Re Goldstone Holdings Ltd

HCCW 609/2024

[2024] HKCFI 3598

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMI NISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 609 OF 2024

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DECISION

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1.By its Summons filed on 8 November 2024, the Company applies to strike out the winding-up Petition against it as an abuse of process.

Issues

2.The Company says that the 3 causes of action based on which the Petitioning debt is claimed are misconceived.

Background

3.The relevant background facts can be briefly stated. The Petition is grounded on a debt of HK$11,718,751 (the equivalent of US$1.5 million). It was paid by way of a cheque to Company by the Petitioner on 18 June 2024. The payment was made under a subscription agreement between the Company and the Petitioner dated 29 May 2024 but signed on 11 June 2024 (“Agreement”) in return for the allotment of 100 shares in the Company.

4.It is not in dispute that the payment was made but no share has been allotted to the Petitioner by the Company.

5.Prior to the signing of the Agreement, on 23 May 2024 the Petitioner had sent to the Company a copy of his passport and documents as address proof. According to the documentary evidence, the receipt of those documents was acknowledged by Mr Szantyr for the Company on 29 May 2024 without any question. It is evident that those documents were provided for the purpose of the share allotment.

6.The Petitioner’s subscription for shares in the Company represented a financial investment introduced to him by a close friend, Mr Kirpalani. The Petitioner’s evidence is that by subscribing to the shares of the Company he was investing in a project called “Project Astraeus” which was being set up by Kirpalani. His subscription funds would be loaned by the Company to Kirpalani to launch Project Astraeus. It is right to say that the Petitioner’s evidence is at least in part consistent with the Project Astraeus presentation material sent to him by Szantyr in conjunction with the Agreement.

7.It appears from the evidence that on about 15 August 2024, the relationship between Kirpalani and Szantyr broke down and the former requested the “return of investor capital”.

8.On 24 August 2024, the Petitioner emailed Szantyr stating that his business plan associated with the Company was no longer proceeding as originally intended and requested the return of investment funds on 27 August 2024. Szantyr’s replied on 26 August 2024 stating, inter alia, that the Company was under no legal obligation to redeem the investment but would instruct legal counsel to do so by way of share buyback subject to final legal review and feasibility.

9.On 30 August 2024, the Petitioner emailed Szantyr again stating, inter alia, that his investment in the Company was solely in relation to Project Astraeus which was no longer continuing (it is not accepted by the Company that the Project was not continuing), and the Company could not buy back shares that were never issued.

10.Thereafter, there were further exchanges between the Petitioner and Szantyr. By way of a letter dated 4 October 2024 (but received on 7 October 2024 said the Petitioner) from its solicitors the Company asked the Petitioner (through his solicitors) for address proof within the last 3 months and certified true copy of his passport for the purpose of the share subscription.

11.It should be noted that Szantyr’s evidence is that there were 3 requests made with the Petitioner for the aforesaid information. The other 2 requests, said to be made on 14 August and 24 September 2024 via the Petitioner’s brother, are not supported by any documentary evidence.

12.A Statutory Demand was issued by the Petitioner’s solicitors and served on the Company on 4 October 2024. The Petition was issued on 30 October 2024.

Causes of action

13.The Petition makes three alternative claims ([8]-[13]) :

(1) The Agreement was not a binding contract, but an offer to subscribe which was rejected by the Company, entitling the Petitioner to restitution of the consideration paid;

(2) Alternatively, the Agreement was a binding contract but it was repudiated by the Company by not allotting any shares to the Petitioner within a reasonable period of time. The repudiation was accepted by the Petitioner on 4 October 2024;

(3) In the further alternative, the Agreement was a binding contract but there was a total failure of consideration in the Company not allotting shares, thereby entitling the Petitioner to restitution.

14.Ms Chan, who appeared for the Petitioner, did not seek to rely on the first cause of action.

Applicable principles

15.The strike out principles are trite. In particular, the court should only strike out a petition where it is plain and obvious that it should be struck out and there should not be a trial on affidavits: Re Project Global Ltd [2005] 4 HKLRD 185, [51].

Second cause of action

16.I must confess that it is not clear to me why it is contended by the Company that this cause of action is unsustainable. Mr Baker, who appeared for the Company, submitted that there was no provision in the Agreement requiring the allotment to be done within any time period. The law is that a party may repudiate for delay where it is “inexcusable” and “radically” alters the contract, applying the same high-threshold as is applied in the law of frustration.

17.My understanding of the law is that where a party to a contract undertakes to do an act, the performance of which depends entirely on itself, and the contract is silence as to the time of performance the law implies an obligation to perform the act within a reasonable time having regard to all the circumstances of the case: see Chitty on Contracts, 35^th edn, vol 1, [25- 013].

18.If there is any scope for argument in the law, that is not a ground for strike out. The Petitioner’s contention that the allotment had to be made within a reasonable time is perfectly arguable.

19.Insofar as the circumstances are concerned, the Company had received the Petitioner’s allotment documents no later than 29 May 2024, the subscription consideration was paid on 18 June 2024, and the allotment was a simple exercise which could have been done swiftly after the receipt of payment. It is at least arguable that reasonable time had expired by the time the Petitioner demanded repayment on 24 August 2024 or on 4 October 2024 at the latest when the statutory Demand was served.

20.As regards the Company’s arguments based on (a) an alleged reason to delay the allotment, namely, finalisation of its annual return; and (b) the Petitioner’s alleged failure to provide certified copy of his passport and updated address proof. These are matters of evaluation of the evidence and not for strike out. In particular, whether the Company had asked for certified copy of passport or updated address proof prior to the Petitioner’s demand for repayment. In any case, Ms Chan submitted that the Company was not entitled to ask for certified copy of passport.

21.The Company also contends that the delay of a few months had no effect on the performance of the Agreement because (a) the Company had performed by applying the Petitioner’s funds to its commercial purposes; and (b) no return on its investment was envisaged in 2024.

22.The contention is ground on clause 5 of the Agreement which provided as follows :

“The Subscriber acknowledges and agrees that its subscription and holding of the Shares is entered into for commercial purposes related to the business of [the Company] and such business to be carried on by the Subscriber together with all other shareholders of the Company, always subject to the provisions of the Articles.”

23.First, I do not believe that the contention is a complete answer to the Petitioner’s cause of action based on repudiation by the Company. Taken to its logical conclusion, the Company could continue to refuse to allot any shares to the Petitioner before its investment began to produce a return as long as it was “performing”. That is no ground for a strike out.

24.Second, there are merits in the submission of Ms Chan that clause 5 was a purpose clause, and not one which stipulated for a contracting party the performance of certain act. This is to be contrasted with clauses 2 and 4 which provided for allotment and registration of shares by the Company in favour of the Petitioner. In short, clause 5 is of no assistance to the Company.

Third cause of action

25.The arguments here are boiled down to (a) whether there was “total” failure of consideration; and (b) whether an unjust enrichment claim is one for “debt”.

26.In respect of (a), the Company relies on the same point that it had performed its function. First, I agree with Ms Chan that it cannot be said that the Petitioner had received any benefit from the Company as agreed under the Agreement or at all unless he is a shareholder of it. Indeed, clause 5 referred to the Petitioner’s “holding of the Shares”.

27.Second, even assuming that the Petitioner had received some benefit, the law is that if that benefit does not form part of what was understood to be given for the payment, the claim for total failure of basis remains intact: see Goff and Jones on Unjust Enrichment, 10^th edn, [12-24].

28.As regards (b), the law is reasonably clear. “A claim in unjust enrichment is a claim in debt and not for damages and is a claim which is not founded on the commission of a wrong. Liability is strict … The remedy to reverse an unjust enrichment is monetary”: see Chitty on Contracts, [33-016] and Investment Trust Companies v Revenue and Customs Commissioners [2018] AC 275, [45].

29.Mr Baker submitted that the Company is entitled to raise equitable defences against the unjust enrichment claim such as change of position. With respect, I do not believe that the point assists in a strike out application.

Disposition

30.For these reasons, I disagree with the application to strike the second and third causes of action. However, I agree that the first cause of action is unsustainable. It is indeed not defended. Consequently, I strike out para 9 and part of para 10 of the Petition, namely “is no contract between the Petitioner and the Company arising from the Subscription Agreement and there”.

31.Notwithstanding the strike out of the first cause of action, which had taken up minimal time at the hearing, I see no reason why costs of the application should not be awarded to the Petitioner as the winner and I do so.

32.The costs are to be summarily assessed. The Petitioner is to lodge and serve his Statement of Costs within 5 days from today. The Company is to respond to the Statement of Costs within 3 days thereafter, limited to 3 pages printed in A4 paper with font size 13, 1.5 line spacing and margins not less than 1 inch. Any reply submissions, limited to 2 pages with the same format are to be lodged and served within 2 days thereafter. The assessment will then be determined by the court on paper.

33.I am grateful to counsel for their assistance.

Ms Noel Chan, instructed by Tanner De Witt, for the Petitioner

Mr Josh Baker, instructed by David Cameron Law Office, for the Company