Titan Petrochemicals Group Ltd v Sino Charm International Ltd
| Jurisdiction | Bermuda |
| Judge | Clarke P,Bell JA,Smellie JA |
| Judgment Date | 02 March 2023 |
| Neutral Citation | BM 2023 CA 4 |
| Docket Number | Case No: Civ/2021/13 |
| Court | Court of Appeal (Bermuda) |
and
Neutral Citation Number: [2023] CA (Bda) 5 Civ
THE PRESIDENT, Sir Christopher Clarke
JUSTICE OF APPEAL Geoffrey Bell
JUSTICE OF APPEAL Sir Anthony Smellie
Case No: Civ/2021/13
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE SUPREME COURT OF BERMUDA SITTING IN ITS
ORIGINAL COMMERCIAL JURISDICTION
THE HON. CHIEF JUSTICE
CASE NUMBER 2019: No. 383
Dame Lois Browne-Evans Building
Hamilton, Bermuda HM 12
Mr. Alexander Potts QC and Mr. Rhys Williams of Conyers Limited for the Appellant
Mr. Steven White and Mr. John McSweeney of Appleby (Bermuda) Limited for the Respondent
Mr. Matthew Mason and Ms. Kehinde George of ASW Law Limited for the 5th Interested Party
Mr Kevin Taylor and Mr Tim Molton, Walkers (Bermuda) Limited, for the Joint Provisional Liquidators of the Company
Hearing date(s): Matter determined on the papers.
In our judgment of 9 August 2022 we allowed the appeal of Titan Petrochemicals Group Limited (“Titan Group”/“the Company”), set aside the order that had been made for it to be wound-up and the appointment of joint and several provisional liquidators (“JPLs”), and stayed the winding up petition until further order of the Supreme Court. We now have to determine what order should be made as to the costs of the appeal and of the proceedings below in respect of the costs of (i) Sino Charm International Limited (“Sino Charm”) the Respondent, and (ii) Marine Bright Limited (“Marine Bright”), one of the interested parties. We also have to consider who should be responsible for the remuneration and expenses of the JPLs.
The factual situation that we had to consider was complicated. For present purposes it is sufficient to summarise it as follows. Sino Charm subscribed for HK $ 78,000,000 of Bonds issued by Titan Group. The Bonds matured on 28 April 2018. Titan Group failed to honour them. On 15 July 2019 Sino Charms issued a Statutory Demand for the principal due plus interest, totalling HK $ 96,571,078.77. The Demand was not honoured and, as a result, Sino Charm presented, on 20 September 2019 a Petition asking that the Company be wound up under the provisions of section 161 (e) of the Companies Act 1981 The Petition was heard by the Chief Justice on 12–13 July 2021. On 11 August 2021 he ordered that the Company be wound up and appointed three persons as JPLs.
The Chief Justice held that the debt claimed by Sino Charm was not bona fide disputed by Titan Group on substantial grounds. The Company had claimed that the funds used to pay Sino Charm the Subscription Sum had been siphoned from the Titan Group and paid to Sino Charm through a series of fraudulent transactions. The issuance of the Bonds was said to have been in breach of fiduciary duty on the part of Dr WeiBing, the then Chairman and Mr Tang, the then CEO of the Titan Group. Sino Charm was said to be aware of their wrongdoing because it was controlled by, or closely connected to, those two individuals. The issue of the Bonds was said to have been made in order that Dr WeiBing and Mr Tang might entrench their control of the Company; personally benefit from the proceeds of the Bonds and put themselves in a better position to extract a ransom from potential purchasers of shares in the Company. To this end Dr WeiBing and Mr Tan were said to have used a series of suspicious and coordinated transactions, conducted using the Company's subsidiaries Petro Titan (HK) Limited (“Petro Titan”, sometimes known as “HT 01”) and Brilliance Glory Limited (“Brilliance Glory”), in order to cause funds to be diverted from the Company to Sino Charm, which were then used to finance the Subscription Sum. Accordingly, so it was said, the Subscription Agreement was void or unenforceable.
Meanwhile the Company, together with Petro Titan had begun proceedings in Hong Kong against six defendants, including Sino Charm, Dr WeiBing and Mr Tang. In those proceedings the Company alleged that at all material times Dr WeiBing and/or Mr Tang had been, and still were, the ultimate controllers 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 (two other defendants to the Hong Kong proceedings) were at all material times controlled and/or directed by Dr WeiBing and Mr Tang and/or their close associates.
As I recorded in my judgment, with which my Lords agreed:
“ 16 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 Leung'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 2020 outside the jurisdiction on Sino Charm, WeiBing and Tang. That application was successful – the order was made on 28 August 2020 — on the basis, as claimed in the affidavit of Mr Zhang, that there was a serious issue to be tried and a good arguable case that the claims fell within one or more the relevant jurisdictional gateways for service out under Order 11 of the Rules of the High Court, and that Hong Kong was clearly and distinctly the forum conveniens.
17. Service was made on Sino Charm on 14 October 2020 at its registered address in the BVI. Sino Charm never disputed that leave to serve out of the jurisdiction was correctly granted and it served its defence on 7 April 2021. Sino Charm took out a summons for security for costs – an application which, itself, assumes or at least contemplates that there will be a trial — in the sum of HK $ 2.85 million, against Titan Group and Petro Titan on 25 May 2021, which was due to be heard on 13 August 2021; and the Plaintiffs made a request for further and better particulars of the Sino Charm defence on 2 July 2011. The Plaintiffs were in the course of arranging service out of the jurisdiction on Dr WeiBing and Mr Tang in China. Uni-Loyal had not filed any defence. In short, by the time of the hearing before the Chief Justice the litigation was, as Mr Potts put it, “rumbling towards quite a developed stage”.
The diversion of the Company's funds was said to have taken place in three stages. They are described in [18] – [26] of the Chief Justice's judgment, cited at [27] of my judgment, and are expressed diagrammatically in the chart which appears at [28] of my judgment.
The first stage:
“18 …… related to the transfer of funds from HT01 and Brilliance Glory to Max Joy. By a trading contract dated 18 April 2017, HT01 agreed to purchase and Max Joy agreed to sell 20,000 metric tons of bitumen mixture at the price of US $335 metric ton. On 20 April 2017, HT01 paid Max Joy US $6,700,000.
19. By a trading contract dated 18 April 2017, Brilliance Glory agreed to purchase and Max Joy agreed to sell 5600 metric tons of mixed aromatics at the price of Hong Kong $4,624 per metric ton. On 20 April 2017, Brilliance Glory paid Max Joy HK $25,986,880\”.
The second and third stages consisted of purchases which had the effect that money passed from Max Joy to Uni-Loyal and from Uni-Loyal to Sino Charm, for Sino Charm to provide to Titan Group in order for Titan Group to subscribe to the Bond.
The Chief Justice concluded that the resistance to the Petitioner's claim was not being pursued bona fide and on substantial grounds. He did so by reference to six sets of circumstances. The first was that the debt was never disputed until Mr Zhang, by then the sole executive director of Titan Group, swore his first affirmation on 27 October 2019 and referred at [34] – [51] to the three stages.
The second was that the allegation that funds were divested from the Titan Group, first made in Zhang 1, was misleading. The suggestion that the monies paid to Max Joy by HT 01 and Brilliance Glory to purchase 20,000 metric tons of bitumen mixture and 5,600 metric tons of mixed aromatics were never recovered by HT 01 and Brilliance Glory appeared, he held, to be demonstrably false.
The reason why the allegation appeared to be false was that the contracts referred to in the description of the first stage in Zhang 1 were the buy contracts under which HT01 and Brilliance Glory purchased 20,000 tons of bitumen mixture and 5,6000 of mixed aromatics. But Zhang 1 (and the Writ in the Hong Kong Proceedings) made no mention of the sale contracts.
As to the sale contracts the Chief Justice said this:
“43 The First Affirmation of Mr. Zhang and the pleaded case in the Hong Kong proceedings failed to point out that HT01 and Brilliance Glory in fact sold these two commodities, purchased from Max Joy, to Grand Treasure International (UK) Limited, a Hong Kong based private company (“Grand Treasure”). The sale contracts are signed on the same date as the buy contracts, 18 April 2017. In relation to the contract for 20,000 metric tons of bitumen mixture, HT01 purchased this commodity from Max Joy at a price of US $335 per ton and sold it to Grand Treasure at a price of US $338.35 per ton. In relation to the contract for 5,600 metric tons of mixed aromatics, Brilliance Glory...
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