Re Affluence Pictures Ltd
Read the full judgment text of HCCW 12/2008 on BabelCite. This High Court CFI judgment was delivered on 13 November 2008.
1. This is a creditor’s petition to wind up Affluence Pictures Limited (泰發影業有限公司; “the Company”), formerly known as Wong Jing’s Workshop Limited (王晶工作室有限公司). The petitioner is a company incorporated in the Mainland known as Beijing Sun Wah World Media and Culture Limited (北京新華環球影視文化傳播有限公司; “the petitioner”). The petition is founded on an award of the China International Economic and Trade Arbitration Commission (“CIETAC”) dated 29 January 2007 in an arbitration between the petitioner and the C
Cites 4 cases
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HCCW 12/2008 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE COMPANIES (WINDING-UP) NO. 12 OF 2008 ----------------------
---------------------- Before: Hon Kwan J in Court Date of Hearing: 13 November 2008 Date of Judgment: 13 November 2008 --------------------------------------- J U D G M E N T -------------------------------------- 1.This is a creditor’s petition to wind up Affluence Pictures Limited (泰發影業有限公司; “the Company”), formerly known as Wong Jing’s Workshop Limited (王晶工作室有限公司). The petitioner is a company incorporated in the Mainland known as Beijing Sun Wah World Media and Culture Limited (北京新華環球影視文化傳播有限公司; “the petitioner”). The petition is founded on an award of the China International Economic and Trade Arbitration Commission (“CIETAC”) dated 29 January 2007 in an arbitration between the petitioner and the Company. The award in the petitioner’s favour was in the amount of RMB 1,557,500 with interest. By an order in HCCT No. 42 of 2007 dated 7 July 2007 and amended on 19 July 2007, it was ordered that the petitioner be at liberty to enforce the award in the same manner as a judgment or order to the same effect, pursuant to sections 2GG and 40B(1) of the Arbitration Ordinance, Cap 341, with costs of the application to be paid by the Company to the petitioner. On 31 August 2007, the petitioner’s solicitors served a statutory demand on the Company to pay the sum of the award. As no payment was made, this petition was presented on 10 January 2008. 2.I also have before me a summons issued by the Company on 19 March 2008 to strike out the petition on the grounds that it discloses no reasonable cause of action, that it is frivolous or vexatious, or an abuse of the process of the court. 3.By an order made on 26 May 2008, I directed the petition and the strike out summons to be heard at the same time. 4.In opposition to the petition and in support of its own summons, the Company filed a total of seven affirmations: three from its director Wong Yat Cheung also known as Wong Jing (“Wong”); one from Li Xiaoyun (李曉雲), an assistant manager of a company known as Beijing Culture Media Company (北京北青文化藝術公司); one from Liu Xiaolin (劉小林 also known as 劉曉霖), the legal representative of a company known as 北京華億聯盟傳媒有限公司; one from Jin Xiaopeng (金小鵬; “Jin”), a lawyer of the People’s Republic of China (“the PRC”) engaged by the Company to deal with its dispute with the petitioner and the arbitration proceedings; and one from Wong Oi Ling Angela (“Ms Wong”), who is Wong’s sister and the corporate services manager of the Company. 5.The petitioner filed two substantive affirmations, both from Chen Cong (陳驄; “Chen”). He is the general manager of the petitioner. 6.I will first set out the relevant background matters. The agreements 7.In July and August 2005, the petitioner and the Company executed three agreements in Chinese to co-operate in the production and distribution of a film which was temporarily named as “Pink Tiger” (“the Film”). Pursuant to these agreements, the Company and the petitioner were to invest jointly in the Film. The total investment was RMB 14 million, the Company was to provide RMB 12.5 million and the petitioner was to provide RMB 1.5 million, and if the amount should be insufficient, the Company would be responsible to make further investment. The public release period of the Film in Hong Kong and the Mainland was during the Chinese new year period of 2006. 8.The first of these agreements executed was headed “Co-operation Agreement” and bore the date of 6 July 2005. I will refer to this as “the Co-operation Agreement”. The material provisions are clauses 4(3) and 6, and they read as follows according to the certified English translation:
9.The Co-operation Agreement provided that disputes arising out of the agreement should be referred to CIETAC for arbitration in Beijing and the applicable law is the laws of the PRC. 10.The second of the agreements was headed “Supplemental Agreement” and had no date. I will refer to this as “the First Supplemental Agreement”. The material provision is clause 3, and this reads as follows according to the certified English translation:
11.The last agreement also headed “Supplemental Agreement” was executed on 25 August 2005. I will refer to this as “the Second Supplemental Agreement”. The Second Supplemental Agreement stated it was to make clear the parties’ rights and obligations regarding copyright protection of the Film and to tighten the scope of responsibility; the parties confirmed they should each shoulder responsibility to fight piracy at various stages and co-ordinate with each other. The material provisions are clauses 8 and 9 and read as follows according to the certified English translation:
The arbitration 12.The petitioner lodged an application for arbitration on 9 February 2006, alleging that the Company was in breach of clause 4(3) of the Co-operation Agreement and clause 9 of the Second Supplemental Agreement in that video audio products of the Film were sold in Beijing on 6 February 2006, just eight days after the “First Cinematic Public Release in Mainland” on 29 January 2006. The petitioner claimed compensation of RMB 1.5 million as provided in the Second Supplemental Agreement. 13.A tribunal was formed by CIETAC, with each party nominating one arbitrator to the tribunal of three arbitrators. The Company lodged a defence and documentary evidence on 24 July 2006. There was a hearing before the tribunal on 21 August 2006 with oral submissions. After the hearing, both parties put in additional submissions in writing and further documentary evidence in November 2006. 14.The defence raised by the Company was that the term “First Cinematic Public Release in Mainland” (“國內院線首映”) in clause 4(3) of the Co-operation Agreement should be understood as not referring to 29 January 2006 as asserted by the petitioner but to an earlier date of 20 January 2006, so that by the time video audio products were sold in Beijing on 6 February 2006, this was already past the 15 days as provided in the agreements. The Company contended that the petitioner had confused “first show or premiere” (“首映”) with “public release” (“上映”). 15.The tribunal rejected the Company’s contention and held that the term “First Cinematic Public Release in Mainland” in clause 4(3) of the Co-operation Agreement should refer to 29 January 2006, when the Film was shown in cinemas of the Mainland for the first time in a general commercial release. It held that the Company was in breach of clause 4(3) of the Co-operation Agreement and clause 9 of the Second Supplemental Agreement, and was liable to pay compensation to the petitioner of RMB 1.5 million and costs of RMB 57,500 of the arbitration. The award was published on 29 January 2007. Events after the award was made 16.The petitioner applied to the High Court of Hong Kong under sections 2GG and 40B(1) of Cap. 341 to enforce the Mainland award. On 7 July 2007, A Cheung J made an order, which was amended on 19 July 2007, granting leave to the petitioner to enforce the award in the same manner as a judgment or order to the same effect. 17.The statutory demand was served on the Company on 31 August 2007. 18.On 15 September 2007, the Company wrote to the petitioner’s solicitors stating that the Company had made an application to the Second Intermediate People’s Court in Beijing to have the award set aside and a decision was due to be made, and alleging that in any event the petitioner was indebted to the Company of at least RMB 1.5 million, being the Company’s share of income from the distribution of the Film according to clause 6 of the Co-operation Agreement and there should be a set off. The Company asserted it would be an abuse of process to bring a winding-up petition. On the same day, the Company wrote to the petitioner to demand payment of its share under clause 6 of the Co-operation Agreement. 19.On 17 October 2007, the petitioner’s solicitors wrote to the Company stating that the Company’s application to the Beijing court to set aside the award had been dismissed. There was no denial of this in subsequent letters of the Company or in any of the affirmations filed by the Company. The petitioner’s solicitors further stated that the income from distribution of the Film did not exceed RMB 15 million, so the sharing of profits was not triggered by clause 6 of the Co-operation Agreement. 20.On 26 October 2007, the Company wrote to the petitioner’s solicitors pointing out there was a supplemental agreement amending clause 6 of the Co-operation Agreement, so even if the distribution income should be below RMB 15 million, the Company would still be entitled to payment of its share. 21.The petitioner’s solicitors replied on 14 November 2007 enclosing a memorandum of the petitioner dated 30 October 2007. It was alleged that the ticketing box office income was below RMB 15 million and pursuant to the First Supplemental Agreement, the Company was entitled to 12.12% of the distribution proceeds of RMB 205,130.14, which was RMB 24,861.77. The sum due to the petitioner after giving credit to the Company of RMB 24,861.77 was RMB 1,532,638.23. 22.The Company wrote on 16 November 2007 rejecting the figures of the petitioner and alleging that they were “totally unreliable and unbelievable accounts wholly unsupported by any real genuine evidence”. 23.After the petition was presented the Company wrote to the petitioner on 22 February 2008 alleging an oral agreement with the petitioner by which the Company could distribute the video sound products seven days after the Film was shown in the PRC. It was further alleged that the petitioner’s representatives had requested the Company to put in an additional RMB 0.5 million towards publicity expenses and had assured the Company it could recover that sum. The Company stated it would oppose the petition as there is a cross claim for set off. The grounds of opposition 24.Two broad grounds were advanced by the Company to oppose the petition and in support of its application to strike out and dismiss the petition. 25.Firstly, the petitioning debt being the award of CIETAC, is disputed. It was submitted by Mr Benny Lo on behalf of the Company that the debt is disputed bona fide on substantial grounds. 26.Secondly, the Company contended that it has a genuine and serious cross claim against the petitioner of RMB 2.18 million, being its entitlement on the basis of clause 3 of the First Supplemental Agreement. 27.In the submissions of Mr Lo, he dealt with the cross claim first, and that seemed to be the more important contention relied on in this hearing. I propose to deal with the dispute on the petitioning debt first, as that appears to be the more logical way of approaching the matter. The dispute on the petition debt 28.It was contended by the Company there is a substantial dispute of the petition debt on two issues which were not advanced by the Company in the arbitration proceedings. 29.Firstly, it was alleged there were oral collateral agreements made between the petitioner and the Company to the effect that clause 4(3) of the Co-operation Agreement and clause 9 of the Second Supplemental Agreement would not be enforced, and the Company was allowed to release video audio products within seven days, instead of 15 days as stipulated in the agreements in writing, of the first cinematic public release in the Mainland. 30.Secondly, it was alleged that the sum of RMB 1.5 million which the Company was to pay as compensation under clause 9 of the Second Supplemental Agreement amounted to a penalty and not a genuine pre-estimate of loss, and the Company was not liable to pay the said sum to the petitioner even if there was breach of the agreements. 31.Mr Lo cited Re Phoon Lee Piling Company Limited [2003] 2 HKLRD 391 at 396, paragraph 25 to support his contention that in cases of dispute on judgment debt relied on by a petitioner, it is open to the court to enquire into the validity of the underlying judgment where there is evidence that the same was obtained by fraud, mistake, collusion or that there has been some miscarriage of justice. As I understand Mr Lo’s submission, he was contending that there had been some miscarriage of justice in this instance. 32.In my view, the reliance on Phoon Lee Piling is misconceived and the dispute on the petition debt does not get off ground. The proposition in Phoon Lee Piling that a bankruptcy court may go behind a judgment obtained by the petitioner was said in the context where a judgment was entered by default or by consent, where there are strong grounds for believing that the debt of the petitioner does not exist. Paragraph 25 of the judgment also mentioned specifically what Fry LJ said in Re Flatau, ex parte Scotch Whisky Distillers Limited (1889) LR 22 QBD 83 at 86, that this power of the bankruptcy court to go behind the judgment had never, as far as he was aware, been extended to cases in which a judgment had been obtained after issues had been tried before a court. In paragraph 26 of the judgment, the court posed the question if there are any compelling grounds for the court to inquire into the validity of a judgment which was obtained after a proper trial. 33.In the present case, the award was made in arbitration proceedings with the full participation of the Company. The Company took advice from Jin, its lawyer in the PRC, and accepted the advice given by him it should only raise the defence that as a matter of construction of the agreements, the term “First Cinematic Public Release in Mainland” in clause 4(3) referred to the showing of the Film on 20 January 2006 and thus the Company was within the 15-day period as provided in the agreements. Jin made a detailed affirmation in which he gave full reasons why he advised the Company not to raise a defence on the two issues now relied on. He was of the view that running the defences of collateral agreement or penalty clause might be tantamount to accepting that the Company was in breach of the terms in the written agreements. He considered the evidential difficulty of establishing to the satisfaction of the tribunal the oral collateral agreements as alleged, and the legal argument that might be raised by the petitioner that its officers alleged to have made the oral collateral agreements with Wong had no authority to do so. So a decision was made by the Company on legal advice to adopt the strategy of not raising those two issues in defence in the arbitration, and proceeding on the basis that the three written agreements constituted the entire agreement. Jin also mentioned in his affirmation he had raised in his submission to the tribunal there was no evidence to establish actual loss regarding the compensation of RMB 1.5 million claimed, but this was rejected by the tribunal. Ms Bethany Chan for the petitioner referred me to the relevant part of the tribunal’s decision at pages 18 and 19. It is apparent that the tribunal had before it the figures of the box takings of the Film from 29 January 2006 and found that during the eight days on which audio video products were sold in breach of the agreements, the impact on the box takings was over RMB 2 million. 34.In those circumstances, I am unable to see how it could possibly be said there was any miscarriage of justice in the arbitration. Nor am I able to see how the enforcement of the award in Hong Kong would be “contrary to public policy” within section 40E(3) of Cap. 341 as contended by Mr Lo. 35.There are only limited technical grounds for resisting the enforcement of Mainland awards. The Hong Kong court will give leave to enforce the award as a judgment unless there is either a real ground for doubting the validity of the award, in which case leave to enforce may be stayed to give the party against whom enforcement is sought an opportunity to defend the proceedings. Principal defences to an application for leave to enforce an award as judgment are the same as those which apply to an action on the award. Given that the court is concerned only with the jurisdiction of the arbitration tribunal, it is no defence to an action on the award there is an error of fact or law on the part of the tribunal (Halsbury’s Laws of Hong Kong, Volume 1(2) 2008 Reissue, paragraphs [25.187] and [25.188]). 36.As mentioned earlier, the Company had applied to a Mainland court to set aside the award and its application was apparently unsuccessful. 37.It is not necessary for me to deal with in detail the quality of the evidence adduced by the Company in support of its contention there were oral collateral agreements as alleged. I have considered the evidence in the totality, it does not strike me as believable that the parties went through the charade of drawing up very detailed terms in writing in the agreements that they had no intention to enforce. Ms Chan has drawn my attention to clause 4(4) of the Co-operation Agreement, which provided that if any change should occur to the terms, the parties would discuss separately and make out a supplemental agreement, the terms of which would prevail. I find it incredible, if the parties had indeed reached a valid agreement to vary the Co-operation Agreement, they chose not to do so in any of the supplemental agreements in writing which they did subsequently enter into. 38.The argument that there is a bona fide dispute of the petition debt on substantial grounds must fail. The cross claim 39.To rely on a cross claim so that the court is to exercise its discretion to dismiss or stay a winding-up petition, the company would need to establish these requirements according to the principles in Re Bayoil SA [1999] 1 WLR 147 :
40.Where the circumstances in (1) to (3) are met, the court should exercise its discretion to dismiss or stay the winding-up petition, in the absence of special circumstances. 41.I had considered the second element in two decisions, Re Keen Lloyd Resources Limited [2004] 2 HKC 33 and Re Landune International Limited [2005] 4 HKLRD 46. I held that there was no absolute requirement that to dismiss a petition, the company had to show it had been unable to litigate the cross claim. However, where there had been delay in the prosecution of the cross claim, this might lead to the inference it was not genuine and was not put forward in good faith (Re Keen Lloyd at 39C, paragraph 13; Re Landune at 56E to G, paragraph 28(5)). Re Douglas Griggs Engineering Limited [1963] 1 Ch 19 referred to in Re Landune is a case in point. There, the company had a perfectly good opportunity to raise a set off in defence to the action brought by the petitioning creditor but elected not to do so, with the result that the petitioning creditor obtained judgment and possessed all the remedies of a judgment creditor, including the entitlement to petition for the winding up of the company. 42.It is instructive to consider Jin’s affirmation, in which he gave reasons why the decision was made with Wong not to pursue the cross claim as a set off in the arbitration proceedings. Wong had raised with him that the petitioner should pay the Company at least RMB 0.5 million being publicity expenses and the Company’s share of the profits, and that these amounts should be sufficient to set off the compensation claimed by the petitioner. It was however decided not to run the set-off argument in the arbitration, as Jin considered this would be tantamount to accepting that the Company was in breach of contract. 43.Furthermore, if the Company had intended to raise a set off, the Company must put in a counterclaim or counter-application, and pay the application fee. The consideration at the time was that the Film was not shown for a very long time, so the share of ticketing box income would be limited, also the Company was minded to reduce the cost of litigation. After discussion with Wong, it was decided not to make a counter-application for arbitration. The Company could still apply for arbitration later if there should be dispute on the share of profits. 44.The award was published in January 2007. Other than writing to the petitioner on 7 February 2007 to inquire about the Company’s share of the profits, no further action was taken until the statutory demand was served on the Company when the Company wrote several letters to the petitioner and the petitioner’s solicitors from September to November 2007. No steps whatsoever were taken to refer any dispute on the sharing of profits to arbitration, notwithstanding the presentation of the petition to wind up the Company in January 2008. It was only on 10 November 2008, 2 days before this hearing, that Ms Wong made a belated affirmation for the Company stating that the Company considered it should pursue its claim against the petitioner in an arbitration for the monies allegedly owed to the Company arising out of the agreements after the conclusion of this petition. No valid reason was given by Ms Wong why the Company did not pursue its claim in arbitration earlier. I would attach no weight at all to the assertion that the Company still intends to pursue its claim in arbitration. 45.Given this background, I have great reservations if the cross claim was put forward in good faith. Bearing in mind the evidence in Jin’s affirmation that the Company had been of the view its share of ticketing box income would be limited and on that basis decided not to raise a counter- claim in the arbitration when it would have been expected to do so, I am sceptical if the cross claim of RMB 2.18 million now raised to resist the winding-up petition is serious and genuine. With that, I turn to consider the evidence and arguments advanced on the Company’s behalf. 46.The claim for RMB 2.18 million was arrived at in this way. It was alleged by Wong that the income of the Film in the PRC was about RMB 18 million. Under clause 3 of the First Supplemental Agreement, he contended that the Company was entitled to receive 12.12% of RMB 18 million, which amounted to RMB 2.1816 million. 47.The figure of RMB 18 million was derived from a report in a newspaper published on 9 March 2006 exhibited by the petitioner’s witness, Chen. The article mentioned another figure of RMB 11 million (or RMB 14 million, as the photocopy is barely legible) as the box office takings of the Film, which is different from the figure of 18 million given in a table in the same article. The petitioner has adduced evidence, with a breakdown of the box office takings of 43 companies that had been showing the Film, that the total box office takings amounted to RMB 11,589,928.89. I cannot possibly view the figure of RMB 18 million put forward by the Company as a credible basis upon which the sharing of profits could be calculated. As Ms Chan pointed out, the Company should have available to it the evidence of the box office takings adduced before the arbitration tribunal, as mentioned in the judgment of the tribunal referred to earlier. Why the Company chose not to put such evidence before this court but kept on harping that the petitioner has not adduced sufficient evidence on the box office takings is beyond me. 48.Mr Lo in his submissions raised an argument not advanced in any of the affirmations filed by the Company. He submitted that “distribution proceeds” [發行收益] in clause 3 of the First Supplemental Agreement should be construed to read “gross box office income”, so where clause 3 provided that the Company “owns 12.12% of the distribution proceeds [發行收益] of the Film”, this would mean that the Company is entitled to 12.12% of the gross box office income, which was RMB 18 million according to the contention of the Company. He asked this court to construe “distribution proceeds” [發行收益] in clause 3 by contrasting this term with another term in clause 6 of the Co-operation Agreement, which is “net proceeds” [凈收益]. He contended that the omission of the character “凈” (net) in the First Supplemental Agreement supports the Company’s contention that the “distribution proceeds” referred to in clause 3 of that agreement must mean “gross box office income”. 49.Mr Lo also relied on clause 5(4) of the Co-operation Agreement, which provided that “distribution fees” for Mainland chains of cinemas are to be borne by the petitioner. Hence, “distribution proceeds” in clause 3 should not include distribution fees or expenses, which should be borne by the petitioner. 50.Mr Lo reasoned that if the petitioner’s interpretation and calculation were correct, in that the Company was only entitled to 12.12% not of the gross box office income but only of an amount of RMB 205,130.14 (arrived at by deducting from the ticketing box income RMB 11,589,928.89 the sums kept by the cinema chains to give the “distribution income” of RMB 3,954,900.45, and making a further deduction for distribution expenses of RMB 3,749,770.31), the amount of RMB 205,130.14 to be shared by the petitioner and the Company would only be 1.6% of the total capital injected by the Company of RMB 13 million and this would be absurd. 51.Lastly, Mr Lo submitted that this court should take into account the representation or promise allegedly said by the petitioner’s officers to Wong before the agreements were signed, as an aid to construction of the term “distribution proceeds”. Wong alleged that he was told the formula of apportioning income in the First Supplemental Agreement would be to calculate the relevant percentage over the gross revenue without any deduction of expenses, because such expenses could be very unrealistic or exaggerated, so the Company was entitled to 12.12% out of the gross income. 52.I am not persuaded by the arguments advanced by Mr Lo there is a genuine and serious cross claim based on the contention that “distribution proceeds” in clause 3 of the First Supplemental Agreement should be construed to mean “gross box office income”. As pointed out by Ms Chan, in clause 3, one finds 3 terms used in the same provision - “distribution proceeds” [發行收益], “distribution income” [發行收入] and “ticketing box income” [票房]. These 3 terms were not used interchangeably in the same provision and it is clear that they denoted different things. Ms Chan advanced her own argument as to what the meaning of “distribution proceeds” should be, with reference to a table. It is not necessary for me to go into the details of this, except to say that her construction is on the face of it more consistent with the terms in the First Supplemental Agreement read as a whole and does not do violence to the language used. Suffice it to say I am of the view that it would be clearly wrong to equate “distribution proceeds” with “ticketing box income” as contended by Mr Lo. Nor do I think it right to construe this term with reference to what the petitioner’s officers had allegedly represented to Wong orally, which is against the parol evidence rule, quite apart from the fact that I do not find the evidence credible. There was provision in clause 5(2)(5) of the Co-operation Agreement that the petitioner was obliged to provide the Company with a distribution budget of the Film before carrying out the distribution tasks, and was to hand over to the Company the final accounts of the fees so incurred after completion of the tasks. It was puzzling, to say the least, that the petitioner’s officers could have represented to Wong that the distribution expenses could be very unrealistic or exaggerated. 53.For the above reasons, I hold there is no serious, genuine or bona fide cross claim advanced by the Company of an amount not less than the petition debt of RMB 1.5 million odd. 54.I order the Company to be wound up. The petitioner’s costs are to be paid out of the assets of the Company.
Miss Bethany M Y Chan, instructed by Messrs Rowland Chow, Chan & Co., for the Petitioner Mr Benny Lo, instructed by Messrs Rowdget W Young & Co., for the Company Mr Y Lo, for the Official Receiver |
Cases cited in this judgment
Further hearings and rulings under HCCW 12/2008