The Joint and Several Liquidators of Shanghai Huaxin Group (Hongkong) Limited (in Liquidation) v. Huainan Mining Industry International Ltd

HCMP 180/2024

[2024] HKCFI 2542

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 180 OF 2024

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BETWEEN

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REASONS FOR DECISION

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THE APPLICATION

1.The Applicants are the Joint and Several Liquidators of Shanghai Huaxin Group (Hong Kong) Limited (the “Company”). In these proceedings, the Applicants seek to set aside a deed between the Company and Huainan Mining Industry International Limited (the “Respondent”) signed in around March 2018 (the “Deed”) pursuant to Section 265D of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32) (the “Ordinance”).

2.This is the substantive hearing of the Originating Summons dated 31 January 2024 (the “Originating Summons”).

3.At the hearing on 22 August 2024, I made an order in terms of the Originating Summons. Now I give my reasons.

4.On 13 August 2024, the Respondent took out a summons to apply for an adjournment of this substantive hearing (the “Adjournment Summons”) on two grounds:

(1) The Respondent’s intended appeal to the Court of Final Appeal against the Court of Appeal’s judgment dated 2 August 2024 (the “CA Leave Refusal Decision”);

(2) Alternatively, to obtain leave to file and serve substantive affirmation evidence in opposition to the Originating Summons by 16 September 2024.

THE ADJOURNMENT APPLICATION

5.This court will first deal with the Adjournment Summons. Mr Li SC has ably advocated the Respondent’s case in the best possible way. However, given the procedural history of the present proceedings, I am of the view that there are no good grounds to accede to the Adjournment Summons.

6.On 16 April 2024, the Respondent took out an application to stay these proceedings pending the resolution of an arbitration between the parties in Singapore (the “Arbitration”) which will touch on issues relating to the Deed. The stay application was dismissed by Deputy High Court Judge Reyes SC by ex tempore oral reasons on 28 June 2024.

7.The stay application involves an interesting issue of law, namely, whether anti-avoidance claims are arbitrable and/or susceptible to a stay in favour of arbitration when critical antecedent factual matters are subject to arbitration. Deputy High Court Judge Reyes SC answered this question in the negative. His decision is that anti-avoidance claims are not arbitrable and/or susceptible to a stay in favour of arbitration.

8.The Respondent then took this matter to the Court of Appeal. The Court of Appeal dismissed the Respondent’s appeal on 2 August 2024 thus confirming the decision of Deputy High Court Judge Reyes SC. I am told that detailed reasons are to be given at a later stage.

9.Hence, as far as Hong Kong laws are concerned, this Court is also bound by the Court of Appeal’s decision that there should not be a stay of these proceedings in favour of arbitration.

10.Hence, I am of the view that it is not right to deprive the Applicants’ the fruit of their success to have this matter determined substantively before this Court despite the two unsuccessful attempts to stay these proceedings. To adjourn the substantive hearing today with a further set of directions for the filing of evidence would in effect be negating the results of the hearings before Deputy High Court Judge Reyes SC and the Court of Appeal. I do not think it is right for this Court to cause such negating effects.

11.I also bear in mind that the evidentiary hearing of the Arbitration is to take place in December 2024. By adjournment this substantive hearing, it will inevitably mean that these proceedings are stayed in a de facto sense pending the outcome of the Arbitration which is the exact opposite of the effects of the orders of Deputy High Court Judge Reyes SC and the Court of Appeal.

12.Further, as a matter of law, I am of the view that Mr Ho for the Applicants is correct that the CA Leave Refusal Decision is final and non-appealable. In Lam Sin-Yi Sindy v Leung King-Wai William t/a William K W Leung & Co [2021] HKCA 1236 at [2], [4], [6]-[8], Kwan VP held that:

“ Pursuant to section 14AB of the High Court Ordinance, Cap 4 (‘the HCO’), the decision of the Court of Appeal on leave to appeal is final…

Section 14AB of the HCO also provides that no appeal lies from a decision of the Court of Appeal as to whether or not leave to appeal to it should be granted.

[I]t has long been recognized in the case-law that a refusal of leave to appeal is generally to be regarded as final and incapable of itself being made the subject of an appeal, see HLF v MTC (2004) 7 HKCFAR 167 at §23: ‘Where the Court of Appeal refuses leave to appeal, it declines to hear the appeal at all and no judgment of that court, whether final or interlocutory, comes into being. Therefore, no appeal lies under s.22 to the Court of Final Appeal ...

It is clear from the aforesaid provisions and authority that the refusal of leave to appeal by the Court of Appeal is not susceptible to appeal.

The Notice of Motion is incompetent and constitutes an abuse of process” (Emphasis added).

13.I understand that the Respondent seeks to challenge the constitutionality of section 14AB of the High Court Ordinance. Mr Ho for the Applicants submitted that the Respondent invokes the constitutionality of section 14AB with a remarkable lack of conviction. It has failed to articulate any coherent argument as to why section 14AB might be unconstitutional in this case. This suggests that the constitutionality argument is not a genuine concern but rather a desperate attempt to manufacture an illusion of a credible appeal.

14.I do not need to resolve the issue of constitutionality of section 14AB of the High Court Ordinance at this hearing as this Court is bound by the decisions of the Court of Appeal.

15.Insofar as the Respondent’s right to arbitrate is concerned, I agree that:

(1) The parallel progression of these proceedings and the Singapore arbitration has been repeatedly affirmed as appropriate, though I will be surprised if the Arbitration Tribunal decides to take no notice of the decisions of Deputy High Court Judge Reyes SC and the Court of Appeal on the arbitrability of anti-avoidance claims.

(2) The Respondent’s right to arbitrate under the Deed remains intact, yet no arbitration has been initiated under the Deed.

(3) The Respondent’s argument for a mandatory stay under section 20 of the Arbitration Ordinance has already been dismissed. The Respondent has abandoned its appeal against Deputy High Court Judge Reyes’s mandatory stay decision at the Court of Appeal level and cannot now revive any such appeal before the Court of Final Appeal.

(4) Any appeal against the Stay Refusal Order is merely a case management appeal, and does not infringe upon the Respondent’s right to arbitrate.

16.As far as the Respondent’s alternative case to apply for leave to file additional affirmation evidence is concerned, the key stumbling block for the Respondent is an unless order (the “Unless Order”) for it to file evidence in these proceedings which again it has unsuccessfully appealed against. Mr Ho for the Applicants submitted that the Respondent has already had ample opportunity to file evidence in opposition to the Originating Summons. It was granted multiple extensions of time before ultimately filing Fan 2^nd on 24 April 2024 pursuant to the Unless Order.

17.The purpose of the Unless Order is for the Respondent to put in whatever evidence it deems fit to contest the Applicants’ case in these proceedings. It goes against the effect of the Unless Order for the Respondent to be given the leave to file additional evidence which will inevitably lead to an adjournment of the present substantive hearing.

18.In normal circumstances, I would be inclined to allow all available evidence to be ventilated in court. However, in the present case, there is no good justification as to why the Respondent’s evidence could not be filed in compliance with the Unless Order.

19.It will be different if the evidence the Respondent sought to be filed are evidence which are only available after the lapse of the time for compliance with the Unless Order. However, that is not the case here.

20.Further, the Respondent has not yet prepared any additional evidence to be filed. It seeks a general leave to file additional evidence by 16 September 2024. I am of the view that it is not appropriate, in the circumstances, to grant a general leave to file additional evidence.

21.Moreover, Mr Ho for the Applicants is also correct that given the procedural history of this case, the present substantive hearing of the Originating Summons is a critical milestone which should not be vacated unless there are exceptional circumstances to justify the same. See Tsoi Chik Sang Lawrence v Tasty Catering Group Ltd [2019] HKCFI 82; [2019] 4 HKC 177 at [10] per Au-Yeung J.

22.In Lin Chien Hsiung v Lin Hsiu Fen [2022] HKCFI 340 at [12], Mimmie Chan J held:

“ The hearing of the Setting Aside Application is obviously a milestone date for the purpose of the proceedings initiated by the Originating Summons filed in this action. It is the date for the substantive hearing of the Setting Aside Application regarding the Enforcement Order made under the Originating Summons. 13 years after the Civil Justice Reform, parties should need no reminder on the underlying objectives of expeditious dealing with cases, cost-effectiveness, and the emphasis on early preparations for trial. If a late application is made which has impact on a milestone date, under Order 25 rule 1B (3) RHC, the Court shall not grant any application to vary a milestone date, unless there are exceptional circumstances which can justify the variation” (Emphasis added).

23.I am of the view that there are no exceptional circumstances to justify the vacation of the milestone day. The Respondent may, rightly or wrongly, take the view that any filing of opposing evidence amounts to a submission to the jurisdiction of this Court. However, that is a strategic decision for the Respondent to make. Having made that decision, it has to live with the consequences in terms of its failure to file substantive and full evidence in opposition to the Applicants’ claims in the present proceedings.

24.Finally, I agree that that the CA Leave Refusal Decision does not create any executable judgment. To the extent that the Respondent seeks a de facto stay of ‘execution’ of the CA Leave Refusal Decision, it should apply to the Court of Appeal. This Court has no jurisdiction to stay the Court of Appeal order pending an appeal to the Court of Final Appeal. See: Yu Wing Cheong v Yu Wing Yin [2023] HKCFI 2098 at [29].

25.For all the above reasons, the Respondent’s Adjournment Summons was dismissed with costs to be paid by the Respondent to the Applicants.

UNDERVALUE TRANSACTION

26.Mr Li SC for the Respondent, having duly taken instructions, informed this Court that in view of this Court’s decision on the Adjournment Summons, the Respondent’s position is that (1) it chose not to be engaged substantially in these proceedings despite it has filed some evidence in opposition, namely, Fan 2^nd on 24 April 2024, (2) it has no objection to this Court setting aside the letter of notice or the Deed to the extent that it purports to be a standalone legally binding document or instrument but without prejudice to the Respondent’s position that it is a piece of evidence of an earlier agreement and (3) neither party to these proceedings have filed evidence in relation to the earlier agreement and this Court should make no decision on the same.

27.This Court understands the Respondent’s position and has no problem with it. For the reasons to be stated below, this Court ordered the Deed to be set aside. But it is up to the Respondent to advance any arguments it sees fit in the Arbitration.

28.Under section 265D of the Ordinance, the Court may avoid transactions at an undervalue entered into by an insolvent company in liquidation within five years of the winding-up petition.

29.In Ho Man Kit v Sure Lead Ltd [2019] HKCFI 2914; [2019] HKCLC 1273 at [34], this Court explained the operation of section 265D as follows:

“ The burden rests on the Plaintiffs to establish:

(1) There is a “transaction at an undervalue” in that it falls within one of the categories under section 265E of the Ordinance.

(2) The transaction was entered into at any time not more than five years prior to the commencement of the Companies’ winding-up.

(3) The company was insolvent at the time the transaction was entered into; or the company became insolvent in consequence of the transaction itself.”

30.Under the materially identical English legislation, the English court has explained the determination of a transaction at an undervalue as follows:

“ [T]he transaction must be (1) entered into by the company; (2) for a consideration; (3) the value of which measured in money or money’s worth; (4) is significantly less than the value; (5) also measured in money or money’s worth; (6) of the consideration provided by the company… [I]t requires a comparison to be made between the value obtained by the company for the transaction and the value of consideration provided by the company. Both values must be measurable in money or money’s worth and both must be considered from the company’s point of view” (Invest Bank PSC v El-Husseini [2023] EWCA Civ 555; [2024] KB 49 at [83] (Singh LJ)).

31.In the context of the equivalent provision under the Bankruptcy Ordinance (Cap 6), the Hong Kong court has adopted the English approach: Patrick Cowley and Wong Wing Sze Tiffany v All Powerful Investment Ltd [2020] HKCFI 3173; [2020] HKCLC 1649 at [24].

32.On the facts of the present case, and also in view of the position taken by the Respondent, I am of the view that the Deed falls within section 265D of the Ordinance:

(1) The Deed was entered into within five years of the Petition.

(2) At the time of the Deed (around March 2018), the Company was unable to pay its debts.

(3) In return for the Deed, the Company received no consideration.

(4) Therefore, at the time of the Deed, viewed from the Company’s perspective, the incoming consideration was significantly less than the outgoing consideration.

33.Insofar as the submission that whether the Deed is a transaction falling within section 265D is an issue to be resolved in the Singapore Arbitration, this Court is bound by the Court of Appeal’s decision to decide on this issue and should not defer the same to the Singapore Arbitration Tribunal.

34.For all the reasons stated above, I am of the view that the evidence demonstrates that the Deed constitutes a transaction at an undervalue, executed at a time when the Company was insolvent.

35.Accordingly, I make an Order in the terms of the Originating Summons.

36.As far as costs is concerned, this Court takes the view that it is better resolved by way of a gross sum assessment. Whilst it is the Applicants’ seek costs on a higher scale, first, I am of the view that the Respondent, rightly or wrongly, has decided to preserve its position on jurisdictional grounds and thus tried its best to exhaust the procedural routes in this jurisdiction, secondly, this Court can decide what is the reasonable level of costs for the Applicants in the gross assessment exercise when it has the Applicant’s schedule of costs, thus I do not think it is appropriate in the present case to make a costs order on an indemnity basis.

37.Parties are directed to agree on a set of directions in relation to the gross sum assessment failing which the Court will give its own directions.

38.Finally, it remains for this Court to thank Mr Ho for the Applicant, Mr Li SC, Mr Ho and Mr Sik for the Respondent for their helpful assistance.

Mr Look Chan Ho, instructed by Latham & Watkins LLP, for the Applicants

Mr Laurence Li SC, Mr Martin Ho and Mr Sik Chee Ching, instructed by Allbright Law (Hong Kong) Offices LLP, for the Respondent