PAN SUTONG v. BANK OF CHINA LTD (t/a BANK OF CHINA LTD SHENZHEN BRANCH)

CACV 246 & 247/2022, [2024] HKCA 870

On appeal from [2022] HKCFI 1450

(Heard together)

CACV 246/2022

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 246 OF 2022

(ON APPEAL FROM HCSD NO 28 OF 2021)

________________________

________________________

AND

CACV 247/2022

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 247 OF 2022

(ON APPEAL FROM HCCW NO 215 OF 2021)

________________________

________________________

(Heard together)

________________________

DECISION ON COSTS

________________________

Hon Kwan VP (giving the Decision on Costs of the Court):

1.  On 14 August 2024, we handed down our judgment dismissing the 1^st and 2^nd New Evidence Applications taken out by Pan and Proman. We made a costs order nisi that Pan and Proman do pay BOC’s costs of these applications, to be taxed if not agreed.

2.  On 22 August 2024, BOC issued a summons seeking an order that the order nisi be varied to “Pan and Proman do pay BOC’s costs of these applications, such costs to be summarily assessed”, and for leave be granted to BOC to file the statement of costs dated 9 October 2023. I made an order as sought on 26 August 2024 and made no order as to the costs of the summons. I granted leave to Pan and Proman to lodge objections to the statement of costs of BOC for summary assessment within 7 days thereof.

3.  Having read the statement of costs and the objections of Pan and Proman, I consider the objections and proposed costs of the paying parties reasonable. I assess the costs to be paid by Pan and Proman to BOC for these applications at $848,605.

Charles Chu & Kenneth Sit, for the Applicant in CACV 246/2022 and the Company in CACV 247/2022 (Applicants)

King & Wood Mallesons, for the Respondent in CACV 246/2022 and the Petitioner in CACV 247/2022 (Respondents)

CACV 246 & 247/2022, [2024] HKCA 775

On appeal from [2022] HKCFI 1450

(Heard together)

CACV 246/2022

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 246 OF 2022

(ON APPEAL FROM HCSD NO 28 OF 2021)

________________________

________________________

AND

CACV 247/2022

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 247 OF 2022

(ON APPEAL FROM HCCW NO 215 OF 2021)

________________________

________________________

(Heard together)

____________________

J U D G M E N T

____________________

Hon Kwan VP (giving the Judgment of the Court):

1.  The present applications are the applications of Pan Sutong (“Pan”) and Proman International Limited (“Proman”) for leave to adduce further evidence on appeal filed on 28 June 2022 and 30 August 2022 respectively.

2.  On 9 August 2023, the Court of Appeal handed down a judgment (“Stay Decision”)[1] dismissing their applications to stay their new evidence applications pending the determination of a summons under Rule 99L of the Bankruptcy Rules, Cap 6A to challenge the Official Receiver’s decision to admit the proof of debt of the Bank of China Limited trading as Bank of China Limited Shenzhen Branch (“BOC”) for voting purposes[2].

3.  For the background of the present proceedings, we refer to §§5 to §17 of the Stay Decision. The terms and expressions in the Stay Decision will be adopted and this judgment is to be read with the Stay Decision.

4.  Very briefly, the winding-up petition against Proman presented by BOC and Pan’s application to set aside the statutory demand (“SD”) served on him by BOC were heard before Linda Chan J on 21 April 2022 (“the CFI hearing”).

5.  By her judgment dated 18 May 2022[3], the judge held there are no bona fide disputes in respect of the petition debt and made a winding-up order against Proman. She also dismissed Pan’s application to set aside the SD and authorized BOC to present a bankruptcy petition against him forthwith. Pan and Proman each filed a Notice of Appeal in respect of the SD proceedings and the winding-up proceedings on 20 June 2022. They are CACV 246/2022 and CACV 247/2022.

6.  On 8 July 2022, Pan was adjudicated bankrupt by the judge in HCB 6548/2021 on the petition brought by another creditor in the CITIC group. His appeal against the bankruptcy judgment was dismissed by the Court of Appeal on 28 June 2024[4].

The new evidence applications

7.  In the skeleton submissions lodged on behalf of Pan and Proman, their counsel Mr Lai Chun Ho confirmed their stance[5] that they would no longer pursue the 1^st New Evidence Application and a part of the 2^nd New Evidence Application. They would only pursue that part of the 2^nd New Evidence Application to seek leave to adduce on appeal the ZL Memo and the Wu Affirmation.

8.  The ZL Memo sets out the investigation and analyses conducted in around July 2022 in which Zhong Lun Law Firm (Shenzhen Office) (“ZL”) concluded it is very likely that the three loans pursuant to three loan agreements (No. 45 Loan Agreement, No. 46 Loan Agreement and No. 41 Loan Agreement, collectively “the Three Loan Agreements”) were never remitted by BOC to GE.

9.  The Wu Affirmation contains the further analyses of Ms Wu, a PRC lawyer, on the legal effect of the non-remittance of the three loans, in which she opined that if the loans were never remitted, BOC would not have an actionable claim under the 2020 Loan Agreement or the relevant guarantees.

10.  Pan and Proman intend to rely on the new evidence to argue that they could not be said to have validly guaranteed any liability of Tianjin Huading to BOC as there had been no remittance of funds under the Three Loan Agreements, hence there must be a bona fide dispute in respect of the debt concerned.

11.  There is no dispute that the Pan/Proman Non-Remittance Argument is a new point which has not been raised in the court below, and is not included in the grounds of appeal in each Notice of Appeal. It should also be noted that Pan and Proman took an opposite stance at the CFI hearing. They had argued before the judge that the 2020 Loan Agreement was tainted by illegality in that it was intended to conceal the non-performing loans or bad debts of MD and GE[6]. They had thereby accepted that BOC had lent money to GE, and the SD proceedings and the winding-up proceedings were conducted on that basis. Mr Lai submitted on their behalf that it was only after the CFI hearing that they discovered the non-remittance of the three loans.

12.  Order 59 rule 10(2) of the Rules of the High Court, Cap 4A provides that the Court of Appeal shall have power to receive further evidence on questions of fact but no such further evidence (other than evidence as to matters which have occurred after the date of the trial or hearing) shall be admitted except on special grounds.

13.  Further evidence is admissible on appeal only where all these conditions are satisfied (Ladd v Marshall [1954] 1 WLR 1489 at 1491):

(1)  such evidence could not have been obtained for use at the trial with reasonable diligence (“Condition 1”);

(2)  the evidence must be such that, if given, it would probably have an important influence on the result of the case, though it need not be decisive (“Condition 2”); and

(3)  the evidence must be such as is presumably to be believed, in other words it must be apparently credible though it need not be incontrovertible (“Condition 3”).

Whether Condition 1 is satisfied

14.  Pan asserted that the revelation that the loan was not remitted under No. 42 Loan Agreement only emerged as Shenzhen Arbitration No. 598 progressed from April 2022 to June 2022, which prompted Pan and ZL to conduct investigations in relation to the loans under the Three Loan Agreements, hence the ZL Memo and Wu Affirmation could not have been prepared earlier[7].

15.  Mr Lai highlighted the fact that the first hearing of the Shenzhen Arbitration No. 598 took place on 22 April 2022 (ie one day after the CFI hearing), during which BOC was questioned as to the lack of evidence on the remittance of the loan to GE.

16.  Under normal circumstances, it may be reasonable for the applicants not to question the existence of the relevant loans advanced by BOC to GE, as the 2020 Loan Agreement (the purported effect of which was for Tianjin Huading to use the loan under this agreement to repay the debts owed by GE to BOC under the Three Loan Agreements) would not otherwise have been executed.

17.  However, as can be seen from the transcript of the arbitration hearing, ZL had raised the argument for Pan that the loan under No. 42 Loan Agreement had not been remitted by BOC to GE[8]. ZL had referred to a number of evidence to support this argument in its submissions at the arbitration hearing[9]. This reflected that Pan’s legal representatives had already conducted some investigation into the alleged issue of non-remittance of loan by BOC to GE well before the arbitration hearing, rather than just being alerted to such issue at the first hearing on 22 April 2022. Quite clearly, the various investigations and analyses carried out by ZL (calling the BOC hotline, inspecting GE’s internal accounting records) could have been carried out with regard to the advances under the Three Loan Agreements prior to April 2022.

18.  In these circumstances, it is untenable for Mr Lai to submit that it was reasonable for Pan and Proman to assume that BOC had complied with the terms of the Three Loan Agreements and that it will be a counsel of perfection for them to have suspected earlier that there had been no remittance of loans pursuant to the Three Loan Agreements.

19.  One of the documents referred to in the ZL Memo and the Wu Affirmation, namely, the explanation in relation to the 2020 GE audit report (關於高先電子2020年度審計報告情況説明), was issued on 15 July 2022, which was after the CFI hearing. Nonetheless, this report relates to matters which occurred before the CFI hearing. There is nothing to show that this document cannot be procured before the hearing with reasonable diligence, especially when the 2020 audit report of GE was issued back in May 2021.

20.  Furthermore, the ZL Memo and Wu Affirmation referred to, among other things, the supplemental evidence submitted by BOC in another arbitration proceedings (Shenzhen Arbitration No. 1480 of 2021) on 23 June 2022[10]. Looking at the nature of the relevant supplemental evidence, Pan and/or Proman should have possession of most of the documents produced therein before BOC produced the same in the arbitration hearing and it would appear that such documents could be obtained before the CFI hearing. Even assuming that Pan and/or Proman did not have the meeting minutes (中國銀行與松日集團高層會談紀要)[11] previously, the lack of this document would not hamper ZL and Ms Wu, significantly or at all, in preparing the ZL Memo and the Wu Affirmation, and would not affect the essential analyses and conclusion of ZL and Ms Wu. The minutes were relied on to show the parties’ discussion on parallel transfer of loans. There are other documents in the possession of Pan and/or Proman which can be used to show the parties’ discussion and/or agreement in this respect, such as the previous email exchanges, the “0730 Memorandum” referred to in the minutes and other relevant agreements[12].

21.  For all the above reasons, we are inclined to think it can reasonably be inferred that the ZL Memo and the Wu Affirmation could have been obtained for use at the CFI hearing with reasonable diligence. Hence, Condition 1 is not met. It is unnecessary to discuss whether such new evidence can meet Condition 2 and Condition 3.

22.  We would add that even if it is considered that the meeting minutes referred to above cannot be obtained before the CFI hearing, this single document would not have an important influence on the outcome of the appeal, so leave to adduce this document would still be refused for it does not meet Condition 2.

23.  BOC has also based their objection on the Flywin principle[13]. In view of the above conclusion, it is not necessary to go into the discussion in this respect.

24.  The 1^st and 2^nd New Evidence Applications are dismissed.

Costs

25.  Costs of the applications should follow the event. BOC has invited the court to make a costs order on indemnity basis. Although the litigation conduct of the losing parties appears to be tactical and has caused delay to the proceedings, it is not so exceptional as to warrant a departure from the usual party and party basis.

26.  Despite the directions given on 9 August 2023[14], BOC has not filed a statement of costs for summary assessment. We make a costs order nisi that Pan and Proman do pay BOC’s costs of these applications, to be taxed if not agreed.

Mr Lai Chun Ho, instructed by Charles Chu & Kenneth Sit, for the Applicant in CACV 246/2022 and the Company in CACV 247/2022 (Applicants)

Mr Bernard Man SC and Mr Thomas Wong, instructed by King & Wood Mallesons, for the Respondent in CACV 246/2022 and the Petitioner in CACV 247/2022 (Respondents)

CACV 246 & 247/2022, [2023] HKCA 964

On appeal from [2022] HKCFI 1450

(Heard together)

CACV 246/2022

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 246 OF 2022

(ON APPEAL FROM HCSD NO 28 OF 2021)

________________________

________________________

AND

CACV 247/2022

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 247 OF 2022

(ON APPEAL FROM HCCW NO 215 OF 2021)

________________________

________________________

(Heard together)

________________________

J U D G M E N T

________________________

Hon Kwan VP (giving the Judgment of the court):

1.  We have before us two applications taken out by Pan Sutong (“Pan”)  and Proman International Limited (“Proman”)  respectively to stay their applications (“Stay Applications”)  to adduce fresh evidence on appeal until the resolution of a summons taken out by Seashore Global Group Limited (“Seashore”)  pursuant to rule 99L of the Bankruptcy Rules, Cap 6A (“Rule 99L Application”).

2.  The substantive hearing of the Rule 99L Application is due to take place before Linda Chan J (“the Judge”)  on 29 August 2023.  It is regrettable that we are not able to attend to the Stay Applications earlier.

3.  Having considered the written submissions, we consider it appropriate to determine the Stay Applications on paper without an oral hearing.

Background

4.  The relevant background matters are taken largely from the judgment of the Judge in HCSD 28/2021 (application of Pan to set aside a statutory demand)  and HCCW 215/2021 (creditor’s petition to wind up Proman)  on 18 May 2022 (“Judgment”)[1].

5.  Pan founded, owned and controlled 2 groups of companies known as the “Goldin Group” and “Matsunichi Group”.

(1)  The Goldin Group engages in property development and provision of financial services: 

(a)  At the apex of the property development arm is Goldin Properties Holdings Ltd (高銀地產控股有限公司)  (stock code 00283)  (“Goldin Properties”), whose shares are listed on The Stock Exchange of Hong Kong Ltd (“HKEx”), and Pan owns 64.45% of its issued shares.  Goldin Properties owns a number of direct and indirect subsidiaries including Goldin Properties (Tianjin)  Co., Ltd (“Goldin Tianjin”)  and Tianjin Huading Zhiye Ltd (天津華鼎置業有限公司)  (“Tianjin Huading”). 

(b)  At the apex of the financial services arm is Goldin Financial Holdings Ltd (高銀金融 (集團)  有限公司)  (stock code: 0530)  (“GoldinFinancial”)  whose shares are listed on HKEx and Pan owns 70.39% of its issued shares.

(2)  The Matsunichi Group engages in production, trading, research and development of electronic products and includes, inter alia:

(a)  Matsunichi Digital Development (Shenzhen)  Co Ltd (松日數碼發展(深圳)有限公司)  (“MD”), held through Goldin Real Estate Financial Holdings Ltd (高銀金融地產控股有限公司), a BVI company; and

(b)  Goldland Electronics (Shenzhen)  Co Ltd (高先電子(深圳)有限公司)  (“GE”)  held through Absolute Glory Ltd, a BVI company.

6.  On 21 April 2022, the Judge heard these two applications:

(1)  a winding-up petition in HCCW 215/2021 presented on 7 June 2021 (“Petition”)  by the Bank of China Limited trading as Bank of China Limited Shenzhen Branch (“BOC”), against Proman (“the Winding-up Proceedings”); and

(2)  an application in HCSD 28/2021 dated 5 July 2021 by Pan to set aside a statutory demand (“SD”)  served on him by BOC on 17 June 2021 (“the SD Proceedings”). 

7.  The two applications concerned the following agreements:

(1)  A credit line agreement (授信額度協議)  <2020 圳中銀戰額協字第001號> (“2020MasterAgreement”)  whereby the parties agreed inter alia that (a)  BOC shall advance a one-off facility of RMB 5 billion to Tianjin Huading; and (b)  the agreement is governed by Mainland law and any dispute arising from the agreement shall be submitted to Shenzhen International Arbitration Tribunal (深圳國際仲裁院)  for arbitration;

(2)  BOC and Tianjin Huading entered into another loan agreement (借款合同)  <2020 圳中銀戰借字第011號> dated 12 January 2020 (“2020 Loan Agreement”)  whereby the parties agreed, inter alia, as follows: (1)  BOC shall advance a 5-year term loan of RMB 656,000,000 to Tianjin Huading (“Subject Loan”)  for the specific purpose of repaying the debts owed by GE to BOC; (2)  the Subject Loan is to be secured by, inter alia, the guarantees executed by Tianjin Huading and its related parties; and (3)  the agreement is governed by Mainland law and any dispute arising from the agreement shall be submitted to Shenzhen International Arbitration Tribunal for arbitration.

(3)  The Subject Loan was secured by inter alia (a)  a deed of guarantee (保證契據)  <2020年圳中銀戰保字第010號> dated 15 February 2020 executed by Pan (“Pan Guarantee”), whereby Pan agreed to guarantee Tianjin Huading’s liability under the 2020 Master Agreement; and (b)  an undated maximum guarantee contract (最高額保證合同)  <2020 年圳中銀戰保字第007號> executed by Proman (“Proman Guarantee”), whereby Proman agreed to guarantee Tianjin Huading’s liability under the 2020 Master Agreement (collectively “2020 Guarantees”).  The Pan Guarantee is governed by Hong Kong law and the Proman Guarantee is governed by Mainland law.

8.  The Subject Loan was due on 14 April 2021 but was not paid by Tianjin Huading.  On 22 April 2021, BOC served a statutory demand on Proman requiring it to pay RMB 691,978,062.29, being the principal of the Subject Loan and interest accrued up to 22 April 2021.  On 17 June 2021, BOC served the SD on Pan, requiring him to pay RMB 696,424,582.60, being the principal of the Subject Loan and interest up to 28 May 2021 (“the Debt”).

9.  At the hearing before the Judge, Pan and Proman advanced three grounds to contend that there was a bona fide dispute to the Debt:

(1)  The 2020 Guarantees were executed as a result of duress and are therefore unenforceable. 

(2)  The 2020 Loan Agreement is void or unenforceable for breaches of Mainland law.  As a result, no liability would arise under the 2020 Guarantees.  Furthermore, the conflicting expert evidence on Mainland law could not be resolved without cross-examination.

(3)  The use of intended bankruptcy proceedings and the Petition constitute abuses of court process.

10.  By the Judgment on 18 May 2022, the Judge held that Pan and Proman failed to raise any bona fide dispute in respect of any of the grounds mentioned above.  The Judge therefore made a winding-up order against Proman, dismissed Pan’s application to set aside the SD and authorized BOC to present a bankruptcy petition against him forthwith. 

Subsequent proceedings

11.  On 20 June 2022, Pan and Proman each filed a Notice of Appeal in respective of the SD Proceedings and the Winding-up Proceedings (respectively, “SD Appeal” and “Winding-up Appeal”).

12.  On 28 June 2022, Pan and Proman each took out a summons to adduce further evidence for their respective appeals (“1^st New Evidence Application”).

13.  On 5 July 2022, BOC filed a Respondent’s Notice in the SD Appeal and the Winding-up Appeal. 

14.  On 8 July 2022, Pan was adjudicated bankrupt in HCB 6548/2021 on the petition brought by another creditor.

15.  On 11 August 2022, the Official Receiver, as provisional trustee of the bankrupt, chaired a general meeting for creditors of Pan (“Creditor’s Meeting”).  Seashore attended the Creditor’s Meeting as one of Pan’s creditors.  A majority of creditors (including BOC)  resolved to appoint RSM Corporate Advisory (Hong Kong)  Ltd (“RSM”)  as the trustee-in-bankruptcy. Seashore voted for another candidate.

16.  On 30 August 2022, Pan and Proman each took out another summons to adduce further evidence for their respective appeals (“2^ndNewEvidence Application”).

17.  On 7 October 2022, being dissatisfied with the outcome of the Creditor’s Meeting, Seashore took out the Rule 99L Application to challenge the Official Receiver’s decision (as Chairman of the Creditor’s Meeting)  to admit BOC’s proof of debt for voting purposes. 

The present applications for stay

18.  On 31 August 2022, the Registrar of Civil Appeals made a direction that the 1^st and 2^nd New Evidence Applications would be dealt with together unless otherwise directed by the Court of Appeal.

19.  After a direction was made by the Registrar on 7 December 2022 that Pan and Proman would need to apply by summons if they wished to seek a stay of the New Evidence Applications, the Stay Applications were taken out by Pan and Proman on 21 December 2022.

20.  The chief argument raised by Pan and Proman in support of the Stay Applications is that there is an overlap between the evidence and arguments raised in the New Evidence Applications and the Rule 99L Application. 

21.  To properly analyze this argument, it is necessary to set out briefly the nature of the aforesaid applications.  However, as neither of those applications are before this court for substantive argument, we shall only set out what is necessary to properly understand this judgment.

New Evidence Applications

22.  We first set out the fresh evidence that Pan and Proman wish to adduce for the SD Appeal and the Winding-up Appeal. 

23.  In respect of the 1^st New Evidence Application, Pan wishes to adduce fresh evidence to advance two key points. 

24.  First, Pan wishes to adduce the expert opinion of華萍 (“MsHua Ping”).  On 12 May 2022, Seashore commenced legal action in the Tianjin No. 1 Intermediate People’s Court against Tianjin Huading and BOC to set aside the 2020 Loan Agreement (“Seashore PRC Action”), on the basis that the agreement violated Articles 538 to 539 of the PRC Civil Code.  Ms Hua Ping opined that if Seashore is successful in setting aside the 2020 Loan Agreement, the Pan Guarantee should not be enforceable under Hong Kong law.

25.  Second, Pan seeks to adduce documentary evidence in respect of a proposed restructuring plan of the “Tianjin 117 Project”, a major asset held by the wholly-owned subsidiary of Proman.  Pan argues that if Proman is wound up or if a bankruptcy order is made against him, it would have a significant impact on the intended restructuring and ultimately lead to substantial loss to the creditors.  

26.  Concerning the 2^nd New Evidence Application, Pan wishes to adduce the following evidence:

(1)  A PRC writ dated 27 May 2022 together with the evidence relied therein (“PRC Writ”)  issued by 深圳市富國安邦投資有限公司 (“Fuguo”)  as plaintiff against Tianjin Huading, BOC and GE and some related correspondence.  The PRC Writ was also founded on alleged breaches of BOC of Articles 538 to 539 of the PRC Civil Code;

(2)  A legal memorandum prepared by Zhong Lun Law Firm (Shenzhen Office)  (“ZL Memo”); and

(3)  The affirmation of 吳荷靜 (“Ms Wu”)  dated 16 August 2022 (“Wu Affirmation”). 

27.  Pan argues that the action in the PRC Writ and the Seashore PRC Action are substantially the same and hence the opinion of Ms Hua Ping would be equally applicable in both actions as they give rise to the same legal issues.

28.  The ZL Memo set out the investigation and analyses conducted in around July 2022 in which ZL concluded it is very likely that the three loans pursuant to three loan agreements were never remitted by BOC to GE.  These loan agreements have been referred to as: (1)  “2018 圳中銀戰借字第045號” between GE and BOC dated 20 September 2018 (“No. 45 Loan Agreement”), (2)  “2018 圳中銀戰借字第046號” between GE and BOC dated 20 September 2018 (“No. 46 Loan Agreement”)  and (iii)  “2019 圳中銀戰借字第041號” between GE and BOC dated 29 September 2019 (“No. 41 Loan Agreement”).

29.  The non-remittance of the loans pursuant to the No. 45 Loan Agreement, No. 46 Loan Agreement and No. 41 Loan Agreement was further analyzed by Ms Wu. Her findings and conclusions are contained in the Wu Affirmation, in which she opined that if the loans under the No. 45 Loan Agreement, No. 46 Loan Agreement and No. 41 Loan Agreement were never remitted, BOC would not have an actionable claim under the 2020 Loan Agreement or the relevant guarantees.(“Pan/Proman Non-Remittance Argument”)

30.  BOC has made submissions on the merits of the New Evidence Applications.  As we are not dealing with the New Evidence Applications, we shall refrain from expressing our views.  In any event, nothing in the present judgment turns on those submissions.

Rule 99L Application

31.  At the Creditor’s Meeting, RSM was voted to be appointed as the trustee-in-bankruptcy.  The Official Receiver also admitted a total sum of HK$110,776,772,771.84 as proof of debt.  The proof of debt of BOC amounted to HK$56,042,244,073.47 (“BOC’s POD”).

32.  Seashore’s proof of debt had amounted to HK$19,283,314,208.7 and it had voted for Deloitte Touche Tohmatsu (“Deloitte”)  to be appointed as the trustee-in-bankruptcy. 

33.  Seashore made the Rule 99L Application seeking: (1)  a declaration that BOC was and is not entitled to vote in respect of the full BOC’s POD; (2)  the setting aside of the appointment of RSM as trustee of Pan’s property; (3)  the appointment of Deloitte in RSM’s place; and (4)  alternatively, a fresh creditors’ meeting is to be convened. 

34.  The Rule 99L Application is supported by the affirmation of Seashore’s director, Sun Wei Yung Kevin, dated 7 October 2022 (“Sun1^stAffirmation”). 

35.  In gist, Seashore challenges the sums contributing to BOC’s POD that originated from Pan’s personal guarantee for loans extended by BOC to (1)  MD; (2)  GE; (3)  Tianjin Huading; and (4)  Goldin Tianjin.  The loans under challenge include:

(1)  Approximately HK$16,108,693,940.4 that Pan guaranteed for the loans owed by MD to BOC (“MD Loans”)  under 14 loan agreements (“MD Agreements”);

(2)  Approximately HK$4,538,199,713.5 that Pan guaranteed for the loans owed by GE to BOC (“GE Loans”)  under 4 agreements (“GE Agreements”);

(3)  RMB 4,779,050,255.38 that Pan guaranteed for the loans owed by Tianjin Huading to BOC under 5 agreements (“Huading Agreements”);

(4)  RMB 26,252,052,275.49 that Pan guaranteed for the loans owed by Goldin Tianjin to BOC under 22 agreements (“Goldin Agreements”). 

36.  Seashore alleges that the MD Loans and the GE Loans were not advanced and that MD and GE were never in receipt of such loans.  Hence, no indebtedness could be created under the MD Agreements and the GE Agreements.  By extension, and according to the expert opinion obtained by Pan on PRC Law, Tianjin Huading would not be indebted to BOC as the Huading Agreements were made to obtain loans to repay the alleged debts created by the MD Loans and GE Loans. Similarly, the Goldin Agreements were also entered into for loans to repay the alleged debts created by MD Loans and GE Loans.  Therefore, Seashore argues that if MD and GE were not indebted to BOC in the first place, then Goldin Tianjin would not be liable to BOC.  It would follow that Pan would not be liable as guarantor for Goldin Tianjin.  (“SeashoreNon-Remittance Argument”)

37.  In support of the Seashore Non-Remittance Argument, Seashore has filed a legal opinion from Zhong Lun Law Firm, which contains the same factual and legal points raised in the ZL Memo and Wu Affirmation.

38.  The Rule 99L Application first came before the Judge on 1 December 2022, it was adjourned to 29 August 2023 for further arguments. 

39.  The parties have made submissions on the merits of the Rule 99L Application.  Seashore’s submissions and BOC’s submissions before the Judge for the hearing in December 2022 were even included in the bundles for the present applications.  It is undesirable to express our views on the Rule 99L Application which is to be ruled upon by the Judge.  In any event, nothing in the present decision turns on those submissions or the merits of the Rule 99L Application.

Legal Principles

40.  In effect, Pan and Proman are seeking a temporary stay of the SD Appeal and the Winding-up Appeal until the disposal of the Rule 99L Application. 

41.  In such circumstances, the correct approach is to consider the balance of convenience and fairness as between the parties.  The Court should exercise its discretion in such a manner to ensure that its procedures are used in a logical, fair and cost-efficient manner.  This is ultimately a question of case management. (Re Chime Corporation Ltd [2005] HKCFI 196 at §14) 

Discussion

42.  Pan and Proman essentially argue that as a matter of case management, it is appropriate to stay the New Evidence Applications because the Judge’s reasoning in determining the Rule 99L Application would be of value to this Court in its determination of the New Evidence Applications.

43.  The basis of the Stay Applications is explained in the 4^th Affirmation of Pan dated 5 January 2023, which in turn relies on matters set out in the Sun 1^st Affirmation.

44.  Pan and Proman argue that in view of the overlap of the evidence and arguments in the Rule 99L Application and the New Evidence Applications, the Judge’s ruling in the Rule 99L Application would be of “reference value” to this Court in deciding the New Evidence Applications.  In particular, the Judge’s reasoning in the Rule 99L Application would assist this Court in assessing whether the second and third criteria of Ladd v Marshall [1954] 1 WLR 1489 (the new evidence would probably have an important influence on the outcome of the SD Appeal and the Winding-up Appeal; and such new evidence is apparently credible)  are satisfied. 

45.  As rightly submitted on behalf of BOC, there is no “overlap” between the Rule 99L Application and the 1^st New Evidence Application as the two sets of applications involve different evidence and contentions. Also, the Rule 99L Application is distinct from the first part of the 2^nd New Evidence Application, ie the admissibility of the PRC Writ and related correspondence.  Pan and Proman have tacitly admitted this, as their reply submissions only go so far as to say that this Court can benefit from the reasoning of the Judge in assessing “a key part of the 2^nd New Evidence Applications”. 

46.  Taking Pan and Proman’s arguments to the highest, while the Pan/Proman Non-Remittance Argument and the Seashore Non-Remittance Argument may be similar, for the most part such arguments cover entirely different loan agreements as only No. 41 Loan Agreement featured in the present proceedings and the Rule 99L Application.

47.  Thus, in our view, any “overlap” is very limited. 

48.  More importantly, the argument of Pan and Proman ignores the fact that regardless of whether the Rule 99L Application was taken out or not, this Court will conduct an independent assessment of the New Evidence Applications.  It is not argued before us, and neither do we see, there is any novel point of law that this Court would benefit from the Judge’s decision or reasoning in the Rule 99L Application. 

49.  Pan and Proman also argue there is no or little prejudice to BOC if the Stay Applications were granted as (1)  the Rule 99L Application will be heard on 29 August 2023 so any stay of proceedings would be short; (2)  Pan was already adjudged bankrupt in a petition brought by another creditor in HCB 6548/2021; and (3)  there is no stay of execution in respect of the winding-up order against Proman.

50.  However, a lack of prejudice per se is not a reason to allow the Stay Applications.

51.  On the arguments before us, we are not persuaded that temporarily staying the New Evidence Applications would further the goals of ensuring that procedures are used in a logical, fair and cost-efficient manner.  We therefore dismiss the Stay Applications.

Costs

52.  We order Pan and Proman to pay the costs of BOC in the Stay Applications.  BOC seeks a total sum of $536,104 for the costs of the Stay Applications. 

53.  BOC also seeks indemnity costs on the basis that the applications are wholly without merit.

54.  We decline to award costs on an indemnity basis.  These applications are opportunistic and apparently made for tactical reasons, but the litigation conduct of the losing parties is not so bad to justify punishing them with indemnity costs. 

55.  Having considered the statement of costs of BOC, we find the charges proposed for the solicitor’s professional work and communications excessive and we are not inclined to allow fees for two counsel.  We assess reasonable costs to BOC at HK$250,000.

Postscript

56.  We cannot leave this without saying something about the inclusion of patently unnecessary documents in the application bundles for the Stay Applications, which ran to over 2,000 pages.  This is most unsatisfactory and is not conducive to the Court’s task in dealing with applications on paper as expeditiously as is reasonably practicable.

57.  It should not be necessary to remind practitioners of their duty under Order 1A rule 3 to assist the court in furtherance of the underlying objectives set out in Order 1A rule 1. 

58.  An important responsibility in assisting the Court is to prepare hearing bundles properly.  PD 5.4 provides guidance and paragraph 4 specifically states that “Hearing bundles should contain only the documents relevant to the particular application or appeal and to which parties will need to refer in the course of their respective submissions”. (emphasis added)

59.  Despite the above, we find quite a number of the affirmations and exhibits therein filed on behalf of BOC to be clearly unnecessary: the affirmation of Niu Tao dated 8 August 2022 and the affirmation of Jiang Deyuan (姜德源)  dated 8 August 2022 (both were made to oppose the 1^st New Evidence Application); the 2^nd affirmation of Niu Tao dated 20 October 2022 (made to oppose the 2^nd New Evidence Application).  Our observation is reinforced by the fact that the written submissions of BOC did not even refer to the contents of these affirmations. 

60.  Nor do we see the need for including in the hearing bundles the submissions of Seashore and BOC in the Rule 99L Application and the transcript of the hearing before the Judge on 1 December 2022.

61.  The Notices of Appeal were filed on 15 June 2022.  There has been undesirable delay in fixing a date to hear the appeals due to the outstanding New Evidence Applications.

62.  It seems to us that the bundles lodged for the Stay Applications could be deployed for the New Evidence Applications with perhaps only a few adjustments.  As things now stand, we are minded to determine the New Evidence Applications on paper without an oral hearing.

63.  We give the following directions on the conduct of the New Evidence Applications:

(1)  Pan and Proman are to indicate within 14 days hereof if the hearing bundles for the Stay Applications are to be used for the New Evidence Applications, and, if not, lodge such revised composite bundles for the New Evidence Applications with the Court (2 sets)  and serve on BOC (1 set)  within that time.

(2)  Pan and Proman shall lodge with the Court (2 sets)  and serve on BOC (1 set)  of composite written submissions in support of the New Evidence Applications within 14 days thereafter.

(3)  BOC shall lodge with the Court (2 sets)  and serve on Pan and Proman (1 set each)  of composite written submissions in opposition to the New Evidence Applications within 14 days thereafter. 

(4)  Leave to Proman to lodge with the Court (2 sets)  and serve on BOC (1 set)  of composite written submissions in reply within 7 days thereafter.

(5)  Any party seeking costs shall lodge and serve a statement of costs with the last round of its written submissions as directed above. 

Mr Lai Chun Ho, instructed by Charles Chu & Kenneth Sit, for the Applicant in CACV 246/2022 and the Company in CACV 247/2022 (Applicants)

Mr Bernard Man SC and Mr Thomas Wong, instructed by King & Wood Mallesons, for the Respondent in CACV 246/2022 and the Petitioner in CACV 247/2022 (Respondents)