Anadarko China Holdings 2 Company v Win Business Energy (Caofeidian) Ltd
| Jurisdiction | British Virgin Islands |
| Judge | Small Davis, J [Ag.] |
| Judgment Date | 21 March 2023 |
| Neutral Citation | VG 2023 HC 13 |
| Docket Number | CLAIM NO. BVIHC(COM) 2022/0217 |
| Court | High Court (British Virgin Islands) |
IN THE MATTER OF WIN BUSINESS ENERGY (CAOFEIDIAN) LIMITED
AND IN THE MATTER OF THE INSOLVENCY ACT 2003
CLAIM NO. BVIHC(COM) 2022/0217
THE EASTERN CARIBBEAN SUPREME COURT
IN THE HIGH COURT OF JUSTICE
COMMERCIAL DIVISION
Mr Merrick Ricardo Watson and Mr Timothy de Swardt of Kobre & Kim (BVI) LP for the Applicants
Mr Phillip Riches KC and with him Ms Olga Osadchaya of Harneys for the Respondent
The Applicants seek the winding up of Win Business Energy (Caofeidian) Limited (“the Company”) through the appointment of liquidators. On 23 December 2022 I gave an oral judgment with reasons. An order of the same date setting out the court's decision was entered by the Registry on 6 January 2023. This is the written judgment.
The Originating Application sets out the ground: the Company is unable to pay its debts and is insolvent pursuant to section 8 (1)(a) and (c) of the Insolvency Act (“the Act”) which define “insolvency” as where a company (a) fails to comply with the requirements of a statutory demand that has not been set aside; and (c) the value of the company's liabilities exceeds its assets or the company is unable to pay its debts as they fall due.
The Applicants' case is that the Company is indebted to the Applicants in a sum in excess of US$7 million. The debt arises from LCIA arbitration awards, and specifically the Final Award on Quantum dated 13 October 2021 in the sum of US$6,185,886.85 in fees and expenses and arbitration costs of £618,249.91 together with post-award interest at the LIBOR US Dollar 3-month rate on 13 November 2021 plus an uplift of 2% on all amounts due and unpaid from 13 November 2021 until the date of full payment (“the Debt”).
The facts are not substantially in dispute. The Applicants and the Company were parties (along with the Company's parent company) to a Stock Purchase Agreement for acquisition of the shares of a Bahamian company Win Business Energy Caofeidian Limited (formerly known as Kerr-McGee China Petroleum Ltd.) (“KMCPL”). The transaction resulted in tax obligations to the People's Republic of China tax authority, Tianjin Offshore Oil Tax Bureau (“TOOTB”). The Applicants agreed to be responsible for the tax liability of the ordinary business operations of KMCPL up to closing as well as the corporate income tax and business taxes arising from the sale of KMCPL. The Company and KMCPL agreed to be responsible for transfer taxes and VAT. TOOTB issued a series of tax invoices to KMCPL and the First Applicant and set a deadline of 30 September 2015 for payment.
There was a dispute over which party was liable for the payment of the taxes as notified by the TOOTB in respect of the period prior to completion and pursuant to the transaction itself. The Company and KMCPL initiated arbitration proceedings before the LCIA on 8 June 2015 seeking an award that the Applicants pay the taxes due and owing on behalf of KMCPL. The first Applicant made a payment of US$193.8 million on 7 December 2015 to the TOOTB on behalf of KMCPL on a without prejudice basis. The Applicants sought to recoup the sums paid for KMCPL's tax liability in further arbitration proceedings.
The Final Arbitration Award dated 13 October 2021 directed that:
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(a) KMCPL to forthwith pay to the first Applicant:
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(i) The tax benefit sum of US$142,943,168;
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(ii) pre-award interest thereon calculated at $20,845,860.39 as at 13 October 2021;
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(iii) post-award interest at the LIBOR US Dollar 3-month rate on 13 November 2021 plus an uplift of 2% on all amounts due and unpaid from 13 November 2021 until the date of full payment.
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(b) The Company and KMCPL do jointly and severally pay to the Applicants the Debt, as defined above.
Although it had obtained an extension of time to do so, the Company has not challenged to the Final Award. The Company has been time barred from challenging the Final Award since 24 November 2021.
The Applicants served a Statutory Demand on the Company on 2 March 2022 for the Debt. The Company applied to set aside the statutory demand (“the Set Aside Application”) and after a contested hearing the Company's application was dismissed, the learned judge holding that there was no bona fide and substantial dispute as to the Debt. The court also authorised the Applicants to proceed with filing a liquidation application and awarded costs against the Company. The Company has appealed the order dismissing the application to set aside the statutory demand and that appeal is pending.
The Company opposed the application for the appointment of liquidators on the ground that it is not insolvent and that there is a bona fide dispute as to the validity of the enforcement of the “Alleged Debt” in the jurisdiction. The Company's position is that the application ought to be stayed pending determination of the appeal in the exercise of the court's discretion pursuant to section 167 (1)(c) of the Insolvency Act. Alternatively, the court was invited to exercise its discretion under section 167 (1)(b) of the Act and dismiss the Application on public policy grounds: the Debt created by the Awards should not be given recognition and enforced in the Virgin Islands as the Applicants are seeking to enforce a tax liability to TOOTB in breach of the revenue rule.
There is no challenge to the Applicants' compliance with the statutory formalities as set out in the Insolvency Act and the Insolvency Rules as to service and advertisement of the Originating Application, the filing of the proposed liquidators' consents to act, statements as to their eligibility to act and the approval of the Financial Services Commission for the overseas based proposed liquidator.
The grounds of appeal as set out in the Notice of Appeal filed 23 June 2022 are, inter alia, that the judge erred in finding that there is no bona fide substantial dispute as to whether the Debt is due and owing by:
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(a) applying the wrong test to the question of whether the Debt asserted in the demand amounts to vindication of foreign revenue law;
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(b) failing to properly consider or give sufficient weight to the Company's argument that if the principal amount is unenforceable on public policy grounds, awards like costs (which is what the Debt is), which are parasitic to the principal claim should also be unenforceable;
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(c) failing to properly consider the jurisdiction issue arising out of the fact that KMCPL was not a party to the arbitration agreement but agreed to join for the limited purpose of bringing a claim but not for the purpose of defending the separate claim made against it. The judge proceeded on the mistaken basis that KMCPL's agreed participation in one limited respect was sufficient to dispose of the jurisdiction issue in its entirety.
The Company made an application for a stay of execution of the order and an application for leave to adduce further evidence. The Applicants made an application to strike out the Notice of Appeal on the ground that no leave to appeal had been sought, thus rendering the Notice of Appeal null and void. The Court of Appeal dismissed the Applicants' strike out application with costs and dismissed the Company's applications for stay of execution and for fresh evidence.
The Company argued that notwithstanding the dismissal of the Set Aside Application, there remains a bona fide dispute as to the enforceability of the Debt in the jurisdiction which also raises and important technical point of policy which ought to be allowed to be determined by the Court of Appeal before any application to appoint liquidator is entertained. Mr Riches KC says that this court simply cannot decide whether there has been a failure to comply with the requirements of a statutory demand that has not been set aside, and thus whether the Company is insolvent, until the Court of Appeal determines the question on appeal of whether there is a bona fide dispute as to the whether the Debt is due at all. Mr Riches says this court cannot decide in the Applicants' favour because the point is arguable, and it falls to the Court of Appeal to decide. He submits that the application ought to be stayed as the Court of Appeal is entitled to rule on the enforceability of a foreign tax debt in this jurisdiction, which is the substratum of the Debt.
Does the pending appeal mean that I cannot determine the application for appointment of liquidators because the question of whether there is a bona fide dispute of the Debt on substantial grounds has not been finally determined?
Mr Riches KC submitted that the existence of the appeal makes the stay necessary because (a) there is a real prospect that the appeal will succeed and the Company will suffer irreparable harm without a stay, in circumstances where such harm may be entirely unjustified should the appeal succeed and (b) there is an important question of public policy which this court should wait for the Court of Appeal to decide first.
As a secondary argument, Mr Riches said that the appeal will also consider the refusal of the application to adjourn the hearing of the Set Aside Application to allow the Company to put in additional evidence. If the hearing ought to have been adjourned, then there cannot have been a failure to comply with a statutory demand. Therefore, the winding up application is premature and cannot be properly determined until after the determination of the appeal.
The Company sought to stay the order permitting the Applicants to pursue an application for the appointment of the liquidators. The Court of Appeal refused the stay on two bases. First, that the court would not...
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