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HCB 6051/2018
[2019] HKCFI 920
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
BANKRUPTCY PROCEEDINGS NO 6051 OF 2018
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| Re: |
SIT KWONG LAM (薛光林) |
Debtor |
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(Respondent)
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| EX-PARTE: |
PETROLIMEX SINGAPORE PTE LTD |
Creditor |
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(Petitioner) |
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| Before: |
Hon Ng J in Court |
| Date of Hearing: |
4 April 2019 |
| Date of Judgment: |
11 April 2019 |
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J U D G M E N T
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Introduction
1. There is before this court an amended bankruptcy petition (“Petition”) presented by Petrolimex Singapore Pte Ltd (“Petitioner”) against Mr Sit Kwong Lam (“Debtor”). The Petition is based on the non‑compliance with a statutory demand dated 30 August 2018 (“statutory demand”) for the sum of over US$30 million (“Debt”). There was no application by the Debtor to set aside the statutory demand. There is no issue raised as to service.
Background
2. According to the Petitioner, the Debt arose under the following circumstances.
3. Brightoil Petroleum (Holdings) Limited (“Holdings”) is a company listed on the Hong Kong Stock Exchange. The Debtor is the indirect controlling shareholder and chairman of Holdings.
4. Brightoil Petroleum (Singapore) Pte Ltd (“Brightoil Singapore”) is a wholly‑owned subsidiary of Holdings. Brightoil Singapore bought goods from the Petitioner in the total sum of US$30,253,600 payable under 2 invoices dated 23 April 2018, but had difficulty paying.
5. By a Deed of Personal Guarantee dated 23 April 2018 (“Personal Guarantee”) executed by the Debtor in favour of the Petitioner, the Debtor guaranteed the punctual performance by Brightoil Singapore of its obligation to pay the sum due under the 2 invoices on or before 10 July 2018.
6. Brightoil Singapore failed to pay the sum due by 10 July 2018 and requested additional time to make the payment.
7. The Petitioner and Brightoil Singapore then entered into a settlement agreement on 12 July 2018 (“Settlement Agreement”) to settle the Petitioner’s claims against Brightoil Singapore and to provide for payment by Brightoil Singapore of the sum due by 4 instalments between 10 August 2018 and 9 November 2018 (“Settlement Sum”). Clause 1 of the Settlement Agreement provided that within 5 business days of the execution of the Settlement Agreement, Brightoil Singapore should procure:
(1) Holdings to execute and deliver to the Petitioner a Parent Company Guarantee (“PCG”); and
(2) the Debtor to execute and deliver to the Petitioner an addendum to the Personal Guarantee (“PG Addendum”).
8. In accordance with Clause 1 of the Settlement Agreement, Holdings executed a PCG in favour of the Petitioner expressed to have been made on 16 July 2018. The PCG was executed by inter alia the Debtor on behalf of Holdings.
9. Further, the Debtor executed a PG Addendum in favour of the Petitioner also expressed to have been made on 16 July 2018. The PG Addendum expressly provided as follows:
“ This Addendum is executed on this 16th day of July 2018 as a Deed by the undersigned, Dr Sit Kwong Lam … (the “Guarantor”) in respect of the Personal Guarantee duly executed as a deed by the Guarantor on or about 23 April 2018...
Pursuant to this Addendum, I warrant and confirm that:
1. I am fully aware of the terms and effect of the Settlement Agreement dated 12 July 2018 (the “Settlement Agreement”) entered between PLX and Brightoil in connection with the Guaranteed Obligations.
2. The PG is hereby extended to cover the performance of Brightoil’s obligations under the Settlement Agreement.
3. I agree to amend the meaning of Guaranteed Obligations in Clause 1.1 of the PG such that it will now read as follows:
“Guaranteed Obligations” means the Debtor’s payment obligation under invoice PS18050A&PS1805B dated 23 April 2018 and/or any and all of the Debtor’s obligations under any settlement agreement entered by the Seller and the Debtor in respect of the foregoing payment obligations of the Debtor, including but not limited to the Settlement Agreement dated 12 July 2018 between the Seller and the Debtor.
4. All other terms and conditions of the PG, including the arbitration clause, shall remain unchanged and this Addendum shall constitute an integral part of the PG.”
10. Other than the payment of US$100,000 to the Petitioner, Brightoil Singapore has failed to discharge its payment obligations under the Settlement Agreement. Thus the Settlement Sum was deemed to have fallen due on 10 July 2018 by virtue of Clause 4 of the Settlement Agreement.
11. By the statutory demand, the Petitioner demanded from the Debtor payment of the outstanding Settlement Sum pursuant to the Personal Guarantee and the PG Addendum. The statutory demand was served on the Debtor on or about 12 September 2018 and was not complied with.
Deliberation
12. According to his skeleton submissions, the Debtor opposes the Petition on 3 grounds:
(1) the Court should exercise its discretion to stay or dismiss the Petition due to the existence of an arbitration clause; (“Ground 1”)
(2) there is a bona fide dispute of the Debt on substantial grounds; (“Ground 2”)
(3) there is a reasonable prospect of the underlying debt being paid by Brightoil Singapore within a reasonable time. (“Ground 3”)
Ground 1
13. Ground 1 is entirely without merits.
14. To start with, there is no arbitration clause in either the Personal Guarantee or the PG Addendum. The only arbitration clause that Mr Chan can find is Clause 7 of the Settlement Agreement which was between the Petitioner and Brightoil Singapore. The relevant part of Clause 7 provided:
“ 7. Any dispute arising out of or in connection with this contract, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration in Singapore in accordance with the Arbitration Rules of the International Arbitration Centre (“SIAC Rules”) in force as on the date of this Settlement Agreement, which rules are deemed to be incorporated by reference in this clause. The Tribunal shall consist of a sole arbitrator…”
15. What Mr Chan seems to be relying on is Clause 4 of the PG Addendum which does refer to a non‑existent arbitration clause in the Personal Guarantee. His argument is that since the Petitioner relies upon the Personal Guarantee, the Settlement Agreement and the PG Addendum to hold the Debtor liable as guarantor for Brightoil Singapore’s liability under the Settlement Agreement, the PG Addendum should be construed as containing an arbitration clause in the same term as Clause 7 of the Settlement Agreement or it should be rectified to that effect.
16. A term can of course be incorporated into a contract by reference: Astel‑Peiniger Joint Venture v Argos Engineering and Heavy Industries Co Ltd[1994] 3 HKC 328, a decision relied upon by Mr Chan. At 339F, Kaplan J said:
“ The task before the Court in determining whether or not there has been incorporation by reference is one of construction; namely, to ascertain the parties’ intentions when they entered into the contract by reference to the words that they used.” (emphasis added)
17. Earlier in Kaplan J’s judgment at 338C‑D, his Lordship made reference to the English Court of Appeal decision of Giffen (Electrical Contractors) Ltd v Drake & Scull Engineering Ltd (1993) 33 Con LR 84 where in the context of a construction contract, it was argued that on the true construction of the sub‑sub‑contract, the main contract arbitration clause was incorporated. His Lordship then continued:
“ The court held that it was not incorporated and stated that the ‘fundamental question was whether the language of the clauses relied on pointed plainly to the intention of the parties to incorporate the main contract arbitration clause…’ ” (emphasis added)
18. If one looks at the actual language used in Clause 4 of the PG Addendum, one will not be able to find (i) any reference to the arbitration clause in the Settlement Agreement at all, or (ii) any purported attempt to incorporate the arbitration clause in the Settlement Agreement into the PG Addendum. As this court pointed out earlier, all one can find in Clause 4 is a reference to a non‑existent arbitration clause in the Personal Guarantee, period. In these circumstances, it is difficult to see how Mr Chan can demonstrate the language of Clause 4 “pointed plainly to the intention of the parties to incorporate the arbitration clause in the Settlement Agreement” into the PG Addendum.
19. While it is true that in construing a contract, all parts of it must be given effect where possible and no part of it should be treated as inoperative or surplus: Lewison The Interpretation of Contracts 6th ed para 7.03, in this court’s view, the reference to “arbitration clause” in Clause 4 of the PG Addendum was indeed a clerical mistake, as submitted by Mr Ho for the Petitioner, which can and should be ignored as a matter of construction.
20. To take the matter one step further, even assuming, as stated in paragraph 10.8 of Mr Chan’s skeleton submissions, the PG Addendum is governed by an arbitration clause in the same term as Clause 7 of the Settlement Agreement,[1] it is difficult how that can be a valid ground for opposing the Petition.
21. First, Clause 7 does not in terms preclude the parties to the Settlement Agreement, or for that matter, parties to the PG Addendum, from invoking the insolvency or bankruptcy jurisdiction of the Court prior to the commencement and/or completion of the arbitration process in Singapore.
22. Second, importantly, even if Clause 7 purports to have that effect, it will not be enforced in our Court as being contrary to public policy: Re Greater Beijing Region...
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