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Chung Winston v Miao Zhenguo And Others

Judgment Cited authorities 11 Cited in Precedent Map Related
Vincent
Judgment Date27 February 2013
Year2013
Citation[2013] 2 HKLRD 649
Judgement NumberHCA1290/2012
Subject MatterCivil Action
CourtHigh Court (Hong Kong)
HCA1283B/2011 MIAO ZHENGUO AND OTHERS v. CHUNG WINSTON

HCA 1283/2011
HCA 1290/2012
HCB 4005/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 4005 OF 2012

____________

RE: CHUNG WINSTON (鍾馨稼)
formerly known as CHUNG HING KA, a debtor

____________

AND

HCA 1283/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1283 OF 2011

____________

BETWEEN
MIAO ZHENGUO(苗振國) 1st Plaintiff
MIN WEIGUO(閔衛國) 2nd Plaintiff
CHE JAIME(謝能尹) 3rd Plaintiff
SHAN CHANG(單昶) 4th Plaintiff

and
CHUNG WINSTON(鍾馨稼) Defendant
formerly known as CHUNG HING KA
____________

AND

HCA 1290/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1290 OF 2012

____________

BETWEEN
CHUNG WINSTON(鍾馨稼) Plaintiff
formerly known as CHUNG HING KA

and
MIAO ZHENGUO(苗振國) 1st Plaintiff
MIN WEIGUO(閔衛國) 2nd Plaintiff
CHE JAIME(謝能尹) 3rd Plaintiff
SHAN CHANG(單昶) 4th Plaintiff
____________

(Heard together)

Before: Hon Au-Yeung J in Court
Dates of Hearing: 20 December 2012 and 8 January 2013
Date of Judgment: 27 February 2013

_____________

J U D G M E N T

_____________

THE APPLICATIONS

1. There are the following applications before this court:

(1) An amended bankruptcy petition (“the petition”) presented by 4 judgment creditors (“the petitioners”)against Mr Winston Chung (“the debtor”);

(2) The petitioners’ summons for stay of HCA 1290/2012 pending determination of the petition in HCB 4005/2012;

(3) The debtor’s notices of appeal against a garnishee order nisi and an order for examination granted by masters in HCA1283/2011;

(4) The debtor’s application for stay of execution of Chung J’s judgment dated 24 April 2012 in HCA1283/2011concerning the subject judgment debts.

2. The petition is presented on the basis of the debtor’s failure to discharge 4 statutory demands presented by the petitioners, which were in turn based on judgment debts owed to the petitioners totalling $181m plus interest. The debtor opposes the petition on the grounds that:

(1) There is a bona fide dispute to the debt on substantial grounds. There are extant proceedings in HCA 1290/2012 (“the Fresh Action”) seeking to set aside the judgment; alternatively, the judgment can only be enforced upon certain conditions being fulfilled; and

(2) The petition was presented with improper motives and constituted an abuse of process.

3. The petitioners contend that the opposition is yet another tactical move by the debtor to evade liability.

THE FACTS

4. The petitioners, the debtor and one Mr Xu were shareholders of Fadar International Limited (“Fadar”), which was the holding entity of MVP and another investment known as Krystal Koach Inc. (“Krystal”). MVP was a group of companies in the USA which carried on the business of production of motorhomes and recreational vehicles.

5. Each of the shareholders was to grant a shareholder’s loan to Fadar to enable it to acquire the interests in MVP and Krystal. Under a Cooperation Agreement signed on 25 June 2010, the petitioners advanced a total of HK$150m. The debtor was to advance HK$105m, HK$46m of which was paid by the 2nd and 3rd petitioners on his behalf. The debtor was to repay the HK$46m within a specified time, failing which he had to pay interest. He failed to repay and Fadar had used its own funds to repay HK$15m on the debtor’s behalf to the 2nd petitioner.

6. On about 3 January 2011, the shareholders entered into a Deed whereby all the parties (except the debtor) agreed to withdraw from the investment in respect of Fadar. Fadar would repay the following amounts to the petitioners by 30 June 2011, guaranteed by the debtor, with interest.

Shareholder Share capital (HK$) Advance
Miao (P1) $60,000,000
Guan Wei Guo $30,000,000
Che Jaime (P3) $30,000,000 $31,000,000
Shan Chang (P4) $30,000,000
Xu Yue Yue
Total to be repaid $181,000,000

7. The debtor was ousted from the board of Fadar in early to mid-June 2011. He claimed that the petitioners had no intention of handing over control of Fadar and breached their side of the bargain and so he did not pay the HK$181m to them on 30 June.

8. The petitioners commenced HCA 1283/2011 on 29 July 2011 seeking repayment under the Deed. Other proceedings relating to Fadar and involving the same parties were also filed in the USA.

9. An Order 14 application was taken out by the petitioners in HCA 1283/2011 and the substantive hearing was fixed for 29 February 2012 before Deputy Judge Lok.

10. Before the Order 14 application came on for hearing, in an attempt to settle HCA 1283/2011 and another action in the USA between the parties, the petitioners and the debtor entered into a Settlement Agreement on 14 October 2011 in the USA.

11. The Settlement Agreement provided that the debtor was to pay a sum of US$23.8m (about HK$185.64m, approximately the sum owed by the debtor under the Deed) in escrow on or before 29 November 2011 and this would be distributed to the petitioners on the following day. Upon receipt of the funds, the petitioners would transfer all the outstanding equity of Fadar to the debtor. The parties would execute a consent order (“the Consent Order”) in escrow, to be filed upon failure of the debtor to make repayment.

12. The debtor failed to pay the settlement sum as promised. The Consent Order was released to the petitioners, without objection from the debtor, pursuant to clauses 3.01 and 3.02 of the Settlement Agreement. Those clauses expressly provided that the debtor would not contest the prompt entry of the Consent Order, the judgment or the validity of such judgment.

13. The petitioners filed the Consent Order on 5 December 2011. Paragraph 2 to the schedule to the Consent Order provided that if the debtor failed to pay the US$23.8m on or before 30 November 2011, then judgment would be entered immediately in favour of the petitioners.

14. MVP went into liquidation on 12 December 2011.

15. On 29 February 2012, the hearing before Deputy Judge Lok was adjourned on the debtor’s application until after determination of a question by the Californian court, namely, whether clause 3 of the Settlement Agreement which required the petitioners to transfer the equity of Fadar to the debtor, was penal in nature and hence contrary to the terms of the settlement. The petitioners’ attorneys submitted that the debtor would receive good consideration in the form of the Fadar shares upon payment of US$23.8m. The California court found in favour of the petitioners.

16. On 19 April 2012, MVP’s assets were sold through auction to the only bidder, Hackman Capital, a real estate investment firm that specialized in the acquisition and resale of distress assets, at the price of US$9.5m.

17. Back in Hong Kong, the petitionershad restored their Order 14 application. The hearing before Chung J took place on 24 April 2012. Counsel for the debtor again asked for an adjournment on the ground that the petitioners would be doubly compensated (in receiving the auction proceeds and the settlement amount) when the proceeds of the auction should be set off against the debt due from him to the petitioners.

18. To allay the debtor’s concern, the petitioners undertook not to remove any assets of Fadar, whether by appropriation or otherwise except in the ordinary and proper course of business of Fadar until (i) the expiry of 28 days; (ii) full payment by the debtor of the judgment and completion of the transfer of shares of Fadar from the petitioners to the debtor; and (iii) the debtor’s satisfaction upon his investigation into the books and records of Fadar that there has not been any misappropriation of Fadar’s assets by the petitioners (“the undertaking”). This undertaking was embodied in the order made by Chung J (“24 April Order”), expressed to be by consent, for judgment to be entered against the debtor for the sum of HK$182.1m together with a stay of execution for 28 days conditional upon the debtor’s payment-in within 14 days.

19. Pursuant to the 24 April Order, judgment was entered.

20. On 7 May 2012, the debtor applied for extension of time to make payment into court. His affirmation stated that he was confident of being able to pay by 29 May. He had raised no issue of mistake as he now does, although it is fair to say that his application was made without prejudice to any subsequent application which he shall make including an application for setting aside or staying the 24 April Order.

21. Chung J refused to grant the extension of time. He took into account, amongst others, the following matters:

“19. First, the plaintiffs’ contention that the defendant’s statements ought not be taken at face value by reason of his repeated unsuccessful attempts to resist judgment being entered, using different reasons at various times (see para 6 to 8 above).

20. Secondly, assertions to the effect that:

(a) the contractual document(s) was/were executed by him without knowledge of its/their full meaning and effect;

(b) the auction was improperly conducted and was a conspiracy involving the auction agents and the plaintiffs;

(c) the Apr 2012 consent order (especially the part relating to the time for making the payment‑in) was agreed to by the defendant’s former solicitors contrary to his express instructions.

In relation to sub‑para (a) above, the assertion has not been made prior to the inter partes hearing.

21. In relation to para 20(b) above, the auction was known to the defendant prior to the...

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