RZ3262019 Limited v Happy Lion Ventures Ltd

THE EASTERN CARIBBEAN SUPREME COURT IN THE COURT OF APPEAL TERRITORY OF THE VIRGIN ISLANDS BVIHCMAP2023/0011 BETWEEN: RZ3262019 LIMITED Appellant and [1] HAPPY LION VENTURES LTD [2] CHINEX LIMITED Respondents Before: The Hon. Mde. Vicki Ann Ellis Justice of Appeal The Hon. Mr. Trevor M. Ward Justice of Appeal The Hon. Mr. Gerard St.C Farara Justice of Appeal [Ag] Appearances: Mr. Edward Davies KC with him Ms. Anna Scharnetzky, Mr. Nicholas Brookes and Ms. Sarah Latham for the Appellant Mr. Adrian Francis and Mr. Scott Tolliss for the Respondents ___________________________________ 2024: February 14 & 15; July 26. ___________________________________ Commercial Appeal – Application to adduce fresh evidence – Ladd v Marshall principles – Whether evidence sought to be adduced could not have been obtained with reasonable diligence for use at first instance – Whether evidence sought to be adduced would have an important influence on the result of the case – Whether evidence sought to be adduced was credible - Sections 159 and 162 (1) (a) of the Insolvency Act 2003 - Application for appointment of joint liquidators – Whether debt was disputed on genuine and substantial grounds - The Sparkasse test – Defence of common mistake – Whether the effect of the findings of land hoarding and property hoarding by the PRC authorities rendered certain common assumptions false and rendered the subject matter of the SPA and/or the VLA impossible to perform such that these agreements were at law void ab initio - Frustration - Whether the learned judge was correct in holding that the defence of common mistake was not one which was genuinely held and was ‘flimsy’ – Whether the learned judge took into account erroneous matters or factors and failed to address her mind and reasoning to the five elements of the doctrine of common mistake – Cross claim – Whether the judge erred in finding that the Company had failed to make out a genuine and serious cross claim for restitution in an amount which equalled or exceeded the debt – Whether a claim for restitution was possible in the circumstances This appeal arises from the judgment and the consequential order of the judge in the court below, dated 18th May 2023 and 31st May 2023 respectively. By the said judgment and order the learned judge granted the Ordinary Application filed by the respondents, Happy Lion Ventures Limited (“Happy Lion”) and Chinex Limited (“Chinex”) as creditors of the appellant, RZ3262019 Limited (“the Company”), a company incorporated in the BVI, for the appointment of joint liquidators (“JLs”) of the Company. The alleged debt upon which the JL Application was founded, arose out of a Vendor Loan Agreement (“VLA”) dated 29th August 2019 between the Company as Borrower and the respondents, Happy Lion and Chinex (both companies incorporated in the BVI), as Lenders. Pursuant to clause 2.1 of the VLA, the respondents agreed to provide to the Company a USD term loan facility in the USD equivalent of the sum of RMB 2.4 billion - approximately US $343 million (“the Loan”). It is not in dispute that this loan facility was drawn down in full by the Company. The purpose of the loan facility was to fund, in part, payment of the consideration for the purchase by the Company of the shares held by each of the respondents in the two shareholders of Shun Hong Real Estate (Chengdu) Limited, a company incorporated in the People’s Republic of China (“the PRC Project Company”). The purchase of the said shares of the respondents was to be effected pursuant to the terms of a Share Purchase Agreement (“SPA”). Pursuant to the terms of the SPA, the Company agreed to and did purchase and acquire the shares held individually by each of the respondents in the two shareholders of the PRC Project Company, namely, Happy Magic Enterprises Inc (“Happy Magic”) a company incorporated in the BVI, and Carton International Limited (“Carton”), a company also incorporated in the BVI. Apart from the VLA, and as security for the Loan, a number of share charges were entered into between the Company (as chargor) and the respondents, (as chargees) mortgaging their shares, respectively, in Happy Magic and Carton, and also the shares in the PRC Project Company held by Happy Magic and Carton (collectively, “the Share Charges”). The parties further entered into several security assignment agreements and equity pledge agreements subsequent to the Share Charges. The PRC Project Company had previously acquired various land use rights entitling it to develop the land in Chengdu on which the Project is located (“the Project land”). The development of the Project was carried out by the PRC Project Company in eight distinct phases. It was not in dispute that as at May 2019 when the original SPA was signed, the first six phases of the Project had been completed and sold and the seventh and eighth phases were under construction and remained largely unsold. Accordingly, the ultimate purpose of the SPA and VLA was for the Company to indirectly own and control the Project and to complete the development of phases 7 and 8, including the sale of the units comprising those phases. The Company was incorporated on 17th April 2019 in the BVI for the purpose of acquiring the shares of the respondents in the corporate shareholders of the PRC Project Company. The acquisition was completed on 23rd July 2020 by the transfer to the Company of all the shares held by the respondents individually in Happy Magic and Carton. The respondents contend that following the execution of the VLA, the respondents (the Lenders) discovered from the 2020 audited financial accounts and from pre-sale communications with representatives of the PRC Project Company, that certain actions had been taken by the Company and the PRC Project Company without the knowledge of the respondents and without the necessary prior consents required for such actions pursuant to the terms of the VLA. These actions were said to have constituted breaches of various provisions of the VLA and was an ‘Event of Default’ under the VLA giving rise to the lenders’ right to declare the Loan together with accrued interest and all other amounts accrued or outstanding under the ‘Finance Documents’ (as defined in the VLA) to be immediately due and payable. This constituted a debt owed by the Company to the respondents which remained unpaid. As of 15th July 2021, the date of the respondents’ demand letter to the Company, the total amount of the debt, including interest, claimed by the respondents as outstanding was US$347,493,498.60. By letter dated 25th August 2021 in response to the demand letter, the Company, inter alia, informed the respondents that it had engaged legal counsel to investigate the ‘whole transaction’, including alleged issues of insufficient disclosure and fraud. By letter dated 1st September 2021, the respondents rejected the Company’s allegations and asserted that the Loan was immediately due and payable on the amount then outstanding on the Loan in the sum of US$348,826,156. By letter dated 8th March 2022, the Company was informed that it had come to the attention of the respondents that legal proceedings had been commenced against the Company and the PRC Project Company, which constitutes an Event of Default under clause 17.14(b) of the VLA. By this letter, the Company was also informed that the respondents, as lenders/chargees, had enforced their rights under the Share Charges and appointed Ho Kwok Leung Glen and Kam Chung Hang (Forrest) from the Hong Kong office of Deloitte Touche Tohmatsu, to act as receivers over the Company’s shares in Happy Magic and Carton. It was also asserted in the said letter that the Company had failed to repay the Loan and the accrued interest due and owing under the VLA. The application for the appointment of joint liquidators over the Company, was subsequently filed on 11th July 2022, before the Commercial Court in the BVI (“the JL Application”). By Originating Application, the respondents sought the appointment of joint provisional liquidators over the Company pursuant to section 170 of the Insolvency Act 2003 (“the JPL Application”). An order was obtained ex parte by the respondents on 13th July 2022 appointing joint provisional liquidators (“JPLs”) over the Company (“the JPL Order”). Also on 11th July 2022, the respondents, by separate Originating Application, sought the appointment by the Commercial Court of joint liquidators over the Company. The application was made pursuant to sections 162(1) and 159(1) of the Act on the basis that the Company was insolvent having failed to pay its debts as they fall due. In the proceedings in the Commercial Court to appoint JLs over the Company, the debt was stoutly disputed by the Company on what it contended were genuine and substantial grounds. The Company’s grounds in opposing the JL Application were essentially that: (1) the VLA upon which the respondents alleged that the debt arose, as well as the SPA by which the shares in the two shareholders of the PRC Project Company, Happy Magic and Carton, were sold and transferred to the Company, were void on the grounds of common or fundamental mistake, or, alternatively, under the doctrine of frustration; and (2) in any event, the Company had a genuine cross claim in an amount that exceeded the alleged debt. In granting the JL Application, the learned judge held that: (i) the debt, the foundation of the JL Application, was due and outstanding; (ii) the Company had not discharged the onus of showing that the debt was disputed on genuine and substantial grounds as the basis advanced for the alleged dispute, common mistake, was ‘flimsy’; (iii) the cross claim asserted by the Company as exceeding the amount of the debt is far below the threshold, and is ‘fanciful’, there being no real question as to whether the Company is liable to pay the debt. Consequent upon her findings in the judgment, the learned judge, at the consequential hearing, made certain orders. These were orders: (i) putting the Company into liquidation pursuant to sections 159(1)(a) and 162(1)(a) of the Act on the ground that the Company is unable to pay its debts as they fall due; (ii) appointing Mr. Ryan Jarvis of Deloitte Ltd. in BVI and Mr. Choi, Tze Kit Sammy, of T.K. Choi & Co in Hong Kong as JLs of the Company; (iii) dismissing an application by the Company dated 7th October 2022; and (iv) ordering the Company to pay the respondents’ costs of the JL Application and the Company’s Application, such costs to be paid out of the assets of the Company as costs in the liquidation. By notice of appeal filed on 13th July 2023, the Company appealed against the judgment and orders of the Commercial Court putting the Company into compulsory liquidation and appointing JLs. In its notice of appeal, the Company challenges three findings of fact and two findings of law and relies on four grounds of appeal. The Company seeks an order allowing the appeal, setting aside the winding up order appointing JLs, and ordering the respondents to pay its costs of the appeal and in the court below. By Ordinary Application dated and filed on 16th January 2024, the Company applied for permission of this Court to adduce as fresh evidence in the appeal. Having heard counsel for the parties on 14th February 2024 in relation to the fresh evidence application, the Court unanimously dismissed the said application in its entirety with costs thereof to the respondents. The reasons for dismissing the said application are discussed in this judgment. Held: dismissing the appeal; affirming the order of the learned judge made on 31st May 2023 and ordering the appellant to pay the respondents’ costs of the appeal to be paid out of the liquidation of the Company, that: 1. The criteria for permission to adduce fresh evidence on appeal, including interlocutory appeals, is as formulated by Lord Denning M.R. in Ladd v Marshall. It is now well-established that the Ladd v Marshall criteria are principles and not rules or special rules to be strictly applied by the court. An appellate court must not only consider whether the application to adduce fresh evidence meets the three Ladd v Marshall criteria, but also whether ultimately it is in the interest of justice in the appeal to permit the fresh or new evidence to be adduced. Each application to adduce and to rely on fresh evidence in an appeal will turn on a proper consideration and weighing of all relevant factors and circumstances. In this case, the Fresh Evidence sought to be admitted consisted of the handwritten notes and recollections by Mr. Ke Yuhong, a former director of the Company who served as such between 27th May 2020 and 13th August 2021. The evidence was said to concern events in the course of negotiations leading up to the acquisition of the PRC Project Company which gave rise to a substantial factual case of bribery. The application to adduce fresh evidence was dismissed by the Court on 14th February 2024 as failing to satisfy the Ladd v Marshall criteria, in particular the first and second criteria. Rule 1.1 of the Civil Procedure Rules 2000 considered; Ladd v Marshall [1954] 3 All ER 745 applied. 2. As to the first criteria, the Court was not satisfied that this evidence could not have been adduced and relied on by the Company in defence of the JL Application. Likewise, the Court was not satisfied that this evidence could not with reasonable diligence have been obtained by the Company for use in the JL Application proceedings. The Company led no evidence explaining what steps, if any, it took to make reasonable inquiries of past directors or officers of the Company when preparing to mount its defence to the JL Application. As to the second Ladd v Marshall criteria, the allegations of bribery now sought to be made as leading to the SPA and or the VLA being void or voidable under Hong Kong law, was clearly a new ‘defence’ sought to be advanced for the first time in the appeal, after a trial and final determination of the JL Application in the court below. The Court also was not satisfied to the requisite standard at this stage of the proceedings that the fresh evidence sought to be adduced was credible. Furthermore, no cogent reasons had been advanced by the Company/applicant as to why it would be in the interest of justice to permit such evidence to be admitted and relied upon in this appeal. 3. The test and applicable principles for the appointment of liquidators over a company on the ground of an unpaid debt are well settled. These principles are fundamental to the standing of an applicant, as a creditor, and also to the jurisdiction of the court making the winding up order. Where a debt is disputed on genuine and substantial grounds, the applicant for a winding up order appointing liquidators is not a ‘creditor’ of the company within the meaning of that term in section 9 of the Act, with the necessary standing to invoke the court’s jurisdiction to make an order appointing liquidators. Furthermore, the winding up court is not the forum for determining genuinely disputed debts. Such claims are matters for trial and determination in the civil courts. A debt which is genuinely disputed on substantial grounds does not qualify as a claim admissible in the liquidation of the company. Moreover, an application for the appointment of liquidators by the court on the basis of a debt which is genuinely disputed on substantial grounds by the company, is an abuse of the process of the court and is liable to be struck out or dismissed. Sections 8, 9 and 162(a) Insolvency Act 2003 Act No. 5 of 2003 of the Laws of the Virgin Islands considered; Sparkasse Bregenz Bank AG v In the Matter of Associated Capital Corporation BVI Civil Appeal No. 10 of 2002 (delivered 18th June 2003, unreported) followed. 4. Where a company raises a defence upon which the debt is said to be disputed, it has the burden of putting forward a prima facie case (not proof on a balance of probabilities) that the debt is disputed on substantial grounds, that is, that there is something of substance which ought to be tried, which is or are genuinely or honestly held by the company. It is also well-settled that it is not open to an appellate court to just simply substitute its evaluation of the facts for that of the judge below. The test of what constitutes a ‘genuine and substantial dispute’ has received much consideration since the exposition of Byron CJ in Sparkasse. It is accepted that in applying the Sparkasse test, the judge’s duty is to carry out a preliminary investigation of the facts to determine whether the dispute has substance and is genuinely held by the company. The company must demonstrate that the dispute is more than ‘frivolous’ or ‘hopeless’ or ‘thoroughly bad’ but need not raise to the level of proof on a balance of probabilities. However, a mere assertion by the company that the debt is disputed on genuine and substantial grounds or that its ‘defence’ to the debt is substantial and genuinely held or believed by the company, will not suffice to have the application dismissed or a statutory demand set aside. This means that the court must decide if there is a defence or potential defence, whether on the facts or on the law or of mixed fact and law, of substance to the debt as alleged in the winding up application, on a ground or grounds prima facie substantial to warrant further investigation by a court of law or other tribunal having jurisdiction to determine that dispute between these parties. Sparkasse Bregenz Bank AG v In the Matter of Associated Capital Corporation BVI Civil Appeal No. 10 of 2002 (delivered 18th June 2003, unreported) followed; Sian Participation Corp (In Liquidation) v Halimeda International Limited BVIHCMAP2021/0017 (delivered 11th November 2022, unreported) followed; Jinpeng Group Limited v Peak Hotels and Resorts Limited BVIHCMAP 2014/0025 and BVIHCMAP2015/0003 (consolidated) (delivered 8th December 2015, unreported) followed; Goldin Investments Intermediary Limited v China Citic Bank International Limited BVIHCMAP2022/0010 (delivered 5th July 2023, unreported) followed; Re A Company (No 001946 of 1991), ex parte Fin Soft Holding SA [1991] BCLC 737 at 740 applied. 5. In the instant matter, the main ‘defence’ posited by the Company in answer to the respondents’ claim of an undisputed debt entitling them to an order appointing liquidators of the Company, is ‘common mistake’ at common law. The common law doctrine of common mistake is a common or mutual mistaken assumption of fact by the contracting parties which renders the service that would be provided or the obligation to be performed under the contract impossible or essentially different from the performance that the parties contemplated under the contract, with the result that the contract is not just liable to be set aside but is void ab initio at common law. The test of common mistake at common law is a narrow one and in order for a contract to be avoided for common mistake the following key elements must be present: i) there is a common assumption as to the existence of a state of affairs; (ii) no warranty by either party that that state of affairs existed; (iii) the non-existence of that state of affairs must not be attributable to the fault of either contracting party; (iv) the non-existence of the state of affairs must render performance of the contract impossible; and (v) the state of affairs may be the existence, or a vital attribute, of the consideration to be provided or circumstances which must subsist if performance of the contractual adventure is to be possible. Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd, The Great Peace [2002] EWCA Civ 1407 applied; Bell v Lever Brothers Ltd [1931] All ER Rep 1 applied. 6. There is no material difference between the law of Hong Kong and the law of England and Wales (applicable in BVI) on the law of common mistake. The preponderance of the jurisprudence suggests that the equitable doctrine of common mistake does not exist under the law of Hong Kong, and the prevailing position is as stated in Great Peace. Therefore, in this case, the Company is left with only the common law jurisdiction of common mistake which undoubtedly exists under the laws of Hong Kong, upon which to found its defence to the JL Application in seeking to show that the debt was disputed on genuine and substantial grounds. Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd, The Great Peace [2002] EWCA Civ 1407 applied; Bell v Lever Brothers Ltd [1931] All ER Rep 1 applied; Brennan v Bolt Burden (a firm) [2005] QB 303 considered; Kleinwort Benson Ltd v Lincoln City Council [1999] 2 AC 349 considered; Solle v Butcher [1950] 1 KB 671 considered; Magee v Pennine Insurance Co Ltd [1969] 2 QB 507 considered; Associated Japanese Bank (International) Ltd v Credit du Nord SA [1989] 1 WLR 255 considered. 7. The gravamen of the Company’s defence of common mistake was whether the effect of the findings of the PRC authorities that the PRC Project Company had been guilty of land and/or property hoarding rendering the common assumptions (assumed for argument purposes by the respondents) false, had rendered the subject matter of the SPA and/or the VLA impossible to perform, or essentially impossible, or fundamentally different, or completely lacking in commercial viability from what was contemplated and provided for in the SPA and/or the VLA, such that these agreements were at law void ab initio. In considering this issue, the learned judge was entitled to consider all relevant circumstances and also to carry out an assessment of the draft pleadings and evidence against the five elements of the ‘narrow’ test of common mistake. Accordingly, the learned judge was correct and did not take into account irrelevant matters when she considered the ‘conduct’ of the Company after it had been informed that the PRC authorities had found that the Project had been guilty of land and/or property hoarding, the effect of which, would make the common assumptions false, with the resulting potential effect, of rendering the SPA and/or the VLA void ab initio thereby discharging the Company from any obligations thereunder, and also the ‘delay’ on the part of the Company in asserting that the common assumptions were false. The learned judge was also entitled to consider the ‘impossibility of performance’ under the SPA and the VLA rendering them void ab initio; and the Company’s responses to the respondents’ assertion of Events of Default under the VLA entitling them, as lenders, to accelerate the payment of the Loan and accrued interest thereunder. 8. On the question of whether the Company has discharged its burden of demonstrating that it had made out a prima facie case of common mistake rendering the debt disputed on genuine and substantial grounds in satisfaction of the Sparkasse test, such that it cannot be the basis of a winding up order appointing JLs, two critical issues arise: (i) the Company’s argument that the effect of the common assumptions being false (a matter which, at least for the purpose of argument, is not disputed) was to render the SPA and/or the VLA void ab initio and rescinded by operation of law; and (ii) whether, as a matter of law and fact, a prima facie case can be made out of common mistake at law rendering the SPA and/or VLA void ab initio on the basis of impossibility of performance of the subject matter of the SPA and/or the VLA. Accordingly, the alleged common assumptions must be sufficiently significant or critical to the performance of the obligations under the impugned agreement or agreements so as to render that contract void ab initio. 9. As to the first critical issue, the respondents’ concessionary stance for the purposes of argument that the common assumptions are false, makes it at least arguable that the Company has raised, as a matter of fact, the issue of common mistake; the incorrectness or falsity of the representations underpinning the common assumptions; and whether it can as a matter of law make out a prima facie case of common mistake such as to render the debt not indisputable. However, on the second critical issue, the Company’s case of common mistake fails. Neither the SPA nor the VLA was concerned directly with the acquisition of the Project or the PRC Project Company. The subject matter of the SPA was the sale and purchase of the shares in Happy Magic and Carton, the two shareholders of the PRC Project Company. The common assumptions being false did not make that transaction and the obligations of the respondents and the Company under the SPA impossible to perform or make the essence of the contracted obligation impossible. The VLA was essentially a loan agreement by which the respondents agreed to provide the Company with a loan facility to assist it in the payment of the consideration under the SPA for the purchase of the shares. Again, this subject matter and transaction could not on any reasonable view be said to have been rendered impossible to perform. Moreover, the conduct of the Company and its delay in raising its defence of common mistake; its written responses to the respondents’ demand for full payment of the Loan and accrued interest (the debt) under the VLA and in doing so, not denying the existence or validity of either the SPA or the VLA or the debt itself but, instead, treating with the SPA and the VLA as valid and binding contracts, belies a lack of honest belief in the proffered common mistake defence. Accordingly, ground 1 of the appeal, that is, that the debt is disputed on genuine and substantial grounds, fails. Ground 2, which is predicated on the SPA and/or the VLA being void ab initio for common mistake also fails. Grounds 3 and 4 also fall away. 10. For completeness, as to the Company’s ground 2 of the appeal, that is, that the Company has a genuine cross claim of a value which exceeds or is equal to the debt owed, the applicable principles for disputing a debt on this basis are helpfully restated by this Court in Sian Participation Corp (In Liquidation) v Halimedia International Limited. It is not in dispute that the Company’s cross claim is: (i) hinged on the SPA and/or the VLA being declared void ab initio; and (ii) is a claim in restitution, more specifically counter-restitution, for a repayment by the respondents of the full consideration paid for the shares under the SPA, and the repayment by the Company of the Loan sum under the VLA. The Court agrees with the learned judge that the case at bar is a case in which restitution is very unlikely to be possible. First, the Company has failed to make out a prima facie case of common mistake such as to show that the debt is disputed on genuine and substantial grounds. Second, no court doing its best through the avenues of the remedies of rescission and restitution, can sufficiently unwind what has occurred since the acquisition so as to restore the Company and the respondents to the position they were in pre-the SPA and the VLA and to thereby make each of them whole. Accordingly, the Court agrees with the judge’s finding that the Company has not made out, to the requisite standard, a genuine cross claim for restitution in an amount which equals or exceeds the debt and, for the reasons already stated, ground 2 fails in any event. Sian Participation Corp (In Liquidation) v Halimedia International Limited BVIHCMAP 2021/0017 (delivered 11th November 2022, unreported) followed. JUDGMENT

[1]FARARA JA [AG.]: This is an appeal from the judgment dated 18th May 2023 (“the judgment”) and order dated 31st May 2023 (“the JL Order”) of a learned judge, Mangatal J (Ag) (as she then was), of the Commercial Division of the Eastern Caribbean Supreme Court in the Territory of the Virgin Islands (“BVI”). By the judgment, the learned judge granted the Ordinary Application filed by the respondents, Happy Lion Ventures Limited (“Happy Lion”) and Chinex Limited (“Chinex”) on 11th July 2022 as creditors of the appellant, RZ3262019 Limited (“the Company”), a company incorporated in the BVI, for the appointment of joint liquidators (“JLs”) of the Company. In granting the JL Application, the learned judge held that (i) the debt, the foundation of the JL Application, is due and outstanding; (ii) the Company had not discharged the onus of showing that the debt is disputed on genuine and substantial grounds as the basis advanced for the alleged dispute, common mistake, is ‘flimsy’; (iii) the cross claim asserted by the Company as exceeding the amount of the debt is far below the threshold and is ‘fanciful’, there being no real question as to whether the Company is liable to pay the debt.

[2]At a consequential hearing held on 31st May 2023, the learned judge, having entertained extensive written and oral submissions from the parties, made certain orders consequent on her findings in the judgment. These were orders: (i) putting the Company into liquidation pursuant to sections 159(1)(a) and 162(1)(a) of the Insolvency Act 20031 (“the Act”) on the ground that the Company is unable to pay its debts as they fall due; (ii) appointing Mr. Ryan Jarvis of Deloitte Ltd. in BVI and Mr. Choi, Tze Kit Sammy, of T.K. Choi & Co in Hong Kong as JLs of the Company; (iii) dismissing the Company’s application dated 7th October 2022 (“the Company’s Application”); and (iv) ordering the Company to pay the respondents’ costs of the JL Application and the Company’s Application, such costs to be paid out of the assets of the Company as costs in the liquidation. The Debt – the VLA, the SPA, and the Security Agreements

[3]The alleged debt, the foundation of the JL Application, arises out of a Vendor Loan Agreement (“VLA”) dated 29th August 2019 between the Company as Borrower, and the respondents, Happy Lion and Chinex (both companies incorporated in the BVI), as Lenders. As matters unfolded, the original VLA dated 29th August 2019 was subsequently amended and restated by the agreements dated, 17th and 23rd July 2020 respectively. Pursuant to clause 2.1 of the VLA, the respondents agreed to provide to the Company a USD term loan facility in the USD equivalent of the sum of RMB 2.4 billion - approximately US $343 million (“the Loan”). It is not in dispute that this loan facility was drawn down in full by the Company pursuant to the latest iteration of the VLA dated 23rd July 2020.

[4]The purpose of the loan facility was to fund, in part, payment of the consideration for the purchase by the Company of the shares held by each of the respondents in the two shareholders of Shun Hong Real Estate (Chengdu) Limited, a company incorporated in the People’s Republic of China (“the PRC Project Company”). The purchase of the said shares of the respondents was to be effected pursuant to the terms of a Share Purchase Agreement signed on 9th May 2019 (as subsequently amended by various side letters and, ultimately, restated under a Restatement Agreement dated 23rd July 2020) (collectively “the SPA”). Pursuant to the terms of the SPA, the Company agreed to and did purchase and acquire the shares held individually by each of the respondents in the two shareholders of the PRC Project Company, namely, Happy Magic Enterprises Inc (“Happy Magic”) a company incorporated in the BVI, and Carton International Limited (“Carton”), a company also incorporated in the BVI.

[5]Apart from the VLA, and as security for the Loan, a number of share charges were entered into between the Company (as chargor) and the respondents, Happy Lion and Chinex (as chargees) mortgaging their shares, respectively, in Happy Magic and Carton, and also the shares in the PRC Project Company held by Happy Magic and Carton (collectively, “the Share Charges”). Also, and as further security for the Loan, the Company, as assignor, entered into two Security Assignment Agreements by which it assigned separately to the respondents all its rights, titles, interests, and benefits of, respectively, the amounts owned by Happy Magic and Carton to the respondents upon completion of the acquisition (“the Assignments”). Further, by two equity interest pledge agreements the PRC Project Company provided an equity pledge guarantee to Happy Lion and Carton over the equity of the PRC Project Company in relation to the Company’s obligations owed under the VLA (“the Pledge Guarantees”).

[6]The PRC Project Company had previously acquired various land use rights from the Municipal Bureau of Land and Resources of Chengdu in the PRC entitling it to develop the land in Chengdu on which the Project is located (“the Project land”). The development of the Project was carried out by the PRC Project Company in eight distinct phases. It is not in dispute that as at May 2019 when the original SPA was signed, the first six phases of the Project had been completed and sold, and the seventh and eighth phases were under construction and remained largely unsold. Accordingly, the ultimate purpose of the SPA and VLA was for the Company to indirectly own and control the Project and to complete the development of phases 7 and 8, including the sale of the units comprising those phases.

[7]The Company was incorporated on 17th April 2019 in the BVI for the purpose of acquiring the shares of the respondents in the corporate shareholders of the PRC Project Company. The acquisition was completed on 23rd July 2020 by the transfer to the Company of all the shares held by the respondents individually in Happy Magic and Carton. At the time of the acquisition, the Company was owned 50/50 between Chengdu Ruizhou Real Estate Co. Ltd (“Ruizhou”) and Chengdu Zhuozhou Real Estate Co. Ltd (“Zhuozhou”), as joint venture partners.

[8]It was the respondents’ case in the JL Application, that as a result of the occurrence of certain Events of Default under the VLA, the full loan and accrued interest became immediately due and payable by the Company to the respondents. This constituted a debt owed to the respondents which remained unpaid. As of 15th July 2021, the date of the respondents’ demand letter to the Company, the total amount of the debt, including interest, claimed by the respondents as outstanding was US$347,493,498.60. By letter dated 25th August 2021 in response to the demand letter, the Company, inter alia, informed the respondents that it had engaged legal counsel to investigate the ‘whole transaction’, including alleged issues of insufficient disclosure and fraud.

[9]By letter dated 1st September 2021, the respondents rejected the Company’s allegations and asserted that the Loan was immediately due and payable. As of the September 2021 letter, the amount then outstanding on the Loan was stated to be US$348,826,156.2 The JL Application, for the appointment of joint liquidators over the Company, was subsequently filed on 11th July 2022 (submitted 8th June 2022), some 11 months later. The proceedings in the court below

[10]By Ordinary Application filed on 11th July 2022, the respondents sought the appointment of joint provisional liquidators over the Company pursuant to section 170 of the Act (“the JPL Application”). An order was obtained ex parte by the respondents on 13th July 2022 appointing joint provisional liquidators (“JPLs”) over the Company (“the JPL Order”). However, the subsequent removal by the JPLs of Ms. Dong Shuling and her replacement with Mr. Wai Man Chung as a director of the Company, was reversed by Jack J by order dated 10th October 2022 reinstating Ms. Dong as a director.

[11]Also on 11th July 2022, the respondents, by separate Originating Application, sought the appointment by the Commercial Court of joint liquidators over the Company. The application was made pursuant to sections 162(1) and 159(1) of the Act. The JL Application was supported by the first affirmation of Raymond Tam dated 8th July 2022 (“Tam 1”).

[12]The grounds of the application, in material part, are that following execution of the VLA the lenders (the respondents) discovered from the 2020 audited financial accounts and from pre-sale communications with representatives of the PRC Project Company, that certain actions had been taken by the Company and the PRC Project Company ‘without the knowledge of the lenders [the respondents] and without the necessary prior consents required for such actions pursuant to the terms of the [VLA]’.3 These actions, which are cataloged at paragraphs 25 and 26 of Tam 1, were said to have constituted breaches of various provisions of the VLA (as set out at paragraphs 27(a)-(f)) and an ‘Event of Default’ under the VLA giving rise to the lenders’ right to declare the Loan together with accrued interest and all other amounts accrued or outstanding under the ‘Finance Documents’ (as defined in the VLA) ‘be immediately due and payable’. This was communicated to the Company by letter dated 14th July 2021 from Slaughter and May, legal representatives for the lenders/respondents (“the 14th July 2021 Letter”).

[13]By further letter dated 15th July 2021 from the respondents’ legal representatives, the Company was advised that pursuant to clause 17.17 of the VLA that the respondents were declaring the Loan together with accrued interest due and payable, which sums, as of the said date, stood in total sum of US$347,493,498.60 as due and payable immediately by the Company to the respondents in equal sums (“the 15th July Letter”). The Company did not comply with the said demand for payment of the Loan and accrued interest to the respondents. Instead, by letter dated 25th August 2021 (“the August 2021 Letter”) the Company responded to the 15th July 2021 Letter referring to it having immediately ‘launched conversations on the withdrawal of such letter’, which conversations had not reached a conclusion so far; that the declaration that the Loan was immediately due and payable should be withdrawn; that the Company had engaged external legal counsel to review and investigate the ‘whole transaction’. I shall return to this letter in more detail later on in this judgment.

[14]By letter dated 1st September 2021, the respondents rejected the allegations made by the Company in the August 2021 Letter and stated unequivocally that it will not withdraw the 15th July 2021 Letter and maintained their demand for full payment of the Loan and accrued interest which then totaled US$348,826,156.40. By letter dated 8th March 2022, the Company was informed that it had come to the attention of the respondents that legal proceedings had been commenced against the Company and the PRC Project Company, which constitutes an Event of Default under clause 17.14(b) of the VLA. By this letter the Company was also informed that the respondents, as lenders/chargees, had enforced their rights under the Share Charges and appointed Ho Kwok Leung Glen and Kam Chung Hang (Forrest) from the Hong Kong office of Deloitte Touche Tohmatsu, to act as receivers over the Company’s shares in Happy Magic and Carton. It was also asserted in the said letter that the Company had failed to repay the Loan and accrued interest due and owing under the VLA. This led to the commencement of the proceedings for the winding up of the Company and appointment of JLs on 11th July 2022 before the Commercial Court in BVI.

[15]As matters progressed in the JL Application, the evidence of the respondents in support of the making of a winding up order and appointment of JLs of the Company, is set out in the three affirmations of Raymond Tam, a director of the first respondent, Happy Lion (“Tam 1”, “Tam 2”, and “Tam 3”). In support of the JL Application were Ruizhou and Chinawest Development Holdings Limited (“Chinawest”), an indirect subsidiary of Ruizhou. Their evidence is set out in the Affirmation of Zhang Shidong (filed 6th February 2023 with English translation), an employee of Ruizhou and director of Chinawest.

[16]Notices of intention to appear and to oppose the JL Application were filed by the Company, Yuzhou and Mr. Zhou Ying (“Mr. Zhou”), all of whom filed evidence in opposition. The evidence of the Company in opposition was provided by Ms. Wang TingTing, a former director of the Company (“Ms. Wang”) in her five affirmations filed by the Company in the proceedings below (“Wang 1”, “Wang 2”, “Wang 3”, “Wang 4” and “Wang 5”), and the two affirmations of Ms. Dong Shuling (“Dong 1” and “Dong 2”). The evidence on behalf of Yuzhou consists of the affirmation of Ms. Kwok Ying Lan (Ms. Kwok”) filed 22nd December 2022 (“Kwok 1”). Mr. Zhou’s evidence in opposition is by way of Dong 1 (filed 10th October 2022).

[17]The respondents and the Company each filed expert evidence of Hong Kong law in the JL Application opining on the legal concepts of mistake (including common mistake) and frustration raised by the Company in its ‘defence’ to the said winding up application and its contention that the debt was disputed on genuine and substantial grounds. The respondents’ expert evidence consisted of an affidavit and report of Ms. Queenie Fiona Lau (“the Lau Report”); and the Company’s expert evidence is set out in the report of Dr. William M.F. Wong SC (“the Wong Report”).

[18]In the proceedings below to appoint JLs over the Company, the debt was stoutly disputed by the Company on what it contended were genuine and substantial grounds. The Company’s grounds in opposing the JPL Application were essentially that: (1) the VLA upon which the respondents alleged that the debt arose, as well as the SPA by which the shares in the two shareholders of the PRC Project Company, Happy Magic and Carton, were sold and transferred to the Company, were void on the grounds of common or fundamental mistake, or, alternatively, under the doctrine of frustration; and (2) in any event, the Company had a genuine cross claim in an amount that exceeded the alleged debt.

Judgment in court below

[19]As stated above, in a written judgment delivered on 18th May 2023 after a two-day hearing in February 2023, the learned judge found for the respondents on the JL Application. The judge held that she was satisfied that the debt was due and outstanding and that the Company had not discharged the onus, which was on it, of showing that the debt was disputed on genuine and substantial grounds within the meaning of the test as encapsulated by Sir Dennis Byron CJ in Sparkasse Bregenz Bank AG v In the Matter of Associated Capital Corporation.4 It was her view that the basis advanced by the Company in disputing the debt was ‘flimsy’; and that the alleged cross claim had not met the requisite threshold and was ‘fanciful’.

[20]The learned judge considered and assessed the evidence of the lay witnesses on both sides, and of the two experts witnesses on Hong Kong law. In considering the expert evidence regarding the claims of mistake and frustration relied on by the Company to show that the debt was disputed on genuine and substantial grounds, the judge surmised that the Lau Report had concluded that there was no material difference between Hong Kong law and the law of England and Wales (applicable in BVI); there was no separate equitable jurisdiction under Hong Kong law for setting aside contracts for common mistake; the Company was unlikely to be able to satisfy the high threshold required of common mistake and frustration; the ‘Transaction Documents’ (the SPA and VLA) were likely valid and enforceable; and any independent claim for unjust enrichment would be unlikely to succeed.

[21]The judge also summarised the Wang Report as confirming that there is no material difference between Hong Kong law and the law of England and Wales on the legal concepts of mistake and frustration of contracts; opining that the draft Re-Amended Statement of Claim exhibited by the Company to Wang 5 showed a valid case of common mistake; that it was at least reasonably arguable that the Hong Kong Court should recognise an equitable doctrine of common mistake, albeit there was currently no binding legal authority that such an equitable jurisdiction exists for setting aside a contract; the Company has a valid claim based on frustration, but no valid claim for misrepresentation; and that the post-contractual conduct of the Company did not constitute affirmation so as to preclude the Company from seeking rescission.

[22]The judge noted that both sides were ad idem on the applicable test as to whether a debt was disputed on genuine and substantial grounds; and noted that in their respective reports Ms. Lau and Dr. Wong set out certain extracts from the various authorities. She also summarised the points raised and positions taken by those opposing the appointment of the JLs.

[23]At paragraph [71] the judge listed eight issues or matters for consideration and the order in which she intended to address them. The first issue concerned the expert evidence as to Hong Kong law on the issues of mistake (including common mistake) and frustration. On this issue, the judge’s conclusions are at paragraphs [80] and [81] of the judgment, which state: “[80] In sum, a survey of the legal landscape in Hong Kong reveals that there is no Court of Appeal decision supporting the existence of an equitable jurisdiction regarding common mistake. However, there is a first instance judgment applying Great Peace and positively rejecting the existence of any such jurisdiction. In my view, there is no convincing or reasonable basis for assuming that a Hong Kong Court should or would recognize the doctrine of equitable mistake, which doctrine was roundly rejected in Great Peace. Further, I have not been referred to any other first instance judgment that supports the existence of this equitable jurisdiction, whether decided since Great Peace or at all. [81] I found that the reasoning put forward by Ms. Lau was more logical and well-reasoned than that out forward by Dr. Wong. Dr. Wong does seem to have ventured into the arena of speculation and at some points appears to have crossed over into advocating the Company’s positions, rather than simply giving independent opinion evidence on the relevant issues. I accept that the law of Hong Kong is the same as in England & Wales and the BVI. I accept and find as a fact that under Hong Kong law, at common law, for a contract to be avoided for common mistake the characteristics set out at paragraph [73] (above) must be present. I also find as a fact that there is no separate equitable jurisdiction to set aside a contract on the grounds of common mistake.”

[24]On the second issue- whether there is a genuine dispute of the debt founded on substantial grounds – the judge opined that it was important to consider the Company’s ‘posture and conduct’ since the date that the SPA and the VLA were entered into. She accepted the respondents’ argument that since these documents were executed ‘the Company has treated those agreements as valid and effective and has serviced the debt in acknowledgement that it is repayable.’ The relevant conduct upon which this conclusion was reached is set out in paragraph [85] subparagraphs (1) to (9) of the judgment. I shall return to these matters when dealing with this critical issue. The judge also considered under this aspect, the ‘chronology’ of events which she noted was not in dispute but was ‘critical to determining whether there is a genuine dispute’. The judge went on to accept and adopt the chronology set out by the respondents in their skeleton argument. The judge also considered under this heading, the issue of ‘lack of cooperation’ by the Company with the JPLs following their appointment on 13th July 2022, as chronicled by the JPLs in their report. In particular, the lack of cooperation by Ms. Dong and Ms. Tingting, and the type of evidence provided in opposition to the application to appoint JLs which she mused failed to address ‘even some basic issues that an innocent party would be expected to confirm, as a minimum…’. These matters are set out at paragraph [88] of the judgment.

[25]The judge next considered under this second issue the matter of ‘delay’ on the part of the Company in assessing ‘the bona fide nature of the dispute’, specifically as to the timing and the stage at which it was being alleged that the debt was disputed on genuine and substantial grounds. The judge’s reasoning and findings on this issue are set out at paragraphs [90] to [97] of the judgment, and are reproduced (to a large extent in full) below: “[90] It seems to me that in the present case, had the Company been genuine in its belief that the Debt was and is disputed, the points now raised in the Re-amended SOC should have been raised much earlier. On the Company’s case, it became aware of possible breaches from as long ago as 23 July 2020 when it states that representatives of the PRC Project Company met with officials from the relevant governmental and/or regulatory authorities and were told that the PRC Project Company had been guilty of “property-hoarding”. In fact, 23 July 2020 is the very same day the SPA (as amended by the Side Letters and Reinstated Agreement) was completed. There has also been no good reason put forward as to why the Company did not litigate the HK Claim at any point prior to the JL Application. [91] It is hard to see why, if the Company genuinely believed it had a dispute on the grounds of common mistake, on the basis that exposure to penalties based on PRC “land-hoarding” regulations made the performance of the SPA and the VLA impossible (or rendered the assumed state of affairs radically different to those contemplated when the contracts were entered into), its Officers would not have notified the Applicants [respondents] of this on the very day that the Amended SPA was entered into. It is inconceivable, and defies commercial sense, that such concerns would not have been raised at that stage or shortly thereafter. However, the Company did not seek to set aside the Transaction Documents or even to convey these concerns to the Applicants in that regard. [92] Instead, the Company performed its payment obligations under the terms of the SPA and the Applicants, the Sellers, transferred the Shares to the Company. The Company also affirmed the VLA by paying sums due thereunder, and by acting at all times as if it was the legal owner of the shares generally, and in making representations to third parties that it was the controlling entity of the PRC Project Company. [93] In my view the Company ought to have been in a position to put forward their concerns even by the time the JL Application was served on it, having engaged external counsel to consider the whole transaction some thirteen months earlier in August 2021. Indeed, the Company’s officers could have raised these matters in February 2021, in response to the demand, but they did not. [94] Instead, the Company did nothing until the first hearing of the JL Application when it submitted, on the morning of the hearing itself, the draft Hong Kong Statement of Case to the Court. This was the first time that the Company had raised the allegations contained therein. That is a period of two years and seven months after the date that the Company allegedly first became aware of the issues complained of in the Statement of Case (“SOC”). The Court further notes that there have been two amendments since, such that there is not a Re-Amended SOC. The Court views these matters as gravely concerning; they cast serious doubt as to the genuineness of the Hong Kong Claim. [95] This is particularly so, given the other concerns voiced by the Applicants (and acted by them in obtaining the JPL Order), when it is considered that in the intervening period between the first hearing of the JL Application and the date of the hearing before me, the PRC Proceedings were determined (during December 2022) in Zhou Ying’s favour, based on the proceedings being unopposed, thereby giving Zhou Ying present rights of enforceability against the assets of the PRC Project Company. [96] As the Applicants’ SKA noted, it is important to consider the conduct of a party to a contract in the immediate aftermath of discovering some event that may give rise to common mistake or frustration. [Going on to cite from para.63 of the judgment of Lord Phillips M.R. in Great Peace quoting with approval the approach adopted by the first instance judge Toulson J at para. 165 regarding a ‘telling point’ being the reaction of the defendant on learning the true position of the vessels and not wanting to cancel the agreement until they knew if they could find a nearer vessel to assist.] [97] In my judgment, the late stage at which the Company has raised the alleged dispute and cross-claim demonstrates a lack of sincerity or of conviction. There are many things that do not add up; the delay and tardiness in raising the allegations make no commercial sense. The Company’s overall posture is quite incredulous, and its rationale lacks a sound commercial basis. I agree with the Applicants’ characterization of this matter as having similarities to the facts in Re a Company… [setting out in full the comments by Harman J at page 749 a-e, which need not, for present purposes, be repeated here].”

[26]Put simply, the learned judge did not believe the allegations of ‘Common Assumptions’ being reached by the parties prior to entering into the SPA and VLA, as representations made at the January 2019 meeting and the 2nd April 2020 meeting that the phased development of the Project was permitted under the relevant PRC rules and regulations, and did not entail land hoarding or property hoarding, which could lead to penalties being imposed by the PRC authorities. The judge having drawn the quite strong conclusions (at paragraph [97]) from the late stage at which the Company had raised the alleged dispute [common mistake based on the existence and falsity of ‘Common Assumptions’] also accepted the respondents’ characterisation of these matters as having similarities to the facts in Re a Company (No. 001946 of 1991), ex parte Fin Soft Holding SA.5 In that case, as set out in detail at paragraph [97], Harman J categorised the late raising of the allegations as seeming to him “to show that they are the result of dredging about for any form of defence to avoid payment of this promissory note’; and that the insolvency of the company ‘would give the likely motivation for those controlling the company to raise any form of defence that can be grabbed at and dressed up in some way to avoid payment’.6

[27]The learned judge, having dealt with the other ‘issues’, including, in particular, delay, and having considered certain treaties and case law on common mistake cited and relied on in the Lau Report on Hong Kong law, and the English cases of Bell v Lever Brothers Ltd7 and Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd, The Great Peace,8 dealt with the defence of ‘common mistake’ in some detail, citing extracts from certain treatise and important cases on the meaning of common mistake rendering a contract void ab initio (paragraphs [98] to [100]). At paragraph [101] of the judgment, the learned judge opined: “[101] In my judgment, the Company’s case in the Hong Kong Claim falls far short of raising a genuine and substantial dispute as to the Debt on the basis of Common Mistake. There is a paucity of supporting evidence. Further, the Company’s reasons for challenging are set out in the Re- Amended SOC and I find that there are the following deficiencies in this pleading…”

[28]The judge then identified at sub-paragraphs (1) and (2) of paragraph [101] certain ‘deficiencies’ in the draft Re-Amended SOC. These were, in summary: - (1) the (draft) pleading does not actually state that any ‘fundamental consequences” have resulted from the land-hoarding and property- hoarding which the PRC Project Company was said to have committed; (2) as to the pleaded ‘particulars’, these were of: (a) ‘hypothetical future losses’ in the event the PRC Project Company had punitive penalties assessed against it for breach of the relevant laws and regulations, which ‘could have the effect of depriving the Project of all or substantially all of its commercial value’, but that there was nothing to suggest that such penalties had, in fact, been imposed or that they would be; and (b) that despite the pleading to the contrary, ‘no reasons are provided in the pleading as to why the conduct of the PRC Project Company, prior to the Acquisition, is said to have been causative of the price ceiling imposed by the PRC Government’, and the Company has not attempted to quantify the loss it said it has suffered as a result of this price ceiling.

[29]The judge also considered that the (draft) Amended Statement of Claim did not assert that any confiscation of properties in the Project by the PRC Government had taken place, but, to the contrary, it was averred at paragraph 35 of Tam 3 that the Project had ‘launched a pre-sale of 36,809 sq/m of residential units in May/June 2021, suggesting that no such confiscation of land had occurred at that time’.9 As to whether there was a warranty in the ‘Transaction Documents’ (the existence of which was denied in the draft pleading) the judge considered it to be “quite highly arguable that a warranty was given by the [respondents] that there were no outstanding liabilities and that risk was taken by the Company regarding breaches following the commencement of the Transaction Documents. It also appears that the possibility of adverse claims, and indeed a duty on the Company to notify the [respondents] of the same, were also provided for in the Transaction Documents. These matters tend to weaken any case that the Company has advanced in the difficult area of common mistake”.10

[30]Next in relation to the warranty issue, the judge considered and accepted the expert evidence at paragraphs 31.1 and 31.2 of the Lau Report, which she found to be ‘well-reasoned’. This was principally to the effect that by the seller’s warranty at paragraph 13 of Schedule 2 of the Re-stated and Amended SPA that ‘the PRC Company is not in breach of any applicable PRC law where the PRC Company’s outstanding liability for any fines for such breach exceeds RMB 100,000,000’, the respondents, arguably, had warranted as to no outstanding liabilities but not future liabilities, which were a risk assumed by the Company even if it arose from earlier acts or omissions. Also, that the possibility of adverse claims had already been provided for, ‘with the Company being under a contractual obligation to notify the [respondents] of the same.’

[31]The judge also considered that these matters notwithstanding, there were ‘numerous’ other difficulties with the Company’s common mistake case. The first is that the SPA was not concerned with the sale of shares in the PRC Project Company, but the sale and purchase of shares in its two shareholders, Happy Magic and Carton held, respectively, by the respondents. However, the Common Assumptions (as pleaded) ‘only relate to the PRC Project Company, the Project or the Project Land. The Company accepts that there had been completion.’ The judge also considered in relation to the question of the ‘commercial viability’ of the Project, that on the Company’s pleaded case it was still able to obtain a loan and to conduct sales (albeit with a price ceiling). She accepted that this ‘shows that the Project could still be carried out, albeit less profitably.’ Moreover, she concluded that on the evidence ‘breaches of the PRC Regulations [regarding land-hoarding and property- hoarding] did not render performance of the Project impossible.’ These conclusions were reached by the judge whilst accepting that there had been a drop in the property market after the acquisition, but that the Company would need to show that any loss was as a result of the price ceiling ‘and not just as a result of what was happening generally, which was a drop in the market.’ In this respect, she found that the Company’s evidence had fallen ‘woefully short of that.’

[32]The judge also mused that the purpose of the SPA being to fund, in part, the Company’s payment of the consideration thereunder, if that agreement is not void for common mistake, ‘there is no reason why the subject-matter of the VLA would be essentially or radically different or that the VLA’s commercial purpose would be frustrated.’

[33]At paragraph [102], the learned judge mused that there was nothing in the said draft Re-Amended SOC relied on by the Company which suggested that the confiscation of properties by the PRC Government had in fact taken place, and that the evidence before her (from Tam 3) as to the launching of a pre-sale of 36,809 sq/m of residential units at the Project in May/June 2021, suggested that no such confiscation of the land had taken place at the time.

[34]At paragraph [103], the learned judge opined that while the Re-Amened SOC ‘contains a plea that there was no warranty [by the respondents] in the Transaction Documents (the SPA and VLA)’, on the basis of the copies before the court below: “…it is quite highly arguable that a warranty was given by the [respondents] that there were no outstanding liabilities and that risk was taken by the Company regarding breaches following the commencement of the Transaction Documents. It also appears that the possibility of adverse claims, and indeed a duty on the Company to notify the [respondents] of the same, were also provided for in the Transaction Documents. These matters tend to weaken any case that the Company has advanced in the difficult and rare area of common mistake.’ In support of this reasoning the learned judge cited paragraphs 31.1 and 31.2 of the Lau Report.

[35]The judge went on to consider other difficulties with the Company’s common mistake case. She pointed out that the SPA was concerned with the sale and purchase of the Happy Magic and Carton shares, and not with the PRC Project Company, the Project or the Project Land, but the common assumptions only relate to the latter and not to the sale of the relevant shares. She also stressed that notwithstanding the issues raised about the commercial viability of the Project: “…on the Company’s own plea it was still able to obtain a loan (albeit at a higher rate) and was able to conduct sales (albeit with a Price Ceiling). I accept that this shows that the Project could still be carried out, albeit less profitably. Further, even if the legality of the Project was a part of the common purpose, on the evidence, breaches of PRC Regulations did not render performance of the Project impossible. I accept that there was a drop in the property market after the Transaction. However, for the Company to show that there was a loss caused by price ceilings imposed by the Chinese authorities, it would need to show that such loss that it has outlined was not just as a result of what was happening generally, which was a drop in the market. The Company’s pleadings and evidence fall woefully short of that.”11

[36]Also, the judge stated at paragraph [108]: ‘If the SPA itself is not void for common mistake, there is no reason why the subject-matter of the VLA would be essentially or radically different or that the VLA’s commercial purpose would be frustrated.’

[37]Specifically regarding the issue of ‘frustration’, the learned judge, having noted the statement by counsel for the appellant during the hearing that this was not the main ground relied upon by the Company to demonstrate that the debt was genuinely disputed on substantial grounds, concluded at paragraphs [111] to [113]: “[111] … the Company’s basis for advancing a case of frustration is very weak. [112] In any event, frustration operates within narrow confines, and… is not lightly to be invoked to relieve contracting parties of the normal consequences of imprudent commercial bargains – see Chitty on Contracts paragraph 26-003. [113] …for similar reasons analyzed in relation to common mistake, in my view, there are no substantial grounds for finding that an event after entry into the contract occurred which meant that is was commercially impossible to fulfil the contract or such as to render the obligation to perform radically different from that undertaken at the moment of entry into the contract. There is simply no evidential foundation put before me that could raise a claim of frustration with any substance. The Company has therefore failed to raise the prima facie case of triable issues referred to in the Sparkasse decision.”

[38]The third issue or matter considered by the learned judge was whether there was a genuine cross claim that exceeded the amount of the debt. She observed that the cross claim had not been pleaded in ‘great detail’ in the Re-Amended SOC, and the claim as pleaded was one in restitution, more specifically ‘counter restitution’. However, the judge saw that a main obstacle to this claim was that ‘counter restitution would just not be possible’. She opined that this ‘unwinding’ of the transaction, would have seen fewer obstacles had the Company sought the return of the purchase price for the shares immediately upon being informed by the Chinese authorities and regulators of the land-hoarding issues, ‘which would have been the sensible thing to do if there really was an issue.’ The judge also accepted ‘as convincing and logical’, the flow of funds chart at paragraph 45 of Tam 3, as well as the reasoning at paragraph 46 as to why restitution was impossible. The judge also found useful on the matters of affirmation, estoppel by convention, and impossibility of restitution, the decision and dicta of Field J at paragraphs 114,115, 130-134 and 163-165 in Pathfinder Minerals Plc v Veloso.12

[39]On the fourth issue - affirmation and estoppel by convention- the learned judge reiterated her finding that there was no genuine or substantial ground advanced by the Company on which the debt could be disputed or the cross claim advanced. She accepted that ‘the Company’s conduct since the date of the SPA and VLA is demonstrative of an ongoing relationship between the parties whereby it would be unjust and unfair for the Company to be allowed to resile from that arrangement now.’13

[40]On the fifth issue - the solvency of the Company- the learned judge accepted the conclusion reached by the JPLs in their second report dated 15th February 2023 that the Company ‘has insufficient assets to satisfy its liabilities and is therefore insolvent’; and their analysis of the Company’s financial position leading to the said conclusion. The judge also referred to and considered certain statements from the evidence filed in opposition to the JL Application and the financial documentation provided therewith when considering whether she was satisfied that the Company was insolvent on the basis that the debt had fallen due and it was unable to pay it. She concluded: “It is also very likely insolvent on the basis that its liabilities exceed its assets. The Solvency Evidence, rather than rebutting the assumption that arises when a Company is unable to pay its debts as they fall due, reinforces it.”14

[41]The judge’s summary of her conclusions as to the debt not being disputed on substantial grounds and there not being a genuine cross claim in a sum greater than the debt, are set out in some detail at paragraphs [126] to [130] of her judgment. I reproduce below paragraphs [126], [127] and [130]: “[126] I am of the view, having looked at the evidence closely, that there is no genuine or substantial dispute as to the Debt. There are merely fanciful grounds raised for disputing it. I base that conclusion upon multiple factors, including the late raising of the allegations, the Company’s prior conduct, the chronology of events, the Company’s likely insolvent state or motive, and indeed, the nature of the dispute itself, being concerned with an area of the law, i.e., common mistake in which there is a paucity of such cases. The Company has not satisfied me that it has a substantial dispute based on either of the grounds relied upon, i.e. common mistake or frustration. [127] There are no grounds shown impugning, in any substantial manner, the Debt and the validity of its underlying documents. In the instant case, the dispute and the cross-claim appear to be tenuous and shaky. In a nutshell, what has happened here is that the Company has engaged in conduct and delay that do not accord with commercial sense. It is relying on the seldom successful plea of common mistake, and on frustration, to disturb transactions entered into by sophisticated parties and on top of it, they do so on a flimsy basis. When those factors are taken together, I remain wholly unsatisfied that there is any genuine or substantial dispute or cross claim. …. [130] Further, and in any event, the Company does not dispute that it received the funds, pursuant to the Transaction Documents, in an amount exceeding USD 300 million. Therefore, whether those funds are considered repayable in accordance with the terms of the VLA and SPA, or whether the debt is to be treated as a bare loan repayable on demand, I agree with Mr. Francis [counsel for the Applicants/respondents below] that the same analysis applies. The Company does not claim that the funds were advanced to it by way of a gift. The Company is indebted to the Applicants in an amount which it is unable to repay.”

[42]The seventh issue dealt with in the judgment concerned the question or suggestion that the judge adjourn the application to appoint JLs on the basis of viable proposals ‘for Yuzhou to be restructured’. These proposals were roundly rejected by the judge at paragraph [137] as not being credible for the reasons given in her preceding paragraphs. This issue has not been appealed and, therefore, does not fall for consideration by this Court.

[43]On the eighth issue - treatment of the views of the majority of creditors- the judge concluded at paragraph [143] that ‘the majority of creditors in the instant case have not put forward good or credible reasons for opposing the JL Application’. Likewise, this issue does not arise in this appeal for our consideration. The judge rejected the application by Yuzhou and Mr. Zhou that the court adjourn the JL Application, finding that no good or sufficient reasons for so acting had been advanced.

[44]As stated above, at the consequential hearing on 31st May 2023 following the delivery of the judge’s written judgment, the learned judge made formal orders putting the Company into liquidation pursuant to sections 159(1)(a) and 162(1)(a) of the Act; appointing JLs with the powers set out at paragraph 4 of the said order; and dismissed the Company’s application dated 7th October 2022.

The Appeal

[45]By notice of appeal filed 13th July 2023, the Company appealed against the judgment and orders of the Commercial Court putting the Company into compulsory liquidation and appointing joint liquidators. In its notice of appeal, the Company challenges three findings of fact and two findings of law. The findings of fact challenged are that: (1) the alleged debt upon which the liquidation application was founded was not disputed by the Company on genuine and substantial grounds; (2) the Company did not have a genuine and serious cross claim that exceeded the said debt; and (3) the late stage at which the Company has raised its dispute in respect of the alleged debt and its cross claim demonstrated a lack of sincerity or of conviction on its part. The findings of law challenged are that: (i) the Company’s cross claim would be barred on the grounds that counter-restitution would be impossible; and (ii) the Company is estopped from seeking to dispute the alleged debt and/or that it had affirmed the relevant agreements.

The grounds of appeal

[46]The Company relies on four grounds of appeal: (i) Ground 1 - Debt disputed on genuine and substantial grounds – common mistake: The learned judge erred in law and/or fact in finding that the Company had failed to raise a genuine and substantial dispute as to the debt upon which the liquidation application was founded. In particular: (1) The judge failed to address the factual evidence that was relied upon by the Company in support of its case that the parties had acted on the basis of a mistaken common assumption. (2) The judge gave too little weight to the point that the evidence disclosed a case as to the existence of a common mistaken assumption that was well- arguable on the facts. (3) The judge erred in rejecting the argument that the fact that the underlying project was in breach of the applicable laws and regulations, [relating to land hoarding and property hoarding] so as to give rise to an exposure to and/or imposition of serious penalties and sanctions which could have the effect of depriving the underlying project of all or substantially all of its commercial value, was itself a sufficiently fundamental matter to mean that the relevant agreements, [the SPA and the VLA], were void for common mistake. (4) The judge took into account irrelevant factors relating to the conduct of the Company and other parties which took place after the entry into the relevant agreements and were irrelevant and extraneous to the existence or not of the cause of action in common mistake that was relied on by the Company. (5) Further and in any event, the said matters focused on and relied upon by the learned judge were insufficient to warrant a finding that the Company was not acting in good faith in disputing the alleged debt. (6) Further or in the alternative, the said matters were given a weight by the judge that was unwarranted in circumstances where there was demonstrably a well-arguable case on the facts that the relevant agreements were void on grounds of common mistake. (7) Further, the judge erred in law in relation to the construction of the SPA in finding that it was ‘quite highly arguable’ that the warranty given by the [respondents] as to there being no outstanding liabilities for breaches of any applicable laws meant that the Company took the risk that such liabilities might arise in the future after the completion of the SPA. Further or in the alternative, the judge erred in taking into account a matter that was, even on her finding, only ‘quite highly arguable’ in the context of her decision as to whether there was a genuine dispute on substantial grounds to the alleged debt. (ii) Ground 2 – Genuine cross claim: The judge erred in law and/or in fact in finding that the Company had failed to make out a genuine and serious cross claim that exceeded the alleged debt upon which the liquidation application was based. In particular: (1) The Company relies upon the grounds referred to above [Ground 1] in the context of the Company’s challenge to the judge’s finding that it had failed to raise a genuine and substantial dispute as to the alleged debt. (2) It was wrong as a matter of law for the judge to hold that the Company’s cross claim was barred on the grounds that it would be impossible for the Company to give counter-restitution. That finding was not supported by the expert evidence on Hong Kong law and the Company could give counter-restitution in the present case in any event. (iii) Ground 3 – Estoppel and Affirmation: The judge erred in law in holding that the Company was estopped from seeking to dispute the alleged debt and/or advance its cross claim and in holding that the relevant agreements [SPA and VLA] had been affirmed by the Company so as to afford a defence to the Company’s cross claim seeking restitution. If an agreement is impugned on grounds of common mistake, the consequence as a matter of common law, is that the agreement is void ab initio. In the circumstances, the parties’ respective experts were in agreement that neither estoppel nor affirmation would afford a defence to the Company’s cross claim. (iv) Ground 4 – Wrong Exercise of judicial discretion: In light of the facts and matters relied upon in support of the above grounds of appeal, the judge erred in the exercise of her discretion in making the winding up order in respect of the Company.

[47]The Company, therefore, seeks an order allowing the appeal, setting aside the winding up order appointing JLs, and ordering the respondents to pay its costs of the appeal and in the court below.

[48]Ground 2 - Genuine cross claim - is hinged on Ground 1 - Debt disputed on genuine and substantial grounds. This is so because the Company’s cross claim is rooted to the Company having a genuine and substantial defence of common mistake rendering the SPA and/or the VLA void ab initio, the cross claim being the refund of monies paid by the Company to the respondents in consideration of the transfer of the shares and completion of the acquisition under the SPA. Accordingly, if Ground 1 fails, so does Ground 2 as it has no legal or factual ‘leg to stand on’. Alternatively, if Ground 1 was to succeed, I must go on to also consider whether the Company’s cross claim was, as a matter of law and fact, genuine and whether the quantum of the cross claim exceeds the alleged debt.

[49]Before dealing with each ground of appeal in turn, I will first set out the grounds for and the Court’s reasons for dismissing the Company’s application to adduce and to rely on fresh evidence in the appeal. The Company’s Fresh Evidence Application

[50]By Ordinary Application dated and filed 16th January 2024, the Company applied for permission of this Court to adduce as fresh evidence in the appeal, affidavit and documentary evidence of what transpired at two meetings which occurred on 28th May 2020 and 25th September 2020 respectively as set out in the Second Affirmation of Dong Shuling and the Affirmation of Ke Yu Hong together with their exhibits (“the Fresh Evidence”). The Fresh Evidence is said to concern events in the course of negotiations leading up to the acquisition of the PRC Project Company, Shu Hong Real Estate (Chengdu) Limited (by the acquisition of the respondents’ shares in Happy Magic and Carton), and the implications of all this under Hong Kong law. By the fresh evidence application, the Company also sought permission to amend its notice of appeal to rely on the additional ground that, owing to matters occurring as detailed in the Fresh Evidence, a substantial dispute exists in relation to the validity of the VLA.

[51]The Fresh Evidence consists of the handwritten notes and recollections by Mr. Ke Yuhong (“Mr. Ke”), a former director of the Company who served as such between 27th May 2020 and 13th August 2021. It relates to two meetings, the first in person in May 2020 and the second by telephone in September 2020. Mr. Ke’s evidence and recollection of the May 2020 meeting is about ‘Mr. Li [mentioning] to Yuzhou’s representatives that Ruizhuo and related parties had pre-paid ‘upfront fees’ of approximately RMB 142 million towards the Acquisition…’, and that is what he recorded in his contemporaneous handwritten notes. However, from his affidavit evidence, Mr. Ke did not there and then conclude that this was a reference to a bribe having been paid and he accepted, at the time, that ‘a large-scale project of this kind would incur many different costs’.

[52]At paragraph 17 of his Affirmation, Mr. Ke stated that at the September 2020 telephone meeting further details were discussed in relation to the ‘upfront fees’ of RMB 142 million. He avers that Mr. Li stated that this upfront fee comprised RMB 30 million in ‘intermediary fees’, and the entire remaining sum was described by a term in Chinese which is ‘widely understood to refer to bribery payments in the PRC’.

[53]The Company asserted in its fresh evidence application and supporting skeleton argument filed on 29th January 2024 that the Fresh Evidence and the events which took place at the said two meetings give rise to a substantial factual case of bribery which took place while the acquisition was being negotiated and could impact the validity of the VLA under Hong Kong law. To buttress this contention, exhibited as “DSL-2” to the Affirmation of Dong Shuling was a copy of a draft legal opinion report of Mr. Alan Kwong, a Barrister-at -law at Des Voeux Chambers in Hong Kong. In that report, Mr. Kwong addressed three issues which the Company contended were pertinent to the impact of the Fresh Evidence on the validity of the VLA. Also before this Court was the skeleton argument of the respondents in opposition to the fresh evidence application.

[54]Having heard counsel for the parties on 14th February 2024 in relation to the fresh evidence application, the Court unanimously dismissed the said application in its entirety with costs thereof to the respondents. In doing so, the Court undertook to give in its written judgment in the appeal, its reasons for dismissing the said application. I now do so in summary.

Reasons for dismissing fresh evidence application

[55]The criteria for permission to adduce fresh evidence on appeal, including interlocutory appeals, is as formulated by Lord Denning M.R. in Ladd v Marshall.15 These are: (1) the evidence could not have been obtained with reasonable diligence for use at first instance; (2) the evidence must be such that, if given, it would probably have an important influence on the result of the case, though it need not be decisive; and (3) the evidence must be such as is presumably to be believed or, in other words, it must be apparently credible, although it need not be incontrovertible.

[56]Additionally, it is now well-established that the above-stated Ladd v Marshall criteria are principles and not rules or special rules to be strictly applied by the court. They are to be applied with considerable care and in accordance with the overriding objective to do justice enshrined in Part 1.1 of the Civil Procedure Rules 2000 (as then applicable to this matter).16 Accordingly, an appellate court must not only consider whether the application to adduce fresh evidence meets the three Ladd v Marshall criteria, but also whether ultimately it is in the interest of justice in the appeal to permit the fresh or new evidence sought to be adduced to be relied on.

[57]In exercising that discretion, an appellate court must consider all the relevant circumstances of the matter. These include, but are not limited to: the type and quality of the new or fresh evidence sought to be adduced; the stage of the proceedings at which it is sought to be adduced including any delay on the part of the applicant in applying to rely on it; whether the appeal is from a final judgment on the merits of a claim where the appellate court will adopt a more stringent approach to the application of the Ladd v Marshall criteria, as compared or contrasted with a more relaxed or flexible approach where the court is dealing with an interlocutory appeal where no final determination of the claim has been made; the issues, factual or legal, for determination in appeal and whether the new or fresh evidence sought to be adduced would have an important impact either way on the outcome of the appeal. This list of considerations is by no means exhaustive. Each application to adduce and to rely on fresh evidence in an appeal will turn on a proper consideration and weighing of all relevant factors and circumstances, in determining which way the court ought to exercise its discretion whilst seeking to do justice and to be fair to both sides in the appeal.

[58]In brief, having considered the fresh evidence application and the grounds stated therein, the affidavit evidence in support and the so-called ‘fresh’ evidence’ in the form of the affidavit of Mr. Ke and the documents exhibited thereto, that draft report of Mr. Kwong (which has not been admitted as expert evidence of Hong Kong law), the Company/applicant’s skeleton argument, and the skeleton argument of the respondents in opposition to the said application, the application was dismissed by the Court on 14th February 2024 as failing to satisfy the Ladd v Marshall criteria, in particular the first and second criteria. The Court also was not satisfied that the ‘fresh evidence’ was credible. Furthermore, no cogent reasons had been advanced by the Company/applicant as to why it would be in the interest of justice to permit such evidence to be admitted and relied upon in this appeal.

[59]As to the first criteria, it was asserted by the Company/applicant that by the time the JL Application was filed on 11th July 2022, Mr. Ke had long resigned as a director of the Company and the PRC Project Company, and as Yuzhou’s Vice General Manager. However, the Court was not satisfied that this evidence could not have been adduced and relied on by the Company in defence of the JL Application. Likewise, the Court was not satisfied that this evidence could not with reasonable diligence have been obtained by the Company for use in the JL Application proceedings. The Company led no evidence explaining what steps, if any, it took to make reasonable inquiries of past directors or officers of the Company when preparing to mount its defence to the JL Application.

[60]The Court also accepted the argument by the respondents that even if the explanation for the delay were true, it would mean that Mr. Ke and his associates who were involved in the negotiations leading to the acquisition, would have been aware of the alleged May and September 2020 meetings and alleged bribes prior to the completion of the transaction on 23rd July 2020. Moreover, the knowledge of Mr. Ke and the two other persons presented at the said meetings, all of whom are or were directors of the Company, would be attributed to the Company, imputing to the Company the requisite knowledge of what transpired at the alleged meetings and of the alleged bribes (if true). For these reasons, and the additional reasons advanced by the respondents in their skeleton argument, the fresh evidence application did not satisfy the first Ladd v Marshall criteria and was dismissed.

[61]As to the second Ladd v Marshall criteria, the fresh evidence application also failed. The allegations of bribery now sought to be made as leading to the SPA and/or the VLA being void or voidable under Hong Kong law, was clearly a new ‘defence’ (as was admitted by the Company) sought to be advanced for the first time in the appeal. This came after a trial and final determination of the JL Application in the court below. It came in circumstances where, as found above, the evidence of the said meetings and the alleged bribes ought, if true, to have been known by the Company, or could have been discovered by the Company with reasonable diligence for use in the JL Application proceedings.

[62]The Company asserted at paragraph 24 of its skeleton argument: “[t]he fresh evidence allows the Company to establish a new case, which is independent of the Company’s primary case based on common mistake, giving rise to a genuine dispute on substantial grounds…”. It argues that, viewed as such, the fresh evidence would probably have an important influence on the result of the case, thus satisfying the second limb of the Ladd v Marshall test. The Court agreed with the submission by the respondents that the allegations of bribery based upon evidence from Mr. Ke, even if well-founded as a matter of fact which the Court was not, at that stage, satisfied that it is, would not, as a matter of law, provide a basis upon which to rescind the SPA or the VLA. Moreover, as confirmed by the Company’s proposed expert witness on Hong Kong law in the draft report exhibited to the fresh evidence application, the alleged bribes would, if made out, not render the Transaction Documents void or unenforceable, but merely voidable.17

[63]In addition, and most importantly, the legal basis upon which the Company sought to rely on the allegations of bribery as a basis for avoiding the SPA and VLA was hopelessly flawed. The Company asserted in its fresh evidence application that it is the agents of the respondents’ parent company, CK Holdings Limited, that were bribed to cause the respondents to enter into the SPA and VLA, which documents were disadvantageous to them, and that such inducement was necessary in order to persuade CK Holdings Limited by their agents to proceed with the transactions. The Court agreed with and adopted wholesale the respondents’ submissions that, if this was correct, it would be CK Holdings Limited and the respondents who were the victims of the alleged bribes, not the Company. It is, therefore, the respondents as parties to the SPA and VLA who would have the election to rescind or to preserve the said Transaction Documents. Viewed in this way, the bribery allegations provided no legal basis on which the Company would have a right of rescission. For these reasons, the Court was not satisfied that the fresh evidence sought to be adduced by the Company is such that it would realistically or probably have an important influence on the outcome of either the JL Application or this appeal. This finding was also dispositive of the fresh evidence application, which was without merit, and it is not necessary to consider whether the application satisfied the third Ladd v Marshall criteria.

[64]However, for completeness, the Court states that it was not satisfied, to the requisite standard at this stage of the proceedings, that the Fresh Evidence sought to be adduced is credible. In short, it is farfetched to consider the evidence of Mr. Ke’s recollections and his handwritten notes of the meetings and telephone call, even if contemporaneous, to be credible evidence of a bribe or bribes having been made to enter into the acquisition of the PRC Project Company. In our view, this evidence fell way short of being cogent evidence of a bribe or bribes and was not supported or corroborated by any other independent evidence before the court below or in this appeal.

[65]Finally, the Company did not advance any cogent reason why this Court, in the circumstances, can or ought properly to determine that the interest of justice would be served by permitting the fresh evidence to be adduced and relied on in this appeal. For these reasons the Company’s Fresh Evidence Application was dismissed with costs to the respondents. I now turn to consider in detail the Company’s four grounds of appeal. Ground 1: Debt disputed on genuine and substantial grounds – common mistake A. Company’s grounds and evidence

[66]The first iteration of the Company’s grounds in opposition to the JL Application were summarised at paragraph 7 of the First Affirmation of Wang Tingting filed in the proceedings below on 28th September 2022 (as translated from Chinese into English) (“Wang 1”).18 They are: “(a) There are substantial grounds to dispute the debt upon which the [JL Application] is founded; (b) the Company intends to commence proceedings in Hong Kong to challenge the validity of the underlying agreement pursuant to which the debt is allegedly owed (i.e. the Vendor Loan Agreement); (c) Even in the event the [VLA] is valid, the Company is solvent and is able to pay its debts as they fall due; (d)The Applicants have demonstrated bad faith in the present proceedings by failing to discharge their duty of full and frank disclosure in their ex parte application for the JPL Application and by bringing the JPL Application for improper purpose; (e) In any event, there is a clear conflict of interests between the liquidators proposed by the Applicants, the receivers (the “Receivers”) of Happy Magic Enterprises Inc. (“Happy Magic”) and Carlton International Limited (“Carlton”) (the Company’s subsidiaries) which were also appointed by the Applicants, as well as the auditors of the Applicants’ present company, CK Holdings.”

[67]It is to be observed that this first statement of the Company’s grounds in opposition to the JL Application and its defence that the debt is disputed on genuine and substantial grounds, did not include the assertion that the Company had a genuine cross claim in excess of the amount of the alleged debt. The Company’s main ground of opposition was the alleged invalidity of the underlying Transaction Documents, the SPA and the VLA, on the grounds of mistake and/or frustration. I say main ground because, as matters subsequently unfolded, the other four grounds at paragraph 7 of Wang 1 have, by the appeal stage in the proceedings, either been abandoned by the Company or are not being pursued.

[68]At paragraph 9 of Wang 1, it is averred that there is a bona fide dispute on substantial grounds as to the validity of the VLA, which in turn gives rise to a bona fide dispute as to whether the Events of Default under the VLA have in fact occurred, and whether the Loan is due and payable by the Company to the respondents. At paragraph 10 and at paragraph 27, Ms. Wang avers that the Company has instructed Hong Kong counsel to commence legal proceedings in Hong Kong in relation to the validity of the VLA and SPA, and she understands that the Company’s position is that the VLA and the SPA: “… were void on the basis of mistake, and/or were liable to be set aside on the basis of frustration, having regard to, inter alia, the violations of PRC laws, rules and policies on the part of CK Holdings and/or the PRC Project Company, and the drastic impact upon the development potential and profitability of the property currently held by the PRC Project Company.”

[69]Ms. Wang’s Second Affirmation (translated from Chinese into English) filed on 7th October 2022 (“Wang 2”) does not address further the Company’s grounds of opposition to the JL Application. It deals with and is in support of the Company’s Adjournment and Replacement Application by which the Company sought the adjournment of the hearing of the JL Application and the replacement of Mr. Jarvis as one of the two JPLs. It was alleged that Mr. Jarvis, as a partner of Deloitte’s BVI office, has a clear conflict of interest in being appointed a JPL. In Wang 2, Ms. Wang also responds to certain allegations made in Tam 2 including questions raised as to the ‘standing’ of Ms. Wang to give evidence in the JL Application proceedings on behalf of the Company, having ceased to be a director thereof; whether it was appropriate for the respondents to bring the JPL Application on an ex parte basis; the appropriateness or correctness of the extensive powers granted to the JPLs by the JPL Order; and whether the JPLs exceeded their powers in removing Ms. Dong as a director of the Company on 10th August 2022.

[70]The Third Affirmation of Ms. Wang filed on18th October 2022 (“Wang 3”) sought to inform the court below of the availability of Mr. David Bennett as a proposed replacement JPL for Mr. Jarvis, and to update the court regarding the intended proceedings to be filed in Hong Kong. In relation to the latter, Ms. Wang exhibited a copy of the ‘near final draft of the statement of claim’ as “WT-3” (“the draft SOC”). This draft SOC asserts, for the first time, that before entering into the Transaction Documents (the SPA and the VLA), the Company and the respondents held certain ‘Common Assumptions’ (set out at para.14(1) & (2)). These Common Assumptions were that: (1) the phased development and sale of the PRC Project Company was “in the circumstances of the case a legitimate and/or lawful commercial practice”; and (2) in engaging in that practice, the PRC Project company “has not committed acts of “land-hoarding” or “property-hoarding” against the relevant laws, rules, regulations, provisions, directives and/or government policies then applicable to such type of conduct or behaviour.”

[71]It is contended in the draft SOC that the ‘Common Assumptions’ which were fundamental to the commercial venture between the Company and the respondents, turned out to be wrong or false because of the matters set out at paragraphs 18(1) and (2), and 19 to 23 of the draft SOC. It is also contended at paragraph 24 (Particulars (1) to (5)) that the non-existence of the state of affairs underlying the Common Assumptions ‘make it impossible for the Transaction Documents and/or its contractual or commercial purpose to be carried out or performed.’ It is also asserted at paragraph 26 that by reason of the said matters, the Transaction Documents (the SPA and VLA) ‘were void on the basis of common mistake under common law’ and, alternatively, are voidable and liable to be set aside.

[72]Furthermore, in the draft SOC exhibited to Wang 3, the Company also asserted, for the first time, a claim or potential claim based upon unjust enrichment entitling the Company to restitution. It was asserted that the various payments made by and on behalf of the Company under the SPA to the respondents pursuant to the Transaction Documents unjustly enriched the respondents at the expense of the Company, and the Company is entitled to and does seek restitution (“the restitution claim”). Under the SPA, the payments received by the respondents consisted of USD 1.012 billion offshore and RMB 474 million onshore ‘as consideration for the acquisition of the interest in the PRC Project Company’; and under the VLA the Company ‘notionally received’ RMB 2.4 million (approximately USD 343 million) from the respondents ‘for the purpose of funding part of the offshore payment’.

[73]The draft SOC includes the pleading that the non-existence of the underlying ‘Common Assumptions’ ‘was not attributable to the fault of [the Company] and/or [the respondents]’.19 It is also the Company’s case as set out in the draft SOC, that if the PRC Project Company had committed acts of ‘property-hoarding’ and or ‘land- hoarding’ as a result of a substantive change in the relevant PRC laws, regulations etc., the Transaction Documents (SPA and VLA) were discharged on the basis of the doctrine of frustration by reason of such change, “which subsequently classified the conduct of the Project as illegitimate “land-hoarding” and “property-hoarding”, leading to all the consequential penalties or sanctions or risks thereof.”20

[74]The Company also pleaded that, as a result of such legislative change or policy, “the contractual or commercial purpose of the Transactional Documents have been frustrated and/or was no longer capable of being performed … or the nature of the contractual rights and/or obligations [thereunder] were radically different from what the parties could have reasonably contemplated at the time of its execution.” It is also contended that upon the Transaction Documents being discharged, all sums payable under them ceased to be payable and, accordingly, the Company was and remains under no obligation to pay any further sums to the respondents under the SPA and VLA. The prayer to the draft SOC contains a claim that the respondents repay to the Company ‘all monies [the respondents] received purportedly pursuant to the Transaction Documents’. This is a claim for restitution based upon the alleged invalidity of the SPA and/or the VLA rendering them void ab initio. However, the amount of this claim in restitution was not quantified therein.

[75]In her Fourth Affirmation (“Wang 4”), Ms. Wang exhibits as “WT-4/17” a draft Amended SOC (said to be based on newly uncovered evidence) in support of the Company’s contention that there is a bona fide dispute as to the validity of the Loan.21 This ground is addressed more expansively at paragraphs 17 to 22 of Wang 4. This also represents an assertion of an unjust enrichment and restitution claim. Ms. Wang asserts that both the draft SOC and the draft Amended SOC show that there is a clear bona fide dispute in relation to the validity of the VLA.22 She continues: “The basis of that dispute is that the Loan Documents [VLA] should be set aside on the grounds of common mistake and/or frustration as the value of the PRC Project Company was significantly reduced due to various violations of local PRC laws and policies by the Applicants’ [the respondents’] holding company, CK Asset Holdings Limited (“CK”). I confirm that, to the best of my knowledge, all facts referred to and stated in the Amended SOC are true and accurate.”

[76]At paragraph 18 sub-paragraphs (a) to (f) of Wang 4, Ms. Wang sought to illustrate what she termed was a ‘significant reduction’ of the value of the PRC Project Company as a result of the credit ban and price ceiling imposed by the PRC authorities on the PRC Project Company. This alleged ‘significant reduction’ is asserted, not as a basis of any cross claim, but in support of or as the foundation for the purported defences of common mistake and frustration, leading to the Transaction Documents being void or voidable.

[77]This much is made clear at paragraph 18(f) of Wang 4. There, having set out the basis of and types of losses and having sought to quantify such losses to the PRC Project Company as a result of the imposition by the PRC authorities of a ‘price ceiling’ in conjunction with a ‘credit ban’, (sub-paragraphs (a) to (e)), Ms. Wang avers at (f): “Having suffered such substantial loss in value in the Project as well as the Credit Ban imposed by the PRC Government, the PRC Project Company was unable to meaningfully raise sufficient funds to complete the constructions of the Project and repay creditors, suppliers and builders, leading to a chain of receivership events offshore and execution by creditors against the assets of the PRC Project Company in further diminution of the value of the Project. Specifically, due to the land hoarding issues involved, the PRC Project Company had difficulty financing, leading to a loss in asset value. This subsequently caused the builders of the Phase 7 and Phase 8 residential units to refuse to cooperate in the construction process, causing unresolved payment issues.”

[78]Notwithstanding these allegations of losses to the PRC Project Company and, to some extent, in contradistinction thereto, Ms. Wang, at paragraphs 23-25 of Wang 4, asserts that the Company is ‘balance sheet’ solvent. This contention, in opposition to the JL Application, is said to be based on the Company’s ‘consolidated statement of financial position’ exhibited to Wang 1, which Ms. Wang confirmed to be true. She also confirmed that - “the Company is balance sheet solvent in the context of the Project Group, notwithstanding that the consolidated statement is unaudited. In short, while the Company itself does not hold substantial assets, its interests in its subsidiaries cause it to be balance sheet solvent, and it is able to pay its debts with the support of the Project Group”.23 Ms. Wang sought to support his assertion that the Company is ‘balance sheet solvent’ by reference also to a valuation report of the PRC Project Company dated 18th May 2022 (exhibit “WT-4”), which, in her opinion, ‘better shows the solvency of the Company’. This valuation report provides that as at 31st December 2021, the PRC Project Company had a net asset value of RMB 2,245,585,977.55.24

[79]At paragraph 21 of Wang 4, much reliance is placed on what is asserted in the draft Amended SOC. At paragraph 14 of the draft Amended SOC, it is contended that at the time of execution of the Transaction Documents (the SPA and VLA), the Company and the respondents held the ‘Common Assumptions” (identical with paragraph 7 of the draft SOC), which were fundamental to the commercial value between the said parties.

[80]The ‘Common Assumptions’ were said to be evidenced by certain communications made by and on behalf of the respondents prior to and subsequent to the execution of the Transaction Documents. They are set out at the new paragraph 14A of the draft Amended SOC. There, reference is made, first to a meeting in January 2019 (“the January 2019 Meeting”) between representatives of Ruizhuo and the representatives of the respondents (Mr. Feng Zhe – General Manager of the PRC Mainland business of CK Holdings, and his associate Mr. Liu Liang). It is alleged that at the January 2019 Meeting, Mr. Liang made certain representations (“the Representations”). These are that: (i) the phased development and sale of the PRC Project Company was a ‘legitimate and/or lawful commercial practice’; (ii) by engaging in such practice ‘the PRC Project Company did not commit any act of ‘land-hoarding’ or ‘property hoarding’ or contravene any relevant laws, rules, regulations, provisions, directives and/or government policies then applicable to such type of conduct or behaviour…’; and (iii) there were ‘no circumstances that would pose any risk of any regulatory or administrative penalty being imposed on the PRC Project Company by the relevant governmental and/or regulatory authorities…’

[81]Reference was also made to a meeting held in Chengdu on 2nd April 2020 (“the April 2020 Meeting”) attended by certain named representatives of, respectively, the Company, Yuzhou, and the respondents. The purpose of the April 2020 Meeting was to discuss the development that had taken place with respect to the Project during the ‘year immediately preceding April 2020’. It is alleged that at that meeting the respondents’ representative confirmed the accuracy of the representations made at the said meeting by the Company’s representative Mr. Li Xiangdong, and that the Representations made at the January 2019 meeting ‘were still accurate’.

[82]Section D of the draft Amended SOC addresses the ‘Falsity and Fundamental Nature of the Common Assumptions’. It is asserted that they were wrong, and that the Transaction Documents were therefore executed by the Company and the respondents ‘under a common mistaken belief that [the] Common Assumptions were true’. At paragraph 18 of the draft Amended SOC, the Company sets out what allegedly transpired at a meeting on 23rd July 2020 (after the SPA, as amended by the Side Letters, was completed), between representatives of the PRC Project Company and officials of the PRC government. There the PRC government representatives are said to have informed the PRC Project Company that ‘the phased development and sale of the PRC Project Company had been guilty of property-hoarding’ and, as a result, the PRC Project Company ‘may be exposed to various sanctions, including a prohibition to raise financing and to participate in any asset restructuring’. It is also recounted that, on 6th August 2020, the PRC Project Company received a formal administrative notice notifying it that since 2004 when it had first acquired the Project Land, it had ‘for [a] substantial period of time failed to procure the sale of its residential and commercial units’, and as a result, it was guilty of ‘property-hoarding’ and may be exposed to various sanctions.

[83]In this vein, reference is also made to a further meeting with PRC government officials and the PRC Project Company representatives on 21st September 2020, at which meeting the PRC Project Company was informed that it had been guilty of ‘property-hoarding’ and ‘land-hoarding’, including breaches of certain referenced PRC regulations. At paragraph 21 reference is made to the ‘credit ban’ imposed on 23rd September 2020 by letter issued to the PRC Project Company by the Fiscal and Financial Bureau of the Chengdu Hi-Tech Zone, prohibiting financial institutions ‘from assisting the PRC Project Company and/or assisting in any major asset restructuring of the PRC Project Company’. This, it is contended by the Company, made the phased development and sale of the Project not a legitimate and/or lawful commercial practice, and meant that the Project Company has committed acts of ‘land-hoarding’ and ‘property-hoarding’ in breach of the relevant laws and regulations etc., the effect of which was that the Common Assumptions were false.

[84]Ms. Wang, on behalf of the Company, concludes25 that “the non-existence of the state of affairs underlying the Common Assumptions was not attributable to the fault of [the Company] and/or [the respondents].” By this statement, the Company made clear its position that the Common Assumptions and the Representations, as alleged, were innocent and mutual, that is, a common mistake.

[85]As to the factual and legal effect of the non-existence of the state of affairs underlying the Common Assumptions, the Company contends26 that this “rendered the subject-matter of the Transaction Documents essentially and radically different from the subject-matter which the parties believed to exist, and/or the non-existence …. made it impossible for the Transaction Documents and/or its contractual or commercial purpose to be carried out or performed.” In support of this ‘defence’, the Company relies on the matters set out at sub-paragraphs (1) to (5) of paragraph 24 of the draft Amended SOC.

[86]The ‘defence’ that the Transaction Documents were void or alternatively voidable for common mistake at common law and in equity, is encapsulated at section E (paragraphs. 26-32) of the draft Amended SOC. Suffice it to be said for present purposes, that it is stated that the Transaction Documents (the SPA and VLA) were void at common law by reason of the matters referred to in the draft Amended SOC. In the alternative, it is contended that these underlying documents were voidable and liable to be set aside on the basis that “(1)[the Company] and [the respondents] were under a common misapprehension as to their relative and respective rights; (2) the common misapprehension was fundamental to the transaction between [the Company] and [the respondents]; and (3) [the Company] was no more at fault than [the respondents] insofar as the above matters are concerned. The matters in Section C and D above are repeated.”

[87]What follows next in the draft Amended SOC (at paragraphs 28-32), is a potential pleading or averment that the Company is willing to make restitution of all benefits it has received under the Transaction Documents, and the assertion, on behalf of the Company, of a claim for restitution against the respondents based upon the doctrine of ‘unjust enrichment’. This claim is not quantified in the draft Amended SOC, and there is no assertion that the Company has a valid or bona fide cross claim which exceeds the amount of the alleged debt. The assertion is simply that the respondents were unjustly enriched at the expense of the Company ‘for the payments received from [the Company]’, and the Company is entitled and does seek restitution of such payments from the respondents.27 This is followed in the draft Amended SOC by averments supportive of the contention that the Transaction Documents ‘were discharged on the basis of the doctrine of frustration” by reason of a “substantive change in relevant laws, rules, regulations, provisions, directives and/or government policies applicable in the PRC’, if the court so finds.

[88]Finally, in the draft Amended SOC, the reliefs sought (presumptively) consists of two declarations and an order that the respondents do repay to the Company ‘all monies [the respondents] received purportedly pursuant to the Transaction Documents’, interest and costs; again a claim for restitution.

[89]A Re-Amended SOC is exhibited (“WT-5”) to the Fifth Affirmation of Ms. Wang (“Wang 5”) filed 3rd February 2023. The pertinent change or addition to the Re- Amended SOC is a specific reference to the ‘Reinstatement Agreement’. The specific amendments to the draft Re-Amended SOC are chronicled at paragraph 7 of Wang 5. Accordingly, apart from these changes, the Amended SOC and Re- Amended SOC are in almost identical terms.

B. Respondents’ evidence

[90]Mr. Raymond Tam (“Mr. Tam”) provided three affirmations on behalf of the respondents in the JL Application proceedings in the court below. His first affirmation (“Tam 1”) was filed in support of both the respondents’ application for appointment of JPLs and their application for appointment of JLs over the Company. Tam 1, inter alia, sets out the alleged Events of Default under the VLA (as therein defined), the alleged breaches of the VLA, the consequential acceleration of repayment of the Loan under the VLA, and the Company’s response to the Events of Default including its August 2021 Letter.

[91]By its August 2021 Letter, the Company requested that the respondents’ unilateral declaration in its 15th July 2021 Letter that the Loan was immediately due and payable, be withdrawn. It went on to state the Company’s willingness to ‘actively negotiate on the performance of the [VLA] and the liquidation of [the Lenders] existing facility on the basis of the original purpose of cooperation and mutual benefit’. The Company’s August 2021 letter also went on to inform the respondents that the Company had engaged external legal counsel to review and investigate the whole transaction to safeguard the legitimate rights and interests of the Company particularly in respect to the following scenarios: (a) abuses of the dominant position in the agreements during the transaction process; (b) non-sufficient information disclosure in the acquisition; (c) fraud or misleading events; (d) any breach of the seller’s warranties; and/or (e) unperformed seller’s liability. The August 2021 Letter also informed the respondents that if a ‘fair arrangement based on mutual benefit’ cannot be reached by the parties to the VLA, the Company ‘will not hesitate to resort to all possible legal actions correspondingly’; and that the decision by the Lenders to declare the Loan immediate due and payable was a rash one given that ‘the market value of the mortgage on the PRC Project Company was much higher than the amount of creditor’s rights under the [VLA]’.

[92]The Company also made certain other statements of significance in the August 2021 Letter. These are: “1. The Development transaction is a complex and major transaction. Huge amount of capital was invested and it took exceptionally long transaction period to proceed the Development. The changes of the transaction’s background and market have a significant impact on the execution of the agreements related to the Development. [The Company] has never intended to and will not harm the interests of any creditors or shareholders. [The Company] has been and is exerting to ensure the development and sale of the Development, and ultimately ensure the orderly exit of creditors and shareholders. 2. The terms and agreements regarding the Development shall be construed and performed in accordance with relevant law and the purpose for entering into the agreements. [The Company] has witnessed major changes that took place in the market, including but not limited to the changes in PRC policy. At present [the Company] is sincere about the negotiation on the implementation of [the VLA] and the requests made in the received attorney letter.” (emphasis added)

[93]It is to be observed that the Company’s August 2021 Letter makes no mention whatsoever of the existence of the documentary and other evidence (relied on subsequently by the Company in opposition to the JL Application) of the PRC Project Company being held by the PRC authorities to be guilty of ‘property- hoarding’ and/or ‘land-hoarding’ in violation of PRC laws or regulations. Likewise, the August 2021 Letter makes no mention of the imposition by the PRC authorities of a Credit Ban in relation to the Project which has effectively stymied the financing of phases 7 and 8 of the Project and ability of potential purchasers of units therein to obtain financing. Also, no mention is made in the said letter of the imposition by the PRC authorities of a ‘price ceiling’ on the sale of units within phases 7 and 8 of the Project, and of this sanction having a significant adverse effect on the PRC Project Company’s realisable sales prices and profit levels.

[94]Furthermore, no mention was made in the August 2021 Letter of the alleged ‘Common Assumptions’ and the Representations or of any of them being fundamental to the completion of the acquisition of the Project by the Company (indirectly) by entering into the SPA and/or the VLA, or of any of them having subsequently been shown to be incorrect. The only reference in this vein is to the Company having witnessed ‘major changes in the market including but not limited to the changes in PRC policy’. Likewise, no mention was made in the said letter of the Transactional Documents (the SPA and the VLA) being rendered, as a result of what subsequently transpired in relation to the Project with the PRC authorities (as mentioned above) and the PRC Project Company, being fundamentally different from what had been agreed to or assumed or represented or warranted to be the prevailing state of affairs with the Project and the Project Company and its operations in Chengdu in the PRC. To the contrary, the letter is written on the basis that the Company is moving forward with the development of the Project and if taking steps to fulfill its obligations under the VLA, including payment in full of the Loan.

[95]Lastly, it is also noteworthy that the Company did not assert or contend in the August 2021 Letter, that the SPA and /or the VLA were void or voidable as a result of common mistake or under the doctrine of frustration, nor was there any mention of the Company having a possible cross claim for restitution. This is so in spite of the aforesaid matters being subsequently asserted to been the result of the pronouncements by the PRC authorities that the PRC Project Company had committed acts of ‘land-hoarding’ or ‘property-hoarding’ in violation or breach of certain PRC laws and regulations. This is also the case notwithstanding the imposition of a ‘Credit Ban’ and ‘price-ceiling’ by the PRC authorities, which is said to have had adverse implications for the financing and development of Phases 7 and 8 of the Project, the sale of units within those phases, and on the profitability of the PRC Project Company.

[96]All of these factors and occurrences relied on subsequently in the Wang affirmations and in the draft SOC, Amended SOC and Re-Amended SOC to support the ‘defence’ that the Debt is disputed on genuine and substantial grounds on the basis of common mistake, had already occurred and their implications well-known to the Company and those representing it. To the contrary, the tone and tenor of the August 2021 Letter was not assertive of the ‘defence’ of invalidity of the SPA and/or VLA (as being void ab initio or voidable whether on the ground of common mistake or frustration) or denying the existence of the debt or the Company’s obligation under the VLA and security documents to repay the Loan and accrued interest thereon. Instead, the posture taken by the Company in its said letter was to reassure the respondents of its commitment to meet its obligations under the VLA and security documents, and to characterise the 15th July Letter, notifying of the steps taken by the respondents to demand and to obtain a repayment of the Loan and accrued interest under the VLA and security documents, as ‘rash’. It was also to request that the respondents’ said letter be withdrawn as the Company was seeking a fair arrangement and mutually beneficial resolution in the interest of both parties. This posture and all these matters are incongruous to the Transaction Documents being void ab initio.

[97]Mr. Tam’s Second Affirmation (“Tam 2”) is the respondents’ substantive response to the Company’s assertion in Wang 1 that the alleged debt is disputed on genuine and substantial grounds on the bases that the VLA (and SPA) are invalid, void or voidable on the grounds of common mistake and frustration. Mr. Tam contended that such a claim was strongly contested by the respondents, ‘had not been positively advanced prior to [Wang 1] and is in stark contrast to the Company’s previous acceptance and treatment of the [VLA]’.

[98]At paragraph 14(a) to (i) of Tam 2, Mr. Tam sets out in some detail a number of factors and steps taken by the Company demonstrative of it having accepted and conducted itself on the basis that the VLA was valid, binding and enforceable as a loan agreement. These factors and steps are all post the execution by the parties of the VLA. They are: (a) the Company making interest payments totaling US$24,773,551 due on the Loan; (b) post notification on 11th February 2021 to the Company of the Events of Default under the VLA entitling the respondents to exercise their rights under clause 17.17 of the VLA to accelerate repayment of the entire Loan and accrued interest, it receiving a written response from the Company’s lawyers proposing, inter alia, that ‘the outstanding amount of RMB 2,400,000,000 and the accrued interest under [the VLA] will be paid in accordance with the terms and conditions thereof”; (c) the Company accepting that it was required to make certain tax payments under the SPA, which payment was made by the respondents on its behalf on 15th June 2021 as it was then unable to do so; (d) the Company’s letter dated 25th August 2021 confirming, inter alia, that it was willing to negotiate ‘on the performance of [the VLA] and the liquidation of [the respondents’] existing facility on the basis of the original purpose of cooperation and mutual benefit’; (e) the respondents and the Company entering into negotiations during the period July to December 2021 regarding a ‘supplemental agreement’ to include, inter alia, rectification of the Events of Default under the VLA and release of part of the underlying assets of the PRC Project Company for repayment of the Loan by installments during which negotiations the Company did not challenge, nor did it even raise any questions as to the validity of the VLA; (f) the document headed ‘Notice for Rectifying Default and Making Immediate Repayment’ (exhibited to Wang 1) which plainly acknowledged and treated the debt as being due and owing; (g) a press report dated 11th November 2021 to the effect that Yuzhou had attempted to enter into a loan agreement with Oaktree Capital for a loan in the sum of RMB 4 billion (approximately USD625.2 million), the purpose of which was, among other things, to refinance the [VLA]; (h) no challenge to the validity of the VLA being made by the Company when it was notified of the appointment of Receivers in March 2022 pursuant to the powers under the Share Charges given as security for the Loan under the VLA; and (i) the Company has not denied that the Loan amount was advanced to it and there was an expectation that it would be repaid.

[99]The respondents’ response to the Company’s subsequent late assertion of the alleged invalidity of the VLA and to SPA, is summarised at paragraph 15 of Tam 2. Mr. Tam avers that the above stated past conduct of the Company ‘is entirely inconsistent with the position now expressed in [Wang 1]’, and Mr. Wang ‘fails to provide any particulars or developed grounds as to why Mr. Wang says the [VLA] is invalid’. He characterises the said contention as ‘general, bare allegations, without reference to either the facts or law upon which that are said to be based’. For those reasons, Mr. Tam did not consider Mr. Wang’s challenge to the validity of the VLA to be made bona fide and in good faith.

[100]Mr. Tam’s Third Affirmation (“Tam 3”), is in support of the JL Application and in response to the 3rd and 4th affirmation of Mr. Wang, the first and second affirmation of Dong Shuling, the first affirmation of Kwok Ying Lan, and the affirmation of Zhang Guoyi, all filed in opposition to the JL Application. As to the debt and the assertion based on the draft Amended SOC that it is disputed on genuine and substantial grounds, Mr. Tam, at paragraph 17, reiterates that “the Company has, from the commencement of [the SPA] and [the VLA] ... treated those agreements as valid and effective and made no attempt prior to [the respondents] commencing proceedings to challenge those agreements. A cursory examination of the Company’s conduct to date demonstrates how the Company has always treated those agreements as valid and serviced the Debt accordingly.”

[101]Among other factors, reference was made to the valuation report prepared by FTI Consulting (“FTI”) for the Company, which document is exhibited to Kwok 1 filed on behalf of Yuzhou. In that valuation report reference is made to the VLA, the debt is identified as being a liability of the Company, and the respondents are referred to as ‘major creditors’ of the Company in the structure chart produced by FTI. More specifically, reference is also made in the said valuation report to the Loan being a secured debt in the sum of RMB 2,219,130,181, which sum is used by FTI in its liquidation analysis in the said valuation report. It is recorded therein that ‘the report was produced by FTI solely for the use of the Company’ and is based upon information supplied to FTI by the Company and its management and subsidiaries. In Mr. Tam’s view, this evidence concerning the valuation report and its preparation (among other evidence) confirms that those in management of the Company had confirmed to FTI that the debt is not only valid but is due and owing by the Company to the respondents, which is in contradistinction to what the Company through Ms. Wang is saying to the BVI court. For that reason, Mr. Tam states (at para. 22):28 “This demonstrates that the Company’s dispute regarding the Debt (and its opposition to the Liquidation Application) is not genuine and, to the contrary, is entirely fabricated to delay and/or avoid the appointment of liquidators.”

[102]Regarding the averments in Wang 4 based on the Amended SOC concerning meetings leading to the ‘Common Assumption” being made, which turned out to be false and incorrect, Mr. Tam contends that having made inquiries of those present at the said meetings and representing the interests of the respondents: “… I honestly believe that such allegations are untrue. No such representations or assurances were, to my knowledge, made by or on behalf of [the respondents] at any meetings prior to the Acquisition. It is noteworthy that the alleged representations are said to have been purely oral representations that have not been documented in any way.”29

[103]For my part, it is certainly passing strange (to say the least) that the alleged oral representations amounting to ‘common assumption’ which are said to have been made prior to execution of the SPA and the VLA, and which concern matters of such fundamental importance or significance to the past operations (development and sales) of the PRC Project Company and the Project concerning illegal matters of ‘land-hoarding’ or ‘property-hoarding’, did not find their way after such meetings into the final version of either the SPA or the VLA. Indeed, there is no evidence that they were even raised by or on behalf of the Company as matters to be included in the final draft of the underlying Transaction Documents, whether as warranties or representations.

[104]Mr. Tam’s answers to the alleged cross claim are set out in full at paragraphs 37 to 47 of Tam 3. In summary, it is the respondents’ position, firstly, that the cross claim is without merit as the acquisition (and the underlying documents - the SPA and VLA) was a valid and genuine transaction between sophisticated parties.30 Secondly, the alleged crossclaim is thinly pleaded (lacks particularity) in the draft Amended SOC. Thirdly, the claim is based upon ‘counter-restitution’ which is impossible (for the reasons given at paragraphs 42 to 47). Fourthly, even putting that aside, it is not the case that the Company would be entitled to receive the amount paid by it (consideration) under the terms of the SPA, as the Company has taken a number of steps post-acquisition of the shares ‘that substantially devalued them’.31 In this regard Mr. Tam mused: “Had the Company sought the return of the Purchase Price immediately upon (allegedly) being informed by the authorities and regulators of the land hoarding issues, then the unwinding of the Transaction Documents would have faced fewer obstacles….However, the Company is …now seeking the return of the Purchase Price some two and a half years after (a) the SPA was completed, and (b) the alleged meeting with the PRC regulators.” I shall return to this aspect/issue in due course.

[105]Mr. Tam also asserts that, in any event, the claim to restitution or rescission concerning the completed acquisition is now impossible ‘because of the transactions which have occurred post-completion which are so deeply entrenched they cannot be undone such that both parties can be put back into their pre- bargaining position’.32 C. The Sparkasse Test – debt disputed on genuine and substantial grounds

[106]The test and applicable principles determinative of whether a debt upon which an application to appoint liquidators of a company under the Act is founded, is undisputed and is well-settled. They have been reformulated and restated authoritatively in a number of decisions of the English courts prior to Sparkasse, such as in Tweeds Garages Ltd;33 Mann v Goldstein;34 Re Taylor’s Industrial Flooring Ltd v M & H Plant Hire (Manchester) Ltd;35 and Re Ringinfo Ltd.36

[107]In Sparkasse, a 2003 decision of this Court, Byron CJ (as he then was), having reviewed and considered the relevant case law expounded: “If the debt is disputed, the reason given must be substantial and it is not enough for a thoroughly bad reason to be put forward honestly. But if the dispute is simply as to the amount of the debt and there is evidence of insolvency the company could be wound up. To fall within the principle, the dispute must be genuine in both a subjective and objective sense. That means that the reason for not paying the debt must be honestly believed to exist and must be based on substantial or reasonable grounds. Substantial means having substance and not frivolous, which disputes the Court should ignore. There must be so much doubt and question about the liability to pay the debt that the Court sees that there is a question to be decided. The onus is on the company to bring forward a prima facie case which satisfies the Court that there is something which ought to be tried either before the Court itself or in an action or by some other proceeding.”37 (emphasis added)

[108]The rationale for these principles is clear. They are fundamental to the standing of an applicant as a creditor seeking an order appointing liquidators over a company on the basis of an unpaid debt. They are equally fundamental to the jurisdiction of the winding up court to entertain such an application. This is so because the winding up court is not the forum for determining genuinely disputed debts. Such claims often involve issues of both law and fact, which are matters for a trial and determination in the civil courts. Where a debt is disputed on genuine and substantial grounds, the applicant for a winding up order appointing liquidators is not a ‘creditor’ of the company within the meaning of that term in section 9 of the Act, with the necessary standing to invoke the court’s jurisdiction to make an order appointing liquidators pursuant to section162(a) where the company is insolvent within the meaning of that term in section 8 of the Act.

[109]This is because by definition a ‘creditor’, with the requisite standing to bring a winding up action, must have a claim against the debtor company, which is or would be, an admissible claim in the liquidation of that company.38 A debt which is genuinely disputed on substantial grounds does not qualify as a claim admissible in the liquidation of the company. Such a claim may be a prospective debt which, if proven to the satisfaction of a court or accepted by the company or by its appointed liquidators as established, would then be admissible as a claim in the liquidation.

[110]Moreover, an application for appointment of liquidators by the court on the basis of a debt which is genuinely disputed and on substantial grounds by the company, is an abuse of the process of the court and liable to be struck out or dismissed. This is so whether the ‘dispute’ goes to the existence of the debt itself, or to the company’s legal liability to pay the debt, or where there exists a genuine cross claim for a sum equal to or more than the amount of the debt. In all of these circumstances such a ‘debt’ cannot found an application to appoint liquidators of a company, and ought to be dismissed without more.

[111]These principles were summarised in this way by Byron CJ in Sparkasse: “If the existence of the debt on which the winding up petition is founded is disputed on grounds showing a substantial defence requiring investigation, the petitioner would not have established that he was a creditor and thus would not be entitled to present the petition, accordingly the presentation of such a petition would be an abuse of the process of the Court.”39

[112]Accordingly, where the company raises a defence upon which the debt is said to be disputed, it has the burden of putting forward a prima facie case (not proof on a balance of probabilities) that the debt is disputed on substantial grounds, that is, that there is something of substance which ought to be tried, which is or are genuinely or honestly held by the company. Accordingly, the ‘defence’ in dispute of the debt must be supported by cogent evidence relevant to the defence. It is also well-settled that it is not open to an appellate court to just simply substitute its evaluation of the facts for that of the judge below when considering, as in ground 1 of this appeal, whether the learned judge was correct in holding that the defence of common mistake was not one which was genuinely held and was flimsy; and the alleged cross claim fanciful.40

[113]The test of what constitutes a ‘genuine and substantial dispute’ has received much consideration since the exposition of Byron CJ in Sparkasse. It is accepted, that in applying the Sparkasse test, the judge’s duty at this stage is to carry out a preliminary investigation of the facts to determine whether the dispute has substance and is genuinely held by the company.41 The standard of proof is quite low. The company must demonstrate that the dispute is more than ‘frivolous’ or ‘hopeless’ or ‘thoroughly bad’ but need not raise to the level of proof on a balance of probabilities.42 However, a mere assertion by the company that the debt is disputed on genuine and substantial grounds or that its ‘defence’ to the debt, the basis for the application to appoint liquidators, is substantial and genuinely held or believed by the company, will not suffice to have the application dismissed or a statutory demand set aside.43

[114]During argument before this Court, the only significant point of apparent difference on the law between the parties related to the question of whether a company had a duty to demonstrate by evidence both that the defence to the debt is substantial as a matter of law and/or fact, and that the said defence was believed or held by the company genuinely and in good faith. It was the respondents’ case that the Sparkasse test comprises two distinct elements. The first is that there must be a substantial defence as to whether the debt is due and owing, and the second, is that the dispute over the debt must be genuine in the sense that the ground relied on by the company must be bona fide held. Whereas it is the Company’s submission that in reality and as a matter of law there was not two separate tests or two distinct elements of one test, both of which must be satisfied by a company when seeking an order that a debt is not undisputed and cannot, therefore, found an application to appoint liquidators.

[115]This question came up for consideration by me in Goldin. At paragraphs [56] and [57] I opined: “[56] In my considered view, this is really one test and not two separate and distinct tests or requirements. Approached in this way, it follows that for the dispute over the debt to be ‘substantial’ the basis or defence advanced must have some ‘substance’. It must first be likely a “sustainable answer” to the existence of the debt and/or to it being due and owing. This means the defence or ground on which the debt is being disputed must not be hopeless, frivolous or a thoroughly bad reason. If it were it would clearly not be one which is “substantial”, and the ground or reason may be said to not be ‘genuine’ or bona fide held as a basis to avoid the consequences of a winding up order. Moreover, for the debt to be disputed on substantial grounds the grounds advanced must relate to the alleged debt or liability to pay. In that sense it must be a likely sustainable defence (whether based on law or fact or both) such as would require full or further investigation, albeit the court does not have to be satisfied that the defence is one which ought to or is likely to succeed. [57] Likewise, advancing a defence to the debt which appears to be prima facie one of some substance but which, upon further scrutiny, is not one which is bona fide or not genuinely believed, means that the ground advanced for disputing the debt is not substantial…”

[116]This approach leads to the proposition that not only is there one test, which is whether there is a ‘substantial’ dispute, in the sense of ‘having substance’, of the debt upon which the application to appoint liquidators of the company is allegedly founded, and which ground or reason is honestly believed by the company and is not frivolous. In considering this issue or question, the concept of ‘good faith’ or the lack thereof towards the applicant in disputing the debt as a basis for such an application, is not essential. As it was put in Re A Company (No 001946 of 1991) by Harman J, the company may dispute the debt with the utmost malice towards the applicant for a winding up order, provided the debt itself, as relied on in the application, is disputed on grounds which are found, prima facie, to have some substance such that it requires further investigation in civil or other proceedings between the applicant and the company. Once this finding of substance is made a court must dismiss the winding up application. Put simply, ‘the true question is, and always is: Is there a substantial dispute as to the debt upon which the petition is allegedly founded’.44 This means, is there a defence or potential defence, whether on the facts or on the law or of mixed fact and law, of substance to the debt as alleged in the winding up application, on a ground or grounds prima facie substantial to warrant further investigation by a court of law or other tribunal having jurisdiction to determine that dispute between these parties.

D. The law on Common Mistake

[117]In the instant matter, the main ‘defence’ posited by the Company in answer to the respondents’ claim of an undisputed debt entitling them to an order appointing liquidators of the Company, is ‘common mistake’ at common law. The details of this defence are set out in the draft SOC and in the affirmations of Ms. Wang. Common mistake is a defence said to be based on the laws of Hong Kong, as both sides accepted. However, it is also accepted that in this respect the law of Hong Kong is the same as the law and applicable principles of ‘common mistake’ under English common law and the common law of the BVI.

[118]The doctrine of common mistake under Hong Kong law was addressed in the expert reports of Dr. Wong (on behalf of the Company) and Ms. Lau (on behalf of the respondents). As the judge observed, Hong Kong law on common mistake accords with English law, and hence, BVI law. This much is made clear by two important factors. The first is that the five elements to be satisfied to avoid a contract or agreement on the ground of common mistake, at common law identified by both experts in their respective reports, are the identical five elements under English and BVI law. Second, in identifying these five elements, both experts support their correctness by reference to certain key decisions of the English courts. In particular, reference was made by both experts to the decision of the Court of Appeal of England and Wales in Great Peace. This hallmark decision was cited and relied on by the Hong Kong Court of Appeal in Bank of China (Hong Kong) Ltd v Keen Lloyd Energy Ltd & Others,45 as representing the position under Hong Kong law.46

[119]However, while agreeing on the five elements of the doctrine of common mistake, the two experts differed, to some extent, on whether under Hong Kong law there exists a separate equitable jurisdiction for setting aside contracts for common mistake. It was Ms. Lau’s opinion that no such jurisdiction exists under Hong Kong law, citing the first instance decision of Linda Chan J in Szeto Wing Hong v Maintown Industries Ltd and Anor;47 and Chitty on Contracts, 4th edn. at 8-060. In so doing, she mused ‘it is not clear to me what is precisely meant [at paragraph 27 of the draft SOC] by the reference to equity in this context’. It is notable also that Ms. Lau, at paragraph 32, expressly stated that she was proceeding ‘on the basis that there had been no assumption of risk by [the respondents], i.e. that there could potentially be a finding of common mistake’.

[120]However, as matters unfolded in the court below, her premise, while still correct on the respondents’ case, is somewhat ‘shadowed’ by the position adopted by the respondents in argument before the judge below, which position they have reiterated and maintained in responding to this appeal. As observed earlier, the respondents, at paragraph 11 of their appeal skeleton argument, made clear the battle lines in the court below had not been drawn ‘at the issue of whether the parties had acted on a mistaken common assumption’. They pointed out, however, that this position was not a ‘determinative issue’. They were content, for the purposes of the hearing before the judge below (without concession and solely for the sake of argument), ‘that the court should proceed as if the parties had done so’, that is, as if the parties had entered into the Transaction Documents on the common assumptions that the PRC Project and PRC Project Company had not breached or violated any PRC laws or regulations or policies, in particular, that it had not committed any acts of land or property hoarding.

[121]Dr. Wong, on the other hand, accepted that the equitable doctrine of common mistake had been rejected by Lord Phillips in Great Peace (at paragraph 61 of the Wong Report) “who held that there is no jurisdiction to grant rescission of a contract on the ground of common mistake where the contract is valid and enforceable at common law”. Dr. Wong went on to state that the rejection of this equitable doctrine by the English courts, has not sat well with some other common law jurisdictions. These include, Singapore, where its Court of Appeal has retained it (Chwee Kin Keoug v Digilandmall.com Pte Ltd [2005] 1 SLR 502, at paragraphs 81-82); and Canada where the Ontario Court of Appeal mused (at paragraph 26 in Miller Paving Ltd v B Gottardo Construction Ltd (2007) 285 DLR (4th) 568 per Gouge JA) that losing the flexibility to grant reliefs to correct unjust results in widely diverse circumstances, is, in his view, a step backwards.

[122]However, at paragraph 63 of his report, importantly, Dr. Wong accepts that the position in Hong Kong is that ‘there is currently no binding appellate authority on whether a separate equitable jurisdiction exists for setting aside a contract on grounds of mistake’; and that this issue was left open by the Court of Appeal in Lo Shing Kin v Sy Chin Mong Stephen.48 However, Dr. Wong goes on to cite also the first instance Hong Kong decisions of Linda Chan J in Szeto Wing Hong v Maintown Industries Ltd;49 and of Keith Yeung J in Zhang Qiang v Cisco Systems (HK) Ltd50 where the Great Peace decision was cited for the proposition that no separate equitable jurisdiction to set aside a contract on the basis of common mistake exists in Hong Kong.

[123]These decisions notwithstanding, Dr. Wong went on to opine that it was at least ‘reasonably arguable’ that the Hong Kong Courts should recognise an equitable doctrine of common mistake.51 He sought to support this opinion, not be reference to any clear authoritative decision emanating from the Hong Kong courts or the English courts, but on the basis of his reasoning at paragraph 66 (1) to (4). For the most part, his reasoning amounted to what he saw a being ‘possible’ for a Hong Kong court to have regard in equity by considering a ‘wider category of fundamental mistake’ retaining the degree of flexibility in order for a court to do ‘practical justice’ in a particular case, or that third parties “may not be unduly enriched nor shut from redress due to the inflexible rule at common law that contracts vitiated by common mistakes are invariably void ab initio.”52 In support of this line of reasoning, Dr. Wong cited the dicta of Evans LJ in William Sindall PLC v Cambridgeshire County Council,53 where it is stated: “…there is a category of mistake which is “fundamental” so as to permit the equitable remedy of rescission, which is wider that the kind of “serious and radical” mistake which means that the agreement is void and has no effect in law … The difference may be that the common law rule is limited to mistakes with regard to the subject matter of the contract, whilst equity can have regard to a wider and perhaps unlimited category of “fundamental” mistake.”

[124]Dr. Wong also placed some reliance on the dicta of Lord Phillips MR in Great Peace. However, this passage speaks, not to the existence of some wider category of common mistake at common law, but to that necessity for legislation by Parliament to ‘give greater flexibility to our law of mistake than the common law allows’.54 Again, this notwithstanding, Dr. Wong goes on to postulate that legislative intervention would not be necessary as the outcome spoken to by Lord Phillips ‘can be achieved by simply retaining the equitable doctrine of mistake’. This statement, with respect, belies a faulty reasoning, but more importantly, a resolute intention craft a line of argument elevated into a reasoned opinion, to avoid the obvious and correct position at law in relation to the equitable doctrine of common mistake, by simply ignoring the obvious position as articulated by Lord Phillips, that any change to a more flexible doctrine will require legislative intervention and not overzealous judicial activism.

[125]In so far as common mistake at law is concerned, Dr. Wong is more certain as to its existence as part of the law of Hong Kong, and that where it is found to exist, it is recognised as capable of rendering the contract void ab initio. In this regard, he cites that decision of the English courts in Brennan v Bolt Burden (a firm)55 per Maurice Kay LJ at paragraphs 8 – 10; and Kleinwort Benson Ltd v Lincoln City Council56 per Lord Goff at 372-375; and the learning in Chitty on Contracts 4th edn at para. 8-052 to 8-054.

[126]Dr. Wong also addressed what is meant by ‘impossibility of performance’, such as to render a contract void for common mistake, focusing on the meanings from the case law: ‘physically or legally impossible’; extends to cases where the ‘contractual adventure’ is rendered impossible. Also, the position that: the phase ‘impossibility of performance’ is ‘not to be taken literally’; that “a defence of common mistake can succeed even if it is on the face of the contract perfectly possible for the defendant to do precisely what he has contracted to do”; “impossibility of the contractual adventure falling short of legal and physical impossibility may be capable of vitiating a contract”;57 and where the mistake “renders the subject matter of the contract essentially and radically different from the subject matter which the parties believed to exist” common mistake may apply.58

[127]For the reasons given at paragraphs 44 onwards of his report, Dr. Wong concludes that it is his view that the Company “as plaintiff of the intended action, has clearly shown a valid case in common mistake by way of the Re-Amended Draft SOC.” On the other hand, Ms. Lau, having accepted that the doctrine of common mistake at common law exists under the laws of Hong Kong and having considered the meaning of the concept ‘impossibility of performance’, accepted that it is necessary to identify what it is that the parties agreed to perform under their contract. She concluded that, in her opinion, even if it were to be assumed that there were the common assumptions and the assumption of risk of them by the Company, its claim founded on common mistake as set out in the draft SOC “would unlikely succeed”.59 In reaching this opinion, she considered the following factors: there was no illegality in performing the SPA; no impossibility of contractual or commercial purpose of the SPA; the SPA was not essentially or radically different as to its subject matter, that being the sale and transfer of the shares in Happy Lion and Carton; and the subject matter or purpose of the VLA (to provide a loan facility to fund acquisition of the shares under the SPA) was not radically different or that the VLA’s commercial purpose would be frustrated.

[128]The learned judge considered the competing opinion evidence of the experts as the first issue for consideration. She examined the Hong Kong Court of Appeal decision in Lo Shing Kin. It is Dr. Wong’s position that in this case the Hong Kong Court of Appeal had left open the question of whether the doctrine of equitable mistake ‘should still be accepted as good law in Hong Kong in view of the decision of the English Court of Appeal in Great Peace’.60 However, the learned judge seems to have disputed this at paragraph [77], in reliance of what was said by Kwan LJ at paragraph 64 of the decision. If this was what was intended, the learned judge was, with respect, incorrect. What was said at paragraph 64 in Lo Shing Kin is that ‘the plea of common mistake fails at the first hurdle’. This was a reference specifically to the application of the principles of common mistake to the pleading and facts, and not to whether the question of the continued existence of an equitable doctrine of common mistake is still good law in Hong Kong. If there was any doubt, this position is made pellucid by what is said by Kwan LJ at paragraph 65 of the judgment. There the court found that no ‘common assumption’ as alleged in that case had been made out. Of course, this does not lead to a conclusion that an equitable doctrine of common mistake is currently part of the law of Hong Kong or that such a proposition is ‘at least reasonably arguable’ since other decisions of the Hong Kong courts, both at first instance and at the appellate level, have stated either that that equitable doctrine does not or no longer exists in light of the decision in Great Peace, or that it is doubtful that it survived Great Peace.

[129]Accordingly, the preponderance of jurisprudence is that the equitable doctrine of common mistake does not exist under the law of Hong Kong, and the prevailing position is as stated in Great Peace. This is in effect the conclusion reached by the learned judge at paragraph [80] of the judgment, in my view, correctly. Furthermore, having decidedly accepted the reasoning and opinion of the respondents’ expert, Ms. Lau, the learned judge found as a fact that ‘there is no separate equitable jurisdiction to set aside a contract on the grounds of common mistake’.61 E. The Great Peace decision

[130]This leads to a consideration of the decision of the English Court of Appeal in Great Peace (delivered 14th October 2002) on which both parties have placed much reliance. This decision is a watershed one concerning the doctrine of common mistake, in particular, the question whether there exists an equitable doctrine of common mistake by which a court can rescind a contract or can exercise a discretion to do so. I say watershed, because, in broad terms, there are three primary jurisprudential takeaways from this decision. The first is that in Great Peace the court affirmed the existence of the defence of common mistake at common law and that the test is a narrow one. Accordingly, where common mistake at common law is shown to exist as between contracting parties, the contract or agreement entered into is not just voidable or liable to be set aside by a party, but is void ab initio. This is so not on the basis of an implied term of the contract, but by operation of a rule of law under which a common assumption or assumptions by the contracting parties upon entering into the contract has transpired to be ‘impossible to perform’ or simply did not exist at the time of contracting, the effect of which is that no obligation to perform arose out of the contract.

[131]The second primary jurisprudential takeaway from the Great Peace decision is that the English Court of Appeal disavowed the existence of an equitable jurisdiction to grant rescission of a contract for common mistake in circumstances falling short of the circumstances in which the common law has held a contract void, as propounded by Denning LJ in Solle v Butcher,62 and as Master of the Rolls in Magee v Pennine Insurance Co Ltd.63 The effect of this is to disgorge from the fabric of the jurisdiction of the English courts a doctrine of equitable common mistake rendering a contract or agreement void ab initio. In reaching this conclusion, the English Court of Appeal declined to follow its previous decision in Solle v Butcher on the basis that it was irreconcilable with a decision of the House of Lords in Bell v Lever Brothers Ltd. Accordingly, Solle v Butcher, which had stood unchanged for 50 years, is no longer good law in England.64

[132]The court in Great Peace also disagreed with Lord Denning’s statement in Magee v Pennine Insurance Co Ltd that the effect of the decision in Belle v Lever Bros Ltd is that ‘a common mistake, even on a most fundamental matter, does not make a contract void at law’. This statement first found disagreement by Steyn J (as he then was) in Associated Japanese Bank (International) Ltd v Credit du Nord SA,65 as not ‘doing justice to the speeches of the majority’ in Belle v Lever Bros. With this analysis and disagreement, Lord Phillips in Great Peace associated himself.

[133]The third primary jurisprudential takeaway is that while it may be beneficial for such an equitable jurisdiction to exist as it will provide ‘greater flexibility’ to the court’s remedial arsenal in seeking to do justice between contracting parties in certain circumstances, it would take legislative intervention to temper the common law doctrine of common mistake. An example of this (referenced in Great Peace) is the change effected by the Law Reform (Frustrated Contracts) Act 1943 which tempered the effect of the common law doctrine of frustration.66

[134]The upshot of the Great Peace decision, at least with respect to English jurisprudence, is that there is no equitable jurisdiction of common mistake in circumstances where the common law doctrine of mistake has not been made out. What then is the common law doctrine of common mistake? It is a common or mutual mistaken assumption of fact by the contracting parties which rendered the service that would be provided or the obligation to be performed under the contract impossible or essentially different from the performance that the parties contemplated under the contract, with the result that the contract is not just liable to be set aside but was void ab initio at common law.

[135]The test of common mistake at common law is a narrow one. The key elements of the test, as summarised by Lord Phillips of Worth Matravers MR, at paragraph 76, are: “(i) there is a common assumption as to the existence of a state of affairs; (ii) no warranty by either party that that state of affairs existed; (iii) the non-existence of that state of affairs must not be attributable to the fault of either contracting party; (iv) the non-existence of the state of affairs must render performance of the contract impossible; and (v) the state of affairs may be the existence, or a vital attribute, of the consideration to be provided or circumstances which must subsist if performance of the contractual adventure is to be possible.”67

[136]In my judgment, the appellant had failed by expert evidence or otherwise to show that an equitable doctrine of common mistake still resides under the laws of Hong Kong. While the decision of the English Court of Appeal in Great Peace is persuasive authority, the existence of such an equitable doctrine founded on the not overturned decision of Lord Denning in Solle v Butcher and Magee v Pennine, the correctness of which decisions have been doubted for some time and which were effectively overturned by Great Peace, has been doubted by both the first instance and appellate court of Hong Kong, as demonstrated by the expert opinions. This left the Company with only the common law jurisdiction, which undoubtedly exists under the laws of Hong Kong, upon which to found its defence to the JL Application in seeking to show that the debt was disputed on genuine and substantial grounds.

[137]The Great Peace decision is also illustrative of the approach which a court can take and the evidence which it can take into account when determining whether there is a sufficient case made out of common mistake at common law going to impossibility of performance of the contract. At paragraph 165, Lord Phillips states: “Next Mr. Reeder submitted that it was not legitimate for the judge to have regard to the fact that the defendants did not want to cancel the agreement with the Great Peace until they knew whether they could get a nearer vessel to assist. We do not agree. This reaction was a telling indication that the fact that the vessels were considerably further apart than the defendants had believed did not mean that the services that the Great Peace was in a position to provide were essentially different from those which the parties had envisage when the contract was concluded.” F. Appellant’s submissions and this Court’s observations

[138]It is the Company’s case on appeal that in finding that the debt was not disputed on genuine and substantial grounds, the learned judge committed certain errors of principle in her approach and analysis and, specifically, that she took into account irrelevant factors and gave too little weight to relevant factors. The Company argued that as its main legal defence to the JL Application in the court below was that the it had a cause of action in common mistake which, on both legal and factual grounds, rendered the SPA and the VLA void, the judge’s main focus when considering this issue ought to have been on whether the Company had established, to the necessary degree, a case of common mistake in accordance with the principles laid down in Great Peace. Further, it is contended that the doctrine of common mistake had to be examined by the judge in relation to the law of Hong Kong, which is the same as English law and BVI law, the courts in Hong Kong having followed the decision of the English Court of Appeal in Great Peace.

[139]The Company posits that the elements which need to be establish where a contract is to be avoided for common mistake were not in dispute before the judge and had been agreed by both expert witnesses on Hong Kong law as the learned judge correctly observed. These elements, as the judge held correctly at paragraph [72] of the judgment, are: (i) there must be a common assumption as to the existence of a state of affairs; (ii) there must be no warranty by either party that the state of affairs exists; (iii) the non-existence of the state of affairs must not be attributable to the fault of either party; (iv) the non-existence of the state of affairs must render contractual performance impossible; and (v) the state of affairs may be the existence, or a vital attribute, of the consideration to be provided or circumstances which must subsist if performance of the contractual adventure is to be possible.

[140]The Company submitted that the judge fell into grave error as she did not approach this vital question in accordance with the principles laid down in Great Peace. Instead, she took a different approach, dealing first, before dealing with ‘common mistake’, with matters which were extraneous to any proper consideration of the elements of the cause of action of common mistake as they were at issue on the Company’s case that the alleged debt was disputed on genuine and substantial grounds. In adopting this different and erroneous approach, the judge structured her judgment to deal first with an analysis of ‘Conduct’, ‘Chronology’, ‘Lack of Cooperation’ and ‘Delay’.68 This, the Company argues, led her into error and is indicative of the more general point that the judge: “…gave insufficient attention and too little weight to the fundamental issue of whether the Company had advanced a viable cause of action in common mistake and focused too much, and treated as overly significant, various other matters which were irrelevant, or at best of only peripheral relevance, to the key issue of whether there was a genuine and substantial dispute as to the alleged debt.”69

[141]The Company’s contention that the judge erred when she first examined and took into account extraneous matters, is premised on its submission that the question of whether the five elements of the common mistake cause of action (above stated) are established to the necessary standard so as to render an agreement void, must be determined by reference to factors existing at date the agreement was entered into, and not on the subsequent conduct of a party, as the judge clearly did in her approach and analysis of this critical issue. This is because, fundamentally, the doctrine of common mistake where applicable, renders an agreement void ab initio.

[142]In this respect, it is submitted that the learned judge got it completely wrong when, under the heading ‘Conduct’, she considered the Company’s posture and conduct since the date that the SPA and the VLA were entered into.70 At paragraph [85], the learned accepted that ‘from the commencement of the date of the SPA and the date of the VLA, the Company has treated those agreements as valid and effective and has serviced the debt in acknowledgment that it is repayable.’ She went on to identify and to rely upon nine factors of relevant conduct which support this conclusion and finding. These are: (1) the Company making interest payments due under the VLA, both before and after the Events of Default, totaling USD24,773,551, which payments continued until October 2021; (2) the Company’s response letter dated 22nd February 2021 (to the respondents’ letter of 11th February 2021 notifying of the Events of Default which entitled them to accelerate full payment of the Loan and accrued interest under the VLA), by which the Company made various proposals, including that ‘the outstanding amount of RMB 2,400,000,000 and the accrued interest under the [VLA] will be paid in accordance with the terms and conditions thereof”; (3) the Company on 7th June 2021 countersigning a letter from the respondents to it accepting that it was required to make certain tax payments under the SPA, but would need more time in order to do so, which tax payments and late payment surcharge the respondents agreed to pay to the tax bureau on or before 15th June 2021 on behalf of the Company, ‘with it being liable to replay the [respondents] the USD equivalent of the payments, surcharge and liquidated damages on or before 14th October 2021’, but which were in fact paid by the PRC Project Company on 15th June 2021 on behalf of the Company in order to avoid the late payment surcharge and liquidated damages; (4) by the Company’s letter dated 25th August 2021 to the respondents, it confirmed its willingness to negotiate ‘on the performance of the [VLA] and the liquidation of [the respondents] existing facility on the basis of the original purpose of cooperation and mutual benefit’, and the Company not asserting in that letter any dispute over the validity of the Transaction Documents or the debt, and, inter alia, nothing further being heard from the Company until it filed Wang 1 in response to the JL Application brought some 13 months later; (5) the respondents having between June and December 2021 entered into negotiations with the Company concerning a supplemental agreement to enable the Company to (i) rectify the Events of Default; (ii) provide an additional undertaking or pledge to the respondents; and (iii) release part of the underlying assets of the PRC Project Company in order to repay the debt by installments; (6) the ‘Notice Rectifying Default and Making Immediate Repayment’ dated 8th November 2021 exhibited to Wang 1, ‘plainly acknowledges the Debt and treats it as being due and owing’. It reads “[the PRC Project Company], its shareholder companies and parent company have defaulted on their debts and the large debts in default are as follows: … (2) [reference is made to the 15th July 2021 letter] … announcing the accelerated maturity of the RMB 2.4 billion seller’s credit loan and the principal, interest and penalty interest owed on the domestic buyer’s credit loan”; (7) a press report dated November 2021, stating that Yuzhou attempted to enter a loan agreement with global asset manager Oaktree Capital for a loan of RMB 4 billion, ‘the purpose of which was, amongst other things, to refinance the VLA’; (8) the fact that no challenges were raised by the Company as to the validity of the Transaction Documents or the debt, after it had been informed of the Receivers’ appointment in March 2022 by the respondents under the Shares Charges given as security for the Loan under the VLA; and (9) following the appointment of the Receivers, Mr. Lam Lung ON, chairman of Yuzhou at the relevant time, and Mr. Chiu, ‘also began negotiations with the Receivers on how to settle the Loan under the VLA and/or how to assist in identifying a financier or a buyer to purchase the Debt’.

[143]It is the Company’s submission that these nine factors (above) relied on by the respondents and adopted by the learned judge in her judgment, “did not justify a conclusion that the Company should be treated as having accepted that the arrangements concerning the Acquisition were valid notwithstanding the revelation of the problems concerning land and property hoarding.”71 In seeking to make good this submission, the Company relied on three points. The first is that in all but one of the 9 factors, the judge failed to identify any particular person who was acting on behalf of the Company. This was significant, submits the Company, since the alleged conduct, to be relevant to the question of the Company’s acceptance of the validity of the underlying documents, must be conduct carried out by a person authorised to represent the Company and with knowledge of the relevant facts to the alleged mistake. Absent identification of the particular person representing the Company, ‘it was not possible to test whether there had been a genuine acceptance on behalf of the Company or not’.

[144]In my respectful opinion, this point is without merit where, as here, one is dealing with steps taken and proposals made by those authorised to act on behalf of the Company, to which there has been no demur, and who must be presumed to have so acted with whatever knowledge the Company must have had when entering into the transaction and agreements sought to be impugned on the ground of common mistake.

[145]The Company’s second point regarding the judge’s treatment with ‘Conduct ’is that there was, on the evidence, vagueness as to who was actually responsible for the particular acts said to be damaging to the respondents’ common mistake case, and by which actions it was being said that the Company had treated the SPA and VLA as valid and the debt as due and payable. This is because other persons or entities which took certain action, notably Yuzhou, were instrumental in the dealings between the parties at the relevant time.72 Likewise, I can see no real merit in this point as the Company has never taken issue with or sought to distance itself from any of the steps taken by Yuzhou or anyone else on its behalf, accepting or said to be accepting of the validity of the SPA and/or the VLA and the existence of the debt.

[146]The Company’s third point on ‘Conduct’, which it characterised as being ‘most significant’, is that ‘certain of the matters relied upon as indicating affirmation by the Company were plainly not acts of the Company at all’.73 To buttress this point, the Company made specific reference to the evidence of interest payments on the Loan, which were paid by Yuzhou and not the Company; the ‘Notice for Rectifying Default and making immediate repayment’ dated 8th November 2021, which was not signed on behalf of the Company; and the attempt by Yuzhou to refinance the Loan which was not initiated by the Company itself.

[147]In relation to this point I observe, firstly, that the Company has not disavowed any of these three factors or actions or disputed that they were carried out with its knowledge and on its behalf. Secondly, the ‘Notice’ was exhibited by the Company to Wang 1 in opposing the JL Application. Thirdly, as to the ‘press report’, while a court should approach evidence by way of press reports with a healthy dose of caution, circumspection, and skepticism, the accuracy of what was reported in this press report does not seem to have been challenged or disavowed by the Company, nor has it been said that Yuzhou was not acting on behalf of the Company in negotiating a loan of RMB 4 billion from Oaktree Capital. Further, this piece of documentary evidence, while, viewed by itself, may not be sufficient to carry the day in demonstrating, to the satisfaction of the court, that the Company had treated the SPA and/or VLA as being valid and the debt as being due and payable, it was but one additional factor or piece of evidence to be weighed by the judge in arriving at her conclusion at paragraph [81]. I say this, of course, subject to later in this judgment analysing and reaching a conclusion on the issue of whether, as a matter of law, the judge could properly have taken any or all these post execution of the Transaction Documents factors and pieces of evidence into account in reaching the conclusion that the Company had, by its conduct, accepted the validity of the SPA and VLA; and had done so at a point in time when the respondents had by letter identified and acted upon certain Events of Default under the VLA, and demanded the immediate repayment of the Loan and accrued interest.

[148]The second matter which the judge considered before dealing with the issue of ‘common mistake’, on her way to determining that the debt was not disputed on genuine and substantial grounds, is ‘the Chronology of the Events’. Again, the Company’s main criticism of this is that the ‘Chronology’ referenced by the judge relates exclusively to events occurring after the SPA and the VLA had been entered into. As such this too was indicative of the wrong approach taken by the judge to the Company’s defence of common mistake. The Company also mused that the Chronology, which was taken verbatim from the respondents’ skeleton argument, had been relied upon by the respondents for a different reason, that is, in support of an alleged “fraudulent conspiracy executed by the Company, Zhou Ying and Yuzhou, to extract value from the [PRC Project Company] to the detriment of its (and the Company’s) creditors.”74 These matters, the Company state, relate to un- pleaded serious allegations of a fraudulent conspiracy involving multiple parties, and are matters only of inference which had not yet been responded to by the alleged participating parties. It was therefore entirely inappropriate and wrong, the Company submits, to the extent that she might have done so, for the judge to take these matters into account or to give any credence to these allegations when deciding that the debt was not disputed on genuine and substantial grounds. However, the Company also observes in its appeal skeleton that, notwithstanding that she described this as a ‘critical’ matter, the judge did not draw any express conclusions from the matters listed in the Chronology, nor did she make any express findings in the judgment respecting this part of her analysis.

[149]As to the judge’s third matter ‘Lack of Cooperation’ which the judge considered before dealing with the defence of ‘common mistake’, the Company’s main point again is that the judge, having referred to the respondents’ criticisms of the alleged lack of cooperation by the Company with the JPLs and to its failure in its evidence to deal with certain matters concerning the alleged fraudulent conspiracy, as ‘an innocent party would be expected to confirm’, did not in fact reach any particular conclusions or make any particular findings in respect of these allegations in the judgment. This notwithstanding, it was submitted that to the extent that the judge had taken these matters or allegations into account she was clearly wrong to do so, as these matters or allegations were entirely irrelevant and could have no bearing on the question of whether there was a genuine and substantial dispute as to the alleged debt.

[150]The fourth matter which the judge considered before dealing with the defence of common mistake, was ‘Delay’. The basic conclusion reached by the judge was that the points of defence raised by the Company of common mistake (and genuine cross claim) in defending against the JL Application should, on the facts and sequence of events, if genuine, have been raised much earlier.75 The defence of common mistake was first raised in the draft SOC which was produced over 2 years and 7 months after the Company first became aware of the matters of property- hoarding and land-hoarding with the Project and the PRC Project Company. The draft SOC was subsequently amended twice, which the judge considered to be ‘gravely concerning’, casting serious doubt on the genuineness of the (draft) Hong Kong claim. The judge also considered that the amount of time it had taken for the dispute over the SPA and the VLA and the debt to be raised, showed ‘a lack of sincerity or conviction’ on the part of the Company.76

[151]The Company accepts that undue delay in advancing a dispute may be a relevant matter in a court’s overall appraisal of whether the dispute is a genuine one. The effect of this concession is that the judge was correct to consider the issue of delay in her assessment of whether the dispute, grounded on a defence of common mistake, which itself is rooted in a pleading of alleged ‘Common Assumptions’ and Representations when entering into the SPA and VLA, was genuine or not. However, having made this concession, the Company argued, on certain bases, that it is not correct, as the judge found, that it had been guilty of undue delay in advancing its case.77

[152]The Company sought to make good this contention at paragraphs 98 to 101 of its appeal skeleton. The first point raised is that while the Acquisition was completed on 23rd July 2020, it took until 21st September 2020 for the PRC authorities to inform the Project Company that it was guilty of land-hoarding and property hoarding. I simply observe that this represents a short period of 2 months to when the Company was well aware. That the PRC authorities had found that the Project and the PRC Project Company had committed acts of land and property hoarding in breach of certain regulations. The Company also posits that the Credit Ban was imposed on 21st September 2020, but the Price Ceiling was not enforced until November 2020. It is also to be observed that these two factors, upon which the Company has attached high importance in seeking to ground its defence of common mistake based upon the falsity of the alleged Common Assumptions and Representations and the alleged substantial detrimental effect on the commercial viability of the SPA and/or the VLA, had all occurred to the certain knowledge of the Company within the short period of 4 months (or thereabouts) after the Acquisition had been completed. More importantly, it is these very matters of land-hoarding and property hoarding which the Company in their draft SOC filed with Wang 1, rely on to say that there had been certain Common Assumptions or Representations made and accepted by both sides to the transactions involving the SPA and the VLA, which ‘Common Assumptions’ turned out to be false once the PRC Project Company had been informed by the PRC authorities that it had been guilty of land-hoarding and property hoarding. In my respectful view, this first point or line of argument seeking to show that the Company has not been guilty of undue delay in asserting its defence based upon common mistake, rings hollow, and the judge was correct in not accepting it.

[153]The next point made by the Company is that the respondents did not claim an event of default under the VLA until 11th February 2021, and by letter dated 25th August 2021 the Company informed the respondents that it had engaged counsel to investigate the ‘whole transaction’, including as regards insufficient disclosure and fraud. This, they argue, had put the respondents on notice that the Company was considering a challenge to the underlying agreements.

[154]With respect this is a non-point, completely lacking in merit. It rests on a patently flawed factual premises and was rightly rejected by the judge. First, the Company, having been notified that the Project and Project Company had been guilty of land- hoarding and property hoarding in breach of PRC laws and regulations, would have immediately realize that the Common Assumptions and Representations (if made and acted upon), were in fact false entitling them to seek to avoid the SPA and/or the VLA. This should have prompted the Company into immediate action and to take steps to seek the necessary legal advice; to bring this new state of affairs to the attention of the respondents as the other parties to the Transaction Documents; and to assert the Company’s claim that the parties entered into these agreements on a common mistake rendering each of the underlying agreements void (or voidable). Second, it is a fallacy of argument to posit that the Company had to or was justified in waiting for the respondents to take some step or action under the VLA, such as being told that it had committed Events of Default entitling the respondents to demand immediate payment in full of the Loan and accrued interest, before asserting its claim based on the alleged common mistake.

[155]Third, even at the point when the PRC authorities imposed the credit ban and subsequently the price ceiling (by November 2021), the Company still did not assert its defence of falsity of the ‘Common Assumptions’ leading to a common mistake rendering the SPA and/or the VLA void ab initio. Fourth, the matter of Events of Default by the Company under the VLA is a question of compliance or non- compliance with the terms of an existing and binding contract, the VLA, with the consequence that the respondents were entitled to treat the Loan and accrued interest as immediately due and owing. An assertion of one of the respondents’ contractual rights is not a ‘trigger’ nor is it, as a matter of law or contract, tied to or provides the foundation for a claim by the Company that the underlying agreements were void for common mistake based upon the alleged falsity of the Common Assumptions and Representations.

[156]Moreover, the Company has not denied the contractual basis leading to the Events of Default. Instead, its case (made for the first time when exhibiting the draft SOC) is that as a consequence of the VLA being (allegedly) void for common mistake, the respondents were not entitled to assert the Events of Default and the Company is not liable to make any further payments of the Loan and accrued interest under the VLA. In short, if this defence of common mistake is not genuine or substantial, that is the end of the matter, the SPA and VLA are valid and continue to be enforceable, the Debt exists and is due and payable, and the respondents were entitled to move the court to wind up the Company on the basis that it is insolvent.

[157]The Company’s third point why it says it had not been guilty of undue delay, is that it would have taken time to investigate the circumstances in which the Acquisition had taken place and to obtain appropriate legal advice on Hong Kong law. Again, this is a point which rings hollow. The simple fact is that the Company was by November 2021 fully aware of all the factors and circumstances upon which it now relies to avoid payment of the debt. The Company would have had full knowledge of the ‘Common Assumptions and Representations’ (if made), of the findings by the PRC authorities of land hoarding and property hoarding violations, the imposition by the said authorities of the Credit Ban and the Price Ceiling, and that the Common Assumptions had been thereby shown to false. Obtaining legal advice on Hong Kong law on these matters from November 2021 could not, on any reasonable view, have taken some 2 years and 7 months, if genuinely held. Yet in the Company’s 15th August 2021 response letter none of these matters were mentioned or asserted. It was not until the draft SOC was exhibited to Wang 1 at the commencement of the first inter partes hearing of the JL Application in October 2022, that the defence of common mistake was first raised, and it took until the draft Amended SOC for the Company to assert this defence based on alleged ‘Common Assumptions and Representations’ made at two meetings, the first in January 2019 and the second in April 2020.

[158]The fourth point relied on by the Company in addressing the judge’s finding that the Company had been guilty of undue delay in asserting the underlying factors and its ‘defence’ of common mistake, is that the judge gave the issue of delay too much weight than was warranted. This it argues is correct in circumstances where “the Company had advanced a legal case that was, at least, well-arguable and that the consequences of that case, if upheld, would be that the [underlying] agreements were entirely void.”78 This point has been developed in greater detail by the Company at paragraphs 102 to 133 of its appeal skeleton when dealing with ‘Common Mistake’, and in oral argument by its lead counsel Mr. Davies KC before this Court.

[159]The Company argues that when the learned judge finally came to consider the central issue of whether the Company had advanced a substantial case of common mistake, having first considered the erroneous matters of conduct, chronology, lack of cooperation, and delay and having reached the conclusions which she came to at paragraph [97] of the judgment, the judge did not approach her analysis of the Company’s legal case of common mistake with an “open mind.” They argue that the judge was already ‘plainly resolved” in rejecting that case or defence on the basis that the Company was not disputing the alleged debt in good faith, the judge having described the Company’s defence and cross claim as demonstrating a ‘lack of sincerity or conviction’ and having assessed that it’s ‘overall posture is quite incredulous and its rationale lacks a sound commercial basis’. In my considered view, for the reasons given above in assessing the Company’s submissions and arguments attacking the judge’s finding of undue delay, the learned judge was entitled on the evidence before her to reach these conclusions as to the lack of genuineness of the Company’s common mistake defence to the Debt and the JL Application.

[160]The Company, however, puts its case on ground 1 on a more fundamental basis. It submits that the ‘remarkable feature is that the judgement does not contain any analysis at all of the question of whether the parties had actually proceeded under a mistake.’79 In my view, this criticism has to be closely examined and analyzed in light of what the learned judge said at paragraphs [98] to [108]. Also, it must be analysed with regard to the five elements of common mistake all of which must be present evidentially to the necessary standard, the judge’s findings on ‘delay’ and lack of genuineness of the Company’s common mistake defence, and upon a consideration of the Sparkasse test that a debt, the basis of a winding up application on the ground of insolvency, is disputed on genuine and substantial grounds, and its application to the facts.

[161]The Company identified a five matters which it relied on in support of its case that the parties, in entering into the SPA and the VLA, had acted on a “common mistaken assumption that the phased development and sale of the Project was a permissible and lawful practice as a matter of the relevant PRC rules and regulations and that the PRC Project Company was not exposed to penalties for land hoarding or property hoarding”. It contends that the learned judge failed to address these matters in the judgment.80 They are: (i) that the PRC authorities had granted multiple permits relating to the planning, construction and sale of the successive stages of the Project; (ii) that as at 2019 the first 6 phases of the Project had been completed and were largely sold, apparently without any penalties or restrictions having been imposed on the grounds of land hoarding and/or property hoarding; (iii) the Representations made at the meeting in January 2019 and on 2nd April 2020 (as pleaded) that the phased development of the Project was permitted under relevant PRC rules and regulations and did not entail land hoarding or property hoarding meant that there was no concern about ant penalties being imposed by the PRC authorities; (iv) that it is wholly implausible that the Acquisition would have proceeded if there was thought to be a prospect of the PRC authorities imposing sanctions on the basis of land hoarding and property hoarding, the ramifications of being found guilty of such practices being severe, as has been shown subsequently by the imposition of the Credit Ban and Price Ceiling, and even potentially the imposition of the expropriation of the relevant Project property.81

[162]The Company also argues that the evidence of these two meetings at which the Representations were made, which was given in the affirmation of Zhang Guoyi who had been in attendance at the 2nd April 2020 meeting, was uncontradicted. No contradictory evidence of these two meetings was given on behalf of the respondents by anyone who had been present at either of the said meetings. This included the evidence given by Zhang Shidong, who had attended the said meetings on behalf of the respondents, and which was filed as part of the respondents’ evidence in reply. However, in Mr. Zhang’s evidence he took no issue with this aspect of the Company’s case. On the other hand, Mr. Raymond Tam who in his affirmation sought to dispute the Company’s evidence of the Representations, was not present at either of the said two meetings. In seeking to do so, Mr. Tam attested that he was relying on inquiries made of those present at the said meetings and representing interests of the respondents, in short, hearsay evidence. However, he did not give any details as to the actual inquiries which he had made and of whom.

[163]For these reasons, the Company contends that its case that the Representations relied upon in support of its case of common mistake had been made at the January 2019 and April 2020 meetings leading up to the Acquisition (as pleaded), was clearly a substantial one on the facts. However, the judgment contains no analysis of this material, and the judge’s treatment of this key issue was limited to the bare statement at paragraph [101] that ‘there is a paucity of supporting evidence.’

[164]The Company also takes issue with the judge’s approach to and conclusions based on the draft pleadings, concerning the separate question as to whether the consequences of the mistake relied on was sufficiently fundamental to engage the common law doctrine of common mistake. It is submitted that the learned judge was incorrect to conclude that the draft pleading was deficient in that it did not actually plead the fundamental consequences resulting from the land and property hoarding finding by the PRC authorities. In this regard, the Company points to the pleading in the draft Amended SOC of the imposition by the PRC authorities of the credit ban and price ceiling (respectively, in September and November 2020). As to the judge’s criticism that the losses pleaded were hypothetical ‘future losses’ which were not properly particularised in the draft SOC, the Company contends that the actual consequences of the credit ban and price ceiling were sufficiently particularised in the draft SOC. These included ‘actual figures for the extent to which the putative sale prices for residential units in the Project were suppressed as a result of the imposition of the credit ban and Price Ceiling pointing to where the commercial viability of the venture was completely undermined’.82 Additionally, the Company pointed to paragraph 24(3) of the draft SOC which states: “as a result of the land- hoarding and property-hoarding conduct of the PRC Project Company, various penalties and sanctions were imposed on the PRC Project, which would have the effect of depriving the Project of all or substantially all of its commercial value.”

[165]I would remark at this stage, that the judge did accept in the judgment the basic factors relied on by the Company in support of its common mistake defence. The accepted factors were the finding by the PRC authorities of the PRC Project Company being guilty of land and property hoarding and the subsequent imposition of the Credit Ban and Price Ceiling. The learned judge also accepted that the imposition of the Price Ceiling meant that the units could not be sold at higher prices. She also accepted that there had been a drop in the property market after the Acquisition. However, she was not satisfied that the Company had shown that there was a loss caused by the price ceilings, and the Company ‘would need to show that such loss that it has outlined was not just as a result of what was happening generally, which was a drop in the market, The Company’s pleadings and evidence fall woefully short of that.’83

[166]As to the judge’s third criticism of lack of particularity in the draft SOC with respect to the losses, in that the Company had not shown that the Price Ceiling had been imposed as a result of conduct prior to the Acquisition, the Company argues that it is plain and obvious that the illegal land and property hoarding, as assessed by the PRC authorities against the Project, related to such activity which pre-dated the Acquisition. In this respect, the Company points to the PRC authorities having first notified the PRC Project Company of the land hoarding issue on the very day that the Acquisition was completed. Secondly, the Credit Ban was imposed a mere 2 months later and the Price Ceiling 2 months thereafter.

[167]Thirdly, reliance was also placed on the ‘concepts’ which underpin the actual regulations which the PRC Project Company was said to have violated by its land and property hoarding. It is submitted that these regulations are inherently based in the concepts that ‘the land or property not having been utilized over a significant period, being of at least two years in the case of certain of the provisions’.84 In other words, a finding on the day the Acquisition was completed but on any reasonable view relate to and be based upon the non-utilization of land or property predating the Acquisition and going back at least 2 years. In my view, this line of argument by the Company in answer to the judge’s statement concerning whether the findings by the PRC authorities related to activities or inaction with regard to the land or property within the Project prior to the Acquisition, has merit.

[168]The fourth reason advanced by the Company is that in addition to the pleaded case of loss in the draft SOC, it had also adduced evidence in Wang 4 at paragraph 4 regarding the loss and damage it had suffered as a result of the Credit Ban and Price Ceiling sanctions imposed on the PRC Project Company by the PRC authorities. However, the judge had failed to refer or to consider this evidence in the judgment. This evidence, it is said, sets out in detail the financial losses suffered by the Company. Accordingly, the judge’s finding that “the Company has not attempted to quantify the loss it says it has suffered as a result of this price ceiling” was entirely incorrect. Additionally, it has given further analysis of the losses suffered by the Company at paragraph 58 of its skeleton argument in the court below.

[169]In my view, the inherent difficulty with this submission, and one which was identified by the learned judge at paragraph [106] of the judgment, is that the alleged losses, to the extent that they were set out in the draft SOC and in Wang 4, were not losses suffered by the Company per se, but potentially losses suffered by the PRC Project Company. The simple facts are that losses were suffered with the Project as a result of the credit ban and price ceiling imposed by the PRC authorities, following a finding that the Project and the PRC Project Company had was guilty of land and property hoarding in breach of certain rules and regulations. More pointedly, the alleged losses did not concern the commercial viability of the SPA or the VLA such as to render the transactions thereunder not commercially viable or substantially not viable, so as to bring into consideration the defence of common mistake based on the alleged false Common Assumptions and Representations, as pleaded in the draft SOC. As stated above, the SPA provided for the sale by the respondents and purchase by the Company of shares, not in the PRC Project Company, but shares held by each of the respondents, respectively, in Happy Magic and Carton, the two shareholder companies of the PRC Project Company. Similarly, the VLA is an agreement by which the respondents agreed to provide a loan facility to the Company to enable it to pay, in part, the purchase price for the said shares to be transferred under the SPA, not the share in the PRC Project Company. The PRC Project Company, as owner of the Project, was not a party to either the SPA or the VLA, nor was Happy Lion and/or Carton.

[170]The Company also takes issue with certain of the judge’s findings at paragraph [107] of the judgment, specifically that ‘even if the legality of the Project was part of the common purpose, on the evidence, breaches of PRC Regulations did not render performance of the Project impossible.’ The Company’s criticism of this finding is that the judge did not, in reaching this conclusion, give any consideration to the authorities cited by the Company’s expert on Hong Kong law concerning the interpretation and application of the ‘impossibility of performance’ requirement under the Hong Kong common law doctrine of mistake.85 In the opinion of the Company’s expert, these authorities show that the concept of ‘impossibility of performance’ is not to be taken too literally, and extends beyond physical or legal impossibility to include cases where the ‘contractual adventure’ is rendered impossible. Furthermore, this concept may apply where the mistake ‘renders the subject matter of the contract essentially and radically different from the subject matter which the parties believed to exist’.86 Accordingly, submits the Company, it was well arguable that the common law doctrine of mistake would apply, notwithstanding that the Company remained a going concern and was, in theory, still capable of conducting sales despite the price ceiling. This, it contends, is because the ‘undertaking of the Project was fundamentally and radically different from what had been thought to be the case’.87

[171]In my respectful view, this line of argument is fraught with difficulties and is fundamentally flawed. The simple but telling point is that it is the Project and the continued development of it that is said to have been rendered impossible or not commercially viable as a result of the finding of land and/or property hoarding, and the imposition on the PRC Project Company of the credit ban and price ceiling. It is not the separate but inter-related transactions the subject of the SPA or VLA which have been rendered impossible to perform or radically different from the subject matter of each of these two Transaction Documents. Neither of these transactions or underlying agreements were, on any reasonable or sound legal basis, rendered impossible to perform. In fact, as the learned judge found at paragraph [106] of the judgment, both transactions were completed and were accepted by the Company as having been completed.

[172]In seeking to address this major hurdle, the Company characterised the judge’s approach to this issue as being an ‘overly narrow and unrealistic view of the transaction, given that the real subject matter of the Acquisition was plainly the Project’. They also argue that the judge appears to have reached this view without regard to or consideration of the authorities referred to by the Company’s expert, which indicate that the common mistake doctrine may apply even though it may be possible for the parties to carry out the contract. In support of this proposition the Company cites the Dr. Wong Report, paragraphs 41(3)-(4); Apvodedo NV v Collins88 at paragraphs [43]-[44]; and Sealegend Holdings Ltd v China Taiping Insurance (HK) Co Ltd at paragraph [34].

[173]In my opinion this is a weak point. The mistake being relied on must concern the subject matter of the agreement or agreements sought to be impugned as being void or voidable. It cannot therefore be said to be either too narrow or unrealistic an approach for the judge to conclude what is essentially patently obvious, that the alleged Common Assumptions and Representations leading to an allege common mistake vitiating the SPA and/or the VLA, must concern the subject matter of these Transaction Documents and, in this instance, they clearly do not. Furthermore, the Company did not make the validity of the SPA and/or the VLA conditional upon the past legality of the PRC Project Company’s development of the Project or, more specifically, that the PRC Project Company and the Project had not committed any acts of land-hoarding and/or property-hoarding which would render the development of the Project illegal and could or may lead to the Project being sanctioned or subjected to financial penalties. No such provisions, warranties or representations were included in either the SPA or the VLA. Instead, the Company has raised for the first time in its draft SOC filed in 2022 well-after the filing of the JL Application in April 2022, certain alleged oral Common Assumptions and Representations dating back as far as January 2019 and April 2020 and said to have been made by representatives of the respondents.

[174]The Company also takes issue with the learned judge’s statement at paragraph [103] that “it is quite highly arguable that a warranty was given by the Applicants [the respondents] that there were no outstanding liabilities and that risk was taken by the Company regarding breaches following the [completion of the Acquisition under] the Transaction Documents”. This finding is of some significance as one of the requirements when invoking the doctrine of common mistake is that there must be no warranty by either party that the particular state of affairs which turned out to be false exists. (Great Peace) The relevant provision is paragraph 13 of Schedule 2 of the Reinstated and Amended SPA. By this provision the respondents warranted that the PRC Project Company is not in breach of any applicable PRC law where the PRC Project Company’s outstanding liability for any fines for such breach exceeds RMB 100,000,000. The respondents’ expert, Ms. Lau, opined that as this was a warranty as to ‘outstanding liabilities’, it was arguable that future liabilities were a risk assumed by the Company, even if they arose from past acts or omissions of the PRC Project Company. Furthermore, clause 16.11(a) contained an obligation on the part of the Company to notify the respondents promptly of any ‘adverse claims’ upon becoming aware of them.

[175]It is the Company’s submission that the judge’s construction of these clauses (adopting the construction posited by the respondents’ expert Ms. Lau), cannot be supported as a matter of law. The only warranty given by the respondents was as to there being no ‘outstanding liabilities’. It does not follow from this that it should or ought to be inferred that the Company was warranting or taking a contractual risk, in respect of any fines or sanctions that may be imposed in the future. The only correct position is that the parties to the SPA and VLA, consistent with the Company’s case of common mistake, were proceeding on the basis that the PRC Project Company had not breached any rules or regulations in respect of land or property hoarding.89 In my view, while there is some merit the Company’s criticism of the judge’s finding that it was arguable that the Company had assumed the risk of ‘future’ sanctions or fines based upon acts of land or property hoarding whether arising before or after the Acquisition, it is also arguable that the stipulated contractual warranty covered the activities of land or property hoarding ‘prior’ to the Acquisition and, as such, that element of the defence of common mistake (the absence of a contractual warranty) cannot be satisfied.

[176]In summary, it is the Company’s case that the judge’s treatment of its defence of common mistake as its basis for disputing the Debt, was seriously inadequate. The judgment lacked analysis on the issue of whether there had actually been a mistake, and the issue of what were the consequences of the mistake and whether they were sufficiently fundamental to support the notion that the Debt was disputed on real and substantial grounds.

G. Respondents’ submissions and this Court’s observations

[177]It is the respondents’ case in response to ground 1 that the learned judge was correct in holding that the debt was not disputed by the Company on genuine and substantial grounds and, accordingly, in granting the JL Application, making a winding up order, and appointing JLs of the Company. The respondents submit that the alleged dispute over the debt, ground on the doctrine of common mistake, is a prime example of what in the case law is described as a ‘put up job’.90 In other words, there is no real substance in the dispute or defence relied on by the Company. More specifically, the defence of common mistake is not one which, as the judge found correctly, is genuinely held by the Company and is not supported by the facts, to the necessary standard. Applying the Sparkasse test (as elaborated upon in subsequent cases) to the facts, the dispute was not genuinely held by the Company either in the subjective or objective sense, in that it was not honestly believed to exist and is not based on substantial grounds, meaning ‘having substance and not frivolous’.

[178]The respondents core submission is that the defence of common mistake founded on alleged Common Assumptions and Representations as pleaded in the draft SOC was a put-up job, in circumstances where the Company was clearly unable to pay the debt, and was seeking ‘to rely on contrived, fanciful claims, raised late in the day, to disguise the fact’ that: (1) on the evidence, the Company was hopelessly insolvent and had no assets of significant value with which to pay the debt or even part of it; (2) there was compelling evidence that the cause of the Company’s insolvency was ‘a sophisticated ongoing fraud perpetrated by bad actors in control of the Company and by their associates’, and the dispute was not genuinely believed, but was ‘rather the wish to prevent or delay a liquidator being appointed and action being taken by him to combat the fraud for the protection of the Company and its creditors’; (3) all material facts upon which the defence of common mistake was based were known to the Company years before the JL Application, and yet the Company gave no indication that the debt was disputed on the said grounds but, to the contrary, on the evidence, the Company acted in a manner inconsistent with the alleged defence, and only brought the defence of common mistake, rooted on Common Assumptions and Representations, to the attention of the respondents at the ‘door of the court’ when the draft SOC was produced in response to the JL Application; and (4) the factual assertions in the draft SOC were not supported by the evidence, and the Company did little to discharge its burden of proof of a prima facie case that the debt was not due and payable.

[179]As to the Company’s principal pleaded case that the SPA and the VLA and the transactions and loan thereunder provided should be set aside on the ground that the parties entered into the Transaction Documents on the mistaken assumption (common mistake) that certain PRC regulations relating to land and property hoarding had been complied with by the PRC Project Company, which assumptions were false, such that it had a catastrophic effect on the business and commercial value of the assets acquired, it is the respondents case that this defence to the debt was not supported by any evidence that the PRC regulations prohibiting land hoarding and/or property hoarding had actually been breached or, if they had, in reality, this breach had any significant impact on the Company’s business, its ability to continue to trade, or the value of its assets.91

[180]It is also the respondents’ case that in determining whether a debt is disputed on genuine and substantial grounds, a court is entitled to examine the company’s conduct in relation to the alleged debt and underlying agreements at all material times, including when the alleged dispute or defence was first raised. This will often be an indicator as to whether the ‘defence’ being raised is genuine or frivolous. Accordingly, a court is entitled to take into account these relevant factors, including undue delay, when assessing the credibility of the company’s evidence of the alleged dispute and in determining whether, in all the circumstances, a defence to the liquidation proceedings is raised in good faith and has genuine substance.92 In this regard, it was only at the ‘door of the court’ that a draft SOC (in contemplated Hong Kong proceedings, which to date, have not been filed) was produced, the debt said to be disputed, and the purported ‘defence’ of common mistake raised for the very first time. Until that time, the Company had acted in a manner inconsistent with any notion that the debt was disputed or that the SPA and/or the VLA were void ab initio for common mistake which was sufficiently fundamental to the transactions under the underlying documents, that is, the illegality of the PRC Project Company’s development of the Project land.

[181]Moreover, it is submitted, no evidence was produced by the Company to establish that, if the transaction and the Loan were unwound, the Company would be in a financial position to restore the financial benefits it had received under the transaction and Loan, which it was common ground, that the court, in any event, would order.93 The respondents also submit that the Company had failed to demonstrate that there was any real prospect, as a matter of law, of the Acquisition and the Loan being set aside or if they were, of the Company not being liable to the respondents for a sum equivalent to the Debt on the basis of money had and received. Accordingly, it is submitted, there was an “obvious and reasonable inference that in reality any breach of the [PRC] regulations that had occurred [concerning land and property hoarding] had not had the serious impact on the [PRC Project Company’s] business that the Company claimed.”94 In the respondents’ view, this all demonstrates that the Company had ‘grossly exaggerated’ the impact of the breaches of the PRC regulations prohibiting land and property hoarding in an attempt to bring its case within ‘the line of extremely rare, exceptional cases’ which a court was prepared, in the past, to set aside transactions on the grounds of common mistake.95 This was reinforced by the Company’s letter in response to the respondents’ initial assertion of Events of Default and exercise of its right under the VLA to accelerate full repayment of the Loan and accrued interest. A critical part of said letter, muses the respondents, is the giving of instructions to the Company’s lawyer to, in effect, “dredge about for any form of defence to avoid payment of the Loan and [admitting] it was doing so for the purpose of preventing or hindering the [r]espondents from enforcing their lawful rights as secured creditors over the [PRC Project Company’s]) assets”.96

[182]It is my view, that there is much merit in this line of argument and submissions, in particular, when viewed in the context of what was in fact stated in the Company’s August 2021 Letter, as analysed earlier in this judgment, its non-denial of the existence of the debt and that the said sum was due and owing to the respondents, its non-assertion of any right or legal basis upon which it could mount a defence that the SPA and/or the VLA were void ab initio, including on the basis of breaches of PRC regulations relating to land and/or property hoarding rendering the transaction not viable or substantially commercially not viable, coupled with a generic statement that it had engaged the services of a lawyer to, in essence, advise on or to find some basis upon which it could have the demand for full repayment of the Loan and accrued interest withdrawn. Finally, the undue delay in asserting its defence of common mistake and ultimately basing this defence on an assertion of Common Assumptions and the Representations which turned out to be false.

[183]For these and other reasons stated in their written and oral submissions, the respondents argue that the appeal is misconceived and the decision of the learned judge on this issue and on the JL Application plainly right. Furthermore, it is contended that the decision below was within the generous ambit afforded by an appellate court to a first instance judge’s decision involving questions and findings of mixed law and fact, that is, whether the debt is disputed on genuine and substantial grounds.97

[184]Specifically in response to the seven points or sub-grounds under Ground 1 of the Appeal, the respondents underscore that they had accepted for the purpose of argument in the hearing below that it can be assumed that the parties to the VLA 2013, unreported) and Showa Holdings Co Ltd v Nicholas James Gronow and John David Ayers and SPA had acted on a mistaken common assumption, as this was ‘not a determinative issue’ and they were “content for the purposes of the hearing below (without concession and solely for the sake of argument) that the court should proceed as if the parties had done so.” In my view, this is a significant stance or position for the respondents to have adopted in the proceedings below. I say it is significant, since its effect is to put to one side for the purposes of the JL proceedings in the court below, any dispute or issue over whether Common Assumptions and Representations had actually been made and accepted by the parties prior to their execution and entering into the SPA and/or the VLA, and the transactions underlying each of these two agreements.

[185]Instead, the respondents pitched their case below on the basis or argument that, “even if the parties had acted on the alleged common assumptions, the Company had failed to plead facts in the draft [SOC] and/or to produce any evidence to establish a prima facie case of common mistake”.98 This says the respondents, is because certain other elements of the defence of common mistake at common law had not been made out. One such example is whether the Common Assumptions were false. In my view, this is a difficult point for the respondents, since the documentary evidence has shown to the requisite standard that the PRC authorities have conclusively determined that the PRC Project Company had breached certain regulations relating to and was guilty of land-hoarding and property-hoarding.

[186]The second element of the defence of common mistake which the respondents argue was not established by the Company, was ‘whether any such mistake was of any significance and had had any serious impact on the Company’. The respondents posit that in fact it was common ground in the court below that the Company had not done so, that is, the ‘mistake’ was not sufficiently fundamental to be capable of constituting an operative mistake in law. In my considered view, this is a point of much merit and, if correct, would be dispositive of this ground of appeal and, indeed, the entire appeal.

[187]The respondents next point in response to Ground 1 is that no evidence was produced by the Company, on which the legal burden lies to establish by evidence, a prima facie case of breaches of the PRC regulations, such as to deprive the PRC Project Company of all or substantially all of its value.99 To the contrary, the evidence produced “showed that the [PRC Project Company’s] property portfolio continued to be of considerable value and that the Company continued to trade, developing and selling properties, with no sign of significant hindrance”. Furthermore, as to the assertions in the draft SOC that the credit ban and price ceiling had been imposed by the PRC authorities, no evidence had been produced to show that the Company’s value had been materially affected by their imposition, let alone deprived of all or substantially all of its commercial value.100

[188]In my view, this is also a point of considerable force and merit. The simple fact is that the evidence relied on by the Company, including the evidence of Ms. Wang does not demonstrate to the requisite standard that the transactions agreed under and pursuant to the SPA and/or the VLA were deprived, whether by the finding of land and property hoarding or the imposition of the credit ban and/or the price ceiling of all or substantially all of its or their commercial value. The evidence falls way short of this mark and the learned judge was correct to find or to conclude that the Company had failed to meet that threshold necessary to demonstrate or to establish that it had a genuine and substantial defence of common mistake, whether viewed or construed according to Hong Kong law or English or BVI law.

[189]The respondents also rely upon the contents of the Company’s August 2021 Letter as patently demonstrative of the Company attributing its financial difficulties to the fall in the Chinese property market, changes in PRC government policy, and to certain initial problems with the development of the Project after the Acquisition attributable to the respondents’ parent company, but which had been subsequently resolved. Also, the letter indicated that the Company would be able to trade out of these difficulties. Again, I have already dealt with this letter and its contents in some detail above. I am in full agreement with the respondents that the Company’s August 2021 Letter ‘flatly contradicted its pleaded case’ in the draft SOC and subsequent iterations of that document. In my considered view, this letter is a potent piece of evidence contradictory of the Company’s case of common mistake leading to the underlying agreements and the transactions thereunder being deprived of all or substantially all of their commercial value. Frankly, on the evidence, such an assertion, critical as it is to the ‘defence’ and to the Company’s case that the debt is disputed on genuine and substantial grounds, is fanciful and falls woefully short of the standard required to establish common mistake.

[190]Regarding the sub-grounds of appeal to the effect that the judge’s approach to the issue of common mistake was wrong and she took into account erroneous matters or factors and failed to address her mind and reasoning to the five elements of the doctrine of common mistake, the respondents counter with a number of points. The first is that the judge was entitled to take into account a party’s conduct after the impugned transaction in determining whether the defence being relied on to say that a debt of a company is disputed on genuine and substantial grounds and cannot be the basis for a winding up action. Regarding the defence of common mistake, the respondents rely on certain dicta from the decision in Great Peace.101 In the instant matter, it is the respondents’ case that the post-transaction conduct by the Company ‘is of the type routinely taken into account, and often considered determinative, in disputed winding up cases’.102 This is so because the Sparkasse test requires both an objective (substantial grounds) and subjective (good faith) limb to be satisfied. I have already considered the applicable law, including the Sparkasse test, and specifically whether it is two separate tests or simply one test above at paragraphs 113 – 116 of this judgment. Suffice it to be said that as a matter of principle, there can be no doubt that a court is entitled to take into account when applying the Sparkasse test the post transaction conduct of a party to the underlying transaction sought to be impugned on the ground of common mistake, in determining whether the test has been satisfied to the necessary standard and the alleged debt is disputed on genuine and substantial grounds. As much was conceded by the Company when, in its written appeal submissions, it accepted that delay can be of some relevance to the question of whether the defence advanced by a company of a debt was genuinely held and on substantial grounds.

[191]The respondents argue that the Company’s basis of challenge disputing the amount of weight which the judge gave to the so-called ‘irrelevant factors’ is misconceived. This they say is because the subjective element of ‘good faith’ in the Sparkasse test is a free-standing limb and an additional requirement to be satisfied in every case.103 In other words, a court must be satisfied not just that the Company has an arguable case of common mistake but that it holds or is acting on that defence honestly. Again, this matter will be addressed when I come to consider the applicable law and the Sparkasse test in particular. The respondents also submit that the judge was not bound to consider the issues arising on the JL Application in any particular order nor was she wrong to consider issues relating to the Company’s conduct first before considering specifically the issue of common mistake. Instead, the requirement placed on the judge was to consider all the relevant issues and the evidential materials, and to do so in the round dealing with the issues in whichever order she deem fitting.

[192]It is difficult to disagree with this submission on any sound basis. However, my understanding of the points of challenge made by the Company is, firstly, in dealing with the issues of conduct the judge either made no positive findings or, where she did make a positive finding, as in the case of ‘Delay’, she was wrong to find that the Company, on the evidence, was guilty of undue delay. Further, she was also incorrect in concluding that because of the undue delay as found, it meant that the Company’s defence based on common mistake was not genuinely held, especially in circumstances where, as admitted by the respondents, the hearing had proceeded on the basis that the parties to the SPA and the VLA had contracted on the basis of the common assumptions as pleaded in the draft SOC. The Company also submits that by the time the judge came to consider the central and critical issue of common mistake, she had already formed a negative view from her consideration of the so-called irrelevant or erroneous issues. This negative view infected her consideration such that she did not approach the issue of common mistake with an open mind; she failed to consider and to reason her decision upon a consideration of whether the evidence before her disclosed that there were indeed these common assumptions. She also failed to consider whether the effect of the findings by the PRC authorities of land and property hoarding and its imposition of the penalties of a credit ban and price ceiling, were significant or substantial enough to arguably contend, that all commercial value or the substantial commercial value of the underlying transactions had been lost, such that the SPA and VLA were void ab initio.

[193]In relation to the seventh sub-ground – the warranty point- the respondents argue that it was necessary for the judge to consider whether this element of the defence of common mistake - the non-existence of a warranty as to the mistaken factor or factors- had been established. Accordingly, it is submitted that the observations made by the learned judge as to the construction and meaning of the relevant clause or provision where it was represented that the PRC Project Company had not been in breach of any PRC law or regulation where the outstanding liability therefore exceeded RMB 100 million, was both reasonable and sound. The judge did not conclusively determine this issue, but merely stated that it was arguable that the effect of this provision was that the Company had assumed responsibility for all future liabilities. It was but just one of several factors to be taken into account by the judge when determining the strength of the Company’s defence of common mistake. Accordingly, it is submitted, this point provides no good basis upon which the judge’s overall decision can be interfered with.

H. Analysis and conclusion on ground 1

[194]In the instant matter, in determining whether the Company had, by the matters pleaded in its draft Re-Amended SOC and asserted in the evidence of Ms. Wang, disputed the debt on genuine and substantial grounds, the learned judge had to consider whether the Company had raised a prima facie case of common mistake at common law. The gravamen of the plea of common mistake, was whether the effect of the findings of the PRC authorities that the PRC Project Company had been guilty of land and/or property hoarding rendering the Common Assumptions (assumed for argument purposes by the respondents) false, had rendered the subject matter of the SPA and/or the VLA impossible to perform, or essentially impossible, or fundamentally different, or completely lacking in commercial viability from what was contemplated and provided for in the said Transaction Documents, such that these agreements were at law void ab initio. In considering this issue, the learned judge was, in my view, entitled to consider all relevant circumstances. These include the imposition of the credit ban and price ceiling on the Project; the conduct of the parties in relation to their obligations under and pursuant to the SPA and/or the VLA both before and after entering into these Transaction Documents; the steps taken by the parties, in particular, the Company, post execution of the Transaction Documents and upon becoming aware of the said issues of land and property hoarding, credit ban and price ceiling with the Project; and most importantly, when the Company would have first realised that the common assumptions were indeed false.

[195]In carrying out this exercise and in reaching a determination as to whether the Sparkasse test had been met by the Company, the judge was required to construe the terms of SPA and the VLA identifying what was the subject matter of each agreement and the transactions and obligations provided for thereunder. The judge was also required to carry out an assessment of the draft pleadings and evidence against the five elements of the ‘narrow’ test of common mistake at common law set out (above) from Great Peace.

[196]In my view, the learned judge was correct to consider how the Company had treated with the underlying agreements once the PRC authorities had informed the PRC Project Company that the Project had been guilty of land and/or property hoarding, the effect of which, according to the Company’s case, was to make the common assumptions false, with the resulting effect, at least potentially, of rendering the Transaction Documents void ab initio thereby discharging the Company from any obligations thereunder. This would also include legitimately a consideration of the Company’s actions after the imposition by the PRC authorities of the credit ban and price ceiling, the extensive delay on the part of the Company in asserting that the common assumptions were false, that there was an impossibility of performance under the Transaction Documents rendering them void ab initio, and the Company’s responses to the respondents’ assertion of Events of Default under the VLA entitling them, as lenders, to accelerate the payment of the Loan and accrued interest thereunder. Accordingly, the learned judge was correct to consider the matters of ‘Conduct’ and of ‘Delay’ in the judgment, and to reach the conclusions which she did under each of these headings.

[197]The Company has criticised the judge’s approach to dealing with the issue of common mistake and her reasoning and conclusions with respect to its plea of common mistake in the draft Amended SOC. The judge correctly set out the five elements which must be present if a contract is to be avoided for common mistake at common law. This aspect was uncontroversial, as between the two competing experts. She also correctly accepted that, as a matter of Hong Kong law, there was no separate equitable jurisdiction for setting aside contracts on the ground of common mistake. At paragraphs [21] to [35], the judge summarised in same detail the Company’s case and main arguments on common mistake.

[198]At paragraph [97], the learned judge summarised her conclusions regarding the Company’s delay in disputing the debt and in raising the ‘defence’ of common mistake. In my view, she was entitled to conclude on the facts that “the late stage at which the Company has raised the alleged dispute and cross claim demonstrates a lack of sincerity or of conviction. There were many things which do not add up; the delay and tardiness in raising the allegations make no commercial sense. The Company’s overall posture is quite incredulous and its rationale lacks a sound commercial basis”. This finding goes to the genuineness or bona fides of the alleged defence of common mistake, whether it is honestly believed. It calls into question the issue of whether there is a prima facie case of common mistake at law made out by the Company, such as to satisfy the Sparkasse test and the conclusion that the debt is disputed by the Company on genuine and substantial grounds.

[199]In considering the issue of common mistake, the learned judge first reminded herself of the test and principles as summarised at paragraphs 15-19, 15-28 and 15-29 of the text Misrepresentation, Mistake and Non-Disclosure by John Cartwright. There is no question as to the accuracy of these principles, which are well supported by the dicta in Bell v Lever Bros and Great Peace, as set out above. The gravamen of the learned judge’s finding on common mistake is at paragraph [101] of the judgment. There the judge concludes that the Company’s case of common mistake ‘falls short of raising a genuine and substantial dispute as to the Debt’, and there is a ‘paucity of supporting evidence’. She also finds that the Company’s case as pleaded in the draft Re-Amended SOC is deficient, for the reasons set out in sub- paragraphs (1) and (2) of paragraph [101] and in paragraphs [102] to [108] of the judgment. The Company has in its submissions attacked each of these conclusions and alleged deficiencies.

[200]In my considered opinion, there are two issues of critical importance to a proper determination of whether the Company had made out a prima facie case that the debt was disputed on genuine and substantial grounds of common mistake, such that it cannot be the basis of a winding up order appointing JLs. The first is the Company’s point that the effect of the common assumptions being false (a matter which is not disputed) was to render the SPA and/or the VLA void ab initio and rescinded by operation of law. Related to this primary submission which learned counsel Mr. Davies KC for the Company sought to drive home before this Court in his oral presentation, is the parasitical issue that, if correct, there can be no loan debt arising from the void VLA leading to the judge finding that the dispute was substantial in the sense of ‘having substance’ and could not be the basis for an order appointing JLs by the Commercial Court. If the Company is correct on this primary or critical point, that would be the end of the matter, and the appeal must be allowed, and the JL Order set aside.

[201]This first critical point is closely interconnected or parasitical with the second, which is, whether, as a matter of law and fact, a prima facie case can be made out of common mistake at law rendering the SPA and/or VLA void ab initio on the basis of impossibility of performance of the subject matter of the SPA or the VLA, or the essence of the contracted obligation impossible, or the transaction thereunder devoid of commercial value. I say these critical issues are interconnected or very closely connected, because the alleged ‘impossibility of performance’ (as defined in the case law), must relate to the contract or agreement sought to be impugned on the ground of common or mutual mistake. Accordingly, the alleged common assumptions must be sufficiently significant or critical to the performance of the obligations under the impugned agreement so as to render that contract void ab initio.

[202]As to the first of these two critical issues, in my view, the pleaded ‘Common Assumptions’ having been agreed by the respondents for the purposes of argument to be false is an important concessionary stance for the purposes of argument only, when considering the second critical question or issue relating to the effect on the SPA and/or the VLA of them being false, and whether this gave rise to a genuine and substantial dispute grounded on the doctrine of common mistake. For this reason, it is at least arguable that the Company has raised, as a matter of fact, the issue of common mistake, the incorrectness or falsity of the representations underpinning the common assumptions, and whether it can as a matter of law make out a prima facie case of common mistake such as to render the debt not indisputable. This alone, however, does not get the Company home. It is not dispositive of the question whether the Company has raised a prima facie case that the debt arising under the VLA is genuinely disputed on substantial grounds. This leads, therefore, to a consideration of the second critical issue.

[203]In my considered judgment, it is at the threshold of the second critical issue that the Company’s case of common mistake at law fails. It fails for the simple but profound reason that neither the SPA nor the VLA was concerned directly with the acquisition of the Project or the Project Company. As the learned judge found, in my view correctly, at paragraph [106], the subject matter of the SPA was the sale and purchase of the shares in Happy Magic and Carton, the two shareholders of the PRC Project Company. However, the common assumptions being false did not make that transaction and the obligations of the respondents and the Company under the SPA impossible to perform or make the essence of the contracted obligation impossible. The subject matter of the SPA, the sale and purchase of the shares in these two shareholder companies, did not relate to the Project or the Project Land or the PRC Project Company. The fact that these common assumptions turned out to be false, through apparently no fault or cause of either the respondents or the Company, did not in any sense make the subject matter of the SPA, the sale of the shares, impossible to perform.

[204]Likewise, the learned judge was correct in her analysis at paragraph [108] of the issue of impossibility of performance concerning the VLA. The VLA was essentially a loan agreement by which the respondents agreed to provide the Company with a loan facility to assist it in the payment of the consideration under the SPA for the purchase of the shares. Again, this subject matter and transaction could not on any reasonable view be said to have been rendered impossible to perform because the common assumptions were false and because of the issues relating to land and/or property hoarding, the credit ban and price ceiling. I also agree with the learned judge’s reasoning that if the SPA is not void for common mistake, there can be no basis upon which it can be argued that the subject matter of the VLA, the loan facility, would be impossible to be performed or carried out by the parties or so radically different or that the commercial purpose of the VLA was rendered essentially impossible.

[205]Moreover, the conduct of the Company and its delay in raising this defence of common mistake, its written responses to the respondents’ demand for full payment of the Loan and accrued interest (the debt) under the VLA and in doing so, did not deny the existence or validity of either the SPA or the VLA or the debt itself but, instead, treated with the SPA and the VLA as valid and binding contracts, belies a lack of honest belief in the proffered common mistake defence. At this critical point, the Company’s actions were consistent with the validity of the SPA and the VLA and no assertion of their invalidity or avoidance was asserted or even hinted. This goes to the question of whether the Company has discharged its burden of demonstrating that it had made out a prima facie case of common mistake rendering the debt disputed on genuine and substantial grounds in satisfaction of the Sparkasse test, as explained and further extrapolated in Goldin. For these reasons ground 1 fails.

Ground 2 – Genuine cross claim

[206]The Company having failed on ground 1 – debt disputed on genuine and substantial grounds- it follows that ground 2, dealing with a genuine cross claim, predicated as it is on the SPA and or the VLA being void ab initio for common mistake, must also fail.104 This is enough to dispose of ground 2. If our conclusion on ground 1 is incorrect and the debt is disputed on genuine and substantial grounds, that would make any consideration of ground 2 otiose, as, inexorably, the appeal must be allowed, and the JL Order set aside in its entirety. It follows from this brief analysis that a consideration of ground 2 is, in any scenario, academic at best to the outcome of this appeal. With that said, to the extent that it is necessary from completeness that this judgment treat with ground 2, I need only do so in an adumbrated way.

[207]The principles applicable to disputing a debt on the basis that the company has a cross claim for at least equal to or in excess of the amount of the debt, were helpfully restated by this Court in Sian Participation Corp (In Liquidation) v Halimedia International Limited105. At paragraph [58] of the judgment of the Court, Henry JA stated: “[58] With respect to the issue of a cross-claim, the law is settled. As stated in Sparkasse, for a company advancing a cross-claim to succeed in opposing a winding up application, it must put forward a prima facie genuine and substantial case, supported by evidence. The onus remains on that company to satisfy the court of the substantive nature of the dispute including presenting adequate evidentiary material in support of the contention that the value of the crossclaim is at least equivalent to the debt and capable of set-off against it. If there is any doubt regarding the crossclaim, the Court is required to proceed cautiously and would dismiss the winding up application: see LDX International Group LLP v Misra Ventures Ltd [2018] EWHC 275 (Ch).”

[208]It is not in dispute that the Company’s claim as set out in the draft Re-Amended SOC is: (i) hinged on the SPA and/or the VLA being declared void ab initio; (ii) is a claim in restitution, more specifically counter-restitution, for a repayment by the respondents of the full consideration paid for the shares under the SPA, and the repayment by the Company of the Loan sum under the VLA. The respondents countered that counter-restitution would not, in these circumstances, be possible, and the learned judge agreed with this argument at paragraph [117] of the judgment. The learned judge also referenced that there were a number of steps which the Company had taken post-acquisition that have or may have affected adversely the value of the shares acquired in the acquisition. More fundamentally, the learned judge at paragraph [118] accepted the correctness of the reasoning of the respondents at paragraph 46 of their skeleton argument in the court below, as to why counter-restitution is not possible or even if possible would necessitate a court making other orders of financial compensation to the respondents if they are to be made whole as at pre-acquisition date.

[209]Specifically on the cross claim issue, the Company contended that upon the SPA being void ab initio on the ground of common mistake, it became entitled, as a matter of law, to restitution of the price or consideration for the shares it acquired from the respondents in, respectively, Happy Magic and Carton. They also make the point that neither of the two expert witnesses on Hong Kong law had opined that the respondents would, in these circumstances, have a defence to the Company’s restitution claim ‘on grounds of inability to give counter-restitution’.106 This they say was for good reason, ‘because there is no reason in principle why the Company could not provide any necessary counter-restitution simply by returning the shares that it had purchased under the Acquisition’.107

[210]In my view, this is a manifest oversimplification of what, on these facts, must be a complicated issue, and one which might realistically and pragmatically make restitution impossible. The legal principles of the remedy of restitution under the laws of Hong Kong are no different from the applicable principles under English law, and by extension, BVI law. The respondents cite Spencer Bower & Handley, Actionable Misrepresentation, 5th Edn, at paragraph 16.22 for the proposition that the modern position is that the inability of a party to give restitutio in integrum is not an absolute bar to an order for rescission, as had previously been thought to be the case. However, in such a case, “rescission will be ordered accompanied by other orders for monetary compensation, to account, for example, for any deterioration or depreciation in value of transferred assets, so as to ensure the parties are restored to their pre-contract financial position.”108 The respondents also contend that in the court below both experts agreed that this represented the correct principles which the Hong Kong court would apply in such a case as this one. At paragraph 16.22 of the text it is said, in part: “A purchaser who sues to enforce rescission must make a monetary allowance for any depreciation caused by his acts while in possession. If the alteration is sufficiently substantial, restitution may become impossible.”

[211]I must confess that I do not find this extract particularly helpful in support of the modern approach to restitution as articulated by the respondents. However, I agree with the learned judge that the instant matter is a case in which restitution is very unlikely to be possible. I say this first, because in my view, as stated above, the Company has failed to make out a prima facie case of common mistake such as to show that the debt is disputed on genuine and substantial grounds. Second, and putting it colloquially, it is clear that in this matter ‘much water has already flowed under the bridge’. Put another way, no court doing its best through the avenue of the remedies of rescission and restitution, can sufficiently unwind what has occurred since the acquisition so as to restore the Company and the respondents to the position they were in pre-the SPA and the VLA and to thereby make each of them whole.

[212]As the respondents point out, it is the Company’s evidence that the acquired shares currently have a zero value. Accordingly, if a Hong Kong court were to find the SPA void and order restitution by return of the shares to, respectfully, each of the respondents, and the refund of the purchase price to the Company less the loan monies (with or without the accrued interest to date) under the VLA to the respondents, this would have to be accompanied by other orders for monetary compensation restoring the value of the shares pre-SPA. If the current value of those shares are indeed zero or close to that, then the court will have to consider making an order for payment of the consideration under the SPA in order to make the respondents whole. The effect of this could be to cancel out any order for restitution to the Company by payment of the equivalent amount of the purchase price/consideration for the said shares.

[213]For these reasons I agree with the judge’s finding that the Company has not made out, to the requisite standard, a genuine cross claim for restitution in an amount which equals or exceeds the debt. Accordingly, ground 2 also fails.

Ground 3 – Estoppel & Affirmation and Ground 4 – Exercise of discretion

[214]Having regard to the conclusions reached above, especially on ground 1, there is no need to consider grounds 3 and 4 of the Notice of Appeal.

Disposition

[215]For the reasons given above the appeal is dismissed with costs to the respondents. I therefore make the following orders: (1) the appeal is dismissed, and the order of the learned judge made on 31st May 2023 is affirmed. (2) the Company shall pay the respondents’ costs of the appeal, to be paid out of the liquidation of the Company.

[216]It is only left for me to express the Court’s appreciation for the helpful submissions by counsel for the parties, and to express my regret that the delivery of this reserved judgment has taken just over 5 months. I concur. Hon. Vicki Ann Ellis Justice of Appeal I concur.

Hon. Trevor Ward

Justice of Appeal

By the Court

Chief Registrar