Titan Petrochemicals Group Ltd v Sino Charm International Ltd
| Jurisdiction | Bermuda |
| Judge | Clarke, P,Bell, JA,Smellie, JA |
| Judgment Date | 09 August 2022 |
| Neutral Citation | BM 2022 CA 13 |
| Docket Number | Case No: Civ/2021/13 |
| Court | Court of Appeal (Bermuda) |
| Year | 2022 |
and
Neutral Citation Number: [2022] CA (Bda) 13 Civ
THE HON. CHIEF JUSTICE
THE PRESIDENT, Sir Christopher Clarke
JUSTICE OF APPEAL Geoffrey Bell
JUSTICE OF APPEAL Sir Anthony Smellie
Case No: Civ/2021/13
CASE NUMBER 2019: No. 383
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE SUPREME COURT OF BERMUDA SITTING IN ITS
ORIGINAL COMMERCIAL JURISDICTION
Dame Lois Browne-Evans Building
Hamilton, Bermuda HM 12
Mr. Alexander Potts QC and Mr. Rhys Williams of Conyers Dill & Pearman Limited for the Appellant
Mr. Steven White and Mr. John McSweeney of Appleby (Bermuda) Limited for the Respondent
Ms. Kehinde George of ASW Law Limited for the 5 th Interested Party
Hearing date: 8 – 10 March 2022
APPROVED JUDGMENT
On 13 April 2017 Titan Petrochemicals Group Limited (“ Titan Group” or “ the Company”) entered into a Subscription Agreement (the “ Subscription Agreement”) with Sino Charm International Limited (“ Sino Charm”) pursuant to which Titan Group agreed to issue to Sino Charm convertible bonds (the “ Bonds”) upon Sino Charm's payment to Titan Group of a subscription sum of HK $ 78,000,000 (approximately US $ 10,000,000).
The terms and conditions of the Bonds provided that:
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(a) The Bonds were to bear interest from the Issue Date to the Maturity Date at the rate of 7 1/2 % per annum payable annually;
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(b) If the company failed to pay any principal, premium, yield or any other amount payable under the Bonds when due, it should pay an additional interest on the overdue amount from the due date of payment until the date of actual payment at the rate of 5% per annum;
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(c) Unless previously converted, purchased, and cancelled or discharged, the Company had to redeem the Bonds at 100% of their principal amount together with the accrued interest thereon on the date which was the first anniversary from the issue of the Bonds (the “ Maturity Date”);
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(d) The Company was not entitled to redeem the Bonds (in whole or in part) at any time prior to the Maturity Date, except by the mutual consent of the Bondholder and the Company.
On 26 April 2017 Sino Charm remitted the Subscription Sum, by way of a Banker's draft, to the Company. The Issue Date of the Bonds was 28 April 2017, so that the Bond Maturity Date was 28 April 2018. Titan Group failed to honour the Bond on that date or thereafter.
On 15 July 2019 Sino Charm issued a Statutory Demand to the Company demanding repayment of HK $ 96,571, 078.77 being (i) the principal due; (ii) interest at 7.5% from 28 April 2017 to 28 April 2018; and (ii) interest at 12.5% between 29 April 2018 and 15 July 2019.
The Statutory Demand was not paid and, as a result, Sino Charm presented, on 5 August 2019 a Petition seeking that the Company be wound up by the Court under the provisions of section 161 (e) of the Companies Act 1981 on the ground that the Company was unable to pay its debts, as was deemed by section 162 (a) to be the position if the Company had failed to pay Sino Charm a debt that it owed. The Petition was not put on any other basis; nor did it rely on any other debt than the one said to be owed under the Bond.
The Petition was heard by the Chief Justice on 12–13 July 2021.
The following parties gave notice of appearing on the Petition:
The first three appeared at the hearing of the Petition and the position of the fourth was apparent from the first affirmation of Mr Zhang who indirectly owned it.
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(a) Docile Bright Investments Limited (“ Docile Bright” or “ DBIL”) which is in liquidation in the British Virgin Islands, which appeared below as a creditor for HK$ 423m (c. US$57.9m), said to be owed in respect of a holding of 555m preferred convertible shares (the “ Disputed Shares”) and opposed the Petition.
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(b) Marine Bright Limited (“ Marine Bright”) which appeared as a creditor asserting the same claim as Docile Bright in respect of the Disputed Shares, but which supported the Petition.
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(c) Fame Dragon International Investment Limited (“ Fame Dragon”) which is the Company's largest shareholder (with 2.378bn shares) and is in compulsory liquidation in Hong Kong, the order of the Hong Kong Court being dated 8 February 2018, which opposed the Petition.
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(d) Sino Team Investment Development Limited, said to be a member holding 791,666,667 shares in the Company which opposed the Petition.
On 11 August 2021 the Chief Justice ordered that the Company be wound up under section 161 (e) of the Companies Act 1981 and he appointed three persons as joint provisional liquidators of the Company.
Titan Group contends that it has a good defence to the debt. Sino Charm contends that it does not. Accordingly, the central question between the parties before the Chief Justice was whether the debt was bona fide disputed on substantial grounds. The Chief Justice held that it was not. We must now decide whether he was right, or at least entitled, so to find.
In his judgment the Chief Justice summarised the Company's case for disputing the debt, as set out in its written submissions, in the following way:
“(a) The funds used to pay for the Subscription Sum for the Bonds were siphoned from the Titan Group and paid to Sino Charm through a series of fraudulent transactions. It is said on behalf the Company that it is not in dispute that Sino Charm received circa HK $78m shortly before the Subscription Sum was paid to the Company in the amount of HK $78m.;
(b) The issuance of the Bond was in breach of fiduciary duty by the then chairman of the Titan Group, Dr Zhang WeiBing (“Dr WeiBing”), and the then Chief Executive Officer, Tang Chao Zhang (“Mr. Tang”), and is void. As Sino Charm, the Company claims, is controlled by or closely connected to Dr WeiBing and Mr. Tang, Sino Charm was aware of their wrongdoing at the time of the purchase of the Bond, and at the very least Sino Charm was put on inquiry.
(c) The Bonds were issued by the Company under the instigation and direction of Dr WeiBing and Mr. Tang for improper purposes and in breach of fiduciary duty.
(d) Specifically, by the Bonds Dr WeiBing and/or Mr. Tang intended (i) to entrench their control within the Company, (ii) to personally benefit from the proceeds of the Bond, and/or (iii) to put themselves in a better position to extract a ransom from potential buyers of shares in the Company (the “ Improper Purposes”) 1.
(e) To this end, using a series of suspicious and coordinated transactions conducted using the Company's subsidiaries Petro Titan (HK) Limited ( “Petro Titan” or “HT01”) and Brilliance Glory Limited (“Brilliance Glory”). Dr WeiBing and Mr. Tang caused funds to be diverted from the Company to Sino Charm, and the funds were used to finance the Subscription Sum paid by Sino Charm.”
Accordingly, so it is said, the Subscription Agreement was void or unenforceable. Alternatively, if it was not, the Company was entitled to rescind the Subscription Agreement and the rescission was effective upon the communication by the Company of its intention to rescind, which was effected by virtue of the Writ issued by the Company in the Court in Hong Kong on 21 October 2019 and/or by the first affirmation of Mr Zhang dated 22 October 2019.
The Company, together with Petro Titan (HK) Limited (“ Petro Titan”), commenced proceedings in Hong Kong against six defendants, namely (i) Sino Charm, (ii) Dr WeiBing, (iii) Mr. Tang, (iv) Uni-Loyal International Enterprises Limited (“ Uni-Loyal”) International Enterprises Ltd, (v) Sino Champion Corporation Limited (“ Sino Champion”) and (vi) Chan Shu Leung (as to the latter three see [23], [25] and [26] below).
In this action Titan claims, inter alia, that the Subscription Agreement for the Bond was void and/or has been rescinded and/or should be set aside and (ii) damages and equitable compensation from, inter alia, Sino Charm, significantly in excess of the Petition debt. If the action is substantially successful it will eliminate that debt.
In the Hong Kong proceedings it is alleged that at all material times Dr WeiBing and/or Mr Tang had been, and still were, the ultimate controller of Sino Charm and/or had acted and still acted as shadow directors of Sino Charm by virtue of their real influence over its affairs, and that until their respective departures from Titan Group the two of them were the ultimate controllers of Titan Group's then board of directors, and that Uni-Loyal and Sino Champion were at all material times controlled and/or directed by Dr WeiBing and Mr Tang and/or their close associates.
It was Titan Group's case at the hearing of the petition that the issue which was the subject of the dispute should be resolved in the Hong Kong action through the normal litigation process, with the benefit of discovery and cross-examination, and that the Petition should be dismissed or stayed/adjourned pending a final judgment in the Hong Kong action.
By the time of the hearing before the Chief Justice the following events had occurred. The Statement of Claim was produced, dated 3 February 2020. Chan Shu Leung and Sino Champion had filed their defences (on 27 April and 14 May 2020), and the Plaintiffs had made a request for further and better particulars of Chan Shu Leng's defence and thereafter issued a summons for an order requiring further and better particulars which was fixed for a hearing on 1 September 2021. On 12 August 2020 the plaintiffs had applied for leave to serve the Writ of Summons dated 21 October 2019 and their Statement of Claim dated 3 February...
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