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Re Zpmc-red Box Energy Services Ltd

Judgment Cited authorities 9 Cited in Precedent Map Related
Vincent
Judgment Date21 October 2022
Neutral Citation[2022] HKCFI 3256
Judgement NumberHCCW368/2021
Subject MatterCompanies Winding-up Proceedings
CourtCourt of First Instance (Hong Kong)
HCCW368A/2021 RE ZPMC-RED BOX ENERGY SERVICES LTD

HCCW 368/2021

[2022] HKCFI 3256

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO. 368 OF 2021

____________________

IN THE MATTER of s.177(1)(d) of the Companies (Winding Up and Miscellaneous Provision) Ordinance (Cap. 32)
and
IN THE MATTER of ZPMC-RED BOX ENERGY SERVICES LIMITED (振華海洋能源(香港)有限公司)

____________________

Before: Hon Cheng J in Court

Date of Hearing of the Petition: 14 June 2022

Date of Hearing of the Evidence Summons: 10 October 2022

Date of Decision of the Evidence Summons: 10 October 2022

Date of Judgment and Reasons for Decision: 21 October 2022

_________________________________________

J U D G M E N T A N D

R E A S O N S F O R D E C I S I O N

_________________________________________

A. INTRODUCTION

1. By a petition presented on 30th September 2021 (“the Petition”), the Petitioner, Shanghai Zhenhua Heavy Industries Co, Ltd (“the Petitioner”) seeks a winding-up of ZPMC-Red Box Energy Services Limited (“the Company”) on the ground that it is insolvent and unable to pay its debts.

2. On 7th July 2021, a statutory demand (“the Statutory Demand”) was served on the Company in respect of the Debt (as defined below). The Debt was not paid within 21 days from the date of service of the Statutory Demand.

3. The Petition is opposed by RBF HK Limited, a contributory holding 32.5% of the Company’s issued shares (“RBF”), on the grounds that:

3.1 there is a bona fide dispute as to the Debt;

3.2 the Company has a genuine cross-claim against the Petitioner which equals or exceeds the Debt;

3.3 the Petition is an abuse of process.

4. RBF seeks, in the alternative to a dismissal of the Petition, an adjournment of the Petition.

5. Subsequent to the hearing of the Petition, RBF issued a summons of 31st August 2022 for leave to file further evidence (“the Evidence Summons”). I refused leave for the reasons given below.

B. THE BACKGROUND

6. Unless otherwise indicated, the following is not in dispute.

7. The Company is a Hong Kong joint venture company established on 26th March 2014. Its shareholders are ZPMC Offshore Services Company Limited (“ZPMC Offshore”) (a wholly-owned subsidiary of the Petitioner) as to 51%, RBF as to 32.5%, and Lihua Logistics Co, Limited (“Lihua”)[1] as to 16.5%.

8. In August 2015, the Company’s directors and shareholders resolved that the Company would obtain a US$30m loan (“ICBC Loan”) from the Industrial and Commercial Bank of China, Paris Branch (“ICBC Paris”).

9. On 14th September 2015, the Company entered into a loan agreement with ICBC Paris for a loan of US$30m (“the Loan Agreement”).

9.1 Under clause 2.1, US$20m was to be used to repay existing loans, and US$10m was to be used for daily operations.

9.2 Under clause 8.1, the SBLC (as defined below) was to secure all liabilities of the Company under the Loan Agreement.

10. On 16th September 2015:

10.1 the Petitioner procured a standby letter of credit to be issued by the Industrial and Commercial Bank of China, Shanghai Branch (“ICBC Shanghai”) in favour of ICBC Paris in the amount of US$25,551,000 (“the SBLC”). The SBLC was to secure the obligations due and payable by the Company to ICBC Paris under the Loan Agreement;

10.2 the Petitioner in turn entered into a guarantee agreement with ICBC Shanghai in relation to the SBLC (“the Petitioner’s Guarantee”).[2]

11. The ICBC Loan matured in March 2017. ICBC Paris demanded payment in full from the Company. The Company failed to repay the ICBC Loan.

12. According to the Petitioner, on or about 30th March 2017, ICBC Paris called on the SBLC.

13. On or about 27th April 2017:

13.1 ICBC Shanghai demanded payment of US$25,117,792.28 from the Petitioner pursuant to the Petitioner’s Guarantee;

13.2 the Petitioner, through its subsidiary Shanghai Zhenhua Port Machinery (Hong Kong) Company Limited (“ZPMC HK”), paid ICBC Shanghai US$25,117,792.28 pursuant to the Petitioner’s Guarantee;

13.3 ICBC Shanghai paid US$25,117,792.28 to ICBC Paris pursuant to the SBLC.

14. It is the Petitioner’s case that by reason of the aforesaid:

14.1 the Company became liable to indemnify the Petitioner for US$25,117,792.28 plus interest, and

14.2 the Petitioner became subrogated to the rights of ICBC Paris against the Company under the Loan Agreement to the extent of US$25,117,792.28 plus interest;

14.3 alternatively, to the extent that the Company became liable to ZPMC HK and/or ZPMC HK became subrogated to the rights of ICBC Paris against the Company, ZPMC HK has assigned such rights to the Petitioner pursuant to a deed of confirmatory assignment dated 5th July 2021 (“the Deed of Assignment”), and the Petitioner is entitled to US$25,117,792.28 by way of assignment.

15. The Petitioner says that as at 6th July 2021, interest due from the Company to the Petitioner amounted to US$2,988,457.92, so that the total amount due from the Company was US$28,106,250.20 as at 6th July 2021 (“the Debt”). The Debt is the subject of the Statutory Demand.

16. Mention should also be made of the history of disputes between the ZPMC camp and the RBF camp over control of the Company. The shareholders agreement of 23rd April 2014 (“the SHA”) provided that:

16.1 the Company would have seven directors, with four appointed by the ZPMC camp, one by Lihua, and two by RBF;

16.2 the CEO was to be nominated by RBF;

16.3 “Reserved Matters” (as defined in cl.8.8 of the SHA) required a 75% vote to be passed.

17. It is RBF’s case that the ZPMC camp has been aggrieved by its inability to circumvent RBF regarding Reserved Matters and has taken various steps to cement its control of the Company. As described in RBF’s skeleton submissions, “a plethora of litigation continues to remain extant between the parties”.

C. GROUND 1: WHETHER BONA FIDE DISPUTE AS TO DEBT

18. RBF says that:

18.1 there is no evidence that ZPMC HK acted as the Petitioner’s agent when paying ICBC Shanghai. There was no transfer of value from the Petitioner to the Company, so that there is no basis to suggest that the Company was enriched at the Petitioner’s expense and that the Petitioner can claim subrogation;

18.2 as regards the Petitioner’s alternative case, ZPMC HK’s payment to ICBC Shanghai was entirely voluntary, so that there is no basis to suggest that the Company was unjustly enriched at ZPMC HK’s expense and that ZPMC HK can claim subrogation. Furthermore, the alleged assignment of rights under the ICBC Loan by ZPMC HK to the Petitioner was invalid as it failed to comply with the conditions of assignment under the ICBC Loan;

18.3 as regards both of the Petitioner’s cases, subrogation is barred due to lack of clean hands, as well as laches and acquiescence.

C1. Petitioner’s right to subrogation

19. There is no dispute that subrogation is the process by which, either by contract or by operation of law but without an assignment, a claimant may take over, or be treated as having taken over, some or all of a person’s former or present right against another person. Subrogation by operation of law is an equitable remedy to reverse or prevent unjust enrichment. See Burrows, A Restatement of the English Law of Unjust Enrichment, article 36(1). The availability of subrogation therefore depends on the questions of whether the defendant has been enriched, whether the enrichment is at the plaintiff’s expense, whether the enrichment would be unjust, and whether there are any defences available to the defendant. See Kingsway Finance Ltd v Wang Qingyi [2015] 1 HKLRD 260 at [13] to [15].

20. RBF accepts that where the plaintiff and defendant did not have direct dealings, but the substance of their dealings was such that the law would treat them as direct, the “at the expense of” requirement would be satisfied. This would include the situation where the agent of one of the parties was interposed between them, and where the right to restitution is assigned.[3]

21. RBF submits, however, there is no evidence that ZPMC HK paid ICBC Shanghai as the Petitioner’s agent, so that it could not be said that the Company was enriched at the Petitioner’s expense.

22. However, I note that:

22.1 the preamble to the Deed of Assignment between the Petitioner and ZPMC HK records that “ZPMC HK, acting upon the instruction of [the Petitioner], and on behalf of [the Petitioner], authorized [ICBC Shanghai] to deduct USD 25,117,792.28 from its bank account pursuant to the ZPMC Guarantee”. In other words, the Petitioner and ZPMC HK both confirmed that the payment was made from the funds of ZPMC HK acting as the agent of the Petitioner;

22.2 RBF itself took the position at the time of repayment of the ICBC Loan that it was the Petitioner[4] which had made the repayment on behalf of the Company. At the time it took the stance that the Company was insolvent. The letter from RBF’s solicitors Baker & McKenzie of 27th April 2017 stated that:

“We note that the ZPMC-nominated CFO has failed to properly manage the company’s liquidity needs, specifically the re-finance of the ICBC USD 30 million unsecured loan which fell due on 21 March 2017. We understand that the standby letter of credits of both ZPMC and ZHLG have been called. [The Petitioner] and ZHLG are now creditors of the Company and in the absence of an agreement between [the Petitioner] / ZHLG and the Company stating otherwise, they are now in a position to serve a demand for immediate repayment of the USD 30 million loan from the Company at any time.”

Baker & McKenzie’s letter of 5th May 2017 further stated that:

“In the absence of an agreement from [the Petitioner] and ZHLG to refrain from demanding repayment of the US$30 million loan they have...

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