Joint and Several Liquidators of Hsin Chong Construction (Asia) Ltd (in Liquidation) v. Wong Po Kee Ltd and Others
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CACV 190 & 191/2025, [2026] HKCA 1656 On Appeal From [2025] HKCFI 1020 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CIVIL APPEAL NOS 190 AND 191 OF 2025 (ON APPEAL FROM HCCW NO 316 OF 2018) ________________________ BETWEEN
________________________ (Heard together)
_____________________ JUDGMENT _____________________ Hon Chow JA (giving the Judgment on behalf of the Court of Appeal): INTRODUCTION 1.This is the Respondents’ appeal against the order of Deputy High Court Judge Maria Yuen dated 17 March 2025 (“the Order”) declaring that certain sums paid to the Respondents (“the Payments”) after the commencement of the winding up of Hsin Chong Construction (Asia) Limited, in liquidation (“the Company”) constituted dispositions of the properties of the Company and were void[1] under s 182 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32 (“the Ordinance”), and ordering the Respondents to pay the said sums to the liquidators of the Company. 2.The present appeal raises a point of principle, namely, whether, in a summons issued by the liquidator of a company under s 182 to challenge a disposition of a property of the company made after the commencement of its winding up, the court has jurisdiction to grant a declaration that the disposition is void and/or make an order for the return of the property by the transferee or disponee to the liquidator/the Company. 3.In addition, this appeal raises the substantive issue of whether the Payments constituted dispositions of the properties of the Company after the commencement of its winding up, and were therefore void under s 182. BACKGROUND FACTS 4.The Company was a general and engineering contractor incorporated in Hong Kong on 13 May 1977. It was ordered to be wound up on 1 June 2020. Joint and several liquidators (“the Liquidators”) of the Company were appointed on 20 August 2020. 5.Capital Court Limited (“the Employer”), the Company, and Aedas Limited (“the Architect”) were respectively the employer, main contractor and architect of a project for the construction of Hong Kong Ocean Park Marriott Hotel at Ocean Park, Hong Kong (“the Project”). 6.The 1st Respondent (Wong Po Kee Limited), the 2nd Respondent (Pyrofoe Engineers Limited) and the 3rd Respondent (Keio Engineering Company Limited) were three out of seven nominated sub-contractors (“the NSCs”) for respectively the plumbing and drainage installation, MVAC and fire services installation, and electrical and ELV installation for the Project. 7.On 5 December 2016, the Employer and the Company entered into a written contract for the Project (“the Main Contract”). The Main Contract comprised a number of contract documents, including the “Conditions” and “Special Conditions of Contract”. 8.Prior to the date of the Main Contract, the Company had, in August 2016, sent a “letter of acceptance” to each Respondent stating that the Company had been instructed by the Architect to accept it as the nominated sub-contractor for specified works for the Project. The relevant sub-contracts (“the Sub-Contracts”) were, however, not signed until 18 December 2018[2]:
9.The payment procedures under the Main Contract were governed by Clause 30 of the Conditions (as amended by SCC-23 of the Special Conditions of Contract). In summary, the payment procedures in the normal course of events would be as follows[3]:
10.The Main Contract contains provisions concerning payment to the NSCs. Clause 27 of the Conditions, so far as relevant, provides as follows:
11.As earlier mentioned, the Sub-Contracts were entered into on 18 December 2018. For the purpose of the present appeal, save in respect of Clause 11(h) of the Sub-Contracts, the other terms or conditions are not material. The effect of Clause 11(h) of the Sub-Contracts, as noted by the Judge, is that the Company’s interest in the Retention Money, whether included in the amounts retained by the Employer under the Main Contract and held by it or held by the Company, is fiduciary in nature, and the Retention Money is held by the Company as trustee for the NSCs (but without any obligation to invest)[6]. 12.In or about April 2017, the 2nd Respondent became aware that the Company was in financial difficulty. On 27 April 2017, it sent a letter to the Employer requesting that payment for sub-contract works executed be paid directly to it instead of via the Company. 13.Apparently, there was no reply from the Employer to the 2nd Respondent’s letter of 27 April 2017. However, the Employer did discuss with the Company the question of direct payment to the NSCs. On 12 May 2017, the Employer and the Company entered into a supplementary agreement (“the Supplementary Agreement”)[7] to provide for direct payment to the NSCs in respect of sub-contract works executed by them. The following provisions of the Supplementary Agreement are material for the purpose of the present appeal:
(For ease of reference, the 4 sub-paragraphs in Clause 3(i) above will hereinafter be respectively referred to as “Clause 3(i)(a)”, “Clause 3(i)(b)”, “Clause 3(i)(c)” and “Clause 3(i)(d)” of the Supplementary Agreement.) 14.On 15 May 2017, the Company issued letters to each of the NSCs (including the 1st, 2nd and 3rd Respondents) headed “Employer’s Direct Payment to Nominated Sub-Contractors (Commencing from and including the Interim Certificate No.13)” (“the Direct Payment Letters”). The Direct Payment Letters state as follows:
15.The Direct Payment Letters were copied to the Employer and the Architect. Each of the 1st, 2nd and 3rd Respondents countersigned a copy of the Direct Payment Letter to signify that it agreed to and accepted the terms thereof. 16.On 2 October 2018, the Architect issued a certificate of practical completion of the Project. 17.On 5 November 2018, a winding-up petition was presented against the Company in HCCW 316/2018. On 1 June 2020, the Company was ordered to be wound up by Harris J. Accordingly, the winding up of the Company is deemed to have commenced on 5 November 2018. 18.Between 7 November 2018 and 17 August 2020, the Employer made the Payments directly to the Respondents pursuant to Interim Certificates Nos IP31, 32, 34 and 36 to 40 in accordance with the arrangements in the Supplementary Agreement/Direct Payment Letters:
19.In July 2023, the Liquidators demanded the Respondents to return the aforesaid sums received by them from the Employer. The demands were not met. 20.On 10 July 2024, the Liquidators issued a summons (“the Section 182 Summons”) against the Respondents seeking, inter alia:
THE DECISION 21.At the hearing of the Section 182 Summons before the Judge, the Respondents contended that s 182 of the Ordinance had no application to the Payments on the following grounds:
22.On 17 March 2025, the Judge gave her decision (“the Decision”) rejecting the Variation, Assignment, Novation and Estoppel Grounds advanced by the Respondents, but upholding the Trust Ground subject to the Company’s right to set-off against the Retention Monies liquidated damages and contra-charges claimed by the Employer in respect of works done by the Respondents. 23.The Judge considered, based on the judgment of the Court of Final Appeal in Re Hsin Chong Construction Co Ltd (2021) 24 HKCFAR 98 and as illustrated in the judgment of the Court of Appeal in Chevalier (HK) Ltd and Anor v The Joint Liquidators of Right Time Construction Co Ltd (in Liquidation) [1990] 2 HKLR 223, that for the purpose of the application of s 182 of the Ordinance, the focus should be on the relevant property and its disposition[8]. On the facts of the present case, the Judge held that:
24.The Judge rejected the Variation Ground for, inter alia, the following reasons: (i) there was no evidence of any tripartite agreement amongst the Employer, the Company and the Respondents (who were not included as parties to the Supplementary Agreement, and apparently were not even aware of its terms as they had not been given a copy of it), (ii) the terms of the Supplementary Agreement did not support the Respondents’ contention that it had the effect of disposing of the Company’s right to receive payments from the Employer in respect of the sub-contract works under the Main Contract, and (iii) the context of the Supplementary Agreement did not lead to the conclusion that the Employer thereby entered into a new, direct contractual relationship with the Respondents, with the Company abrogating its rights under the Main Contract. 25.The Judge rejected the Assignment Ground for the following reasons: (i) a mere mandate or authority was not enough to effect an assignment, (ii) for there to be an assignment, it must be plain that the assignor (the Company) intended to divest itself of the chose and vest it in the assignee (the Respondents), (iii) it was clear from the terms of the Supplementary Agreement that the Company did not intend to divest itself of the right to payment from the Employer, and (iv) what it intended to effect was a “payment mechanism”, as per the specific heading of the Supplementary Agreement, or a “revised payment procedure”, as per the Direct Payment Letters, and that was what the Respondents were “entitled” to. 26.The Judge rejected the Novation Ground because a novation occurred only where there was consent by all three parties, but it was clear there was no intention on the part of the Employer and the Company that the latter’s right to payment from the former under the Main Contract (the Company’s chose) would be extinguished, and replaced by a newly created right acquired by the Respondents against the Employer, between whom there were not even discussions, let alone an agreement. 27.The Judge rejected the Estoppel Ground for the following reasons: (i) the Respondents’ contention ignored the public policy underpinning s 182 as explained by the Court of Final Appeal in Hsin Chong and illustrated in Chevalier, (ii) when a statute was enacted on grounds of general public policy, an estoppel could not be asserted against it, at least not in circumstances where a validation order would not be granted, and (iii) the Respondents had not sought a validation order in the present case[10]. 28.In respect of the Trust Ground, the Judge held that a trust existed in respect of the Retention Monies in favour of the Respondents as stipulated in Clause 27(a)(viii) of the Conditions and Clause 11(h) of the Sub-Contracts, and thus the Respondents were entitled to the Retention Monies, subject to the Company’s right of set-off for any liquidated damages and contra-charges claimed by the Employer in respect of works done by the Respondents (to be ascertained). 29.Accordingly, the Judge:
THE APPEALS 30.The 1st and 2nd Respondents and the 3rd Respondent have each lodged an appeal against the Order. 31.The 1st and 2nd Respondents’ amended notice of appeal in CACV 190/2025 (“R1-2 ANOA”) contains 6 grounds:
32.The 3rd Respondent’s notice of appeal in CACV 191/2025 (“R3 NOA”) contains 6 substantive grounds:
33.On 20 February 2026, the 3rd Respondent issued a summons seeking leave to amend its notice of appeal. The main additional point which the 3rd Respondent wishes to raise is that the Judge should not have made the Payment Orders on the ground that under the rule in Ex p James [1874] LR 9 Ch App 609, “no high minded person in the position of the liquidators would wish to enforce strictly their legal rights or to retain any payments recovered under s.182”[12]. THE JURISDICTION ISSUE 34.Section 182 of the Ordinance states as follows:
The 1st and 2nd Respondents’ arguments 35.Mr Jonathan Chang, SC (on behalf of the 1st and 2nd Respondents) puts at the forefront of his arguments in this appeal the contention that, in an application under s 182 made by summons, the court has no jurisdiction to make a declaration that a deposition of a company’s property made after the commencement of its winding up is void, or an order that the property disposed of shall be returned to the company. 36.Mr Chang submits that the only order which s 182 empowers the court to make is to “otherwise order”, ie a “validation order”. Nothing in the Ordinance or the Companies (Winding-up) Rules, Cap 32H (“the Winding-up Rules”) provides for a liquidator (or a company in liquidation) to issue a civil claim for recovery of any property disposed of under a transaction invalidated by s 182. Mr Chang says that the invalidation of a disposition of a company’s property and the recovery of the property disposed of are two distinct matters. Section 182 is concerned with invalidation, not recovery. The latter is governed, not by statute, but by the general law, specifically the law of restitution. See Re J Leslie Engineers Co Ltd (in liquidation) [1976] 1 WLR 292, 298A-D; Hollicourt (Contracts) Ltd v Bank of Ireland [2001] Ch 555, §22; Re MKG Convenience Ltd (in liquidation) [2019] BCC 1070, §42, and Skandinaviska Enskilda Banken AB v Conway [2020] AC 1111, §§59-74. 37.Mr Chang further submits that the Liquidators’ restitutionary claim within the winding up process in the present case is not a mere technical defect; it has caused real and substantial injustice to the 1st and 2nd Respondents. In view of the way in which the Section 182 Summons was framed (ie as an application under s 182), the parties’ focus was on the question of whether the Payments made in accordance with the arrangement in the Supplementary Agreement/Direct Payment Letters were caught by s 182. He contends that even if the Payments are caught by s 182 (or s 182 is engaged), it does not necessarily follow that the Company would be entitled to recover the Payments from the 1st and 2nd Respondents in a restitutionary claim had the claim been properly pursued by way of a general civil action, for the following reasons. 38.First, in a claim for unjust enrichment, it must be shown that the claimant has suffered a loss through his provision of benefit to the defendant (Investment Trust Companies v Revenue and Customs Commissioners [2018] AC 275, §§43-44; and TFL Management Services Ltd v Lloyds TSB Bank plc [2014] 1 WLR 2006, §51). There is, however, no loss suffered by the Company corresponding to the Payments received by the Respondents, because it would still have a contractual claim against the Employer for the outstanding amounts. 39.Second, Mr Chang says that the 1st and 2nd Respondents may also be able to raise a “change of position” defence, in that (i) they have changed their position in good faith in reliance on the Company’s representation that they would be paid directly by the Employer; (ii) the Company has obtained a benefit in having the Project completed on time, thereby discharging its contractual obligations under the Main Contract; and (iii) it would be inequitable for the Company, acting through the Liquidators, to mount a restitutionary claim for the recovery of the Payments against the Respondents. Mr Chang recognizes that there are different views taken in Commonwealth jurisdictions on whether a defence of change of position is available to resist a restitutionary claim in respect of a transaction invalidated by insolvency legislation, and draws the Court’s attention to Rose v AIB Group (UK) plc [2003] 1 WLR 2791, §§30 and 41; Officeserve Technologies Ltd v Annabel’s (Berkeley Square) Ltd [2019] Ch 103, §§37-43; contrast with Re MKG, §§62-69; Changtel Solutions UK Ltd. v G4S Secure Solutions (UK) Ltd [2023] BCC 143, §§109-174; and Skandinaviska, §§113-117. Nevertheless, he submits that even in jurisdictions which have adopted a more restrictive approach, it would appear that a “change of position” defence (in a more attenuated form) is available where it would be inequitable to allow the restitutionary claim to proceed: see Re MKG, at §§67-70. 40.According to Mr Chang, the incorrect course adopted by the Liquidators in the present case has resulted in essential issues going towards the validity of the claim (if any) not being addressed at all, and the 1st and 2nd Respondents have been deprived of relevant procedural safeguards applicable to general civil actions, such as seeking an order of security for costs against the Company. 41.Mr Chang acknowledges that the jurisdictional point was not taken before the Judge, but argues that the point should nevertheless be entertained by this Court because: (i) jurisdiction cannot be conferred by the consent of the parties; and (ii) the court is bound to inquire into an issue which goes to its jurisdiction irrespective of whether the parties have raised it. The Liquidators’ arguments 42.Ms Audrey Eu, SC (on behalf of the Liquidators) submits that s 182 renders a post-petition disposition void ab initio, with the consequence that the company has never been divested of the beneficial ownership of the property purportedly disposed of. Hence, the Liquidators’ claim for recovery of the property disposed of is proprietary, not in unjust enrichment. Mr Chang’s restitutionary analysis is therefore misplaced. So is his reliance on the Privy Council’s decision in Skandinaviska, because it was a case relating to voidable preference under s 145(1) of the Cayman Companies Law, whereas s 182 renders the relevant disposition void ab initio. 43.Ms Eu refers the Court to Goode on Principles of Corporate Insolvency Law (5th ed), at §13-141, where Sir Roy classifies s 127 of the Insolvency Act 1986 (the English equivalent of s 182 of the Ordinance) as a provision rendering a post-petition disposition void unless authorised or validated by the court, and ss 238, 239 and 423 of the Insolvency Act as provisions for the reversal of the effect of a transaction. Ms Eu submits that the “voidance” provision in s 127 is conceptually distinct from the “restitutionary avoidance” regimes under ss 238, 239 and 423. Ms Eu also points out that Sir Roy makes it clear at §13-142 that recovery under s 127 is a “pure property remedy”, not a “restitutionary remedy”, so that the defences available under the law of restitution will not apply. In respect of the defence of change of position, Sir Roy states: “To allow change of position as a defence would be to give preferential treatment to the defendant without there necessarily being any corresponding benefit to the other creditors. … it is hard to see why the court should be expected to engage in the complexities of the change of position defence when its powers of authorisation or validation provide all the flexibility that is needed.” 44.Re J Leslie Engineers Co Ltd does not assist the 1st and 2nd Respondents. Oliver J’s observations that invalidation and recovery are “two logically distinct matters” and that the appropriate remedy “has to be determined by the general law” address analytical sequence, not procedural forum. Oliver J himself made a recovery order within the same proceedings (304G-H). 45.Ms Eu submits that the above analysis is confirmed by settled authority on the court’s jurisdiction to order repayment: see Chevalier, at 229F-G; Bank of East Asia Ltd v Rogerio Sou Fung Lam [1988] 1 HKLR 181, at 193C; and Re AGI Logistics (Hong Kong) Limited [2016] 5 HKLRD 737, at §37 (cited by the Court of Final Appeal in Hsin Chong, fn 34). She also points out that the same jurisdictional objection was rejected by Deputy High Court Judge Le Pichon in Re Hsin Chong Construction (Asia) Ltd (in liquidation) [2025] 2 HKC 521, at §§49-63. 46.Finally, Ms Eu argues that the 1st and 2nd Respondents’ complaint that they have been deprived of a chance to plead to the Company’s restitutionary claims for the recovery of the Payments (including advancing restitutionary defences where appropriate), and other procedural safeguards applicable to general civil actions (such as an application for security for costs against the Company) does not help them, as they did not ask for, or file evidence to justify, the need for pleadings or a separate trial. Court has jurisdiction to grant the Declaration and make the Payment Orders 47.We do not accept the 1st and 2nd Respondents’ jurisdictional objection. The fallacy of their argument lies in the premise that the court’s powers to grant relief in a summons issued by a liquidator under s 182 are derived entirely from, or confined to what is provided by, that section. On its face, s 182 provides for the consequence of various specific types of transaction made after the commencement of the winding up of a company, namely, (i) disposition of the property of the company (including things in action), (ii) transfer of shares of the company, and (iii) alteration in the status of the members of the company. Such transactions are rendered “void” by the operation of s 182, unless the court otherwise orders. It does not follow, however, that in a summons issued by a liquidator under that section, the court has no power to make consequential orders or grant consequential relief upon finding that the relevant disposition of the company’s property is void. There is no doubt that the court does have jurisdiction, in an ordinary civil action commenced by the liquidator, to grant proprietary and/or restitutionary remedies (as appropriate) in respect of a disposition of the company’s property rendered void by the operation of s 182. We can see no valid reason why the court would lose its jurisdiction to grant such remedies in an application properly before the court brought by a liquidator by way of summons. Under s 200(3) of the Ordinance, a liquidator may apply to the court in manner prescribed for directions in relation to any particular matter arising under the winding up, and under r 7(2) and (3) of the Winding-up Rules, every application by a liquidator to the court for directions in relation to any particular matter arising under the winding up shall be made by summons in chambers. Nothing in the Ordinance or the Winding-up Rules takes away the court’s jurisdiction to grant proprietary and/or restitutionary remedies in an application made by a liquidator under s 182 by way of summons. 48.If the 1st and 2nd Respondents’ argument is correct, it would mean that the court would have no jurisdiction even to make a declaration that the relevant disposition is void. If so, it would be difficult to think of any situation where a liquidator may properly make an application under s 182 by way of summons. It is, however, the experience of the members of this Court that applications under s 182 made by way of summons seeking declaratory and/or other substantive relief are not uncommon, and such applications are regularly entertained by the courts without question. For example, declaratory and other substantive relief were granted in (i) Chevalier, at 225E-G; (ii) AGI Logistics [2015] 4 HKLRD 300, at §§1 and 39 (Anthony Chan J, as he then was), affirmed by the Court of Appeal ([2016] 5 HKLRD 737); and (iii) Hsin Chong, at §42 (in that case, the s 182 summons was issued by the recipient of the company’s property seeking a validation order[13], but the Court of Final Appeal eventually made a declaration that the relevant agreement and dispositions were void). 49.The same jurisdictional objection was raised before, but rejected by, Deputy High Court Judge Le Pichon in Re Hsin Chong Construction (Asia) Ltd (in Liquidation) [2025] 2 HKC 521. There, an application was made by the Liquidators by summons under s 182 for a declaration that certain payments totalling HK$11,295,350 made by Employer after the commencement of the winding up of the Company to Cogent Spring Limited (“Cogent Spring”) were void, and for an order that Cogent Spring returned and/or paid the said sum to the Liquidators. One of the arguments raised by Cogent Spring to resist the payment order sought by the Liquidators was that (i) the Court had no jurisdiction to grant a payment order because s 182 merely avoided dispositions, leaving recovery to be determined by the general law; and (ii) the Company only parted with the right of action against the Employer, hence, the remedy is confined to restoring that right and not immediate payment. Deputy High Court Judge Le Pichon referred to the judgment of the Court of Appeal in AGI Logistics, at §37, and held that it supported the view that where a payment was determined to be a disposition and that disposition was void under s 182, recovery of the amount should be viewed as correcting the wrongful disposition of the company’s property which the court had power to order. She also pointed out that a payment order was made in Re Leslie Engineers Co Ltd, at 304G-H[14]. In Deputy High Court Judge Le Pichon’s view, those cases were clear authorities that the Court had jurisdiction to grant an immediate payment order. We agree. 50.It is not with disrespect to counsel that we do not propose to analyse the many authorities cited by them concerning the true nature of the relief which a liquidator may be entitled to seek in respect of a disposition which is rendered void by the operation of s 182. We do not do so because, in our view, the answer to the jurisdictional objection raised by the 1st and 2nd Respondents does not lie in whether the Liquidators’ claim for recovery of the Payments is proprietary or restitutionary. It is not the 1st and 2nd Respondents’ argument that the court may grant proprietary, but not restitutionary, remedies in a summons issued by the liquidator under s 182. Their argument is a simple one: the only remedy, or order, that the court may make in an application under s 182 is to “otherwise order”, ie a validation order. On this argument, the court would have no jurisdiction to grant either proprietary, or restitutionary, remedies, or declaratory relief, even when the court comes to the conclusion that the relevant disposition is void under s 182. 51.On the question of the true nature of the relief that may be granted to a liquidator in respect of a disposition found to be void under s 182, we would merely observe that the liquidator may be entitled to claim proprietary, or restitutionary, remedies, or both, depending on the circumstances. For example, in the case of a transfer of a company’s landed property to a transferee after the commencement of its winding up, the liquidator would have a proprietary claim against the transferee for the reconveyance of the landed property. In the situation where the property disposed of is a sum of money in the company’s a bank account, the liquidator would, in principle, have both a proprietary and restitutionary claim against the recipient. However, if the recipient has in the meantime paid the money received to a bona fide purchaser for value without notice, the liquidator would no longer be able to bring any proprietary claim against the recipient, but should still be able to advance a restitutionary claim against the recipient (subject to such defences as may be available to such a claim). 52.As regards Mr Chang’s complaints that the 1st and 2nd Respondents have suffered real and substantial injustice because of the way in which the Section 182 Summons was framed, which it is said focused the parties’ attention on the question of whether the Payments were caught by s 182 and has resulted in essential issues going towards the validity of the claim not being addressed at all (such as whether the Company has suffered any loss, and whether the 1st and 2nd Respondents are able to set up a defence of change of position), we do not consider that these complaints are germane to the question of whether the court has jurisdiction to grant the Declaration or make the Payment Orders. In this regard, it is important to bear in mind the distinction between the situations where (i) the court has no power to make an order or type of order, and (ii) the court declines to exercise its jurisdiction to make the order or type of order. The former goes to jurisdiction, in the strict sense, while the latter goes to the exercise of jurisdiction. Mr Chang’s complaints may be relevant to the question of whether the court should exercise the jurisdiction to grant the Declaration or make the Payment Orders, but are not relevant to the question of whether the court has jurisdiction to grant such relief in the first place. 53.In any event, we do not accept the validity of Mr Chang’s complaints. Insofar as the framing of the Section 182 Summons is concerned, the summons expressly sought both a declaration and orders for payment of specified sums to the Liquidators. The 1st and 2nd Respondents should not be in any doubt that the Liquidators were seeking immediate payment orders against them. It was up to the 1st and 2nd Respondents to raise any specific defence to the payment orders sought by the Liquidators, and adduce appropriate evidence to support such defence. If they considered that the issues of whether the Company had suffered any loss, or whether they were able to set up a defence of change of position, could not or should not be disposed of on the basis of affidavit evidence alone, they could have sought appropriate directions from the court, and the court would have ample case management powers to address their concern, such as ordering the deponents to attend court for cross-examination, ordering issues to be stated and tried, or ordering pleadings to be exchanged and discovery to be given. Apparently, the 1st and 2nd Respondents were content to proceed with the substantive hearing of the Section 182 Summons on the basis of the existing evidence. In the absence of any specific defence being raised to the Liquidators’ claim for immediate payment of the sums received by the Respondents (save in relation to the Retention Monies), the Judge was entitled to make an unconditional order for immediate payment of the Non-Retention Monies upon being satisfied that the relevant dispositions were void. It is now too late for Mr Chang’s complaints to be entertained at this stage. The same comment applies to Mr Chang’s further complaint that the 1st and 2nd Respondents have been deprived of relevant procedural safeguards applicable to general civil actions (such as seeking an order of security for costs against the Company). These are matters which the 1st and 2nd Respondents ought to have raised with the Judge, but failed to do so. 54.In all, we reject the jurisdictional objection raised by the 1st and 2nd Respondents. DISPOSITION OR DIVESTMENT OF THE COMPANY’S RIGHT TO RECEIVE PAYMENT FROM THE EMPLOYER UNDER THE SUPPLEMENTARY AGREEMENT 55.Both the 1st and 2nd Respondents and the 3rd Respondent contend in their respective appeals that the Judge erred in failing to find that there was an effective disposition or divestment by the Company of its right to receive payments in respect of the sub-contract works from the Employer under the Main Contract prior to the commencement of the winding up of the Company. Their arguments are based primarily on the true construction of the Supplementary Agreement, although some reliance is also placed on the Direct Payment Letters and other matters. In terms of legal analysis, if the contention of the Respondents is correct, there would be a “variation” of the Main Contract in relation to the Company’s right to receive payments from the Employer in respect of the sub-contract works, although the Respondents have also put their cases on the basis of “assignment” and/or “novation”. The Respondents’ arguments 56.The 1st and 2nd Respondents’ arguments that the Judge erred in holding that the Supplementary Agreement did not have the effect of disposing of the Company’s right to receive payments from the Employer in respect of the sub-contract works under the Main Contract are fully set out in Ground 1 of R1-2 ANOA. Those arguments have been adopted by Mr Chang in his submissions to the Court[15]. 57.The 1st and 2nd Respondents argue that the Judge erred in her understanding of Golden Sand Marble Factory Ltd v Easy Success Enterprises Ltd and Anor [1999] 2 HKC 356. The relevant test for the purposes of s 182 in the context of this case is not whether there was a tripartite agreement, but whether “the main contractor loses any right under the main contract it might have had otherwise to insist that payment be made through it”: see Golden Sand, at 360I-361B. The 1st and 2nd Respondents contend that the Company lost such right in respect of the Payments because the Supplementary Agreement, on its true construction, had the effect of disposing of any right that the Company might otherwise have to receive payments from the Employer in respect of the sub-contract works. 58.In relation to the true construction of the Supplementary Agreement, the 1st and 2nd Respondents argue that:
59.The 1st and 2nd Respondents point out that the interim certificates subsequently issued were entirely consistent with the above proper understanding of the Supplementary Agreement, in that they deducted from the valuation of the works completed, the amounts to be paid directly to the NSCs, and thus certified only the net amount as due to the Company. 60.The 1st and 2nd Respondents further argue that the Judge failed to place sufficient weight on the context from which the Supplementary Agreement arose. In particular, the Judge did not sufficiently address the fact that: (i) on 27 April 2017, one of the NSCs wrote to the Employer and requested that direct payments be made in light of the Company’s financial situation; (ii) around 2 weeks later, on 12 May 2017, the Supplementary Agreement was entered into; and (iii) 3 days later, on 15 May 2017, the Direct Payment Letters were issued. In light of the quick succession of the aforementioned events, the Judge should have found that (1) the Company had abrogated its right under the Main Contract, and (2) the Supplementary Agreement and the Direct Payment Letters evidenced a clear agreement between the Employer, the Company and the NSCs that the NSCs would be entitled to receive direct payments from the Employer in respect of the sub-contract works. 61.Lastly, the 1st and 2nd Respondents complain that the Judge erred in not considering the Contracts (Rights of Third Parties) Ordinance, Cap 623. The fact that it was not a stand-alone point does not mean that it did not require consideration. The 1st and 2nd Respondents have a right to seek payments directly from the Employer under the Supplementary Agreement by virtue of the Contracts (Rights of Third Parties) Ordinance. In particular, (i) the Supplementary Agreement purported to confer the benefit of payment of money by the Employer on the 1st and 2nd Respondents, (ii) they were identified by the term “Nominated Sub-Contractors” in the Supplementary Agreement, and (iii) there is nothing to rebut the presumption that the terms of the Supplementary Agreement were intended to be enforceable by them. Had the Judge found that the NSCs were entitled to enforce the terms of the Supplementary Agreement, she should have concluded that the Supplementary Agreement extinguished the right of the Company to receive payment in respect of the sub-contract works. There could not be simultaneously an obligation on the Employer to pay monies due to the NSCs both to the NSCs and to the Company. Equally, there could not simultaneously be a right vested in both the NSCs and the Company to receive the monies: see Golden Sand, at 360E-F. Moreover, the fact that the NSCs were entitled to enforce the terms of the Supplementary Agreement would have obviated the need to find any tripartite agreement between the Employer, Company and NSCs. 62.Under Ground 2 of R3 NOA, the 3rd Respondent argues that the Judge fell into error when she found that the terms of the Supplementary Agreement did not or were insufficient to divest the Company of its right to payment from the Employer, for the following reasons:
The above arguments are elaborated in the written submissions of Mr Jason Wong (for the 3rd Respondent) [17], which it is not necessary to repeat in this Judgment. The Liquidators’ arguments 63.Ms Eu argues that the Supplementary Agreement only varied the payment mechanism, but did not create a contractual relationship between the Employer and the NSCs absent tripartite agreement, and cannot displace pari passu without a trust: see Keating on Construction Contracts (12th ed), at §13-051; Goode on Principles of Corporate Insolvency Law, at §8-12; and British Eagle International Airlines Ltd v Compagnie Nationale Air France [1975] 1 WLR 758, at 780G–781B. 64.Ms Eu further argues that the Supplementary Agreement was a bipartite agreement between the Employer and the Company. The Respondents were not parties, did not participate in the negotiation and were not provided with a copy. It is unrealistic to suggest that the parties intended, by an agreement of which the Respondents had no knowledge, to extinguish the Company’s entitlement in the Respondents’ favour. 65.In respect of various provisions of the Supplementary Agreement relied upon by the Respondents, Ms Eu submits that:
66.In respect of the Respondents’ complaint that the Judge erred in focusing on the question of whether there was a tripartite agreement amongst the Employer, the Company and the NSCs, Ms Eu contends that the Judge’s analysis of whether there was a tripartite agreement was part of the substantive analysis of the true meaning and effect of the Supplementary Agreement. In Golden Sand, the employer, main contractor and sub-contractor all agreed that payment would be made directly to the sub-contractor; Findlay J held at 360I that this extinguished the main contractor’s right to insist that payment passed through it. In Hitachi Plant Engineering & Construction Co Ltd v Eltraco International Pte Ltd [2003] SGCA 38, the Singapore Court of Appeal reconciled Golden Sand with non-tripartite cases, holding that where the nominated sub-contractors’ entitlement to direct payment remained “contingent upon the Architect’s exercise of their discretion”, the nominated sub-contractors did not have any right to receive payment (§§35-36). The same analysis applies here. Under Clause 27(c) of the Conditions, the NSCs’ entitlement to direct payment is contingent upon the Architect’s decision whether to certify direct payment; and even then, the Employer “may” pay directly - it is not obliged to do so. The NSCs have no right to insist on direct payment from the Employer. Nothing in the Supplementary Agreement displaces the condition precedent to the Company’s entitlement under Clause 30 of the Conditions and Clauses 11 and 13 of the Sub-Contracts. The Supplementary Agreement, as found by the Judge, added an alternative route for payment. 67.As for the Respondents’ contention that the Supplementary Agreement imposed a mandatory obligation inconsistent with the Company’s entitlement, Ms Eu submits that this contention conflates the obligation to adopt a particular payment route with the extinction of the underlying right. The Supplementary Agreement mandated direct payment as the alternative payment mechanism; it did not recognise the Respondents as having a proprietary right to the payments. The argument that the no “adjustments for charges, set-off” clause demonstrates the payments ceased to be the Company’s property is answered by the Judge’s observation at §36.1-36.2 of the Decision that the mechanism enabled funds to be paid quickly, and it defied commercial sense for a financially distressed company to abandon all set-off rights. The 3rd Respondent’s submissions pointing out that a direct payment may result in overpayment on the part of the Company[18] reinforces the Judge’s view that the Company preserved its entitlement and was left to “settle accounts” with the NSCs later (Decision, §36.1). 68.Lastly, Ms Eu says that the Direct Payment Letters were informative; they did not record any agreement to confer the Respondents any new rights. 69.In all, Ms Eu submits that the Judge was correct in her view that the Supplementary Agreement did not dispose of the Company’s right to receive the Payments from the Employer under the Main Contract. Applicable principles 70.As pointed out by the Judge at §25 of the Decision, when considering the applicability of s 182 to any given fact situation, the focus should be on the relevant “property” of the insolvent company and its “disposition”. 71.The leading authority on the true interpretation of s 182 is the judgment of the Court of Final Appeal in Hsin Chong. In that case, Hsin Chong and Build King entered into a Joint Venture Agreement in 2013 for the purpose of tendering for and carrying out a Government construction project in Kowloon. In 2016, the joint venture was awarded a Government contract for the project, with Hsin Chong holding a 65% interest in the joint venture and Build King holding the remaining 35%. The Joint Venture Agreement contained a mechanism dealing with insolvency. Clause 17 allowed one party to exclude the other from further participation in the joint venture if the other party became insolvent. The party exercising the clause would become the “Continuing Party”, while the insolvent party would become the “Defaulting Party”. If Clause 17 was invoked, the Defaulting Party would be excluded from further participation in the management of the joint venture, the contract, and the profits arising from it, and the Continuing Party would take over the benefits of the Defaulting Party in the joint venture. In 2017/2018, Hsin Chong came under serious financial difficulties. In August 2018, a winding up petition was presented by a creditor against Hsin Chong. In December 2018, Build King invoked Clause 17. Under that clause, an accounting exercise would have to be carried out at the completion or termination of the project to determine whether Hsin Chong was entitled to any accrued profit up to the date of exclusion after deducting its share of losses and other costs arising from its default (referred to in the judgment as Hsin Chong’s “residual rights”). In December 2018, Hsin Chong and Build King entered into a supplemental agreement, whereby Build King agreed to acquire Hsin Chong’s residual rights for a sum ($53.6 million) to be paid in two instalments. The supplementary agreement specified that the sum was to be paid into an account of Cogent Spring, a wholly owned subsidiary of Hsin Chong. This payment arrangement was important because Hsin Chong’s own bank accounts had been frozen, and it was originally contemplated that the money received from Build King would be used to settle Hsin Chong’s outstanding Mandatory Provident Fund contributions and staff wages. Build King proceeded to pay the first instalment into Cogent Spring’s account, and part of the money was in fact used for some other purposes. Build King did not pay the second instalment, and made an application for a retrospective validation order under s 182 in respect of the payment of the first instalment. The Court of Final Appeal held that the supplemental agreement and the dispositions made thereunder were void by reason of s 182. The reasoning which led to that conclusion can be found in the following passages in the joint judgment of Ribeiro and Fok PJJ (with whom the other members of the Court of Final Appeal agreed):
In short, the relevant “property” was Hsin Chong’s right to receive the payment of $53.6 million (a contractual chose in action) from Build King as consideration for the sale of the residual rights to Build King, and there was a “disposition” of that property, namely, the first instalment of the payment under clause 5 of the supplementary agreement which provided that the money was to be paid to Cogent Spring, a different entity from Hsin Chong. 72.Another authority which elucidates the concepts of “property” and “disposition” in s 182 is the judgment of the Court of Appeal in Chevalier. The facts of that case were as follows. Reality was the employer under a construction contract for a project at Tuen Mun with Right Time as the main contractor. Chevalier and Regent were nominated sub-contractors under that main contract. In April 1987, the architect for the project issued a payment certificate, certifying that a sum of money, which included various amounts payable to the nominated sub-contractors, was due for payment under the main contract. Right Time wrote to Reality confirming that it had no objection to Reality paying the nominated sub-contractors directly in respect of that and subsequent certificates. Reality duly paid Chevalier and Regent directly on 29 April 1987, but the cheques were not cleared until 25 May 1987, by which time the winding up of Right Time was deemed to have commenced because the petition was presented on 1 May 1987. On an application brought by liquidators of Right Time to challenge the payments under s 182, the Court of Appeal held that the payments constituted dispositions of the properties of Right Time and were void, for the following reasons (at 229C-G):
It can be seen that the Court of Appeal analysed the factual situation as involving two relevant dispositions of the properties of Right Time, either of which would be sufficient to trigger the operation of s 182: (i) the first disposition occurred when the debt owed by Reality to Right Time for works carried out under the main contract (a contractual chose in action vested in Right Time) was reduced as a result of payments made by Reality to Chevalier/Regent, and (ii) the second disposition occurred when sums of money to which Right Time was entitled were paid by Reality (as agent for Right Time) to Chevalier/Regent in partial discharge of Right Time’s debt to each of them. 73.The last authority that we should deal with is the judgment of Findlay J in Golden Sand relied upon by Mr Chang. The facts of that case can briefly be stated as follows. The plaintiff (Golden Sand) was a nominated sub-contractor in a construction project. The second defendant (Pentad) was the main contractor while the first defendant (Easy Success) was the employer. The main contract contained the usual provision for payments to Golden Sand to be made through Pentad, and also the standard clause that permitted Easy Success, if the architect for the project issued the required certificate, to pay Golden Sand directly and deduct the relevant sum from sums due to Pentad (clause 27(c)). In about March 1995, prior to the practical completion of the project (which occurred in May 1996), an agreement was reached between all interested parties that future payments in relation to the nominated sub-contractors’ works would be paid directly by Easy Success to the respective nominated sub-contractors, and not through Pentad. On 19 June 1996, Pentad was wound up by the court. In issue was whether the final sum (including retention money) which the architect certified on 30 May 1997 as being due from Easy Success to Golden Sand in respect of sub-contract works carried out by the latter was the property of Pentad. Findlay J found in favour of Golden Sand, holding that Pentad had no property right in the money at the time of its liquidation. The learned judge reasoned as follows (at 360C-361B and 363F-H):
74.It can be seen that Findlay J took the view that the agreement which the parties entered into in March 1995 prior to the winding up of Pentad had the effect of divesting Pentad’s right to receive payment in respect of works carried out by Golden Sand from Easy Success under the main contract, and thus such right could no longer be regarded as the “property” of Pentad as at the date of its liquidation. 75.Ms Eu points out that in that case, Easy Success, Pentad and Golden Sand all agreed that payment would be made directly by Easy Success to Golden Sand; in other words, there existed a tripartite agreement. This observation is correct as far as its goes, but this feature does not seem to us to be critical to the decision of Findlay J. At the bottom of the learned judge’s decision was the question of whether the right to receive payment from Easy Success was still vested in Pentad at the time of its liquidation such that the right could be regarded as the property of Pentad. The absence of a tripartite agreement was not determinative of that question. This is because Pentad’s right to receive payment in respect of works carried out by Golden Sand from Easy Success was a matter of bilateral contract (ie the main contract) between Pentad and Easy Success. The bilateral contract could, in principle, be varied by the mutual agreement of Pentad and Easy Success without the need for participation by any third party. If the true meaning or effect of the variation agreement was to take away the right of Pentad to receive certain payment from Easy Success, there would be no reason in principle why such agreement was not effective to divest Pentad of its right to receive such payment. Whether there was a tripartite agreement involving Golden Sand which would enable it to enforce the variation agreement in its own right should not, in principle, affect the validity of the variation agreement entered into between Easy Success and Pentad. The Company’s right to receive the Payments was effectively disposed of or divested under the Supplementary Agreement 76.In our view, the Company’s right to receive payments in respect of sub-contract works carried out by the NSCs from the Employer under the Main Contract had been effectively disposed of or divested under the Supplementary Agreement prior to the commencement of its winding up. It follows that the Payments were not caught by s 182 of the Ordinance. 77.Prior to the making of the Supplementary Agreement, the Company was entitled to receive payments from the Employer in respect of sub-contract works carried out by the NSCs (including the 1st to 3rd Respondents) under the Main Contract. However, upon the making of the Supplementary Agreement, the relevant amounts would no longer be due, or payable, to the Company. Instead, the Employer is entitled, and bound (as a matter of contract vis-à-vis the Company), to make payment to the NSCs directly. Unlike Clause 27(c) of the Conditions, which confers on the Employer a discretion to make direct payments to the NSCs in certain specified circumstances, the Supplementary Agreement obliges the Employer to make direct payments to the NSCs. This obligation flows from Clause (2) of the Supplementary Agreement, which provides that in consideration of what the Company agrees under Clause (3) (executory consideration), the Employer “agrees” to directly pay all NSCs commencing from a specified interim certificate by the Architect, and deduct such sums so paid from any sums due or which may become due to the Company. This new payment arrangement is binding on both the Company and the Employer. After the making of the Supplementary Agreement, the Company would have no valid ground to complain about payments made by the Employer directly to the NSCs, or deductions made by the Employer of corresponding amounts from any sums otherwise due or which may become due to the Company. Conversely, if the Employer should, for any reason, refuse to make payment to the NSCs in accordance with Clause (3), the Company whould, in principle, be entitled to bring an action against the Employer to enforce the Supplementary Agreement. The Supplementary Agreement is a valid contract supported by consideration moving from both sides. It was plainly intended to be binding on both the Employer and the Company. We can see no reason why the Supplementary Agreement should not be given effect in accordance with its plain terms. 78.Since the Supplementary Agreement was entered into on 12 May 2017, by the time of the commencement of the winding up of the Company (5 November 2018), the relevant “property” (namely, sums which might be certified as due for sub-contract works carried out by the NSCs) was no longer the property of the Company. There was no disposition of the Company’s property made after the commencement of the winding up which would be caught by s 182. 79.Although the facts of the present case are different from those in Golden Sand, the reasoning of Findlay J is equally applicable to the present situation. As earlier mentioned, Ms Eu seeks to rely on the judgment of the Singapore Court of Appeal in Hitachi to explain why Golden Sand is not applicable to the present case. The facts in Hitachi are very different from those in Golden Sand or the present case. In Hitachi, the main contractor was placed under judicial management pursuant to an order of the Singapore court, and a scheme of arrangement was approved, under which it was provided that “[t]he realisation from the [main contractor’s] assets (mainly accounts receivable from completed projects) after meeting the costs of realisation and administration shall be paid entirely to the creditors” in certain specified manner. There was no relevant agreement for the disposition or divestment of the main contractor’s right to receive payment from the employer. The architect received a request from some nominated sub-contractors for direct payment by the employer, and the architect later issued a certificate of direct payment to the nominated sub-contractors. Thereupon, the scheme administrators brought proceedings to restrain the employer from effecting direct payments to the nominated sub-contractors, and for an order for the nominated sub-contractors to authorise the employer to effect such payments due to them to the main contractor instead. The Singapore Court of Appeal upheld the scheme administrators’ claim, holding that while the pari passu principle did not extend to schemes of arrangement, the nominated sub-contractors did not have a right to the payments when the scheme was approved and sanctioned (§86). The Singapore Court of Appeal distinguished Golden Sand at §§35-36 of its judgment:
80.We do not consider that the decision in Hitachi assists the Liquidators in the present case. It is correct that on the facts of Golden Sand, there was a tripartite agreement, to which the nominated sub-contractor (Golden Sand) was a party, and the nominated sub-contractor had acquired a contractual right to receive direct payment from the employer (Easy Success) under the tripartite agreement. However, as mentioned at §75 above, central to Findlay J’s analysis was the fact that the main contractor’s right to receive payment from the employer had been divested or disposed of prior to the commencement of the winding up of the main contractor. Whether there was such divestment or disposition did not necessarily depend on the existence of a tripartite agreement amongst the employer, main contractor and nominated sub-contractor. 81.The Liquidators’ emphasis on the sub-heading “Payment Mechanism” of Clause (3)(i) of the Supplementary Agreement is misplaced. The new payment arrangement under the Supplementary Agreement may properly be described as a “payment mechanism”. However, what is important is not the description, or label, given to the payment arrangement, but whether the payment arrangement is binding on the parties. 82.In respect of the deeming provision (“… the sums paid by the Employer directly to the Nominated Sub-Contractor shall be deemed to have been paid via the Main Contractor”), and the waiver provision (“the Main Contractor … waives any claims against the Employer that he has not received any amount in connection with the payments to the Nominated Sub-Contractors”), in Clause 3(i)(c) which the Liquidators heavily rely on, we consider them to be equivocal. As submitted by the Respondents, these provisions can reasonably be read and understood as provisions designed to ensure that the Company would not be able to pursue the Employer for sums paid directly to the NSCs, and are consistent with the view taken that the Company’s right to receive payments in respect of sub-contract works carried out by the NSCs from the Employer under the Main Contract was divested, or disposed of, upon the making of the Supplementary Agreement. 83.Neither do we consider the deduction mechanism in Clause (2) of the Supplementary Agreement relied upon by Ms Eu supports the Liquidators’ argument that the right to receive the Payments remained vested in the Company. It seems to us that Clause (2) merely makes it clear that the sums payable to the Company under the Main Contract would be reduced by the sums paid by the Employer directly to the NSCs pursuant to the arrangement in the Supplementary Agreement. Otherwise, the Employer would be liable to make payment twice (once to the Company and the other to the NSCs). This plainly could not have been the intention of the parties to the Supplementary Agreement. 84.Before we leave this part of the judgment, we wish to briefly deal with a few other points raised by the Respondents in their submissions.
OTHER GROUNDS OF APPEAL 85.Having reached the above conclusion, it becomes unnecessary for us to consider the other grounds of appeal raised by the Respondents. For the sake of completeness, we shall briefly state our views on those grounds. 86.In respect of the Assignment Ground and Novation Ground[20], Mr Chang accepts that those grounds are dependent on the Court finding that the Company had divested itself of the right to receive the Payments from the Employer, while Mr Wong did not develop any substantive argument on those grounds in his written or oral submissions. It seems to us that neither the Supplementary Agreement nor the Direct Payment Letters purport to be, or can reasonably be read as, an assignment of the Company’s right to receive the Payments from the Employer to the NSCs, or an agreement to assign such right, while the Novation Ground is unsustainable in the absence of any tripartite agreement entered into amongst the Employer, the Company and the NSCs to effect a substitution or replacement of the relevant elements of the Main Contract concerning the Company’s right to receive the Payments from the Employer by a new contract. 87.In respect of the Estoppel Ground[21], we agree with the Judge that the notion of estoppel is incompatible with the public policy underpinning s 182 of the Ordinance: see Kok Hoong v Leong Cheong Kweng Mines Ltd [1964] AC 993, at 1015-1016:
88.As a matter of principle, it seems to us to be clear that parties cannot by agreement contract out of the legal consequence of s 182 if the relevant disposition is caught by that section. If such avoidance cannot be achieved by contract, we do not see how it can be achieved by an estoppel based on a course of conduct of the parties. 89.In respect of the 3rd Respondent’s challenge to the Non-Retention Monies Payment Order[22], if the relevant dispositions were caught by s 182, we can see no basis to interfere with the Judge’s order for the return of the Non-Retention Monies to the Liquidators. It would appear that the contention that the Judge should not have made the Non-Retention Monies Payment Order because of the 3 matters identified in Ground 6 of R3 NOA is a new point not taken before the Judge[23]. If it was a point taken before the Judge and it was not dealt with in the Judge’s Decision, one would expect the 3rd Respondent to raise as a ground of appeal the complaint that the Judge failed to deal with the point in her decision. There is no such ground of appeal in R3 NOA (or in the 3rd Respondent’s draft amended notice of appeal). We do not consider the 3rd Respondent should be permitted to raise this point for the first time in the Court of Appeal, since it is a point which depends on an evaluation of the evidence and involves an exercise of discretion, which ought to be undertaken by the Judge at first instance. In any event, we do not consider that they are sufficient to cause us to intervene in the Judge’s decision to make the Non-Retention Monies Payment Order:
90.In respect of the Respondents’ challenge to the Retention Monies Payment Order[25], the Liquidators have not filed any respondent’s notice to challenge the Judge’s finding that a trust exists over the Retention Monies in favour of the Respondents. On the basis of this finding by the Judge, the payment of the Retention Monies by the Employer to the Respondents should not be regarded as constituting any disposition of the Company’s property, and thus s 182 has no application to such payment. Further, as at the date of the hearing before the Judge, the Liquidators’ position was that they were not yet in a position to ascertain or finalise the quantum of any set-off, and the exact quantum of the set-off might crystalise only after the final account for the Project had been finalised between the Employer and the Liquidators, but no approximate timeframe was provided[26]. While the Liquidators have made some general assertions of potential set-offs and estimated quantum of such set-offs[27], the Liquidators have not produced any concrete evidence in support of those assertions. Thus, even though the Company has, in theory, a contractual right of set off, we do not see that the Liquidators have shown a prima facie case that any set-off exists on the facts. There is certainly no finding by the Judge of any such prima facie case. To order the Retention Monies to be paid to the Liquidators to be held in separate trust accounts pending finalization of the final account between the Employer and the Company would effectively be giving the Liquidators security, or at least a measure of preservation of the Respondents’ assets, to satisfy potential claims which may never materialise, or may be entirely unfounded. Since the Retention Monies belong to the Respondents beneficially and have in fact been paid to the Respondents, and no prima facie case has been shown that the Liquidators have got any valid claim of set-off on the facts, we do not consider that there is any sufficient justification to order the Respondents to pay the Retention Monies to the Liquidators. THE 3RD RESPONDENT’S APPLICATION TO AMEND ITS NOTICE OF APPEAL 91.The main argument that the 3rd Respondent wishes to raise by way of amendment to its notice of appeal is that, even if the Court should find that the Payments are caught by s 182, the Court ought nevertheless to exercise its residual discretion “to order the Liquidators not to enforce their legal rights” under s 182 in reliance upon the “rule” in Ex parte James. That rule has been described as being an “elusive and difficult principle based on morality”. It has also been said that a trustee for creditors may be restrained from enforcing a claim under the rule in Ex parte James if “it were not honourable – if it were not high minded – if it would be contrary to natural justice – if it would be shabby – if it would be a dirty trick for him to retain it – or … if to do so would be inconsistent with natural justice and that which an honest man would do”: see Re Ng Shiu Fan [2009] 4 HKLRD 774 (CA), at §30. 92.In Re Ng Shiu Fan [2008] 4 HKLRD 813 (CFI), at §75, Kwan J (as she then was) referred to Williams and Muir Hunter on Bankruptcy (19th ed, 1979), at page 249, where it was stated that “it is not easy to define the exact bounds of a principle based upon the control exercised by the court over its officer, which, since it operates in fields not covered by the established rules of law and equity, is incapable of reduction to an exact formula and must in its application be governed in part by ethical considerations.”. 93.For the present purpose, it is not necessary for us to determine the exact boundary of the principle, or rule, in Ex parte James. In our view, the short answer to the 3rd Respondent’s argument is that, if the Payments were caught by s 182, it would be entirely proper for the Liquidators to take action to seek recovery of the Payments for the benefit of the general body of creditors of the Company, consistently with the pari passu principle underlining our insolvency legislation. We do not see how it can sensibly be argued that the conduct of the Liquidators, when they take action to recover assets belonging to the Company, is “not honourable”, or “not high minded”, or “contrary to natural justice”, or “shabby”, or amounts to “a dirty trick”, or is “inconsistent with natural justice and that which an honest man would do”. The 3rd Respondent’s attempt to rely on the rule in Ex parte James in the present context is misconceived. There is also force in Ms Eu’s argument that the 3rd Respondent should not be permitted to advance the Ex parte James point for the first time in the Court of Appeal since it is fact-sensitive and was not explored below: see Flywin Co Ltd v Strong & Associates Ltd (2002) 5 HKCFAR 356, at §38. 94.The other proposed amendments to the 3rd Respondent’s notice of appeal are either insignificant, or non-essential (such as seeking an order that the money paid into court as security for costs be returned to the 3rd Respondent), or assertions unsupported by evidence (such as the statement that “the Respondents had acted under a mistaken belief that the direct payments to be made by the Employer could avoid s.182 even when the payments were made after the presentation of a winding up petition”). 95.In all, the 3rd Respondent’s application to amend its notice of appeal is refused. DISPOSITION 96.The Respondents’ appeals are allowed, the Order dated 17 March 2025 is set aside, and the Section 182 Summons is dismissed. The 3rd Respondent’s summons dated 20 February 2026 is also dismissed. 97.On the issue of costs, we make an order nisi that:
The above costs order shall become absolute unless an application is made to vary the same within 14 days after the date of this Judgment.
Ms Audrey Eu SC leading Mr John Hui, instructed by DeHeng Law Offices (Hong Kong) LLP, for the Applicants Mr Jonathan Chang SC leading Mr Martin Ho, instructed by Cocking & Co LLP, for the 1st and 2nd Respondents Mr Jason Wong, Mr Esmond Wong and Ms Myranda Lai, instructed by Eric Yu & Co., for the 3rd Respondent [1] Save and except certain portions of the Payments referred to as the “Retention Monies” which the Judge considered were trust monies of the Respondents but subject to the Company’s potential right of set off (to be ascertained). [2] After practical completion of the Project on 2 October 2018 and after the commencement of the winding up of the Company on 5 November 2018. [3] See §7.2 of the Decision. [4] See SCC-22(1)(a) of the Special Conditions of Contract. [5] See SCC-22(1)(b) of the Special Conditions of Contract. [6] See §19 of the Decision. [7] The Supplementary Agreement entered into on 12 May 2017 was in fact the second supplementary agreement which varied or modified the terms of the Main Contract. There was an earlier supplementary agreement entered into by the Employer and the Company dated 10 March 2017, and a subsequent supplementary agreement dated 14 February 2018. [8] See §§24.3 and 25 of the Decision. [9] See §49.1-49.3 of the Decision. [10] The 1st and 2nd Respondents applied for a validation order on 14 April 2025 after the date of the Decision, but the application was subsequently dismissed by consent on 9 May 2025. [11] Ground 1 of R3 NOA is simply a general statement that the Judge ought to have found that “the payments made by the Employer to the Respondents after the commencement of the winding up of the Company were not caught by s.182 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap.32.”. [12] See §6(a) of the 3rd Respondent’s draft amended notice of appeal. [13] See [2019] 3 HKLRD 367, at §§1 and 2. [14] That case also concerned a summons issued by the liquidator of a company for a declaration that two payments made after the commencement of winding up were void under s 227 of the Companies Act 1948 (equivalent to s 182 of the Ordinance), and for an order for the recovery of the relevant sums from the recipient. [15] See §20 of the Skeleton Submissions for the 1st and 2nd Respondents dated 20 February 2026. [16] See fn 7 above. [17] See §§7 to 21 of the Skeleton Submissions for the 3rd Respondent dated 20 February 2026. [18] See §12 of the Skeleton Submissions for the 3rd Respondent. [19] See Decision, at §29. [20] See Grounds 2 & 3 of R1-2 ANOA and Ground 4 of R3 NOA. [21] See Ground 4 of R1-2 ANOA and Ground 5 of R3 NOA. [22] See Ground 6 of R3 NOA. [23] See §27.1 of the Decision. [24] See §48 of the Decision. The 1st and 2nd Respondents’ subsequent application for a validation order was dismissed by consent on 9 May 2025. [25] See Ground 5 of R1-2 ANOA and Ground 7 of R3 NOA. [26] See §57.1-57.3 of the Decision. [27] See §§32(3)-33 of the 8th Affirmation of Osman Mohammed Arab filed on 9 July 2024, and §20(5) of the 12th Affirmation of Osman Mohammed Arab filed on 12 November 2018. |
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