Jones J
IN THE GRAND COURT OF THE CAYMAN ISLANDS FINANCIAL SERVICES DIVISION CAUSE NO. FSD 110 OF 2013(AJJ) Before The Hon. Mr. Justice Andrew J Jones QC In chambers, 21st and 22nd August 2013 IN THE MATTER OF SECTION 93 OF THE COMPANIES LAW (2012 REVISION) AND IN THE MATTER OF ORDER 29 OF THE GRAND COURT RULES BETWEEN: SIBERIAN MINING GROUP LIMITED AND KEYSTONE GLOBAL COMPANY LIMITED Appearances: Mr Nigel Meeson QC and Mr Ben Hobden of Conyers Dill & Pearman for the Plaintiff REASONS
This is an ex parte application by Siberian Mining Group Limited ("SMG") for an interlocutory injunction pending the hearing of an originating summons by which it seeks a permanent injunction to restrain Keystone Global Co Ltd ("Keystone") from presenting a creditor's winding up petition based upon a statutory demand dated 1st August 2013. The principal evidence in support of the application comprises two affirmations made by Lim Ho Sok who is an executive director and chairman of the company's board of directors.
SMG is a company incorporated under the Companies Law whose shares are listed on the Hong Kong Stock Exchange. Mr Sok's affirmations say very little about the nature of its business, save that it owns and operates a coal mine in Russia. By a written Coal Sale and Purchase Agreement dated 20 June 2012 and made between SMG and Keystone, SMG agreed to grant to Keystone an exclusive right to be supplied with various grades of coal produced in Lot 1 of the Lapui Mines (or other sources in Russia) and an exclusive right to distribute the coal in Korea and such other territories as may be mutually agreed from time to time. SMG originally agreed to supply Keystone with 100,000 metric tonnes of coal each year for five years commencing from November 2014. Pursuant to Clause 1(1) of the contract, Keystone agreed to pay a deposit of US$3.5 million, which it duly paid. By a supplemental agreement made as of 20th December 2012, the amount of coal to be supplied was reduced to 88,500 metric tonnes each year, with the result that the amount of the deposit was agreed to be reduced to US$3.1 million and SMG duly repaid $400,000 to Keystone. As I understand Mr Sok’s evidence, the position today is that SMG holds the deposit of US$3.1 million which will be applied in discharge of the price payable by Keystone in respect of future deliveries of coal commencing in November 2014.
The Agreement is expressed to be subject to various conditions subsequent. By Clause 4(1)(b), SMG is under and obligation to repay the whole of the deposit plus interest at 5% per annum “in case of SMG or a third party’s filing for SMG’s bankruptcy, insolvency, rehabilitation, etc., or existence of such risk.” On 1st August 2013 Keystone served a statutory demand on SMG by which it alleges that the deposit and accrued interest is now presently due and owing by reason of the fact that this condition has been fulfilled. The facts and matters relied upon in support of this conclusion are set out in a clear and concise way in the statutory demand itself. By an announcement published on the Hong Kong Stock Exchange website on 22nd April 2013, SMG stated that it had received a demand for repayment of loans in the sum of HK$14.5 owing to First Glory Limited and that it did not have sufficient cash to make payment. Keystone’s statutory demand goes on to say that in the light of this announcement (and in the absence of any subsequent announcement reflecting a material change of circumstances) Keystone considers that Clause 4(1)(b) of the contract has been engaged.
The Agreement is written in English, but I have not overlooked the fact that it is expressed to be governed by the laws of the Republic of Korea and that the parties have irrevocably submitted to the jurisdiction of the Seoul Central District Court in respect of disputes arising out of the contract. However, in the circumstances of this case I cannot decide whether there is a bona fide and substantial dispute about the existence of the debt relied upon in Keystone’s statutory demand without taking a view about the meaning and application of Clause 4(1)(b). It seems to me that Keystone had an arguable case for asserting, as at 22nd April 2013, that there was a “risk” that some form of bankruptcy, insolvency or rehabilitation proceeding may be commenced against SMG. It seems to me that on its true construction Clause 4(1)(b) is only engaged if it can be said that the risk is real, not merely fanciful or speculative. The risk must exist in the sense that there is a real likelihood that a proceeding will be commenced in the immediate or foreseeable future. SMG’s directors must have considered the risk to be a real one in April 2013 otherwise they would not have made the stock exchange announcement.
However, four months have now elapsed since that stock exchange announcement was made. No insolvency proceeding has been commenced by First Glory Limited or any other creditor. According to Mr Sok’s first affirmation, a great deal has happened in the meantime which bears upon SMG’s financial condition and the risk that it might become insolvent. Suffice it to say that with the passage of time, the risk of insolvency proceedings being commenced by First Glory Limited appears to have diminished. Mr Sok admits that SMG is still in financial difficulty but he explains at length why its board of directors consider that it is not insolvent. Most importantly for present purposes, his evidence is that the day before yesterday (20th August) SMG reached an accommodation with First Glory Limited by which it agreed not to proceed to wind up SMG before the end of December 2013 on the condition that there is no winding-up petition filed against the company in any jurisdiction and that a repayment proposal can be agreed by the end of the year. It seems to me that it is at least arguable that this agreement undercuts the statutory demand. It can no longer be said that there is a real and present risk that this creditor will commence insolvency proceedings. To put it another way, it may be said that whatever risk existed as at 22nd April (when the stock exchange announcement was made) or as at 1st August (when the statutory demand was served) has been cured, at least until the end of the year.
Keystone’s answer to this point is to be found in its attorney’s letter of 16th August 2013. Its argument is that Clause 4(1)(b) was triggered from the date of SMG’s first knowledge of its risk of insolvency proceedings. This is said to have been on the 19th April, being the date upon which it first became aware of the facts and matters which gave rise to the need to make the stock exchange announcement on the 22nd April. As I understand it, the argument is that the obligation to repay the deposit arose at that time and is not capable of being cured or reversed by any subsequent event. I think that this is an arguable interpretation of the Agreement.
It is well established as a matter of Cayman Islands law that the winding-up jurisdiction of the Court may not be invoked by a purported creditor in respect of a debt which is disputed on bona fide and substantial grounds. (Re Times Property Holdings Limited 2011(1) CILR 223). In order to justify granting an interlocutory injunction restraining the presentation of a winding up petition by Keystone based upon this particular statutory demand, the onus is on SMG to satisfy the Court about the following matters. First, SMG must demonstrate a good arguable case that the cause of action pleaded in the originating summons falls within one or other of the categories specified in GCR Order 11, rule 1, failing which it is not entitled to leave to serve it out of the jurisdiction. I am satisfied that it does fall within sub-rule (b) because it discloses a cause of action for a permanent injunction to restrain Keystone from doing an act in this jurisdiction, namely the presentation of a winding up petition. Second, the Court must also be satisfied that the originating summons and supporting affidavits disclose a serious issue to be tried on the merits. In the context of this case, this means that I must be satisfied that there is a bona fide and substantial ground for disputing the existence of the debt relied upon in the statutory demand, such as to justify the grant of a permanent injunction. This is a mixed question of law and fact. It turns upon the true construction of the Agreement which is expressed to be governed by Korean law. Whilst the basic facts are unlikely to be in dispute because Keystone is relying upon SMG’s own statements published though the stock exchange, the conclusion to be drawn from these facts and their application to Clause 4(1)(b) of the Agreement is open to legitimate argument. For the reasons which I have explained, I think that there is a bona fide ground for arguing that the obligation to repay the deposit does not presently exist with the result that the presentation of a winding up petition based solely upon this statutory demand would be an abuse of the process.
Finally, I should add that I was satisfied that the circumstances justified hearing SMG’s summons as a matter of urgency without having served Keystone. The matter is urgent because the 21 day period specified in the statutory demand expires today. Keystone has instructed local attorneys who have engaged in correspondence about this matter over a period of time. Copies of the documents (except for Mr Sok’s second affirmation) were delivered to them on Monday. They were instructed not to accept service and so chose not to participate in the hearing. Keystone was not prepared to give any undertaking to refrain from issuing a petition pending a resolution of the issues about the true construction and application of Clause 4(1)(b) of the Agreement. In these circumstances it is reasonable to infer that the Keystone will present a winding up petition in the immediate future unless restrained by order of this Court.
For these reasons I grant the injunction sought by SMG. Dated this 22nd day of August 2013 The Hon Mr. Justice Andrew J. Jones QC JUDGE OF THE GRAND COURT