Re Power Ease Development Ltd

HCCW 357/2022

[2025] HKCFI 2392

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 357 OF 2022

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J U D G M E N T

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Introduction

1.This is the substantive hearing of the Petition re-amended on 9 February 2023 to wind up Power Ease Development Limited (“Company”) by the Petitioner Zhongtai International Securities Limited on the ground that the Company had failed to comply with the statutory demand dated 5 September 2022 (“statutory demand”) and is thus unable to pay its debts (“Petition”).

2.On 5 September 2022, the Petitioner’s solicitors served the statutory demand on the Company claiming a debt of HK$32,277,366.06 (“Debt”). The Debt was said to have arisen under a security deed dated June 2022 (“Deed”) between the Company as Chargor and the Petitioner as Agent and purportedly executed by the Company on 24 June 2022. It is alleged that, by the Deed, the Company covenanted in favour of the Petitioner that it would discharge all present and future obligations and liabilities of First Leading Trading Limited (“First Leading”) to the Petitioner, including interests and all fees and remuneration of, and all other costs, charges, expenses and liabilities incurred, on a full indemnity basis.

3.In the Re-amended Petition, the Petitioner sets out its case as follows:

“5. The Company is indebted to the Petitioner in the sum of HK$32,277,366.06 as of 24^th August 2022 for the particulars set out hereinbelow.

PARTICULARS

(a) The Petitioner granted margin loan facility to First Leading Trading Limited (領先第一貿易有限公司) (“First Leading”) as per agreements including but not limited to 開立帳戶申請表, 證券交易協議(及風險披露聲明), 證券保證金戶口補充協議 and 互聯網證券交易協議書, all of which were entered into between the Petitioner and First Leading on or around 15th November 2020.

(b) Pursuant to a Security Deed dated June 2022 entered into between the Petitioner and the Company, the Company covenanted in favour of the Petitioner that it will on demand of the Petitioner discharge all of all present and future obligations and liabilities (whether actual or contingent and whether owed jointly or severally or alone or in any other capacity whatsoever) of First Leading to the Petitioner, including interests and all fees and remuneration of, and all other costs, charges, expenses and liabilities incurred by the Petitioner on a full indemnity basis (including all monies covenanted to be paid under the said Security Deed).

(c) As of 24th August 2022, First Leading was in breach of its agreement(s) with the Petitioner by failing to pay the amount of HK$32,277,366.06 (being the sum of HK$31,992,606.49 being Outstanding sum of First Leading’s Securities Margin Account plus HK$284,759.57 being Interest accrued on the outstanding sum up to 24th August 2022).

(d) The Company had failed and/or refused to repay the outstanding indebtedness due to the Petitioner despite the Petitioner’s issuance of a letter of demand to the Company dated 26th August 2022.

The said debt remains wholly unsatisfied.”

4.It can be seen from the above, as well as the statutory demand, that the primary obligor of the Debt was First Leading.

5.In paras 1, 6 to 9 of the Petitioner’s skeleton, Mr Ho explains First Leading’s liabilities to the Petitioner as follows.

6.First Leading had a Securities Account with margin loan facilities with the Petitioner.

7.In November 2020, First Leading sought financing to subscribe 32,124,000 shares of Jiayuan Services Holding Limited (“Jiayuan Services” and “Subscribed Shares” respectively). Jiayuan Services is said to be a company listed on the Hong Kong Stock Exchange.[1]

8.On 3 December 2020, Mr Ye Zhijie (“Ye”) on behalf of First Leading executed a placing letter for the placement of 32,124,000 shares of Jiayuan Services at HK$3.86 per share (“Placing Letter”). Paras 1 and 2(a) of the Placing Letter required First Leading to pay HK$125,248,174.29 (“Subscription Money”) on or before 9:30 a.m. on 9 December 2020. As First Leading only paid HK$78,949,045.72 by 9 December 2020, the Petitioner exercised its discretion under the Placing Letter and paid the outstanding amount of the Subscription Money ie HK$46,299,128.57 into First Leading’s Securities Account and accepted delivery of the Subscribed Shares in First Leading’s name. As such, there was an initial outstanding margin loan balance of HK$46,299,128.57 as at 9 December 2020. The Subscribed Shares were pledged as security under the Placing Letter. In 2021, First Leading deposited some funds into First Leading’s Securities Account to repay the Petitioner.

9.The price of Jiayuan Services shares decreased significantly beginning 3 May 2022. This triggered a margin call, and the Petitioner liquidated some of the Subscribed Shares.

10.As of 20 June 2022, First Leading was in breach of its agreements with the Petitioner by failing to pay the amount of HK$31.5 million odd. On 24 June 2022, the Petitioner served a statutory demand on First Leading. On 6 October 2022, the Petitioner presented a winding up petition against First Leading in HCCW 358 of 2022. On 30 January 2024, the Honourable Madam Justice Linda Chan granted an Order to wind up First Leading.

Background

11.The Petitioner is and was at all material times a securities firm in Hong Kong carrying out regulated activities for dealing and advising on securities.

12.The Company was and is wholly owned by CHCC Real Estate Investment Limited which in turn was and is wholly owned by Mr Chen Yang (“Chen”). Chen is the sole director of the Company and its ultimate beneficial owner.

13.Ms Yang Ying (“Ms Yang”) was the Company’s sole director between 30 October 2020 and 5 July 2022. Since then, Chen has taken over as the Company’s sole director.

14.In March 2022, the Company applied to open a securities cash account with the Petitioner (“Account”). In the Account Application Form signed by Ms Yang on behalf of the Company on 28 March 2022 which were submitted to the Petitioner, Ms Yang, then sole director of the Company, and Ms Xu Yixin (“Ms Xu”), then investment manager of the Company, were both designated as contact persons of the Company.

15.As part of the documents sent to the Petitioner for the purpose of opening the Account, the Company also submitted its board minutes dated 22 March 2022 (“Board Minutes”) which contained resolutions authorizing Ms Yang, Ms Xu and Ye to do the following:

(1)  “在此授權 杨盈、徐艺昕、叶志杰 代表公司在客戶協議書及開戶申請表格上簽名，必要時在表格上加蓋公司蓋章。”

[Represent the Company to sign on the client agreement and the Corporate Account Application Form of the Petitioner, and if necessary affix the company seal on the forms.][2]

(2)  “在此授權 杨盈、徐艺昕、叶志杰 為授權交易人士，可對帳戶以書面或口頭形式發出交易命令或指示。”

[Be the authorized transaction persons of the account, and may give written or oral transactional instructions or directions in respect of the account.][3]

(3)  “在此授權 杨盈、徐艺昕、叶志杰 為授權簽署人士，可對帳戶進行資金存儲及提取，發出清算指令和其他有關帳戶的指令。”

[Be the authorized signatories of the account, and may deposit or withdraw funds into or from the account, give instructions to wind up the account, and give other instructions in respect of the account.][4]

16.Ye was not alleged to be a director, officer or even staff of the Company – it was accepted by the Petitioner that he was a manager of First Trading.[5]

17.The Company eventually opened the Account with the Petitioner.

18.On 26 May 2022, Ms Xu created a WeChat group (“WeChat Group”). The WeChat Group consisted of inter alia the following persons as representatives of the Company, First Leading, the Petitioner and Harmonia Capital.

(1)  Ms Xu.

(2)  Ye.

(3)  Ms Wang Yanyan (“Ms Wang”), Director of Institutional Business Department (China Proper) of Zhongtai Jinkong International Holdings Limited (“Zhongtai Jinkong”). Both Zhongtai Jinkong and the Petitioner were subsidiaries of Zhongtai Financial International Limited.[6]

(4)  Mr Zheng Lei (“Zheng”), said to be the CEO of CHCC Assets Management Company Limited (“Harmonia Capital”) and a shareholder of Jiayuan International Group Limited (“Jiayuan Group”).[7]

19.In around June 2022, representatives of First Leading informed the Company that the Petitioner had financed the placement of shares in Jiayuan Services to First Leading in December 2020. They also informed the Company that the Petitioner requested First Leading to provide additional securities to the satisfaction of the Petitioner.

20.Pursuant to discussions in the WeChat Group, where the subject of discussions included the resolution of the so-called “Overall Margin Deficit” of First Leading, the Company transferred the following to the Account:

(1)  On 6 June 2022, the Company transferred US$5,000,000 bond issued by Jiayuan Group with interest rate of 12.5% due on April 2023 (ISIN: XS2233091359) to the Account.

(2)  On 17 June and 1 August 2022, the Company transferred a total of 10,000,000 shares in Jiayuan Group (Stock Code: 02768.HK) to the Account.

21.Meanwhile, the Deed was executed by Ye purportedly on behalf of the Company on 24 June 2022. It is undisputed that there was no board resolution authorizing him to execute the Deed on behalf of the Company.

Deliberation

22.The Company opposes the Petition on the ground that it has a bona fide dispute to the Debt on substantial grounds viz:

(1)  The Deed is unenforceable for want of authority as it was not executed by the Company’s director or any duly authorized representative (“Ground 1”).

(2)  Even if (which is denied) the Deed was properly executed, it is unenforceable as the Petitioner had misrepresented the extent of the Company’s liability under it (“Ground 2”).

The governing principles

23.The applicable legal principles concerning the opposition to a petition on the basis of a bona fide dispute to the debt on substantial grounds are well-established and have been summarized in Re Hong Kong Investments Group Ltd [2018] HKCFI 984 at [11] – [13] (Ng J) and adopted in Re Asia View Enterprises Ltd [2020] HKCFI 2812 at [28] (DHCJ Eva Sit SC).

(1)  A petitioner who is owed an undisputed or indisputable debt is entitled to a winding up order ex debito justitiae.

(2)  In order to successfully oppose a petition on the basis of a bona fide dispute to the debt on substantial grounds, the debtor has to adduce sufficiently precise evidence which is believable, and must establish that it has a defence of substance, not just a fair probability of one.

(3)  Winding-up proceedings are summary in nature and are not meant to be used for the purpose of debt collection. If the court is satisfied that there is a bona fide dispute on the debt, it will not usurp the function of a civil court and decide the disputes between the parties.

4)  The burden is on the company to establish that there is a genuine dispute of the debt on substantial grounds. In this context, “substantial” means having substance and not frivolous.

(5)  The court should look at the company’s evidence against so much of the background and evidence that is not disputed or not capable of being disputed in good faith; in other words, the evidence is not to be approached with a wholly uncritical eye.

(6)  The court should caution itself against unsubstantiated and unparticularized assertions. It is incumbent on the company to put forward sufficiently precise factual evidence to substantiate his allegations.

(7)  The court does not try the dispute on affidavit but is to determine whether a substantial dispute exists. In so doing, the court necessarily has to take a view on the evidence, to see if the company is merely “raising a cloud of objections on affidavits” or whether there really is substance in the dispute raised by the company.

24.It is worth emphasising that winding-up (or bankruptcy) proceedings are summary in nature and are not intended to be used for the purpose of debt collection. Where such a bona fide dispute turning to a substantial extent on disputed questions of fact and require viva voce evidence, then the dispute cannot be properly decided upon a petition, and the petition should be dismissed: Re Leung Cherng Jiunn (debtor) [2016] 1 HKLRD 850, at [27(5)].

Ground 1 – the Deed is unenforceable for want of authority

25.The Company submits that there is plainly a bona fide dispute that the Deed is unenforceable for want of authority.

26.It goes without saying that such a deed (or any other document for that matter) would not bind the company and a petitioner cannot claim to be its creditor on the basis of that document since he cannot even show he has a good prima facie case for the winding up of the company: Re CT Environmental Group Ltd [2021] HKCFI 2602 at [25] per Linda Chan J.

27.In this regard, the Company first submits that in executing the Deed, Ye had no actual authority to do so. This is not seriously disputed by the Petitioner in its skeleton. In fact, this is not seriously disputed by Mr Ho at the hearing either.

28.In Mr Ho’s skeleton at para 23 of section C4, he submits that the “Lack of Authority Ground” is inconsistent with contemporaneous records, particularly the messages in the WeChat Group. Mr Ho then refers to a handful of messages within the 117 pages exhibited in Wang 1. At para 24 of his skeleton, Mr Ho submits “it cannot be seriously disputed that communications in the WeChat Group were communications with Power Ease, and that Ms Xu and Ye had authority to represent Power Ease.” Mr Ho goes on to submit that the Company has not begun to explain the following:

(1)  Why the Company (through Ms Xu) created the WeChat Group.

(2)  Why the Jiayuan Bond and 5,000,000 shares of Jiayuan Group were transferred to the Account.

(3)  Why there were extensive discussions between the Petitioner and the Company on the terms of the Deed.

(4)  Whether Chen had approached inter alia Zheng, Ms Xu and Ye for an explanation of the discussions in the WeChat Group.

(5)  Why Zheng, Ms Xu and Ye were not called upon to explain the discussions in the WeChat Group.

29.In this court’s view, the discussions in the WeChat Group require a detailed explanation from the participants in a proper affirmation, which the Petitioner has failed to adduce, in order to render them comprehensible. In the absence of it, the discussions do not begin to shed light on Ground 1, let alone being inconsistent with Ground 1. After all, it is the Petitioner who puts them forward in these proceedings. If the Petitioner does not properly explain the context, the contents and the relevance of the discussions, Mr Ho cannot simply shift the burden onto the Company and try to score a point against it.

30.What Mr Ho seeks to argue in his skeleton is that:

(1)  Ye had apparent authority from Ms Yang to execute the Deed.

(2)  Even if not, the Company is estopped by convention to dispute the authority of Ye.

31.As far as apparent authority is concerned, Mr Ho relies on the Board minutes which authorised Ye to do a number of things on behalf of the Company. They have been set out earlier on in this Judgment. Suffice it to say that as a matter of construction, none of those authorisations included the execution of the Deed. Indeed, Mr Ho is not relying on the Board minutes to suggest Ye had actual authority to execute the Deed on behalf of the Company. Rather curiously, he is relying on the Board minutes to suggest Ye had apparent authority to do so.

32.In Freeman & Lockyer v. Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 at 503, Diplock LJ explained that apparent authority:

“… is a legal relationship between the principal and the contractor created by a representation, made by the principal to the contractor, intended to be and in fact acted upon by the contractor, that the agent has authority to enter on behalf of the principal into a contract of a kind within the scope of the ‘apparent’ authority, so as to render the principal liable [thereunder].”

33.At 506, Diplock LJ identified 4 conditions which have to be satisfied before a third party, whom he described as a “contractor”, can enforce a contract against a company entered into by a purported agent with no actual authority. Those conditions are:

(1)  a representation that the agent had authority to enter on behalf of the company into a contract of the kind sought to be enforced was made to the contractor;

(2)  such a representation was made by a person or persons who had ‘actual’ authority to manage the business of the company either generally or in respect of those matters to which the contract relates;

(3)  the contractor was induced by such a representation to enter into the contract, that is, he in fact relied upon it; and

(4)  under its memorandum or articles of association the company was not deprived of the capacity either to enter into a contract of the kind sought to be enforced or to delegate authority to enter into a contract of that kind to the agent.[8]

34.As submitted by Mr Ng, Ms Yang as the sole director was the only person with actual authority of the Company but she had never made any representation to the Petitioner that Ye had the authority to enter into the Deed (or grant any security on behalf of the Company) at all. Since Ms Yang was not in the WeChat Group, it would also be futile for the Petitioner to rely on anything in the discussions in the WeChat Group to search for any such representation.

35.Mr Ho’s submission on apparent authority is rejected.

36.Mr Ho’s case on estoppel by convention is just as, if not even more, far-fetched.

37.Mr Ho in his skeleton submits that there was an estoppel by convention in that after April 2022 ie after Ye had allegedly informed Ms Wang that he would replace Ms Yang as the person of contact and in charge of the work matters moving forward, the parties would operate on the basis that Ye would have the same authority as Ms Yang in matters concerning the Company, such that the Company would be estopped from denying Ye had the authority to execute the Deed.

38.The reference to April 2022 is a reference to an alleged telephone conversation between Ye and Ms Wang in which Ye told Ms Wang that Ms Yang would resign from the Company soon and “he would replace Ms Yang to be the person of contact and in charge of the work matters moving forward”: 2^nd affirmation of Ms Wang (“Wang 2”) para 8.

39.How that alleged telephone conversation can be translated into a statement that Ye would have the same authority as Ms Yang in matters concerning the Company has not been explained clearly in Mr Ho’s skeleton and is beyond this court.

40.Estoppel by convention may arise arise where both parties to a transaction act on assumed state of facts or law, the assumption being either shared by both or made by one and acquiesced in by the other. The parties are then precluded from denying the truth of that assumption, if it would be unjust or unconscionable to allow them (or one of them) to go back on it: Chitty on Contracts 35^th Ed. Vo1 1 para 7-016.

41.In his skeleton, Mr Ho cites Tinkler v Revenue and Customs Commissioners [2022] AC 886, a recent Supreme Court decision concerning non-contractual dealings between HMRC and a taxpayer, but Lord Burrows (with whom the other justices agreed) expressed the view at [78] that the key principles were equally applicable in the contractual context.

42.The 5 principles that Mr Ho derives from Tinker at [45] which Lord Burrows cited with approval from Briggs J in Revenue and Customs Commissioners v Benchdollar Ltd [2009] EWHC 1310 (Ch) at [52] [9], can be summarized as thus:

(1)  It is not enough that the common assumption upon which the estoppel is based is merely understood by the parties in the same way. It must be expressly shared between them. The crossing of the line between the parties may consist either of words, or conduct from which the necessary sharing can properly be inferred.

(2)  The expression of the common assumption by the party alleged to be estopped must be such that he may properly be said to have assumed some element of responsibility for it, in the sense of conveying to the other party an understanding that he expected the other party to rely upon it.

(3)  The person alleging the estoppel must in fact have relied upon the common assumption, to a sufficient extent, rather than merely upon his own independent view of the matter.

(4)  That reliance must have occurred in connection with some subsequent mutual dealing between the parties.

(5)  Some detriment must thereby have been suffered by the person alleging the estoppel, or benefit thereby have been conferred upon the person alleged to be estopped, sufficient to make it unjust or unconscionable for the latter to assert the true legal (or factual) position.

43.Mr Ho submits estoppel by convention is established in the present case. A number of reasons were given by Mr Ho. This court needs only refers to two in order to show the Petitioner cannot even satisfy the 1^st of the 5 principles referred to above.

44.At para 30 (1) of his skeleton, Mr Ho submits that Xu and Ye clearly had actual or apparent authority to communicate with the Petitioner on behalf of the Company - Chen accepted that communications in the WeChat Group were communications with the Company.

45.It is actually not entirely clear on the evidence whether Ye represented the Company or First Leading in the WeChat Group. But even assuming Ye was representing both and had authority to communicate with the Petitioner on behalf of the Company, that does not immediately translate into an authority to say whatever he liked which would bind the Company. Importantly, the Petitioner is unable to pinpoint any statement in the WeChat Group records to the effect that Ye had the same authority as Ms Yang in matters concerning the Company. In June 2022, Ms Yang was still the sole director of the Company.

46.At para 30 (2) of his skeleton, Mr Ho submits with regard to “Express sharing of common assumption” that:

“ (a) Ye informed Wang that Ye would be the person of contact and in charge of the work matters moving forward, see §8 [B/11/71]. This communication must be taken to have been made on behalf of Power Ease;

(b) Wang shared the assumption that Ye would have the same authority as Yang in representing Power Ease, as Wang said Ye should execute the guarantee on behalf of Power Ease, and she tagged Ye in the message [C/30/270, 271]”.

47.The reference to “§8 [B/11/71]” is the same reference to Wang 2 para 8 above. That is a factual assertion by Ms Wang only, the veracity of which has yet to be adjudicated upon. But even assuming factually Ye had so informed Ms Wang back in April 2022, the submission that “This communication must be taken to have been made on behalf of” the Company is seriously problematic. Further, the assertion that Ms Wang shared the assumption that Ye would have the same authority as Ms Yang in representing the Company is even more seriously problematic.

48.This court asks: on what basis can Mr Ho assert that Ye had the authority, actual or apparent, from the Company to tell Ms Wang in April 2022 that he would be in charge of the work matters moving forward, whatever “work matters” may mean?

49.There is no evidence that Ye had the actual authority to do so. It is also clear that as a matter of law, Ye could not cloak himself with apparent authority to make an otherwise unauthorized statement to Ms Wang on behalf of the Company. On the other hand, Ye was known by the Petitioner not to be a director, officer or staff of the Company. He was also known by the Petitioner not to have been authorised by a board resolution of the Company to make such a statement to Ms Wang, because none was in evidence.

50.This court further asks: on what basis can Mr Ho assert that Ms Wang shared the assumption that Ye would have the same authority as Ms Yang in representing the Company? In order to have a shared assumption, Mr Ho must first establish the Company itself had such an assumption for it to be shared with Ms Wang.

51.If the Petitioner cannot establish by evidence that Ye had the necessary authority, then it cannot establish that the Company had made any assumption that Ye had the same authority as Ms Yang in representing the Company to deal with the Petitioner. In fact, on the evidence, the Company had not assumed anything – it knew, via Ms Yang as its sole director, that only she had the actual authority to make any binding representation on its behalf. The Company also knew, via Ms Yang, that Ye was not authorized to take over the same authority as Ms Yang in June 2022 or anytime after.

52.If the Company itself did not have such an assumption, it cannot possibly be argued that there was a common assumption between the Company and the Petitioner.

53.For these reasons, the Petitioner’s reliance on estoppel by convention is misconceived. There is no need to dwell on the other requirements set out in Tinker.

54.This is sufficient to dispose of the Petition.

Ground 2 - Misrepresentation

55.For completeness, Ground 2 will also be discussed briefly.

56.The principles on misrepresentation are well established: (i) there was a false statement of past or present fact; (ii) whether objectively the words or conduct in fact led the representee to believe in the alleged false fact, and whether objectively it was reasonable for the representee to believe it from the words or conduct as he perceived them; (iii) the statement must have the character of one which the representee was intended and entitled to rely on; and (iv) the representee must have in fact rely on the statement, although it need not be the only or main cause of the decision to enter into the contract, as long as it is a material inducement: Re Allan Yap [2020] HKCFI 1946 at [11].

57.In alleging misrepresentation, the Company relies on a representation by Ms Wang to Ye that the Company’s liability under the Deed was limited to the assets in the Account. In this regard, Mr Ng points to the discussion in the WeChat Group on 17 June 2022 at 16:24 in which Ms Wang expressly represented that the Deed had been amended to limit the Company’s liability to the assets in the Account:

“根据此前沟通过程中，担保人希望其担保责任限制在其账戶现有资产范围内，就超出担保人账户现有资产外的债务，担保人不予支付。基于此，法务用绿色高亮标注了两处修订。理解该两处修订已经体现担保人的要求…” (“Representation”)

58.Mr Ng submits that the Representation was false in that the Company’s liability under the Deed was not limited to the value of the assets in the Account as per Clause 2.1. Mr Ng further submits that Ye was clearly induced by the Representation to execute the Deed.

59.Quite apart from the question whether the Representation was one of fact or one of law ie the extent of the Company’s legal liability under the Deed, the more fundamental problem is that there is no evidence from Ye himself that he had relied on and was induced by the Representation to execute the Deed. What Mr Ng submits in para 50 of his skeleton is simply a bare assertion by him, since Ye has not made an affirmation to back up that assertion.

60.On the other hand, in Wang 1 at para 7(2), Ms Wang has deposed to her understanding that the Company had more than 2 weeks to consider and review the terms of the Deed with the assistance of its legal department, and did not rely on any particular words or messages by her, whether in the WeChat Group or elsewhere. Of course, Ms Wang would not know the internal working of the Company. But it is incumbent on the Company to adduce sufficiently precise evidence which is believable to make good the defence of misrepresentation. On the evidence, this court is not satisfied that the Company has done so.

61.In these circumstances, this court is not satisfied that Ground 2 has been made out by the Company.

Disposition and costs

62.For the above reasons, the Petition to wind up the Company is hereby dismissed.

63.Towards the end of the hearing, this court enquired and both counsel agreed that costs should follow the event, to be summarily assessed. In these circumstances, there shall be an order that costs of the Petition, including all costs reserved, if any, be to the Company, to be summarily assessed if not agreed and paid forthwith by the Petitioner. The assessment will be on paper only unless there are further directions from this court. The Company is to file and serve a statement costs within 7 days and the Petitioner is to file and serve a statement of objection within 7 days thereafter.

Mr Leon Ho, instructed by Long An & Lam LLP, for the Petitioner.

Mr Michael Ng, instructed by Au & Vrijmoed, for the Company.

Attendance of the Official Receiver was excused.