HKCA 1297
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF APPEAL
CIVIL APPEAL NO 393 OF 2021
(ON APPEAL FROM HCB NO 4115 OF 2020)
||GUY KWOK-HUNG LAM ( 林國雄)
||Ex Parte: TOR ASIA CREDIT MASTER FUND LP
Before: Hon Barma, G Lam and Chow JJA in Court
Date of Written Submissions: 4 & 29 March, 4 April 2022
Date of Judgment: 30 August 2022
J U D G M E N T
Hon Barma JA:
1. I agree with the judgment of G Lam JA.
Hon G Lam JA:
2. This is an appeal against a bankruptcy order. It raises the question whether a creditor’s bankruptcy petition presented in Hong Kong should be allowed to proceed where the petition debt, which the debtor disputes, arises from an agreement containing an exclusive jurisdiction clause in favour of a foreign court.
3. The relevant facts may be stated as follows. The petitioner, and respondent to this appeal, Tor Asia Credit Master Fund LP (“Tor”), is an exempted limited partnership registered under the laws of the Cayman Islands. The appellant, Mr Guy Kwok-Hung Lam (“Lam”), is a Hong Kong resident and the founder of two groups of companies, both of which are named “CP” and engaged in the business of aged care services. The first is a group of companies headed by CP Global Inc (“CP Global”), a Cayman Islands company, and provide aged care services in Mainland China (“CP China Group”). Lam was the sole shareholder and director of CP Global. The second is a group of companies engaged in the business of providing aged care services in the United States (“CP US Group”). The CP US Group is headed by CP Holdings LLC (“CP Holdings”), a Nevada company, in which Lam holds an 85% interest, through Pacrim Capital International Inc (“Pacrim”), a Panamanian company beneficially owned by Lam. The CP US Group had been managed principally by Mr Andrew Oksner (“Oksner”) from the group’s offices in Dallas, Texas, whom Lam recruited in 2015 to help develop the business.
4. By a Credit and Guaranty Agreement dated 11 July 2017 entered into between, among others, Tor, CP Global, and Lam (“Agreement”), Tor agreed to advance term loans in the aggregate amount of US$29.5 million to CP Global (“Loans”), and Lam agreed to guarantee, as primary obligor, the full payment of all amounts due from CP Global without any demand or notice. Securities provided for the Loans included an equitable mortgage over Lam’s shareholding in CP Global, a charge executed by CP Global over most of its assets, and security granted by CP Holdings and some of its subsidiaries over the equity interests they owned in the companies within the CP US Group.
5. Clause 12.16 of the Agreement is the choice of law and jurisdiction clause. In contrast to the other provisions, it is printed in capital letters, presumably for emphasis. For ease of reading it is set out in ordinary case as follows:
“ (a) This Agreement and the other Loan Documents and the rights and obligations of the parties hereto and thereto shall be construed in accordance with and governed by the laws of the State of New York.
(b) Each party hereto hereby submits to the exclusive jurisdiction of the United States District Court for the Southern District of New York and of the Supreme Court of the State of New York sitting in New York County (including its Appellate Division), and of any other appellate court in the State of New York, for the purposes of all legal proceedings arising out of or relating to this Loan Agreement or the other Loan Documents or the transactions contemplated hereby or thereby; provided that any suit seeking enforcement against any Collateral or other Property may be brought, at the option of Lender if in the courts of any jurisdiction where such Property is located to the extent such courts have jurisdiction over the relevant Loan Party or over such Collateral or other Property. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any objection that it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum.”
I shall refer to clause 12.16(b) as the “Exclusive Jurisdiction Clause”.
6. There have been three amendments of the Agreement. The first two were made in July and December 2017. The third was made on 22 June 2019 (“Third Amendment Agreement”), after the occurrence of certain events of default including CP Global’s failure to pay interest due on 31 December 2018 and on 29 March 2019. By the Third Amendment Agreement, additional security was provided to Tor, who agreed to waive the specified events of default and extend the maturity of the Loans from 12 July 2019 to 31 December 2019. Each of the three amendment agreements contained a clause (which was again printed in capital letters) re-affirming the Exclusive Jurisdiction Clause in the following terms:
“ This Agreement, and the rights and obligations of the parties hereunder, shall be governed by and construed and interpreted in accordance with the laws of the State of New York. The terms of section 12.16(b) of the Existing Credit Agreement are incorporated herein by reference, mutatis mutandis, and the parties hereto agree to such terms.”
7. In around November 2019, Lam began taking steps to obtain additional financing for the business and for refinancing the Loans. With the knowledge of Tor, Oksner approached and negotiated with Bank Leumi USA, a US bank headquartered in Florida. By 20 December 2019, as indicated in the non-binding term sheet of that date, Bank Leumi was prepared to proceed with discussions for a loan of US$22 million to Pacrim. Tor was supportive of a refinancing generally, but was concerned to protect its own interest in any refinancing arrangement which might require the release or subordination of its existing security.
8. The Loans were not repaid at the end of 2019. Negotiations with Bank Leumi continued in the first quarter of 2020. Tor was kept informed, and was asked to extend its facility to 30 June 2021, to waive existing defaults and to defer interest, on the basis that funding of no less than US$18.65 million would be realised from the Bank Leumi loan. In due course the terms with Bank Leumi were finalised, and drafts of the loan documentation were circulated for comments at the end of March. According to Lam, he was given to understand that Tor had agreed to the extension of the facility, the deferral of interest and waiver of defaults, on the basis of which he proceeded with finalising the Bank Leumi financing. Tor denies this, and says there was ongoing disagreement as to how much of the proposed Bank Leumi loan would be made available to Tor, and that any variations or waivers would have to be done formally in writing.
9. Meanwhile, Covid-19 became a pandemic and infections in the US soared in the course of March 2020. In early April 2020, Lam decided to apply for loans under the US Government’s Paycheck Protection Program (“PPP”). On about 13 April, a PPP loan of US$1 million was obtained by a company within the CP US Group and part of the funds was transferred to a bank account of the CP China Group. Tor viewed this as a development leading to the reduction of cash and increase in debt in the CP US Group, which would create risks to Tor’s security and jeopardise the viability of the Bank Leumi loan, causing significant concern particularly because CP US Group was in aged care services which might be adversely affected by Covid-19. As a result, Tor decided to commence immediate enforcement action in relation to the Loans.
10. On 15 April 2020, Tor appointed two individuals from the firm FTI as receivers and managers over, inter alia, Lam’s shareholding in, and the assets of, CP Global, and replaced Lam with an FTI entity as CP Global’s director, using documents pre-signed by Lam as part of the loan documentation. Tor also replaced the managers or directors of certain members of the CP US Group with an appointee from FTI. On the same date, Tor issued a statutory demand against Lam made under the Bankruptcy Ordinance. This demand was subsequently replaced by another one dated 12 May 2020 which was personally served on Lam on 20 May 2020 in Hong Kong.
11. On 7 May 2020, Lam commenced proceedings in Dallas, Texas (“Texas proceedings”) against Tor, seeking various declarations including that there was no event of default under the Agreement that had not been waived by Tor and that Tor was not entitled to replace the managers and directors of the companies in the CP US Group, and an injunction to restrain Tor from taking any action in violation of its contractual duties under the Agreement. Lam amended his claim on 21 May 2020, joining Oksner as an additional defendant and claiming there were breaches of fiduciary duty on his part and a conspiracy between him and Tor. In broad terms, the allegation is that Oksner conspired with Tor to maximise Tor’s advantage and to seize the assets of the two CP groups at an undervalue, by delaying the closing of the Bank Leumi loan, by informing Tor that a PPP loan had been applied for and the loan funds had arrived so that Tor could seize control of the bank accounts with the benefit of those funds, and by providing confidential information to Tor related to the CP groups’ strategies on dealing with Tor. On 6 July 2020, Tor filed an application in the Texas proceedings to dismiss Lam’s claim. One of the grounds relied upon is that Lam had commenced the Texas proceedings in breach of the Exclusive Jurisdiction Clause.
12. On 1 June 2020, Lam commenced proceedings in the...