China Evergrande Group v. Triumph Roc International Ltd
Read the full judgment text of HCMP 1284/2022 on BabelCite. This High Court CFI judgment was delivered on 12 September 2023.
1. The Plaintiff (“CEG”) and its current financial woes are well known. A winding-up petition against CEG (“the Petition”) has been on foot since June 2022 (“the Winding-Up Proceedings”). With CEG pursuing debt restructuring, the Petition has been adjourned several times, most recently until 30 October 2023.
Cited by 1 case · Cites 5 cases
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[2023] HKCFI 2432 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE MISCELLANEOUS PROCEEDINGS NO. 1284 OF 2022 _________________
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__________________________________ REASONS FOR DECISION __________________________________ A. INTRODUCTION 1.The Plaintiff (“CEG”) and its current financial woes are well known. A winding-up petition against CEG (“the Petition”) has been on foot since June 2022 (“the Winding-Up Proceedings”). With CEG pursuing debt restructuring, the Petition has been adjourned several times, most recently until 30 October 2023. 2.It was in these circumstances that the two applications before me arose, both stemming from a claim brought in arbitration proceedings by the Defendant in the present HCMP action (“Triumph”) against CEG for HK$862.5 million (“the Arbitration Proceedings”). 3.The primary application was CEG’s application by originating summons dated 8 September 2022, seeking under sections 181 and 329 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32) (“the Ordinance”) to restrain the Arbitration Proceedings pending final resolution of the Winding-Up Proceedings or further order (“the Restraint Summons”). 4.The secondary application was Triumph’s application by summons dated 30 December 2022 for security for costs in respect of the Restraint Summons (“the Security Summons”). 5.The parties had earlier agreed that the Restraint and Security Summonses be dealt with together at the same hearing. They maintained this position at the hearing before me. 6.At the hearing, Mr Alan Kwong representing Triumph[1] properly accepted that as things stood, whatever the outcome of the Restraint Summons, the Security Summons would fall away in any event. 7.At the end of the hearing, I allowed the Restraint Summons and made these main orders:[2]
8.What follows are my main reasons for granting the Restraint Order, set within their essential factual and statutory context. B. FACTUAL BACKGROUND B1. CEG’s background 9.The factual background in this and later sections is essentially undisputed. 10.CEG is a Cayman-incorporated company listed in Hong Kong. It is an investment holding company with thousands of subsidiaries in offshore jurisdictions, Hong Kong, and the Mainland (together “the Group”). 11.CEG serves as one of the main offshore financing platforms for the Group, which is headquartered in Guangzhou and principally engaged in developing, investing and managing property in the Mainland. The Group’s business operations are primarily Mainland-based. 12.The Group has faced substantial liquidity challenges and financial difficulties since the second half of 2021. 13.In June 2022, Top Shine presented the earlier mentioned Petition against CEG. 14.The Petition debt of HK$862.5 million arose out of Top Shine’s participation in the Group’s financing in relation to 房車寶集團股份有限公司 (“FCB”) that took place in March 2021 (“FCB Financing”). 15.In light of CEG’s debt restructuring efforts, the Petition is presently adjourned until 30 October 2023. B2. Background to Triumph’s claim and proceedings against CEG 16.Triumph’s claim against CEG is also for HK$862.5 million, arising from Triumph’s participation in the FCB Financing (“the FCB Financing Dispute”). The claim is premised on an investment agreement dated 28 March 2021. Triumph commenced the Arbitration Proceedings in August 2022 to pursue its claim. 17.On 31 August 2022, Triumph sought emergency relief in the Arbitration Proceedings pursuant to HKIAC’s emergency arbitration procedure (“Emergency Arbitration”). On 16 September 2022, the Emergency Arbitrator dismissed Triumph’s application. 18.While the Emergency Arbitration has ended, the Arbitration Proceedings are set to continue absent restraint by the Court. B3. CEG’s debt restructuring 19.CEG’s debt restructuring efforts include a scheme of arrangement in Hong Kong (“the Scheme”). CEG says that matters on this front have been progressing “steadily”. Triumph has not for present purposes challenged this view. 20.The Scheme compromises CEG’s indebtedness, including the Petition debt and Triumph’s claim (assuming these are valid). 21.On 24 July 2023, the Court granted an order permitting CEG to convene meetings of creditors (“Scheme Meetings”) to consider and, if thought fit, approve (with or without modification) the Scheme. 22.As at the date of the Restraint Summons hearing, the Scheme Meetings were set for 26 September 2023, and pending approval of the Scheme at the Scheme Meetings, CEG was set to proceed to obtain the Court’s sanction of the Scheme. C. POWERS AND PRINCIPLES C1. Key statutory provisions 23.Where a Hong Kong-incorporated company is subject to a winding-up petition, section 181 of the Ordinance provides:
24.For section 181 purposes, “action or proceeding” covers arbitrations: Re UDL Contracting Ltd [2000] 1 HKC 390 at p.393D-H (Le Pichon J as she then was). 25.With regard to foreign companies, section 329 of the Ordinance provides that:
26.Triumph does not dispute CEG’s position that the section 181 mechanism is available in the present case via section 329. 27.As noted in Re UDL (above) at p.393G at p.394H-I, section 181 should also be read in the light of section 186 of the Ordinance, which addresses the position of actions or proceedings against the company upon winding-up in these terms:
28.The courts have recognised the clear link between sections 181 and 186 and their equivalents. In Re Paperback Collection [2019] EWHC 2904 (Ch); [2020] BCC 574, HH Judge Halliwell (sitting in the High Court) noted that while the statutory jurisdiction to grant leave to a creditor to commence or proceed with an action against a company in compulsory liquidation is distinct from the jurisdiction to stay or restrain proceedings post-presentation (but pre-grant) of a winding-up petition, the applicable principles are “closely analogous”. As Le Pichon J put it in Re UDL at p.394I, while only section 186 provides for an automatic stay, sections 181 and 186 “complement each other” and share “a common purpose”. That purpose is among the matters addressed in the next section. C2. Exercise of the section 181 discretion 29.While the wording of section 181 leaves the Court with a broad discretion on whether to restrain proceedings against a company in the period after presentation of a petition and before the making of a winding-up order, that discretion must be exercised with the legislative context and purpose in proper view, and consistently with the case law that has developed in this domain. 30.Historically, sections 181 and 329 of the Ordinance derive from equivalent sections in the UK Companies Act 1929, on which the Ordinance itself is based (see Kwan J as she then was in Joint and Several Liquidators of B+B Construction Co Ltd v Ulrich Weinmann HCCW 114/2001, unrep. 8 June 2004 at §43, dealing there with the origins of section 221 of the Ordinance). 31.From the authorities cited to me on CEG’s behalf by Mr Maurellet SC,[3] it is evident that the Hong Kong approach to the section 181 discretion essentially tracks the English approach, with both approaches rooted in the same broad statutory concerns as to the efficacy and integrity of the winding-up process. 32.In summary, I consider that the key concerns which should inform the exercise of discretion in this context are overlapping and include the following:
33.These important concerns readily explain the general principle and high threshold for the assessment of section 181 applications as identified by Kwan J (as she then was) in Get Nice (Union) Finance Company Limited (above) at §7:
34.As Kwan J noted earlier in the same paragraph, the stated general principle and approach came from the Court of Appeal’s judgment in Attlee Investments Limited v Lee Chuen t/a Lee Chuen Furniture Co [1983] 1 HKC 186,[4] and was therefore binding on her at first instance. 35.In this light, and for the further reasons below, I do not consider that Le Pichon J in Re UDL was seeking to establish any different general principle or approach than that set in Attlee Investments when she referred at p.398C-D to a test of “whether substantial injustice will result if the arbitration is not stayed”. Read in context, I take it that the learned judge was there simply marking one aspect of her overall assessment of the facts before her, as conducted within the wider general framework that was by then well-established under Hong Kong law, since at least the time of Attlee Investments. 36.Given the core statutory concerns in this context, it is certainly true that the Court’s power under s.181 serves primarily to prevent substantial injustice to creditors, particularly due to proceedings that would bypass, impede or otherwise undermine the orderly and fair administration of the company’s assets for the benefit of all its creditors as a class. In line with the plain legislative intent that any winding-up process or scheme of arrangement be, as far as possible, overseen and administered in an orderly and self-contained way, the authorities clearly recognise that individual claims brought in separate proceedings generally tend to disrupt or undermine those same objectives. 37.Another concern that may be relevant in the exercise of discretion is that of deterring creditors from too readily seeking to pursue their claims outside of the statutory process, and to avoid the further difficulties that may result where attempts by particular creditors to bypass or “short-circuit” that process spur other creditors to similar action. This aligns with (and is essentially the obverse of) the recognition that, as with the provision for an automatic stay in circumstances covered by section 186, the discretionary power to stay under section 181 serves “to support the replacement of a creditor’s right to establish a claim by judgment in an action with a right to lodge proof of debt” (Re Paperback Collection (above) at §27, citing Gardner v Lemma Europe Insurance Co Ltd [2016] EWCA Civ 484 at §2). 38.In my judgment, the nature and importance of such concerns casts clear light on why the test is normally (and in my respectful view rightly) put in terms of whether there are “very exceptional circumstances” which might “justify the Court in refusing to accede” a stay application, as Bankes LJ put it in the foundational judgment of Bowkett (above) at p.164. 39.It may be noted that Le Pichon J’s judgment in Re UDL does not expressly refer to either the English Court of Appeal’s judgment in Bowkett or our Court of Appeal’s judgment in Attlee, which perhaps reinforces the conclusion that the learned judge could not have been intending any deviation from or significant restatement of the prevailing and by the long-established general principle and approach. 40.It is also worth noting that in Chellic Industries Limited v Datacom Wire & Cable Co Ltd HCA 11656/1999, unrep. 9 November 1999, Yuen J (as she then was) held that, in exercising the Court’s “absolute and unfettered discretion” under section 181 of the Ordinance, a stay “will in ordinary circumstances be ordered with a view to securing equal distribution of assets amongst creditors of the same class”, citing the English Court of Appeal in Bowkett. 41.Of course, even if Le Pichon J did have in mind a materially different test and approach than that set out by the Court of Appeal Attlee, I am required to follow the latter. 42.Given Triumph’s particular reliance in this case on its contractual right to arbitration (addressed further below), I also note that, in marking the proper approach to the exercise of discretion under section 181, the Court of Appeal in Attlee did not suggest that some fundamentally different approach or threshold should apply where section 181 is invoked against arbitral proceedings. Indeed Le Pichon J in Re UDL did not anywhere suggest that the approach she took in that case was modified by reason of the proceedings there being arbitral in nature. 43.All that said, to the extent that there is any real difference in principle between the approaches in Attlee and Re UDL, it should be clear from what follows later below that a stay is in my view fully warranted on either approach or formulation. 44.Before going to the specific reasons for granting a stay in this case, it bears emphasis that what are sufficiently “exceptional circumstances” for refusing an application for stay will depend on the overall circumstances of the particular case. 45.Without attempting to mark out (exhaustively or otherwise) the main factors and dimensions that are essential to the Court’s assessment in all cases, I would say in the light of the circumstances and contentions raised in the instant case that the following factors are at least potentially important for most if not all applications in respect of section 181:
46.In thinking through the above matters in a given case, a few other points should be kept in mind:
47.As earlier noted, what constitutes sufficiently “exceptional circumstances” for refusing an application for stay will ultimately depend on the overall circumstances of the particular case. The above matters are highlighted as some of the potentially important considerations that may go into the discretionary balance. D. REASONS FOR THE RESTRAINT ORDER 48.The above considerations are among those that have informed my analysis in the present case as specific reasons for or against the grant of the Restraint Order or as part of my overall discretionary assessment. 49.In outlining my main reasons for granting the Restraint Order, I will start with the primary concern of orderly administration and preservation of CEG’s assets for the purposes of fair treatment between all creditors as a class. 50.One of Triumph’s key claims in this regard is that, because the Arbitration Proceedings are focused on liability rather than enforcement, they are (as Triumph’s written submissions assert) “simply incapable of jeopardising the interest of other creditors”. 51.This however is too narrow a view for assessing what the interests of an orderly administration of CEG’s assets and the best interests of its creditors require. In my view, as a separate and substantial set of legal mechanisms and processes the Arbitration Proceedings unless restrained do clearly threaten to disrupt and undermine the orderly and equitable progression of the usual claims and distribution process. 52.In particular, the Arbitration Proceedings will inevitably involve substantial legal costs, including the costs of a 5-day trial. Absent any reason why the issues that would be addressed in the Arbitration Proceedings could not be properly determined under the Scheme or in a winding-up – and no substantial reasons are established on the evidence and submissions before me – such legal costs would in my view be an unnecessary expenditure of assets otherwise available for distribution amongst creditors. The need to separately deal with the Arbitration Proceedings will also tend to detract from an orderly and efficient primary process with regard to all other creditor claims. 53.Triumph’s reliance on its purportedly clear and simple entitlement to judgment in the Arbitration Proceedings does not assist it. If the matter really were so simple, that is all the more reason why it can and should be dealt with in the ordinary way along with all other creditor claims, rather than as the subject of separate legal proceedings. This is a particularly pertinent given the absence of any mechanism for summary determination in the Arbitration Proceedings. 54.I now turn to one of Triumph’s main objections to the Restraint Order, namely that it be would be wrong in principle to ignore or “defeat” Triumph’s contractual entitlement to have the FCB Financing Dispute resolved by way of arbitration. 55.I accept that a contractual right to commence and pursue arbitration is something that a court will ordinarily (i.e. in most contexts) be very slow to interfere with. I also that accept Triumph’s right to seek arbitration is a relevant factor before me. But I do not think that this right is in itself a weighty factor in the present case and context:
56.I also take into account that the period of restriction of Triumph’s right to pursue arbitration under the Restraint Order is likely to be relatively limited: as matters presently stand, the Scheme may well be in place within weeks. This timing may considered against the current timeline of the Arbitration Proceedings, pursuant to which there are no major scheduled events, such as any substantial hearing, until at least sometime next year. 57.If for whatever reason the Scheme fails to materialise in the near term, that may then well hasten “the resolution of the winding up proceedings” (per (1) of the Restraint Order) by other means. The Restraint Order moreover limits the duration of restraint until the time any further order of court, with express liberty to apply in that regard. 58.In considering the potential scope of impact on Outside Proceedings due to a section 181 order, it will also be kept in mind that, were a winding-up order later made or a provisional liquidator later appointed, section 186 would in any event kick in so as to automatically the Outside Proceedings. At that stage, the staying of the Outside Proceedings would result from the operation of section 186 and not any order under section 181. 59.Lastly, as Triumph properly accepted at the hearing, this is not a case where the costs and other resources so far expended in the Arbitration Proceedings would necessarily be wasted upon the grant of the Restraint Order. There is, at the least, a realistic prospect that the fruit of any efforts made in the Arbitration Proceedings towards identifying the purported legal and evidential grounds for Triumph’s claim against CEG may be redeployed in some form or other going forward. 60.In sum, I find that is just and appropriate in the prevailing circumstances of this case to restrain the Arbitration Proceedings pending further developments. E. CONCLUSION 61.For the above reasons, I granted the Restraint Order with a certificate for two counsel. 62.As noted, I made no order on the Security Summons save that costs occasioned by the summons be to the CEG, to be taxed if not agreed. 63.I am grateful to counsel and their supporting legal teams on both sides for their able assistance.
Mr Jose Maurellet SC and Mr Look Chan Ho, instructed by Sidley Austin, for the Plaintiff Mr Alan Kwong, Ms Sakinah Sat and Mr William KW Leung (Solicitor Advocate), instructed by William KW Leung & Co, for the Defendant [1] Along with Ms Sakinah Sat. [2] Edited here to track the abbreviations used in these Reasons for Decision, and omitting minor details extraneous or peripheral to these Reasons. [3] Leading Mr Look Chan Ho. [4] Which in turn drew from the English Court of Appeal’s judgment in Bowkett v Fullers United Electric Works Ltd (above) at pp.163-164. | ||||||||||||||||||||||||||
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