Re Hsin Chong Construction (Asia) Ltd (in Liquidation)
Read the full judgment text of HCCW 316/2018 on BabelCite. This High Court CFI judgment was delivered on 18 November 2024.
1. There are 3 summonses before the Court:
Cited by 10 cases · Cites 6 cases
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HCCW 316/2018 [2024] HKCFI 3310 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE COMPANIES WINDING-UP PROCEEDINGS NO 316 OF 2018 ____________________
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____________________ DECISION ____________________ Introduction 1.There are 3 summonses before the Court:
Relevant background 2.Ocean Park Corporation appointed the Respondent, a subsidiary of the listed Lai Sun Group, to build and operate the Ocean Park Marriott Hotel. 3.The Company was the main contractor under the Main Contract dated 5 December 2016 carrying out the construction work (the “Project”) for an estimated sum in excess of $2 billion. Payment by the Respondent was based on interim certificates (“ICs”) issued by Aedas Limited (the “Architect”). 4.The Architect certified practical completion of all construction phases on 2 October 2018, with the defect liability period expiring on 2 October 2020. 5.The Architect issued 3 interim certificates (ICs 31-33) on 13 October 2018, 4 and 10 December 2018 respectively for final payments totalling $12,295,350. 6.Pursuant to IC 31, the Company issued an invoice to the Respondent on 1 November 2018 for $3,853,350. The Respondent issued 5 cheques on 2 November 2018 totalling that amount. The Company issued official receipts on 5 November 2018. However, the Company only cashed one of those cheques in the sum of $1 million (“the 1st cheque”). 7.On the same day, 5 November 2018, one of the Company’s creditors presented a winding up petition (the “Petition”). 8.On 8 November 2018, Hsin Chong Group Holdings Limited (“HCG”) issued a public announcement titled “Inside Information: Winding Up Petition in Relation to a Subsidiary” informing the public that the Petition had been presented against the Company. It was the subject of news articles published on 8 and 9 November 2018. 9.By letter dated 12 November 2018 (the “1st letter”), the Company requested the Respondent to arrange for all further payments to the Company to be made to Cogent Spring, a wholly owned subsidiary of HCG, with the effect that such payments “shall represent full settlement for work done by [the Company]” under the Main Contract and formal receipts would be provided upon receipt of payment. 10.The 1st letter was followed by another letter the following day, 13 November 2018, returning the 4 uncashed cheques previously issued for IC 31 and requesting that they be replaced by 6 cheques[1] (the “Replacing Cheques”) with the same total amount but payable to Cogent Spring. 11.The Company’s representatives collected the Replacing Cheques and at the same time returned the 4 uncashed cheques on 16 November 2018, providing 6 official receipts to the Respondent for the payment. 12.A week later, on 23 November 2018, the Petition was gazetted and advertised in 2 local papers. 13.When IC 32 was issued on 4 December 2018, the Company invoiced the Respondent the same day for $6,442,000. The Respondent paid Cogent Spring and the Company issued official receipts on 6 December 2018. 14.After IC 33 was issued on 10 December 2018 for $2 million, the Respondent paid that sum to Cogent Spring. 15.The Applicants’ investigation confirms that the Company never received any part of the Relevant Sum. 16.The Liquidators’ Summons is supported by the 7th and 9th Affirmations of Osman Mohammed Arab filed on 5 June 2024 (“Arab 7”) and 7 October 2024 (“Arab 9”) respectively. 17.The Respondent’s evidence in opposition is the affidavit of Lee Tze Yan Ernest filed on 12 August 2024 (“Lee 1”). Applicable legal principles 18.Section 182 of the CWUO (“section 182”) which lies at the heart of these proceedings provides follows:
19.Section 184 (2) of CWUO provides that the winding up of a company by the Court shall be deemed to commence at the time of the presentation of the petition for winding up. 20.The policy underlying those sections is twofold: (a) to preserve a company’s assets as at that date of the petition for the general benefit of its creditors; and (b) to ensure that the statutory scheme of pari passu distribution can be implemented: see Company Law in Hong Kong - Insolvency, 2023 at §9.030. 21.As Buckley LJ explained in Re Gray’s Inn Construction Co Ltd [1980] 1 WLR 711, 717 (in relation to the virtually identical English provision), it should be understood as giving effect to:
22.The Court of Final Appeal (“CFA”) cited and adopted the rationale set out in that passage in Hsin Chong Construction Company Limited v Build King Construction Limited (2021) 24 HKCFAR 98 at §28. 23.Section 182 renders such a disposition void subject to validation orders (if any) granted by the Court. Void means void for all purposes related or incidental to the administration of the winding up of the company and as between the company and a person dealing with the company. 24.The invalidation of a disposition of the company’s property and the recovery of the property disposed of, are 2 distinct matters. The section says nothing about recovery; it merely avoided dispositions. What is the appropriate remedy in respect of the invalidated disposition is a matter not regulated by the statute and that has to be determined by the general law: see per Oliver J in In re Leslie Engineers Co Ltd [1976] 1 WLR 292 at 298B-D. A. The Liquidators’ Summons 25.Ms Audrey Eu SC and Mr John Hui, counsel for the Applicants submitted that payment of the Relevant Sum by the Respondent to Cogent Spring was clearly a disposition of the Company’s assets within section 182. They relied on the general principles enunciated in the joint judgment of Ribeiro and Fok PJJ[2] in Hsin Chong Construction Company Limited v Build King Construction Limited (supra) (hereinafter referred to as “Build King”), the facts of which are briefly outlined below. 26.In that case, Hsin Chong Construction Company Limited (“HCCC”), (a sister company of the Company) and Build King were parties to a joint venture agreement (the “JVA”). Build King had an option under clause 17 of the JVA to exclude HCCC from the joint venture management and takeover its benefits in certain circumstances. In the event of clause 17 being triggered (which occurred), HCCC would retain benefits contingently claimable at the end of the Project upon a final accounting (“the residual rights”). 27.Negotiations ensued culminating in the parties entering into a supplemental agreement (the “JVSA”). Its effect was that Build King acquired HCCC’s residual rights for an amount payable to Cogent Spring to bypass HCCC’s frozen accounts. The funds were then used for payroll, MPF and expenses involving HCCC and other group entities. 28.Build King applied for a retrospective validation order to confirm that the JVSA should not be avoided under section 182. It succeeded at First Instance on the basis that Build King’s payment discharged Build King’s obligations under the JVSA and was not a disposition of HCCC’s property. The Court of the Appeal (“CA”) upheld the First Instance decision. It referred to clause 5(e) of the JVSA which it took to mean[3] that Cogent Spring “was designated as the Company’s agent to receive the consideration from BK on the Company’s behalf.” 29.The CFA allowed the appeal, and set out important general principles regarding section 182. 30.§21 of the Applicants’ skeleton submissions summarised the principles of law they derived from Build King as follows:
31.The Respondent did not comment on the principles set out in §30 above which, in my view, encapsulated the CFA’s judgment. Whether the payment to Cogent Spring is void 32.Applying the Build King principles, the Applicants submitted that the Respondent’s payment of the Relevant Sum to Cogent Spring is a disposition of the Company’s property caught by section 182. The Company was entitled to be paid the Relevant Sum based on ICs 31-33 but the money was never received by the Company to form part of its free assets and thus was not available for the benefit of the general creditors.
33.The submissions of Mr Timothy Parker, counsel for the Respondent, were premised on what he understood to be ‘common ground’, namely, that section 182 does not displace the general law of agency. 34.Mr Parker referred to §32 of Build King which reads:
35.Focusing on the 2nd sentence of §32, Mr Parker submitted that it is necessary first to consider whether, on the facts, the transaction is a “disposition”. 36.The Respondent referred to §38 of Build King where the CFA found that the value of the 1st instalment of $20 million never accrued to (and was never intended to accrue to) the HCCC but went entirely to Cogent Spring to be dissipated in favour of various 3rd parties to the prejudice of the HCCC’s unsecured creditors and the pari passu principle. The CFA then stated as follows:
37.The Respondent described Build King as a tri-partite situation involving a recipient of the payment who was never intended by the parties to act as agent of the company[4], contrasting that with an agency situation where A agrees with B to pay C who is agent for B. The Respondent submitted that if an agency agreement is in place and the elements of agency are present, the transaction is not a disposition within section 182. Put differently, payment to a properly authorised agent of an insolvent company is not a disposition. 38.Mr Parker distinguished the present case from Build King on the basis that the Respondent had no obligation to pay Cogent Spring. He submitted that, when properly analysed, the Respondent’s payment of the Relevant Sum to Cogent Spring did not amount to a disposition so as to engage the issue of validation. 39.In reaching this conclusion, he relied on the November Letters, the official receipts issued by the Company to the Respondent as well the Architect’s Cost Consultant’s Valuation/Certificate dated 4 December 2018, certifying the sum of approximately $6.4 million to be due for IC 32. 40.He further submitted that even if Cogent Spring did not have authority, the Company’s ratification of receipt of the Relevant Sum created the agency. Thus, as a matter of form and substance, the Relevant Sum was received by Cogent Spring as agent for the Company. 41.Ms Eu disagreed with the Respondents analysis and submitted that while the Respondent attached considerable significance to the fact that Build King was contractually obliged to pay the $20 million to Cogent Spring, in substance it was part payment for HCCC’s residual rights in the JVA which was HCCC’s property. As explained in the opening part of §38 of Build King[5], HCCC’s property was dissipated to 3rd parties to the prejudice of its unsecured creditors and the pari passu principle. 42.In the present case, unlike the 1st cheque[6] (which was cashed and paid into HCCC’s account), the Relevant Sum actually went to Cogent Spring. The official receipts and the cost consultant’s certification relied on as well as ratification are nothing more than other aspects of “doctrinal deeming” considered in §38 of Build King. There is no evidence to show that the Relevant Sum reached the Company to be available for distribution general body of creditors. 43.In evaluating whether the transaction in question is a “disposition” within section 182, regard should be had to the policy underpinning section 182 set out in §§20-21 above. In the present case, payments under ICs 31-33 (the Relevant Sum) made after the date of the Petition unquestionably constituted property of the Company at the date of its liquidation. As such, the Relevant Sum should have been available for pari passu distribution to the Company’s general creditors. It was not. 44.Accordingly, payment of the Relevant Sum to Cogent Spring was presumptively a “disposition” for the purposes of section 182 and so void. The burden falls on the Respondent to demonstrate why the Court ought to make a validating order: Build King at §18. 45.There is no cross summons by the Respondent for a validating order. Rather, it seeks leave to commence an action against the Company along the lines of the draft SOC in the event of the Court holding that the payment of the Relevant Sum to the Respondent is a disposition within section 182. 46.The litmus test for granting a validating order is whether the disposition in question is beneficial[7] or prejudicial to the unsecured creditors. That is apparent from the following extracts from Build King at §§31 and 35 which state:
47.In my view, the Respondent would not have obtained a validating order based on the evidence adduced had it applied for a validating order. 48.As matters stand, I have no hesitation in finding that the payment of the Relevant Sum to Cogent Spring is a disposition that is within section 182 and therefore void. It follows that the Applicants are entitled to the declaration sought in §1 of the Liquidators’ Summons. Jurisdiction to grant payment order 49.The Liquidators’ Summons also seek a payment order of an amount equal to the Relevant Sum to the Company. 50.The Respondent submitted that the Court has no jurisdiction to grant a payment order because (1) section 182 merely avoided dispositions, leaving recovery to be determined by the general law; and (2) the Company only parted with the right of action against the Respondent, hence, the remedy is confined to restoring that right and not immediate payment. 51.As earlier noted, Leslie Engineers, Oliver J held (at 298B-D) that
52.It has been followed in subsequent cases in both the Hong Kong and English Courts of Appeal: see Chevalier (HK) Ltd & Anor v The Joint Liquidators of Right Time Construction Co Ltd (In Liquidation) [1990] 1 HKC 35, at 40D; and Officeserve Technologies Limited (in compulsory liquidation) and anor v Annabel’s (Berkeley Square) Limited and others [2018] EWHC 2168 (Ch) at §22. 53.McPherson & Keay’s Law of the Company Liquidation, 5th ed., 2021 similarly states as follows (at §7-011):
54.The Applicants submitted that while section 182 does not state the precise legal principles for determining the relief to be granted, it does not mean that there is no jurisdiction under section 182 to grant substantive relief after the appropriate relief has been ascertained by applying the general law. 55.They relied on 2 authorities where the Court made immediate payment orders. In Re AGI Logistics (Hong Kong) Limited [2016] 5 HKLRD 737, the CA affirmed the judge’s decision to grant an immediate payment order under section 182 concerning tax refunds diverted away from the company. 56.In that case, the Commissioner of Inland Revenue (“CIR”) sought to argue that a new claim under section 79 of the Inland Revenue Ordinance (“IRO”) was necessary before a taxpayer can recover a tax refund and that section 79 was the exclusive means of making a claim. 57.After citing an extract from the judgment of Tang VP (as he then was) in Weson Investments Ltd v Commissioner of Inland Revenue [2007] 2 HKLRD 567[9], the CA held at §37 of AGI as follows:
58.The Applicants emphasised that the payment order granted was for “correcting the wrongful disposition of the Company’s property”, and not for a “new claim” such that the section 79 requirement does not apply. 59.The Respondent sought to explain the CA’s order for payment on the basis of the finding in the court below that the section 79 requirement was already met and the payment by CIR to the 3rd party (Careship) had been declared void, so that CIR’s obligation to pay pursuant to the section 79 claim was “enlivened”. I do not agree. 60.In my view, the payment order had nothing to do with section 79 of the IRO. It was granted to correct the “wrongful disposition” made to the 3rd party. I accept the Applicants’ submission that AGI is authority that the Court has power to order an immediate payment. 61.In that connection, Leslie Engineering should also be mentioned. In that case, the respondents had done some work for the company totalling £1050. After the date of the petition, the controlling director made a payment of £250 on the company’s bank account to the respondents who had no knowledge of the petition. Oliver J held the payment of £250 a void disposition and (at 304G-H) ordered the respondents to repay that amount to the liquidators. 62.AGI and Leslie Engineering are thus clear authorities that the Court has jurisdiction to grant an immediate payment order. 63.Whether the Court should exercise its discretion to grant an immediate payment order is another matter which is considered below. The section 186 summons 64.The section 186 summons is before the Court for directions only. 65.The causes of action in the Respondent’s proposed action are put on the basis of the “mutual intention” of the Company and the Respondent that payment of the Relevant Sum to Cogent Spring is to be deemed to be payment made under the Main Contract. In other words, that Cogent Spring received the Relevant Sum as agent for the Company. Further or in the alternative, the Respondent relies on estoppel. 66.The Respondent submitted that its proposed claim is relevant to the relief the Applicants seek in §2 the Liquidators’ Summons for an immediate payment order in that if the Respondent does have a valid cause of action against the Company, it has a set-off that would extinguish the Liquidators’ entitlement to payment under §2. The Respondent therefore requested that no order be made on §2 pending the determination of the section 186 summons. 67.The Respondent’s objection to an immediate payment order is based on its submission that the proposed claim can be set off against the relief granted under section 182. It was said that if an immediate payment order were made, the Applicants would distribute the same to the creditors and that it would not be right, nor fair, nor just, to make an immediate payment order and deprive the Respondent of its opportunity to set off. 68.Insolvency set-off only applies where the cross-claims are mutual: that they must exist “between the same people in the same capacity”: per Lord Hoffmann in Secretary of State for Trade and Industry v Frid [2004] 2 AC 56 at §19, and Fletcher on The Law of Insolvency (5th ed) at §23-021. I therefore accept the Applicants’ submission that a set-off is not applicable in the present case for want of mutuality. 69.There is a fundamental distinction between assets of a company and rights conferred upon a liquidator in relation to the conduct of the liquidation[10]. The right to obtain relief section 182 is an incident of the office of liquidator whose functions are to secure that the assets of the company are got in, realised and distributed to the company’s creditors[11]. In the present case, there is clearly no mutuality for any set-off to take place. 70.The Respondent’s proposed claim is contingent on the Applicants succeeding in their section 182 application and the Court granting consequential relief pursuant to the Liquidators’ Summons. Without such an order, the Respondent cannot plead loss and damage. Although no such loss and damage would have occurred had the Respondent applied for and succeeded in obtaining a validation order, as explained above[12], based on the evidence before the Court, no such validation order would be granted. 71.Moreover, the effect of acceding to the Respondent’s request to defer making an immediate order for payment would be to provide it with some form of security before it even starts the action which cannot be correct. 72.In the circumstances, I consider that an immediate payment order is appropriate. 73.Although the parties have made some submissions on the Respondent’s proposed claim, I do not propose to comment on them as the hearing of the section 186 summons is only for directions. The Applicants have indicated that the section 186 summons would be hotly contested[13] and they should be given leave to file evidence. 74.The Respondent may wish to reconsider the proposed claim in light of this Court’s reasons for granting the relief sought in the Liquidators’ Summons. Until the Respondent has had an opportunity to consider this Decision and the way forward (whether or not to pursue the proposed claim with or without making amendments to the draft SOC), it would be premature for the Court to give directions for the further conduct of the section 186 summons. 75.In my view the better course is to adjourn the directions hearing sine die, with liberty for either party to restore the same. The Further Evidence Summons 76.The Respondent seeks leave to file Lee 3. 77.The Applicants oppose the admission of Lee 3 into evidence. Lee 3 was sent to the Applicants’ solicitors in the afternoon of the day before the Applicants’ skeleton was due. That effectively deprived the Applicants of the opportunity to respond by evidence before lodging their skeleton submissions. 78.The Respondent’s skeleton suggests[14] that the purpose of Lee 3 is to respond to Arab 9 (filed on 4 October 2024) which was said to imply that Mr Lee’s evidence in Lee 1 is false. 79.The Respondent referred to §5 of the order dated 2 July 2024 (“the July order”)[15] and submitted that there was no delay in that the filing of the Further Evidence Summons complied with the time limit therein stated. 80.Due to changes in administrative personnel, directions were given for the lodging of the parties’ respective skeletons on 11 July 2024 seemingly without knowledge of the July order. The potential timing difficulty was never brought to this Court’s attention. 81.The Applicants submit that the lateness of the Further Evidence Summons is prejudicial because they are effectively asked to forego the “last word” in the filing of evidence. While delay itself can be a ground for dismissing a late application[16], in the circumstances, I am prepared not to take delay into account. Nevertheless, I accept that it had the effect of the Applicants having to forego the “last word” in the filing of evidence. 82.Having perused Lee 3, I agree with the Applicants that it essentially repeats the evidence in Lee 1, adds nothing to it and reaffirms that neither Mr Lee nor the Respondent was aware of the Petition or the Company’s financial difficulties. While it notes ‘deficiencies’ in Arab 9, those are properly the subject matter for submissions. 83.Given the nature of the new evidence considered in §82 above, and the fact that it is of no or minimal probative value, Lee 3 is not to be admitted into evidence. The Further Evidence Summons is dismissed. 84.As regards the costs of Further Evidence Summons, while Applicants seek indemnity costs, I do not consider this to be an appropriate case to order indemnity costs. Costs should follow the event. Conclusion and Orders A. The Liquidators’ Summons 85.The relief sought in §§1 and 2 of the Liquidators’ Summons[17] is granted save that the Respondent be given 14 days to make the payment set out in §2. 86.At the hearing, the Applicants asked for interest on the amount payable by the Respondent to the Applicants from 17 November 2023 (the date of the Applicants’ letter to the Respondent demanding payment of that amount) until payment. 87.As I understand it, the Applicants seek interest for “righting a wrong” under the Court’s ‘inherent jurisdiction’. This claim was not pleaded and surfaced first time at the hearing. Unsurprisingly, the Respondent objected because it was not part of the relief sought in the Liquidators’ Summons. 88.It is singularly unhelpful for a claimant to raise a new claim or seek additional relief, seemingly, not after mature consideration but as an afterthought and unsupported by authority. 89.In the circumstances, I am not persuaded that the Court has jurisdiction to make the order sought or that the circumstances warrant the making of any such order. Accordingly, the Applicants’ application for interest is dismissed. B. The section 186 summons 90.§1 of the section 186 Summons be adjourned sine die with liberty to apply; and §2 thereof be dismissed. C. The Further Evidence Summons 91.The relief sought be refused. D. Costs of the Summonses 92.I make an order nisi of costs in favour of the Applicants with certificate for two counsel, such costs to be taxed if not agreed. 93.I also direct that an agreed draft order be submitted for approval within 7 days of this Decision.
Ms Audrey Eu SC and Mr John Hui, instructed by Messrs. DeHeng Law Offices (Hong Kong) LLP, for the Applicants (Joint and Several Liquidators of Hsin Chong Construction (Asia) Limited (In Liquidation)) Mr Timothy Parker, instructed by Messrs. Woo, Kwan, Lee & Lo, for the Respondent (Capital Court Limited) The Official Receiver, attendance be excused [1] 2 of the cheques, each in the sum of $1 million to be replaced with 2 separate cheques of $500,000 each. [2] All the other members of the Court of Final Appeal (Cheung CJ, Tang and Gummow PJJ) agreed with the joint judgment. [3] At §59. [4] A agrees with B that payment would be made to C. Under that arrangement, B had an obligation to pay C. [5] See §36 above. [6] See §6a above. [7] Examples of beneficial dispositions are given in §§30-31 of Build King. [8] B Mullen & Sons (Contractors) Limited v Ross (1996) 54 Con LR 163 is an example. There the court refused to make a validation order in relation to a proposed payment by an employer directly to a sub-contractor pursuant to the construction contract after winding up proceedings had been started against the contractor. [9] That case decided that section 79 (1) of the IRO provides the taxpayer with an exclusive remedy [10] See Re Ayala Holdings Limited (No 2) [1996] 1 BCLC 467 at 483b-c. [11] See Re Ayala 483c-d. [12] See §47 above. [13] The Applicants noted that the Respondent made no reference to the principle that a party cannot setup an estoppel in the face of a statute. [14] Respondent's skeleton at §§41 and 81. [15] It stipulated that any application for leave to file further affidavit/affirmation must be made not less than 14 days before the substantive hearing and supported by reasons on affidavit/affirmation. [16] See Re Silver Base (Holdings) Limited [2023] HKCFI 2916 at §20 citing Converge Design and Construction Co Limited v Mount Kelly International Limited [2020] HKCFI 2433 at §2 per Mimmie Chan J. [17] They are for a declaration that the payments made to Cogent Spring after the commencement of the winding up were void under section 182 and an immediate payment order |
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