Founder Group (Hong Kong) Limited (In Liquidation) v Singapore Commodities Group Co., Pte. Ltd.

The claimant, Founder Group (Hong Kong) Ltd, is a Hong Kong company that went into liquidation in July 2021. The defendant, Singapore Commodities Group Co, Pte Ltd, is a Singapore wholesale trading company. Until 2021 both were ultimately owned and controlled by Peking University Founders Group Company Ltd (PUFG). After PUFG's reorganisation in Beijing, the defendant passed to a consortium of PRC investors, while the claimant came under liquidators appointed on a petition by PUFG's offshore bondholders. The court observed that the dispute was in substance a contest between those two groups of interests.

The liquidators concluded from the claimant's records that the defendant owed it US$14.12m (referred to as the Debt). They relied on a contract dated 17 December 2015 for 3,000 tons of copper cathodes at US$4,712 per ton, an invoice dated 28 December 2015, and two audit confirmations sent in February 2019. Demands in October 2021 and February 2022 went unanswered, and negotiations failed. On 12 April 2022 the defendant began a CIETAC arbitration, alleging that the contract was void under Article 146 of the PRC Civil Code as a bookkeeping exercise and that no copper was ever delivered. On 27 May 2022 the claimant presented a winding up application (the CWU) relying on the statutory presumption of inability to pay debts and, alternatively, the just and equitable ground.

By consent, in September 2022 the court gave the defendant leave under s 130(1) of the Insolvency, Restructuring and Dissolution Act 2018 to pay US$14,117,585.50 into court as security, and stayed the CWU. The defendant paid the Sum in on 4 November 2022. In November 2023 the tribunal refused the defendant's request to declare that the Debt did not exist, because it had not proved its case, but stated that this did not amount to a ruling in the claimant's favour, since the claimant had brought no counterclaim. The tribunal also doubted whether the claimant had proved delivery. The stay was lifted in February 2024, and the claimant applied for the Sum to be paid out to it (the Payment Out Application). Both applications were heard together on 19 July 2024.

1. Whether the money paid into court to secure the stay should be paid out to the claimant after the arbitration ended.
2. What factors govern the court's discretion under O 3 r 2(2) of the Rules of Court 2021 to order payment out.
3. Whether money paid into court to obtain a stay of a winding up application becomes security protecting the opposing party against the payer's insolvency.
4. How the winding up application and its costs should be dealt with once payment out was ordered.

The judge treated the application as an exercise of the broad procedural discretion in O 3 r 2(2), the provision under which the Sum had been paid in, and weighed five factors: any right of the claimant to the Sum, whether the Sum was security, the parties' intention, the new stance of the defendant's counsel, and the interests of third parties.

The claimant asserted no contractual or procedural right to the Sum. Although both parties agreed the Sum was security, the judge rejected that view. He sorted payments into court into three groups: those supporting an offer of compromise, those made as the price of a forensic advantage such as a stay, and those that a specific rule labels as security, for example security for costs. Only the third group protects the opposing party against the payer's insolvency, because only there is an express legislative mandate. Otherwise a creditor relying on a disputed debt would jump ahead of unsecured creditors and preferential debts under s 203(1), undermining the pari passu principle. He preferred Peal Furniture Co Ltd v Adrian Share (Interiors) Ltd [1977] 1 WLR 464 to W A Sherratt Ltd v John Bromley (Church Stretton) Ltd [1985] 2 WLR 742, distinguished Shandong Chenming Paper Holdings Ltd v Arjowiggins HKK 2 Ltd [2022] 5 HKC 318 and Ng Kin Siu v Gentle Soar Limited [2024] HKCU 935 as cases involving solvent debtors, and read Cheng Lip Kwong v Bangkok Bank Ltd [1992] 1 SLR(R) 941 as a security-for-costs case, treating its wider remark as obiter.

The parties had intended the Sum to follow the tribunal's finding on whether the Debt existed, but that intention was frustrated because the tribunal made no finding either way. At the hearing, however, the defendant's counsel said the defendant no longer objected to payment out, accepting that it had lost the arbitration while denying that the award proved the Debt. Despite misgivings that this resembled settling a wager, the judge accepted that position: only the defendant, assuming solvency, could be affected; the risk of a later claim for the Debt was met by the full and final satisfaction wording, with the words alleged debt reflecting that no finding was made; and third parties were unlikely to be harmed. The defendant had paid the Sum from its own resources, its accounts showed current assets exceeding current liabilities (US$58.74m against US$36.09m for 2022, and US$45.81m against US$30.25m at 30 April 2024), and no other creditor had ever come forward. The claimant had acted reasonably throughout and was entitled to all its costs.

Vinodh Coomaraswamy J allowed the Payment Out Application. He ordered that the Sum with interest be paid out to the claimant in full and final satisfaction of the debt or alleged debt that was the subject of the award. The order rested only on the defendant having failed in the arbitration, not on any finding that the Debt exists. On the CWU, the claimant was granted leave to withdraw it and the defendant was ordered to pay the claimant costs fixed at $85,000 including disbursements, which also covered the Payment Out Application. The defendant has appealed.