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CACV 215/2019
[2019] HKCA 1220
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF APPEAL
CIVIL APPEAL NO 215 OF 2019
(ON APPEAL FROM HCB NO 6051 OF 2018)
________________________
| BETWEEN |
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SIT KWONG LAM (薛光林) |
Debtor |
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and |
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PETROLIMEX SINGAPORE PTE. LTD |
Petitioner |
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| Before: |
Hon Kwan VP, Cheung JA and Chu JA in Court |
| Date of Hearing: |
24 October 2019 |
| Date of Judgment: |
24 October 2019 |
| Date of Reasons for Judgment: |
1 November 2019 |
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REASONS FOR JUDGMENT
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Hon Kwan VP (giving the Reasons for Judgment of the Court):
1. This is the appeal of Sit Kwong Lam (“the Debtor”) against a bankruptcy order made against him by Ng J on 11 April 2019 ([2019] 2 HKLRD 924). The bankruptcy petition was presented by Petrolimex Singapore Pte Ltd (“the Petitioner”) in respect of a debt of over US$30 million (“the Debt”). Two broad issues are raised on appeal. Firstly, whether the Debt is covered by an arbitration clause. Secondly, if there is at least a good prima facie or reasonably arguable case on the first issue, whether the judge should have exercised his discretion to stay or dismiss the petition on the basis that the Debt is not admitted.
2. At the conclusion of the hearing, we dismissed the Debtor’s appeal. These are the reasons for our judgment.
Background
3. We adopt the summary of the background matters set out in the judgment below at §§3 to 11, using the same expressions as the judge:
“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[1] (“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[2]’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[3] 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.”[4]
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.”
4. The bankruptcy petition was presented on 23 October 2018 and the Debtor filed a notice of intention to oppose the petition on 14 December 2018, stating the grounds upon which he intended to oppose the petition, including the contention that pursuant to clause 4 of the PG Addendum the parties had intended any dispute arising out of the PG Addendum to be resolved by arbitration and in such circumstances the court should exercise its discretion to dismiss and stay the petition, invoking the approach in insolvency liquidation in Re Southwest Pacific Bauxite (HK) Ltd [2018] 2 HKLRD 449 (“the Lasmos case”).
5. The petition first came before the judge on 7 January 2019. He gave directions for the filing of evidence and adjourned the matter to a substantive hearing on 4 April 2019. Judgment was handed down on 11 April 2019.
The judgment below and this appeal
6. Before the judge, the Debtor opposed the petition on these three grounds: (1) the court should exercise its discretion to stay or dismiss the petition due to the existence of an arbitration clause; (2) there is bona fide dispute of the Debt on substantial grounds; and (3) there is reasonable prospect of the underlying debt being paid by Brightoil Singapore within a reasonable time.
7. The judge held against the Debtor on all three grounds. The two broad issues raised on appeal mentioned at the outset of this judgment concern only the first ground of opposition. The Debtor did not challenge the holdings on the other grounds of opposition.
8. The first issue on appeal is an issue of construction and relates to the contention that the arbitration clause in clause 7 of the Settlement Agreement was incorporated by reference to the PG Addendum by virtue of clause 4 of the PG Addendum. The second issue is the exercise of discretion in light of the existence of an arbitration clause.
9. If the Debtor fails on the construction issue, the discretion issue does not arise. We will deal with the construction issue first.
The construction issue
10. The difficulty about the Debtor’s case on the construction issue is that notwithstanding clause 4 of the PG Addendum, which referred to “all other terms and conditions of the PG, including the arbitration clause”, there is actually no arbitration clause in the Personal Guarantee. An arbitration clause is only found in clause 7 of the Settlement Agreement, the relevant part of which reads as follows:
“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. ...”
11. It is not in dispute that an arbitration clause may be incorporated by reference like any other contractual term. The judge has referred to these pertinent statements of Kaplan J in Astel-Peiniger Joint Venture v Argos Engineering & Heavy Industries Co Ltd [1994] 3 HKC 328 at 339F and at 338C to D[5]:
“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.”
“... 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 ...”.
12. The judge rejected the construction advanced on behalf of the Debtor as “entirely without merits”. His reasoning was as follows:
“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...
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