Chiu Pik Yuk (2012) 15 HKCFAR 72, §§82-83; Yifung §§16-17)

26.Mr Yuen submits that there are well established “exceptions” to the principles on issue estoppel. One such exception is “where there has become available to a party further material relevant to the correct determination of a point involved in the earlier proceedings, being material which could not by reasonable diligence have been adduced in those earlier proceedings”, relying on Capital Wealth §25 which, in turn, referred to Spencer Bower §8.31. I shall refer to it as the “Arnold exception”.

27.It is important not to understand the nature of the Arnold exception and its limits. As explained in Spencer Bower §8.31-8.34:

(1) An exception for “special circumstances” was established in Arnold v National Westminster Bank plc [1992] 2 AC 93. In that case, the parties entered into a 32-year lease which provided for periodic rent reviews. On the first review, the arbitrator assumed that the rent could be reviewed at the next review date. Walton J reversed the decision, holding that the hypothetical lease for the balance of the term contained no provision for any further review. The judge refused leave to appeal against his decision, and the court of appeal had no power to grant leave to appeal. The tenant challenged the interpretation at the next review but was met with an issue estoppel. The estoppel failed in all courts because of the special circumstances, which included the bizarre construction adopted by Walton J was rejected in later cases, and the absence of any right of appeal. The refusal of leave to appeal had been wrong, if not perverse, having regard to the amounts involved, the continuing importance of the question in that and other cases, and the debatable nature of the decision. It was in these circumstances that Lord Keith held that the bar created by cause of action estoppel was absolute, but not for issue estoppel (at 109) in this way:

“… there may be an exception to issue estoppel in the special circumstances that there has become available to a party further material relevant to the correct determination of a point involved in the earlier proceedings, whether or not that point was specifically raised and decided, being material which could not by reasonable diligence have been adduced in those proceedings. One of the purposes of estoppel being to work justice between the parties, it is open to courts to recognise that in special circumstances inflexible application of it may have the opposite result.” (underlined added)

(2) Issue estoppel continues to apply if no newly discovered fact, if the party had only just realised its importance, where it was discoverable with reasonable diligence or the new fact was not sufficiently material. Discovery of new evidence is not sufficient. The exception should be kept within narrow limits to avoid undermining the general rule and provoking increased litigation and uncertainty. The absence of an effective right of appeal is critical (Spencer Bower §8.32).

(3) There have been very few cases where special circumstances have been established (Spencer Bower §8.33).

28.The authorities make clear that the Arnold exception is confined to “special circumstances” where it would be unjust to enforce issue estoppel. It was a point emphasised by Lord Keith in Arnold. Recently, in Test Claimants in the Franked Investment Income Group Litigation and others v. Commissioners for Her Majesty’s Revenue and Customs [2021] 1 All ER 1001, the UK Supreme Court reviewed the earlier authorities on issue estoppel and the Arnold exception, and explains how the exception works (§68, per Lord Reed and Lord Hodge):

“Lord Sumption in Virgin Atlantic Airways (above), para [21], explained Lord Keith’s judgment in Arnold (above) in relation to issue estoppel. In the case of that estoppel it was in principle possible to challenge a previous decision on an issue not only by taking a new point which could not reasonably have been taken in the earlier proceedings but also (in contrast to cause of action estoppel) ‘to reargue in materially altered circumstances an old point which had previously been rejected’. In para [22] he stated that Arnold was authority for the following proposition:

‘(3) Except in special circumstances where this would cause injustice, issue estoppel bars the raising in subsequent proceedings of points which (i) were not raised in the earlier proceedings or (ii) were raised but unsuccessfully. If the relevant point was not raised, the bar will usually be absolute if it could with reasonable diligence and should in all the circumstances have been raised.’” (underlined add)

29.In Test Claimants, the Supreme Court reiterates the point that issue estoppel overlaps with the rules or concepts of res judicata and abuse of process, all of which serve the common purpose of supporting good administration of justice:

“Res judicata, estoppel and abuse of process support the same legal policies, namely ‘that there should be finality in litigation and that a party should not be twice vexed in the same matter’: Johnson v. Gore Wood & Co [2002] 2 AC 1, p 31, per Lord Bingham of Cornhill. Lord Bingham went on to state: ‘This public interest is reinforced by the current emphasis on efficiency and economy in the conduct of litigation, in the interests of the parties and the public as a whole.’” (§59).

“Res judicata is a rule of substantive law, while abuse of process is a concept which informs the exercise of the court’s procedural powers … [T]hey are distinct although overlapping legal principles with the common underlying purpose of limiting abusive and duplicative litigation.” (§74).

B2. HCCW

30.Mr Wong submits that the Company should be debarred from re-litigating the Bona Fide Dispute Point and the Jurisdiction Point which have already been determined by the courts in HCMP and CACV. All the essential elements to set up res judicata are satisfied in that the HCMP Judgment (as affirmed by the CACV Judgment):

(1) is a judicial decision and was in fact pronounced;

(2) is given by the court which has jurisdiction over the Petitioners, the Company and the Debt;

(3) is final and on the merits. Although the Company in HCMP sought an injunction to restrain the Petitioners from presenting a winding up petition, it invited the court to make a “final” determination on both the Bona Fide Dispute Point and the Jurisdiction Point, and the Judge made such determinations based on the evidence filed and the substantive arguments advanced by the parties;

(4) the Company seeks to re-argue the Bona Fide Dispute Point and the Jurisdiction Point at the hearing of the petition; and

(5) the parties to the petition are the same as the parties to HCMP.

31.Mr Yuen argues that there is no question of res judicata, issue estoppel or Henderson abuse for the following reasons:

(1) the test or threshold applied in the HCMP Judgment and the CACV Judgment is not the same as the test to be applied at the hearing of the petition;

(2) Peng 1^st was rejected by the Court of Appeal based on Ladd v Marshall grounds, but this court has the benefit of Peng’s evidence “in full” without Ladd v Marshall concerns. As Peng’s evidence could not by reasonable diligence have been adduced in HCMP and CACV, the exception to issue estoppel applies; and

(3) The onus is on the Petitioners to establish that the subsequent litigation is an abuse, and the court has to assess a number of factors and to balance the interest of litigants and other interests involved in the administration of justice.

32.In my view, none of the reason advanced by Mr Yuen has any merit and, in any event, does not constitute a sufficient reason for the Arnold exception to apply.

33.First, it is clear from the HCMP Judgment that the Judge dismissed the originating summons not merely on the ground that the Company failed to satisfy the test or threshold governing the grant of an injunction to restrain presentation of petition. Rather, the Judge acceded to the Company’s invitation to make a final determination on the Bona Fide Dispute Point and the Jurisdiction Point on the basis of the evidence filed by the parties and the full arguments advanced by counsel. I do not see any basis for the Company to ask the court to ignore the determinations and findings set out in the HCMP Judgment (as summarized in §13 above). This is particularly so when the Company had the opportunity to appeal against such determinations and findings but failed to reverse any of them.

34.At the hearing, Mr Yuen seeks to rely on §54 of the CACV Judgment, where the Court of Appeal said that “the jurisdiction question may still arise in the context of the petition if one is presented. If it is then resolved in the plaintiff’s favour, the petition will be dismissed”. Mr Yuen submits that this supports the Company’s contention that the Jurisdiction Point remains a live issue which may be challenged by the Company at the hearing of the petition. I disagree.

(1) The Court of Appeal’s observation was made in the context of the Company’s application for interim stay pending its application for leave to appeal to the Court of Final Appeal. It has nothing to do with the substantive issues decided in the appeal, which concerned whether the Judge’s determinations on the Bona Fide Dispute Point and the Jurisdiction Point in the HCMP Judgment should be reversed.

(2) As is clear from the CACV Judgment, on the substantive issues, the Court of Appeal held that there was no reviewable error on the Judge’s determinations on both the Bona Fide Dispute Point and the Jurisdiction Point. It follows that such determinations remain binding upon the parties.

35.Second, I do not think that the Arnold exception applies to the Company merely because Peng 1^st, the 1^st Transcript and the 2^nd Transcript were not adduced as evidence in HCMP or CACV. As explained in §§27-28 above, to come within the exception, it is incumbent upon the Company to show that there are special circumstances such as materially altered circumstances or no right of appeal such that it would be unjust to enforce issue estoppel against it. The fact that Peng was unwilling to give evidence against the Petitioners in HCMP[13] is not a reason, much less special circumstances, for the exception to apply. The Company has not proffered any explanation as to why it would be unjust for the court to enforce issue estoppel against it. Nor has counsel cited any authority in support of the contention that the unwillingness of a potential witness to give evidence on behalf of a party may constitute special circumstances for the exception to apply. For this reason alone, the suggestion that the Arnold exception applies to the Company must be rejected.

36.In any event, there is no basis to suggest that Peng 1^st, the 1^st and 2^nd Transcripts are evidence which could not by reasonable diligence have been adduced in HCMP. This is because the same assertions contained in Peng 1^st, albeit in much greater details, were in fact set out in Pan 1^st and Pan 2^nd filed by the Company in HCMP. As for the telephone conversations recorded in the 1^st and 2^nd Transcripts, it is clear that they are “evidence” (assuming they are) which could have been obtained by the Company with reasonable diligence but they chose not to do so. I am unable to see how the Company can rely on its own failure to adduce Peng 1^st or the conversations recorded in the 1^st and 2^nd Transcripts as a reason or justification for seeking to avoid the court’s determinations and findings set out in the HCMP Judgment.

37.Nor is there any basis to contend that Peng’s evidence is “sufficiently material” to have any impact on the determination of the Bona Fide Dispute Point. The Court of Appeal rejected Peng 1^st not just on the ground of unexplained delay but also on the ground that it is not evidence which was presumably to be believed (see §16(2) above). Indeed, the same contention has already been considered by DHJC Le Pichon in HCSD and rejected for the reasons stated in §§74-91 of the HCSD Judgment.

38.Third, the suggestion that the onus is on the Petitioners to establish that the “subsequent litigation” is an abuse is misconceived. The burden is on the Company to satisfy the court that it comes within the Arnold exception such that it is not bound by the determinations and findings made by DHCJ MK Liu on the Bona Fide Dispute Point and the Jurisdiction Point. As the Company fails to show that the Arnold exception applies, it is barred by issue estoppel and should not be allowed to re-litigate the same issues at the hearing of the petition.

39.It is not necessary for the Petitioners to demonstrate that it is an abuse of process for the Company to re-litigate the same issues for the purpose of establishing Henderson abuse or collateral attack on a judgment. In any event, in seeking to re-litigate the Bona Fide Dispute Point and the Jurisdiction Point in circumstances where the court has already determined the issues, the Company is effectively asking the court to vex the Petitioners again on the same issues already decided by the court. Such conduct constitutes a Henderson abuse as it would undermine the determinations and findings made by the court and bring the administration of justice into disrepute (Ko Hon Yue §§82-83).

B3. HCB

40.Mr Yuen does not dispute that the principle of res judicata applies to bankruptcy proceedings. Nor does he dispute that where, as here, a debtor made an application to set aside a statutory demand and failed in the application, he is precluded from raising the same issue at the hearing of the petition, unless there has been a material change of circumstances (Re Tang Yau Sing [2020] HKCFI 877 §23, citing Chan Yuk Lun v. Chan Ying Chit [2015] 1 HKLRD 501 where G Lam J (as he then was) stated the principle (§§9-13) in this way:

“9. However, it has been held by Susan Kwan J (as she then was) in the (strangely unreported) case of Re Choy Wai Bor (unrep., HCB 8565/2001, [2002] HKEC 650) (28 May 2002) at [30] that the court’s decision of refusing to set aside a statutory demand gives rise to a determination that, by virtue of the principle of res judicata, precludes the debtor from raising the same issue on the hearing of the bankruptcy petition, at any rate where there has been no material change of circumstances.

…

13. Looking at the substance of the matter, such an order refusing to set aside a statutory demand, coupled with the operation of the principle of res judicata, has the effect of a final determination of specific issues as between the parties …” (underlined added)

41.Pan made an application to set aside the statutory demand and failed in the application. As is clear from the HCSD Judgment, DHCJ Le Pichon considered all the issues raised by Pan and rejected them for the reasons stated. It is not suggested that there has been any material change of circumstances between the determination of HCSD and the hearing of the petition. It follows that the determinations and findings set out in the HCSD Judgment are binding upon Pan. It is not open to him re-litigate the same issues already decided by the court against him.

42.It is not clear whether Pan relies on the 3 reasons outlined in §31 above as the bases for contending that there is no question of res judicata, issue estoppel or Henderson abuse. It seems to me that none of the reasons has any merit:

(1) The issues raised by Pan in HCSD are the same issues he raises in seeking to oppose the petition.

(2) Peng 1^st and the 1^st Transcript were considered by the Judge for the purposes of considering whether Pan is precluded by the principle of res judicata, Henderson abuse and issue estoppel from re-litigating the same points already decided in the HCMP Judgment and the CACV Judgment, and the effect of such evidence.

(3) In any event, for the same reason stated in §36 above, I do not consider that the 2^nd Transcript is evidence which could not by reasonable diligence have been adduced in HCSD.

(4) Nor do I think that the Petitioners have to establish that the petition is an abuse. The fact that Pan seeks to re-litigate the issues already decided by the court by itself constitutes an abuse of process.

43.For the reasons set out in §§40-42 above, it is not open to Pan to re-litigate any of the issues decided by the court in HCSD.

44.For completeness, Mr Wong submits that as the determination in HCSD gives rise to res judicata in the petition, Pan 1 would not be admissible as evidence in the petition unless it satisfies the first and second limbs of Ladd v. Marshall (Re Lai Kar Yee [2018] HKCFI 186, §11, per Au Yeung J, citing Re Wiemer, ex p Hang Seng Bank Ltd [2013] 2 HKLRD 1214,§16, per To J).

(1) The first and second limbs of Ladd v. Marshall are (a) the evidence could not have been obtained with reasonable diligence for use earlier, and (b) the evidence must be such that, if given, would probably have an important influence on the result of the case, though it need not be decisive.

(2) The first limb cannot be satisfied since all the evidence concerning the disputes in relation to the Debt could and should have been included in Pan’s previous affirmations. As far as Peng is concerned, Pan managed to obtain Peng 1^st on 3 July 2021. Nothing in Peng 1^st can be said to be new materials which could not have been obtained with reasonable diligence.

(3) In any event, the second limb cannot be satisfied since none of the evidence in Pan 1 would probably have an important influence on the result of the case.

45.Mr Yuen has not advanced any separate argument to answer the point.

B4. 3^rd Petitioner

46.At the hearing (but not in his skeleton), Mr Yuen makes a further point that the 3^rd Petitioner is not a creditor of the Company or Pan and, therefore, does not have the locus to present the petitions. It lies ill in the Company/Pan’s mouth to submit that the 3^rd Petitioner is not a proper party to the petitions, having decided to join the 3^rd Petitioner as a defendant in HCMP and a respondent in HCSD. In any event, the point has no bearing on the outcome, as there is no dispute that the 1^st and 2^nd Petitioners are creditors of the Company and Pan and have locus to present the petitions.

C. DISPOSITION AND COSTS

47.For the reasons set out above, the Company and Pan are bound by the determinations and findings made by the court in the HCMP Judgment, the CACV Judgment and the HCSD Judgment. They should be precluded from re-litigating the same issues already decided by the court against them, which are the only grounds advanced by them in opposition to the petitions.

48.As the Company has failed to comply with the statutory demand served by the Petitioners upon it and the Debt remains unpaid, the Company is deemed insolvent.

49.As for Pan, he has failed to comply with the statutory demand served by the Petitioners upon him and the Debt remains unpaid, he is deemed unable to pay his debts. In addition, this Court has in HCSD 28/2021 [2022] HKCFI 1450 held that there is no bona fide dispute on substantial grounds in respect of a debt of RMB 740,780,581.02 owed by Pan to Bank of China Limited (trading as Bank of China Limited Shenzhen Branch) (“BOC”). BOC has presented a bankruptcy petition against Pan on 26 May 2022 which will be heard before a Master on 2 August 2022. Mr Harrison Miao, counsel for BOC, supports the petition presented by the Petitioners. It is indisputable that Pan is liable to pay the debt owed to BOC but fails to do so. This reinforces the fact that Pan is unable to pay his debts.

50.It is in the circumstances appropriate for the court to make the usual winding up order against the Company, and the usual bankruptcy order against Pan. Costs will be dealt with in the usual way, save that the Petitioners are entitled to a certificate for 2 counsel, and BOC is entitled to be paid the costs of attending the hearing. The costs order is made on a nisi basis.

51.Mr Wong asks for costs to be assessed on indemnity basis to reflect the abusive litigation conduct on the part of the Company and Pan. While I agree that the conduct of the Company/Pan is abusive, it seems to me that it is not appropriate to order costs on a higher scale as such costs would have to be paid out of the estates of the Company and Pan which, in turn, would reduce the pool of assets available to the creditors. There is no reason why the creditors, who are the only parties having any real interest in the estates, should be penalized with costs on a higher scale.

D. DUTY TO PREPARE BUNDLES

52.Lastly, this court wishes to remind the practitioners once again that it is unacceptable for them to include voluminous documents in the hearing bundles even if this what their clients want or insist. It is regrettable to see that despite the size of the legal teams on both sides, no attempt has been made by the parties to assist the court[14] by including only those documents which are relevant and will be referred to at the hearing of the petitions. The hearing bundles contain 4213 pages (excluding English translation and the new evidence which the Company/Pan sought to put in one working day before the hearing without leave of the court), most of which have not been referred to in counsel’s submissions. The court expects the legal representatives to take into account the summary nature of winding up and bankruptcy proceedings and include only the documents relevant to the petitions and which the parties will need to refer in the course of their respective submissions[15]. In future, if a party or its legal representative insists on including documents which are irrelevant and will not be referred to at the hearing, the party and the legal representatives may expect the court to penalize them with costs irrespective of the outcome of the proceedings.

Mr Anson Wong SC leading Mr Alex Fan and Ms Joanne Szeto, instructed by Sit, Fung, Kwong & Shum, for the 1^st – 3^rd Petitioners

Mr Rimsky Yuen SC and Mr William Wong SC leading Mr Adrian Wong and Mr Lai Chun Ho, instructed by Zhong Lun Law Firm LLP, for the Respondent

Mr Harrison Mao, instructed by King & Wood Mallesons, for BOC