CMF GLOBAL QUANTITATIVE MULTI-ASSET SPC-CMF CHAOS CHINA GROWTH SP v. BLOSSOM INTERNATIONAL INVESTMENT HOLDINGS LTD

HCA 1532/2023

[2025] HKCFI 5086

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1532 OF 2023

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D E C I S I O N

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1.  This is the appeal of Blossom International Investment Holdings Limited (the “Defendant”) against the Order made by Master KW Wong on 10 June 2025 (the “Order”). The Master allowed the application of CMF Global Quantitative Multi-Asset SPC - CMF Chaos China Growth SP (the “Plaintiff”) for summary judgment, granted an order for specific performance, and struck out the Defendant’s counterclaim, save and except §§1-2 thereof allowing the Plaintiff to amend its summons seeking summary judgment filed on 4 March 2025 (the “Summons”).

Relevant background

2.  The Plaintiff is a segregated portfolio Company.

3.  The Defendant is a BVI company and (through wholly-owned subsidiaries) is the sole owner of Sigma Alternatives Portfolio SPC (“SPC”) incorporated on 14 June 2022.

4.  Madam Yang is the sole shareholder and director of the Defendant and the ultimate sole shareholder of SPC. She is one of 2 directors of SPC, the other being Ding Zhiyi (“Mr Ding”). Mr Ding also serves as the Defendant’s CEO.

5.  SPC later created a segregated portfolio, SPC Alternatives Portfolio SPC – Gawain Multi-Sector Fund SP (the “Fund”) and in October 2022, SPC issued a Private Offering Memorandum (the “PPM”) for potential investors to subscribe for Participating Shares in the Fund.

6.  The chart below is a simplified organisation structure with which this matter is concerned:

7.  On 16 December 2022, the Plaintiff subscribed for 12,800 Class A Participating Shares (“CMF Shares”) in the Fund.

8.  The Agreed Chronology for April to June 2023 sets out the Plaintiff’s position on the circumstances giving rise to the sale and purchase agreement described in §9 below:

“The Plaintiff wished to exit from [the Fund].

It is the Plaintiff’s position that it had requested redemption of the CMF shares, and Sigma was not willing to process the redemption request by the Plaintiff. It was then proposed by Sigma that the Defendant, being an affiliate company of Sigma and was managed by the same group of people as Sigma, would repurchase the CMF Shares from the Plaintiff instead of going through the redemption process, with the consideration being the same amount invested by the Plaintiff into [the Fund].

It was ultimately decided between the parties that the Defendant would enter into a sale and purchase agreement with the Plaintiff for the Defendant to buy out the shares the Plaintiff held in the Fund.”

9.  This resulted in the Plaintiff and the Defendant entering into a sale and purchase agreement on 23 June 2023 (the “SPA”) whereby the Defendant agreed to purchase the CMF Shares from the Plaintiff for $99,943,230.58[1] (the “Consideration”).

10.  On 26 of June 2023, the Defendant paid the Plaintiff the sum of $2,343,230.58.

11.  The balance of approximately $79.6 million of the principal amount has remained outstanding (the “Outstanding Sum”) for over 2 years, with default interest exceeding $28 million.

12.  The Plaintiff filed the writ of summons in the present proceedings on 22 September 2023 and the Summons on 4 March 2025.

13.  The Defendant obtained leave to amend its defence on 8 May 2025 (the “Defence Amendment Summons”).

14.  The Master heard both the Summons and the Defence Amendments Summons on 10 June 2025 and made the Order that is the subject of this appeal.

Grounds of appeal

(1)  Damages are an adequate remedy

15.  Ms Queenie Lau, SC and Mr Edward Tang, counsel for the Defendant, submitted that the remedies that the Plaintiff seeks are in substance monetary in nature. To obtain specific performance of a contract where the obligation is to pay money, it is incumbent on the Plaintiff to adduce evidence to justify why damages are an inadequate remedy: Avonwick Holdings Limited v Azitio Holdings Limited [2020] EWHC 1844 (Comm) at §§1038-1039.

16.  It could have done so, for example, by adducing evidence that there are no buyers for the CMF shares or seek redemption of the CMF Shares pursuant to the provisions of the PPM. The Defendant contended that the Plaintiff failed to do either in the present case.

17.  The general principles are well established. As stated in Snell’s Equity, 35^th Ed. (at §17-002), the equitable jurisdiction to grant specific performance is based on the inadequacy of the remedy law. In Cavendish Square Holding BV v Makdessi [2015] UKSC 67, Lord Neuberger stated that “the minimum condition for an order of specific performance is that the innocent party should have a legitimate interest extending beyond pecuniary compensation for the breach[2]” which is cited in Snell at §17-007 .

18.  That citation is followed by the commentary that as a matter of principle, damages are inadequate where there is grave doubt about whether they will put the claimant into as good a position as if the contract had been performed. For example, where the assessment would have been “very difficult and prone to error” as well as “resource intensive and potentially costly”, or where the assessment would have been inherently speculative.

19.  Then at §17-011, it is stated that:

“In most cases a monetary remedy of damages or the action for an agreed sum will be an adequate remedy for breach of a contract for the payment of money, but in exceptional cases such a contract may be specifically enforced.[3]”

20.  Mr Ho referred to footnote 75 to §17-011 which reads:

“Although the vendor might regard specific performance as more convenient than retaining the property, reselling it and claiming damages, but this would not apply to an action for the agreed sum. The Court of Appeal in Doherty v Fannigan Holdings Limited [2018] EWCA Civ 1615 suggested, without discussion, that the vendor of shares could seek specific performance of the defaulting purchaser’s obligation to pay the price.

21.  ‘Price’ in that context was a liquidated sum as opposed to damages. Doherty concerned a plaintiff purchaser’s failure to pay for shares comprising 12.85% of a special purpose vehicle for a development project, where completion was to occur by exchange of funds for duly executed transfers. The Court of Appeal (at §43) considered that the defendant seller could sue the plaintiff purchaser for specific performance or damages. The Court did not say that because the failure was to pay a sum of money, the defendant seller is precluded from seeking specific performance. The point of the disjunctive ‘or’ is that the defendant seller has an option as regards remedy.

22.  In response to the Defendant’s criticisms mentioned in §16 above, the Plaintiff referred to §16 of the 3^rd affirmation of Sun Yu (“Mr Sun”) dated 3 March 2025 (“Sun 3^rd”), the Chief Operating Officer of the Plaintiff. His evidence is to the effect that there is no public market for the CMF Shares as they are shares in the segregated portfolio of a fund incorporated in the Cayman Islands and that it would be difficult to determine their actual value and hence quantify the damages suffered by the Plaintiff.

23.  The affirmation of Tsoi Ting Jessica dated 29 April 2025 (“Tsoi 1^st”) filed in response to Sun 3^rd did not challenge Mr Sun’s evidence in that regard.

24.  The Defendant’s own evidence also confirms the absence of any real market for the CMF Shares. Under the rubric “Certain Risk Factors”, the PPM identified risks associated with the structure of the Fund, including the following[4]:

“Illiquidity of Participating Shares. It is not anticipated that there will be an active secondary market for the Participating Shares and it is not expected that such a market will develop. Participating Shares are not transferable without the approval of the Directors. Consequently, Shareholders may not be able to dispose of their Participating Shares except by means of redemption. Redemptions may be suspended in certain circumstances. The Fund may effect redemptions in specie or may establish a liquidating trust, account or entity to hold the relevant investments until they are liquidated at a later date. As such, a Shareholder may not receive cash proceeds on redemption or in the event that the Fund is terminated or may not receive cash proceeds in a timely manner.”

25.  As regards exiting the Fund through redemption, the Plaintiff referred to the letter dated 8 June 2023 from the Plaintiff’s former solicitors to the Defendant (the “June 2023 Letter”) which gave an account of the genesis of the SPA. It shows that the purpose of the SPA was to enable the Plaintiff to exit the Fund. In pertinent part, it stated as follows:

“Redemption Requests by the Investors

7. Separately, R&H[5], on behalf of SP5 and CMF (i.e. the Investors), had on 6 June 2023 demanded that the Fund comply with the Investor's redemption requests ("RedemptionRequests") exercised pursuant to the Subscription Agreement dated 16 December 2022, and the Memorandum and Supplemental[6] to [the PPM] both dated October 2022 in relation to their respective Participating Shares.

8. On the same day, your representative informed R&H that the Fund will comply with the Redemption Requests and will confirm the same in writing that evening.

9. However, no written response whatsoever was received by R&H (or the Investors) on the Redemption Requests either from you or the Fund.

Proposed Buyout

10. On 7 June 2023, the R&H received draft agreements for the sale and purchase of the Participating Shares ("Proposed Buyout") prepared by the Fund's lawyers (but not in the form of redemption of the Participating Shares as required under the Redemption Requests) with you as the intended Purchaser without further information or response whatsoever as to the Redemption Requests either from you or the Fund.”

26.  The June 2023 Letter made it abundantly clear that the Plaintiff did make the prescribed redemption requests and had demanded that the Fund comply with those requests pursuant to the Subscription Agreement of 16 December 2022 and the PPM.

27.  Sun’s 4^th affirmation dated 3 June 2025 (“Sun 4^th”) at §22 (1) states:

“(I) As mentioned in paragraphs 9(a) and (b)[7] of Sun 1^st and agreed by the Defendant in paragraph 11 of Yang 1^st, the SPA was entered into since SPC Alternatives Portfolio SPC (the ‘SPC’) was not willing to process the redemption of the CMF Shares requested by the Plaintiff. At the time, it was proposed by the SPC that the Defendant, being an affiliate company of the SPC and was managed by the same group of people as the SPC, would repurchase the CMF Shares from the Plaintiff instead of going through the redemption process, with the consideration being the amount invested by the Plaintiff into the Fund.”

28.  Madam Yang was well aware of the June 2023 Letter since it was addressed to the Defendant. She referred to it in her affirmation dated 21 February 2024 (“Yang 1^st”) filed in response to the default judgment summons. After referring to the June 2023 Letter at §10, she stated (at §11) that

“…, as the relationship between the parties turned sour … the Plaintiff demanded an early exit from the Fund. It was ultimately decided between the parties that the Defendant would enter into a sale and purchase agreement with … the Plaintiff, for the Defendant to buyout the shares [the Plaintiff] held in the Fund …”

29.  In Yang 1^st (at §13), Madam Yang sought to suggest that the Plaintiff had only made a “cursory reference” to the June 2023 Letter, criticising it for failing to provide sufficient details regarding the background leading to the execution of the SPA. However, she refrained from stating her version of events when she should have done so if different in material respects from that of the Plaintiff’s. That Madam Yang did not do so is significant.

30.  I am satisfied on the evidence considered above that the Plaintiff has shown that there is no market for the CMF Shares. It has also made Redemption Requests pursuant to the PPM requiring the Fund to purchase the CMF Shares which SPC refused to process.

31.  In those circumstances, I take the view that the Plaintiff has demonstrated that an award of damages for the Defendant’s breach would not be an adequate remedy and that specific performance is appropriate in the present case.

(2)  The Plaintiff’s inability to complete the SPA

32.  The PPM stipulates that “Participating Shares may not be transferred without the prior written consent of the Directors. The Directors may withhold their consent without giving any reason for doing so[8].”

33.  §24 of the Defendant’s written submissions states that the evidence shows that the Plaintiff “simply cannot transfer the CMF Shares as it had not obtained the prior written consent of the directors of SPC”. Ms Lau emphasised that at all material times SPC had two directors, Madam Yang and Mr Ding. There is no written consent from them.

34.  The relevant Directors to whom a Redemption Request should be sent are not those of SPC as the Defendant alleges but of the Fund[9]. Be that as it may, the error makes no practical difference because Madam Yang and Mr Ding are also the directors of the Fund. That is hardly surprising given that SPC created the Fund as a receptacle to hold with the CMF Shares which it controls.

35.  The evidence shows that the transaction was proposed by SPC to enable the Plaintiff to exit the Fund in circumstances where SPC did not want to go through with the redemption process initiated by the Plaintiff’s Redemption Requests. The “parties” agreed to the SPA as an alternative to redemption by the Fund. That is entirely consistent with and supported by the genesis of the SPA set out in the June 2023 Letter, the Plaintiff’s evidence (in §27 above) as well as Madam Yang’s evidence (in §28 above). In that context, the “parties” means not only the Plaintiff and Defendant but also SPC (who proposed the transaction) and the Fund. It is also the case that the interests of SPC and the Fund in agreeing to the SPA align.

36.  Neither the Plaintiff nor the Defendant addressed the question whether, under the terms of the PPM, the Fund would have been obliged to redeem the CMF Shares if there had been no SPA as an alternative exit from the Fund. Reading the PPM as a whole, that would appear to be the necessary consequence. The PPM recognised that as the Participating Shares are not transferable without the approval of the Directors, “Shareholders may not be able to dispose of their Participating Shares except by means of redemption”.

37.  §§34 and 35 of the Defendant’s skeleton criticised §22 (1) of Sun 4^th[10], alleging that Mr Sun had misquoted not only his own evidence but also that of Madam Yang in alleging that the proposal for the SPA emanated from SPC. §35.2 emphasised that Madam Yang only affirmed that the Plaintiff and the Defendant ultimately decide to enter into the SPA without addressing the reason for such a decision. §35.4 highlighted the fact that neither Sun 1^st nor Yang 1^st suggests that “it was SPC which proposed and orchestrated the SPA” and that what is stated in §22(1) of Sun 4^th which is at odds with Sun 1^st.

38.  The Plaintiff’s position on those matters is shown in the Agreed Chronology (as set out in §7 above) which reflects Sun 4^th at §22(1). The Defendant’s criticisms are entirely misconceived. They ignore the fact that Mr Sun went on to explain in §22(2) to (4) the bases for what is stated in §22(1).

39.  §22(4) exhibits the June 2023 Letter (“SY-19”) which is pivotal to the provenance of the SPA. It states clearly that the draft was prepared by “the Fund’s lawyers” and, as earlier noted[11], the Defendant /Madam Yang did not take any issue with that statement or challenge it with a different version of events. Further, in not putting forward her version of events (if different) despite the several opportunities to do so, Madam Yang must be taken to have accepted Mr Sun’s account and the assertion made in the June 2023 Letter that the draft of the SPA was prepared by “the Fund’s lawyers”.

40.  Moreover, Madam Yang, (the ultimate owner of the Defendant, SPC and the Fund) caused the Defendant to enter into the SPA and endorsed it by signing it on the Defendant’s behalf. Indeed, §14.3 of the Defendant’s Amended Defence[12] which Madam Yang signed on 7 January 2025 referred to the Defendant’s willingness and intention to proceed with the SPA to completion.

41.  The suggestion that the fact that the draft SPA emanated from “the Fund’s lawyers” does not mean that it was SPC who proposed and orchestrated the SPA ignores the reality that SPC runs and controls the Fund. Madam Yang and Mr Ding are the directors of both SPC and the Fund. Instructions to the Fund’s lawyers could only emanated from them.

42.  Madam Yang cannot deny her consent to the SPA. By causing the Defendant to enter into the SPA, she obviously endorsed the transaction. Adopting Mr Ho’s terminology, she cannot “blow hot and cold”.

43.  I now turn to consider the position of Mr Ding. He is the CEO of the Defendant and is also one of 2 directors (the other being Madam Yang) of SPC and the Fund. The Defendant relies on separate legal personality, suggesting (without explaining why) that procuring Mr Ding’s consent would require the directors of SPC to breach their fiduciary duties[13].

44.  The Plaintiff focused on the commercial reality that Madam Yang and the Defendant control SPC and thus whether or not consent is granted.

45.  As a director of SPC/the Fund, Mr Ding would have participated in giving instructions to the Fund’s lawyers to prepare the draft SPA. Given that the SPA was an alternative to redemption by the Fund to which the parties agreed, what conceivable ground could Mr Ding, as a director of SPC and the Fund, have for withholding consent? It would not be in the interests of SPC/the Fund which otherwise, under the PPM, would be obligated to effectuate redemption when served with the requisite Redemption Requests.

46.  Rather, as he is also the Defendant’s CEO, Mr Ding would be in potential breach of his duty to the Defendant were he to wrongfully prevent the completion of the SPA. His consent is thus nothing more than a mere formality.

47.  In my view, the defence based on the Plaintiff’s alleged inability to complete the SPA has no merit and raises no triable issue.

(3)  Order 14 is inappropriate

48.  The point taken is that the Plaintiff used the wrong procedure: it ought to have proceeded under Order 86 instead of Order 14. It is said to be of importance because Order 86, rule 2(2) requires the summons to set out or have attached to it minutes of the judgment sought.

49.  The Summons sought both specific performance of the SPA and judgment for interest not paid and, alternatively, the construction of Clause 3 of the SPA. The money claim falls within Order 14 and the construction issues fall within Order 14A. Plainly, part of the relief sought is not within Order 86.

50.  In any event, proceeding under the wrong rule is not fatal. In Premier Fashion Wears Limited v Chow Cheuk-man [1994] 1 HKLR 377, Godfrey JA held (at 383, ll. 28-31) that

“in asking for an order from the court, a party is not bound to state under which rule or order he proposes to move. It frequently happens that parties move under a particular rule and then, when they find it is a wrong one, turn to another and an order is made.”

51.  Fortune Asset Development Limited v De Monsa Investments Limited, unrep., HCA 167/2009, 21 August 2009 is an example of a case where the plaintiff used Order 14 for specific performance. Saunders J (at §§3-4) treated the issue as a mere formality to be addressed and made an order formalising the correct state of the papers.

52.  In the same vein, in Fantasy Gift International Company Limited v Gold Luck International Limited, unrep., HCA 2548/2007, 9 September 2008, Burrell J (at §10) rejected the plaintiff’s complaint that an affirmation filed under Order 14 cannot support an Order 86 application on the basis that it was without merit.

53.  As regards the absence of detailed minutes, at the hearing, the Plaintiff did provide a draft order setting out the precise terms sought. The draft was modelled on the order granted by Williams J in the Supreme Court of New South Wales in Re Hoju Jobs Pty Ltd (No 2) [2021] NSWSC 407 at § 40. That case concerned a specific performance order for the transfer of shares in a company for the return of the deposit.

54.  It is not understood in what respects the Defendant claims that the Order caused prejudice or confusion when the Defendant was able to oppose it on substantive grounds. I do not consider there to be any merit in the procedural point taken.

(4)  Construction issues

55.  The Defendant raised construction issues arising from the SPA which are considered below.

  (A) No breach of the SPA

56.  The construction issues turn on the proper interpretation of Clause 3 of the SPA (Consideration) and Clause 4 (Completion Date and Completion):

“3. Consideration

The total consideration (the Consideration) payable by the Purchaser for the Shares shall be the sum of HKD 99,943,230.58, payable on or before 30 June 2023 ("Completion Date"). If any part of the Consideration is not paid by the Purchaser by 30 June 2023, an interest at the rate of 18% per annum shall apply to the outstanding amount from 1 July 2023 (the Interest). (Emphasis added)

4. Completion

4.1 Completion shall take place on Completion Date at the place as agreed between the parties in writing.

4.2 At Completion and subject to the receipt by the Seller of the Consideration and all outstanding Interest due and owing (if any) the Seller shall deliver, or cause to be delivered, to the Purchaser an instrument of transfer (the Share Transfer Form) with the date of Completion as the transfer date together with the share certificate(s) relating to the Shares (if any have been issued) or a customary indemnity in respect of any certificate which was issued but subsequently lost or destroyed and any other documents as reasonably requested by the Administrator.

4.3 At or before Completion the Seller shall procure the passing of the following resolutions of the directors of the Company:

(a) that the transfer of the Shares to the Purchaser shall be approved for registration; and

(b) that the Administrator of the Company will be instructed to update the register of participating shareholders of the Company to reflect the above transfer.

4.4 On signing this Agreement, the Purchaser shall deliver to the Seller

(a) a certified true copy of the resolutions of the board of directors of the Purchaser approving the terms of this Agreement;

(b) a certified copy of its certificate of incumbency;

4.5 On Completion, the Purchaser shall pay to the Seller the Consideration into such account and with such financial institution as the Seller may notify to the Purchaser from time to time by interbank electronic transfer of funds for same day value without deduction for bank or other similar charges before 4 pm on the date of Completion. Subject to the foregoing, each party shall bear its own bank charges, if any, in relation to the aforesaid transfer of funds.

57.  The Defendant submits that Clause 3 provides the Defendant as purchaser with 2 alternative ways to perform its obligation to pay:

(1) to pay the Consideration on or before 30 June 2023 in which case no interest is payable by the Defendant; or

(2) to pay the Consideration after 30 June 2023, in which case the Defendant is also required to pay interest on the outstanding Consideration at the rate of 18% per annum.

58.  The Defendant cited the following extract from Chitty on Contracts 35^th Ed. (at §25-007) in support:

Promises in the alternative Where a contractual promise is in the alternative, in that the promisor agrees to do one or more things, the legal effect of the promise depends on the kind of alternative involved: there may be a promise to perform in one of two or more alternative ways, where the form of the promise requires an election to be made; or there may be a primary or basic obligation to perform in one way unless the party who holds the ‘option’ chooses to substitute another way. Under the first kind of alternative promise, there is no primary or basic obligation and there must be an election of an alternative by one of the parties. The contract may provide which party may choose the alternative to be performed; in the absence of such a provision, the right to elect the alternative is impliedly vested in the promisor, the rule being that the party who is obliged to perform the first act may choose which alternative he wishes to perform. If the promisee is entitled to elect between the alternatives, he must give notice of his election, and until such notice has been given the liability of the other party does not arise. Once the person entitled to elect chooses the alternative to be performed, he is absolutely bound by his choice even though the chosen mode of performance afterwards becomes impossible to carry out.

59.  The Defendant submitted that Clause 3 does not specify any consequence (other than the accrual of interest) in the event that the Consideration is not paid on or before 30 June 2023. Nowhere is it stated that failure to pay on that date constitutes a breach of the SPA. Nor does the SPA provide for any such right of termination should the Defendant fail to pay on or before 30 June 2023.

60.  Clause 4 provides for “Completion”. The Defendant noted that Clause 4.2 makes no reference to the term ‘Completion Date’ and is silent as to when Completion is to take place. It further noted that Clause 4.5 deliberately omits reference to the term Completion Date and there is no long stop date. Therefore, the parties must have deliberately left the date of Completion open.

61.  The Plaintiff disagrees. It takes the view that the meaning of the SPA on completion is clear: Clause 3 explicitly states that the Consideration is “payable on or before 30 June 2023”. That creates a mandatory obligation to pay by a specified date. The phrase “on or before” specifies a deadline, not a starting point.

62.  Relevantly, the Plaintiff referred to other provisions of the SPA that reinforce its interpretation:

(1)  Clause 15.7 stipulates that “Time shall be of essence of this Agreement.” When time is of the essence, stipulated dates are conditions of the contract whose breach entitles the innocent party to terminate: Chitty at § 28-032.

(2)  Clause 4.5 states the Purchaser “shall pay” the Consideration “on Completion.” The mandatory “shall” confirmed an obligation, not an option.

(3)  The interest provision in Clause 3 compensates for late payment. The obligation to pay interest is a consequence of breach and not alternative method of the SPA.

63.  As the Defendant readily acknowledges, the definition of the term “Completion Date” in Clause 3 cannot be reconciled with its interpretation of alternative ways to perform its obligation to pay.

64.  The Plaintiff describes the effect of the Defendant’s interpretation of Clause 3 in the following terms[14]:

“… it would mean that [the Plaintiff] must hold on to the CMF Shares indefinitely, whilst [the Defendant] could decide if and when to pay. [The Plaintiff] could not sell to another purchaser, could not redeem through [SPC], and could not expect as to when (if ever) it would receive payment. In other words, the SPA would be an indefinite lock-up for [the Plaintiff]. On the other hand, [the Defendant] had a unilateral option over the CMF Shares, which might be exercised at any time, potentially hundreds of years later. For obvious reasons, no reasonable commercial party would agree to such a bargain. Neither is there any mechanism in the SPA for the parties to re-fix the completion date.

65.  The commercial absurdity resulting from the Defendant’s interpretation is obvious and cannot be gainsaid.

66.  The Defendant’s interpretation of its contractual obligations under the SPA is entirely removed from commercial reality and is inarguably unsustainable.

  (B) The No Consent Warranty

67.  The No Consent Warranty as set out in §1.3 of Schedule 2 to the SPA reads as follows:

“1.3 The Seller is entitled to sell and transfer full legal and beneficial ownership in the Shares to the Purchaser without the consent of any other person.”

68.  The Defendant contends that as the transfer of the CMF Shares requires the consent of the directors of SPC[15], the Plaintiff is in breach of Clause 5.1 of the SPA.

69.  The Plaintiff submitted that, as a matter of contractual interpretation, the No Consent Warranty cannot be construed in the way suggested by the Defendant to self-engineer a breach by the Plaintiff.

70.  Where the Defendant’s ultimate owner controls SPC whose consent is required, no third-party consent exists. Madam Yang’s complete control over the consent process is evident from the chart in §6 above.

71.  Madam Yang is the sole shareholder and director of the Defendant, while the Defendant is the ultimate sole shareholder of SPC. That organisation structure existed before, during and after the SPA’s execution. Madam Yang and the Defendant have unfettered power to control and direct SPC’s affairs and give the required consent.

72.  The Defendant has not adduced evidence to contradict Mr Sun’s account of how the SPA came about. Since Madam Yang and the Defendant control the consent mechanism, the Plaintiff submitted that Defendant cannot now invoke the SPC’s refusal to consent - a refusal engineered by a company under the sole ownership and control of the defendant and its ultimate - as a defence. I agree.

73.  To adopt the Defendant’s interpretation would be contrary to the principle that a contract will be interpreted so far as possible in such a manner as not to permit one party to it to take advantage of his own wrong: Lewison on The Interpretation of Contracts, 8^th Ed., §§ 7.108-7.118.

74.  On the Defendant’s interpretation, it would be impossible to reconcile Clause 4.3 (which requires the Plaintiff to obtain consent from SPC’s directors at completion) and the No Consent Warranty. The SPA could never be performed which could not have been the intended outcome. The only sensible reading is to treat the Clause 4.3 requirement as an exception to the No Consent Warranty.

Disposition

75.  For the reasons stated above, I find no merit in any of the grounds raised in this appeal. There is no arguable defence to the Plaintiff’s claim. The Counterclaim must also be struck out.

76.  The appeal is dismissed.

77.  I make an order nisi of costs in favour of the Plaintiff, with certificate for 2 counsel, such costs to be summarily assessed and payable forthwith.

78.  I further direct that:

(i)  the Plaintiff do lodge and serve its statement of costs within 14 days after the date of this Decision;

(ii)  the Defendant do have leave to lodge and serve its list of objections (limited to 2 pages) within 14 days thereafter;

(iii)  the Plaintiff do have leave to lodge and serve its reply (if any) (limited to 1 page) within 7 days thereafter;

(iv)  there be summary assessment of costs by paper disposal without the need for an attendance.

Mr Ambrose Ho SC, Mr Vincent Lung and Mr Calvin Ng, instructed by Messrs. King & Wood Mallesons, for the Plaintiff

Ms Queenie Lau SC and Mr Edward Tang, instructed by Messrs. NEO Solicitors LLP, for the Defendant

HCA 1532/2023

[2024] HKCFI 3293

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1532 OF 2023

_____________

_____________

_______________

D E C I S I O N

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1.  Introduction[1]

1.1  By a decision dated 7 June 2024 (“Decision”), I dismissed paragraph 1 of D’s summons dated 26 January 2024, which is an application for a declaration that the Writ of Summons indorsed with the Statement of Claim filed on 22 September 2023 has not been duly served on D, and made consequential directions for the filing and service of the Defence (“Order”).

1.2  This is my decision on D’s following applications:

(1)  By a summons dated 21 June 2024, D applies for leave to appeal against the Order (“Leave Application”) and for a stay of proceedings pending appeal (“Stay Application”);

(2)  By a summons dated 15 July 2024, D applies for leave to adduce the 3^rd Affirmation of Yang (“Yang 3^rd”) in support of the proposed appeal (“New Evidence Application”).

1.3  Insofar as the New Evidence Application seeks leave from the Court of First Instance for leave to adduce Yang 3^rd, it is procedurally incorrect. As pointed out in Man Lin Heung (the Administratrix of the Estate of Man Kwai Yin aka Man Kwai Yin) v 梁根林 & Anor[2019] HKCA 846[2]:

“Procedurally, application for leave to adduce new evidence could not be entertained until after leave to appeal has been granted and it is a matter for the Court of Appeal in deciding whether the new evidence should be admitted. However, an applicant in an application for leave to appeal can support such application by reference to new evidence if he can demonstrate that it is reasonably arguable that the Court of Appeal would grant leave by reference to the criteria in Ladd v Marshall. Thus, a judge (including a first instance judge) processing the application for leave would have to examine if the new evidence could arguably satisfy these criteria. If these criteria are not satisfied, such evidence should be disregarded for the purpose of the application for leave to appeal.”

1.4  I proceed on the above basis.

1.5  I have considered the written submissions lodged by Mr Jason Ko for D and Mr Vincent Lung (with Mr Calvin Ng) for P, the same counsel teams which appeared at the hearing on 8 March 2024 (“Hearing”).

2.  The Leave Application

2.1  Three broad grounds are advanced in the Draft Notice of Appeal (“Draft NOA”):

(1)  Ground 1: I had erred in finding that the SCB Address is D’s place of business and that business operations were centrally carried out, authorized and/or executed at the SCB Address: Decision §§4.11 and 4.13;

(2)  Ground 2: I had erred in finding that each of the 3 requirements identified in English Sewing (HK) Ltd v Eastern Shipping Lines Inc [1984] HKLR 5 was satisfied: Decision §§4.10-4.11;

(3)  Ground 3: I had failed to properly consider the issue of burden of proof: Decision §§3.3, 4.2 and 4.13).

2.2  Ground 1 complains that I had erred in relying on the findings that (collectively “5 Factors”):

(1)  D had “assumed contractual obligations and acquired rights”: Decision §§4.4 and 4.11 (“1^st Factor”);

(2)  D had appointed a Chief Executive Officer who worked at the SCB Address: Decision §§4.5 and 4.11 (“2^nd Factor”);

(3)  D had maintained at least one bank account in Hong Kong for the purpose of substantial transactions: Decision §§4.6 and 4.11 (“3^rd Factor”);

(4)  D had its own telephone number: Decision §§4.7, 4.8 and 4.11 (“4^th Factor”);

(5)  D had handled a substantial litigation from the SCB Address: Decision §§4.9 and 4.11 (“5^th Factor”).

(i)  D’s preliminary and contextual point

2.3  Before I deal with the 3 proposed grounds, I should first address an important context which Mr Ko has identified. Although not stated as a ground in the Draft NOA, in his written submissions, Mr Ko makes a scathing complaint that D was deprived of a fair hearing, in that (he alleges) that “mostof the [5 Factors] were not relied upon by P in its skeleton submissions, not raised at the Court hearing on 8 March 2024 (either by P or by the Court) and only appeared for the first time in the Decision” (emphasis added): D’s Skeleton Submissions §§8-9. This is plainly untrue and a contention which, in my view, has regrettably been made.

2.4  Where a serious allegation is advanced that I had misconducted the Hearing such that D was treated unfairly, as pointed out by Mr Lung, D has surprisingly not sought to obtain the transcripts of the Hearing. It is Mr Lung’s recollection that, except the 4^th Factor, Mr Ko was given the opportunity to address the other 4 of the 5 Factors.

2.5  My recollection aligns with that of Mr Lung’s. I have revisited my notes and taken the opportunity to listen to the recording of the Hearing. I accept that the 4^th Factor was not raised at the Hearing but I can categorically say that the other 4 of the 5 Factors were raised, in fact right at the outset of the Hearing. Indeed, in Mr Ko’s Reply Submissions (by way of Footnote 5), he longer maintains that the 1^st and 3^rd Factors were not raised at the Hearing and, in respect of the 2^nd and 5^th Factors, Mr Ko says that he was only not given the opportunity to “properly address” them. For the reasons set out below, I do not accept that he was not given the opportunity to properly address them.

2.6  The important context is this. As pointed out at Decision §3.6, the factual case advanced by D at the Hearing was that it was an offshore investment company without any business operations. It was on the foregoing basis that D presented a factual case that D used the letterhead of Blossom HK for the purpose issuing correspondence only.

2.7  It cannot be disputed that the underlying factual evidence supporting the 5 Factors were all premised on evidence adduced by P. The evidence was plainly inconsistent with D’s case that it did not have any business operations. It was in that context that at the outset of the Hearing I raised 4 of the 5 Factors for Mr Ko to address. I do not believe it is now seriously maintained that D has no business operations. There is no appeal against the finding made at Decision §4.2, namely that “D’s evidence that it has no business operations is entirely inconsistent with the documentary evidence.”  The contention now advanced is that even if the court rejects D’s case that it is merely a holding company with no business operation in Hong Kong, it does not ipso facto mean that P has discharged its burden to establish the SCB Address is D’s place of business: Draft NOA §3(c).

2.8  Where, as here, D had (and was found to have) presented a questionable factual case, I do not accept that the court at the Hearing should ignore the evidence before it, even if P did not make a specific challenge. As stated at Labrouche v Frey & Ors [2012] 1 WLR 3160:

“[23] …Particularly where the judge has had the benefit of time to read all the papers, and to consider a full written argument on behalf of the applicant (and the respondent), he may quite properly be able to dispose of the hearing of the application far more quickly than the parties and their advisers may have expected. For instance, while again it often may be unwise to do so, the judge could (i) begin by saying that, having read the papers, his provisional view was that the application should be rejected on one of the many grounds raised by the respondent, (ii) then give the applicant a fair opportunity to disabuse him of this view through oral argument, and (iii) if the judge was unpersuaded by that argument, end the hearing by giving judgment for the respondent on the ground in question.

[24] But what a judge cannot properly do, however much he believes that he has fully read and fully understood all the documents and arguments before coming into court, is to dismiss the application without giving the applicant a fair opportunity to make out his case orally. It is vital that justice is seen to be done, but that is by no means the only, or even the main, reason for this. It is also because it is vital that justice is done. Any experienced judge worthy of his office will have had the experience of coming into court with a view, sometimes a strongly held view, as to the likely outcome of the hearing, only to find himself of a very different view once he has heard oral argument.

[41] This decision should not have the effect of deterring first instance judges from being properly robust. For instance, if, before coming into court, a judge has formed a preliminary view on some or all the points at issue, there is nothing wrong with his expressing that view to the parties, provided that he makes it clear that it is only a provisional view and that he will give, and then does give, them (or at least the party he is provisionally against) the opportunity to try and dissuade him from his view. Equally, if he is satisfied that a particular issue can be disposed of on the basis of one of several points which have been raised, there is no reason why he cannot tell the parties that he provisionally considers that he need not hear argument on the other points, provided again that the parties are given the opportunity to persuade him that he should decide one or more of those other points.”[3](emphasis added)

2.9  The cases relied on at D’s Skeleton Submissions §9 make a similar point as that made at Labrouche §24, namely that it would be unfair to deprive parties an opportunity to address the issues which have a material bearing on the judge’s decision-making process. I do not accept that I conducted the Hearing in the manner described at Labrouche §24. Having read D’s submissions and Yang 3^rd and revisited the recording, it seems to me that the arguments now advanced by D were canvassed at the Hearing (except for the 4^th Factor) and Mr Ko had the opportunity to make submissions in relation to those factors. Indeed, for the reasons set out below, in my view, Yang 3^rd does not have an important influence on the result of the case (Ladd v Marshall 2^nd criterion) and in some respects is even apparently incredible in the sense that it is internally inconsistent (Ladd v Marshall 3^rd criterion).

2.10  Having dealt with the context identified by Mr Ko, I now proceed to deal with the grounds advanced in the Draft NOA.

(ii)  The applicable principles

2.11  There is no real dispute between counsel on the applicable principles.

2.12  Leave to appeal is not lightly granted. The court has to be satisfied that (1) the proposed appeal has a reasonable prospect of success or (2) there is some other reason in the interests of justice why the appeal should be heard before granting leave. Mr Ko does not rely on the latter ground.

2.13  The minimum requirement for a stay application is an arguable appeal. Where the court is faced with simply the existence of an arguable appeal (as opposed to one which has a strong likelihood of success), it is necessary for the applicant to provide additional reasons as to why a stay is justified, usually by demonstrating that without a stay the appeal would be rendered nugatory.

2.14  Where a decision involves the assessment and balancing of different factors, the appellate court will only interfere if the judge’s decision is plainly wrong: Stuart v Goldberg [2008] 1 WLR 823 at §§76 and 81. Equally, the appellate court would only interfere on the question of weight if one identifies a mistake in the judge’s evaluation of the evidence that is sufficiently material to undermine his conclusions or where the decision is one that no reasonable judge could have reached: Wong Myra Repizo v Ling Fung Coach and School Service Co Ltd, CACV 64 of 2015, 7 December 2015 at §§20-24.

2.15  Even for factual findings that are based on affidavit evidence, the appellate court should not intervene unless there are palpable errors: Ling Wai Hoi v Jetland Global Investments Ltd[2022] HKCA 1457 §29.

2.16  Insofar as Mr Ko suggests that the “plainly wrong” threshold is only applicable to findings of primary fact, I do not accept his submission. As stated at Ho Kwok Wing v Chan Mei Mui[2020] HKCA 522:

“[8.10] Ms Eu then argued that if the finding of the common intention is based on inference then this appeal does not involve overturning primary fact findings. She referred to Singh Harjit v Determination Business Ltd (unrep., CACV 68/2015) and submitted that where inference is drawn entirely or almost entirely from undisputed primary facts, the appeal court is in just as good as position as the trial judge to make the decision. In Pang Ketian Sally v Tam Yuk Hung Annie (unrep., CACV 147/2013, Cheung CJHC (as he then was)) stated:

‘31. This “plainly wrong” test, in other words, is applicable unless the finding of fact is based purely on inferences, or otherwise has nothing to do with the witnesses’ demeanour or the trial judge’s having received the evidence at first hand.’

[8.11] The findings in the present case is not based solely on inference. As Cheung CJHC explained:

‘28. ...... In fact, unless the contrary is expressly said, one proceeds on the basis that demeanour or credibility did play some part in the finding of fact made by a trial judge, irrespective of whether the judge made any observation with regard to credibility or not Ting Kwok Keung, para 39.’

[8.12] Likewise, in the present case the drawing of inference from surrounding circumstances does not preclude in the first place an assessment of the credibility of the parties. The findings of fact by the Judge in this case involves both an assessment of credibility and drawing of inference from the primary facts. Therefore the plainly wrong test in Ting Kwok Keung applies.” (emphasis added)

(iii)  Grounds 1 and 2

2.17  I agree with Mr Lung’s characterization that D’s attack seems to be premised on the fact that each of the 5 Factors alone is not sufficient to justify that the SCB Address was D’s place of business, namely each individual factor does not show a degree of regularity or that it does not show the implementation of the activities at the SCB Address. As submitted by Mr Lung, D’s approach misses the point. The recording plainly shows that Mr Ko towards the latter part of the Hearing accepted that I was entitled to look at all the evidence cumulatively in making the necessary findings and drawing from them the appropriate inferences.

2.18  That was the exercise carried out in the Decision. As set out at Decision §4.3, I dealt with the evidence chronologically and found that during the timeframe identified, by reasons of the 5 Factors, the SCB Address was D’s place of business: Decision §§4.11 and 4.13. It must be borne in mind that the Writ was left at the SCB Address on 22 September 2023 and the timeframe identified covers the period from December 2022 (execution of the Supplemental Agreement) to 20 November 2023 (Ding’s affirmation in the BVI Proceedings).

2.19   In relation to the 1^st Factor, I have already stated at Decision §4.12 that there was no direct evidence that the assumed contractual obligations and acquired rights under the Supplemental Agreement necessarily had to be performed from the SCB Address. But I do not accept Mr Ko’s submissions that those rights and obligations were ad hoc. Even Yang 3^rd does not make that assertion (§22(a)). According to the Supplemental Agreement, as stated at Decision §4.4, the Fund was to embark upon (at least) trading in shares of listed companies in Hong Kong. Whether Supplemental Agreement Clauses 4(1), (2) and (3) would be triggered would depend on the performance of the investments, and in particular Clause 4(3) conferred a right upon D to R&H to repurchase investments which were underperforming or to itself dispose of them.

2.20  I am unable to accept Mr Ko’s characterization that they were “ad hoc” in nature or that there is no evidence that they were activities connected with the company’s paramount or subsidiary objects: Re Yung Kee Holdings Ltd [2014] 2 HKLRD 313 at §85. Insofar as Mr Ko submits that Clause 4.3 would only be triggered in case of P’s defaults, that is simply wrong. The Supplemental Agreement was an agreement between R&H and D. Importantly, the implementation of Clause 4.3 entails decision-making. Were D to dispose of the underperforming shares, a decision had to be made as to when and how those shares would be disposed of. Someone must make that decision. There is specifically no appeal against the finding at Decision §4.4 that “it cannot be said that D is simply a holding company of the Fund and all operations are carried out by the Fund.”

2.21  In relation to the 2^nd Factor, Yang 3^rd exhibits a BVI Opinion (“Expert Report”) which makes reference to Rule 30.2 of Part 30 of the BVI Civil Procedure Rules (“CPR”). Rule 30.2(c) provides that each affidavit must “be in the first person and state and name, address and occupation of the deponent”. The Expert Report opines that there are no specific/express requirements for the address to be the residential address of the deponent, the service address, the place of business of the company which the deponent works for, the address of the company for which the deponent in making the affidavit/affirmation on behalf.

2.22  It must be pointed out that even without the Expert Report, the same argument had already been made by Mr Ko at the Hearing. But the CPR does not inform why Ding decided to state the SCB Address as his[4] address in his affirmation filed in the BVI Proceedings. Yang 3^rd now advances an internally inconsistent story. On the one hand, the Expert Report states that the expert was instructed that the SCB Address was used in Ding’s affirmation because it was Ding’s correspondence address. On the other hand, Yang 3^rd §§22(b)(i) states that Yang was informed by Ding and verily believe that D had adopted D’s correspondence address for the purpose of Ding’s affirmation. The distinction, in my view, is not a sterile one. On the one hand, were Yang 3^rd accepted, it is a prima facie a non-compliance with Rule 30.2(c) as D’s correspondence address may not be Ding’s address, as required under the rule. The effect of Yang 3^rd seems to suggest that as Ding only used D’s correspondence address, D may not even be ordinarily here in Hong Kong. On the other hand, if the Expert Report is accepted, then adopting the SCB Address as Ding’s correspondence address would presumably mean that D is ordinarily here in Hong Kong: Decision §4.10.

2.23  Whether it is appropriate to draw the inference that Ding worked at the SCB address must be considered in the light of all the other factors.

2.24  In relation to the 3^rd Factor, Mr Ko submits that there is no evidence that the remittances were related to the commercial dealings between P and D under the SPA but this is not even the position set out at Yang 3^rd. Yang 3^rd §21(c) acknowledges that Decision §4.6 is based on Exhibit SY-6 adduced by P. I had already stated at Decision §§2.5 and 4.6 that a total sum exceeding HK$20 million was remitted by D’s bank account in Hong Kong to P’s bank account in Hong Kong in 4 tranches between 26 June and 10 August 2023 as Partial Payments under the SPA. I had recorded at Decision §4.6 that Mr Ko had told me at the Hearing that D was disputing the nature of the remittances which, in the event, Yang 3^rd §22 (c) does not.

2.25  The more pertinent point is that Yang 3^rd states, without explanation, that its account at Bank of Communications (Hong Kong) Ltd was closed in “early September 2023”. Bearing in mind that the Writ was left at the SCB Address on 22 September 2023, the closure of the bank account is factually even more unflattering for D, especially when the dispute between the parties had arisen before early September 2023.

2.26  In relation to the 4^th Factor, Yang 3^rd adduces evidence that the SCB Address is also the registered office of Sigma Management Limited (“Sigma”) and Sigma is the registered user of the 2 telephone numbers referred to at Decision §4.7. Indeed, Sigma is the subscriber of 100 landline numbers including the 2 telephone numbers.

2.27  In my view, this evidence does not address the analysis in the Decision. The reference to the 2 telephone numbers was in the context of assessing whether the October Letter was issued, as D contends, using Blossom HK’s letterhead. It was noted that the letterhead provides a telephone number which was different from that stated in the SPA. The point made in the Decision was that D maintained and was designated a separate Hong Kong telephone number. Whether Sigma paid for the telephone service does not alter the fact that D was designated its own phone number, which was used in the SPA.

2.28  In relation to the 5^th Factor, Mr Ko submits that there is no evidence that the BVI Proceedings should be regarded as a substantial litigation. This is not even consistent with D’s own evidence. At Yang 1^st §47, D’s evidence is that “As the Plaintiff’s statutory demand presented a winding up risk to the Defendant, the Defendant took the matter seriously and incurred time and costs to instruct BVI lawyers to respond to the Plaintiff and make an application in the BVI Court to set aside the statutory demand” (emphasis added).

2.29  I do not see why I am not entitled to take into account the SCB Address given by Ding in the affirmation and the fact that the affirmation was affirmed at the offices of Messrs Deacons, which was in proximity to the SCB Address.

2.30  Whether it was appropriate to draw the inference that Ding worked at the SCB address must be considered in the light of all these factors cumulatively as a whole. Under the Supplemental Agreement, someone on behalf of D must make or authorize the decision on when and how to dispose of the shares if the situation arose (1^st Factor). Someone on behalf of D must have authorized the remittance of the significant sum of HK$20 million (3^rd Factor), the last tranche having been remitted shortly before the Writ was left at the SCB Address. In the BVI Proceedings which was a substantial litigation of D (5^th Factor), Ding as D’s Chief Executive Officer, as he was obligated under BVI law, chose to give the SCB Address as his address (2^nd Factor). D was designated a unique Hong Kong telephone number (4^th Factor). I do not accept Mr Ko’s criticism that I had in that exercise impermissibly indulge in speculation.

2.31  I do not regard D as having demonstrated reasonable prospect of success under Ground 1 and Ground 2 of the proposed appeal against factual findings based on primary facts and inferences drawn therefrom in the light of all the evidence before the court. The approach taken is similar to those taken in the authorities, such as Ho Tai Kwan v Global Innovative Systems Inc [2008] 1 HKLRD 399, in which the defendant in that case, a Nevada company, also asserted that it had no business activities and maintained no place of business in Hong Kong. Sakhrani J, in finding for the plaintiff, took into account (1) the defendant’s assertion was incredible in the light of the evidence before him (§17 and 23) and (2) the defendant’s CEO was at all material times operating in Hong Kong and payments were made by the defendant’s bank account in Hong Kong to the plaintiff (amongst other factors) (§24). The learned Judge also took into account the representation made by the defendant that the Mongkok address was a place of business in Hong Kong, I had observed that D’s evidence that the October Letter (which contained the SCB Address) was issued under Blossom HK’s letterhead was a bare assertion and the letterhead was capable of being D’s own letterhead (Decision 4.8). It is pertinent to repeat that D’s evidence that it has no business activities (which allegation was put forward as the reason that the October Letter was issued under Blossom HK’s letterhead) was rejected.

(iv)  Ground 3

2.32  Whilst I agree with Mr Ko that the rejection of D’s factual case that it has no operations in Hong Kong does not ipso facto mean that P has discharged its burden of proof, if it is suggested that that is the effect of the Decision, I am unable to agree. In addition to rejecting D’s factual case that it has no operations in Hong Kong, I then made the factual findings and drew inferences therefrom to come to the conclusion that the SCB Address is D’s place of business. Except for the 4^th Factor (which on any view is less significant than the other 4 Factors), D was given the opportunity to deal with the other 4 Factors and the new evidence and the submissions based on that new evidence not only would not have changed the outcome but have the converse effect of fortifying the Decision.

3.  Stay Application

3.1  Quite apart from the merits of the proposed appeal, there is no explanation why without a stay the appeal would be rendered nugatory.

3.2  D asks for stay of proceedings, presumably on the basis that D should not file a defence pending the appeal. If it is suggested that the filing of a defence would lead to the conclusion that D has submitted to jurisdiction, that suggestion is misplaced. Hong Kong Civil Procedure 2024 Note 12/8/2 states that service of a defence will not be construed as a submission to the jurisdiction as long as it is made clear that the filing of a defence is without prejudice to D’s right to challenge jurisdiction.

3.3  No doubt, the matter may be revisited if, for example, further applications are taken out by P prior to the resolution of the proposed appeal which may be said to enjoin D to engage in the merits of the case.

4.  New Evidence Application

4.1  The New Evidence Application is procedurally incorrect and should be dismissed on that basis alone. In any event, I have set out in my analysis above that Yang 3^rd does not satisfy Ladd v Marshall 2^nd and 3^rd criteria.

5.  Conclusion

5.1  For the above reasons, I dismiss the Leave Application, the Stay Application and the New Evidence Application.

5.2  I also make a costs order nisi that D is to pay P’s costs to be summarily assessed. D is to lodge and serve its Statement of Objections to P’s Statement of Costs dated 12 August 2024 within 3 days hereof. I will thereafter conduct summary assessment on the papers.

Mr Vincent LUNG and Mr Calvin NG, instructed by Messrs King & Wood Mallesons, for the Plaintiff

Mr Jason KO, instructed by Messrs Sidley Austin, for the Defendant

HCA 1532/2023

[2024] HKCFI 1453

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1532 OF 2023

_____________

_____________

_______________

D E C I S I O N

_______________

1.  Introduction

1.1  This is my decision on the Defendant’s summons dated 26 January 2024, by which it applies, pursuant to RHC Order 12, rule 8(1)(b), for a declaration that the specially-indorsed Writ of Summons filed on 22 September 2023 (“Writ”) has not been duly served on it.

1.2  At the hearing, the Defendant (“D”) was represented by Mr Jason Ko and the Plaintiff (“P”) by Mr Vincent Lung (with Mr Calvin Ng), all of counsel.

1.3  It is P’s case that the Writ was validly served on D by two alternative means. First, it is said that the Writ was duly served on the process agent appointed pursuant to Clause 17 of the SPA (as defined below) (“Contractual Service”). Secondly, P says that the Writ was served pursuant to section 803(5)(a) of the Companies Ordinance Cap 622 (“CO”) by leaving it at D’s place of business in Hong Kong (“CO Service”) at 15/F, Shanghai Commercial Bank Tower, 12 Queens Road Central, Hong Kong (“SCB Address”).

1.4  The parties had initially focused on Contractual Service and counsel made very detailed submissions on their rival interpretations of SPA Clause 17 on whether the process agent was properly appointed under the SPA. However, as canvassed at the hearing, irrespective of whose position is correct, P did not factually comply with the contractual requirements[1]. Mr Lung very fairly confirmed at the hearing that P no longer pursued its case on Contractual Service. As such, I am only required to determine whether the Writ was validly served by the CO Service.

2.  Background

2.1  The subject matter of this action concerns an agreement entered into by P (as seller) and D (as purchaser) on or about 23 June 2023 (“SPA”).

2.2  P is a Cayman Islands company.

2.3  It is common ground that D is a BVI company and is not registered as a non-Hong Kong company. D, however, is affiliated to a Hong Kong company bearing a similar name “Blossom International Holdings Company Limited” (“Blossom HK”). The SCB Address is that of Blossom HK’s registered office.

2.4  P and D entered into the SPA for the sale and purchase of 12,800 Class A Participating Shares in Sigma Alternatives Portfolio SPC-Gawain Multi-Section Fund SP (“Fund”) for a total consideration of HK$99,943,230.58 (“Consideration”), to be paid by D to P on or before 30 June 2023 (“Completion Date”).

2.5  It is P’s case that D failed to pay the Consideration in full by the Completion Date, as only partial payments had been made between 26 June and 10 August 2023 (“Partial Payments”). In this action, P seeks specific performance of the SPA.

2.6  According to D, the background to the SPA is as follows:

(1)  In or about December 2022, one Rich and Honour Management Limited (“R&H”) and D entered into a supplemental agreement (“Supplemental Agreement”), under which R&H would procure investors to subscribe for shares in the Fund during a 24-month term of cooperation between them;

(2)  Pursuant to the terms of the Supplemental Agreement, R&H procured, inter alia, P to subscribe for Class A shares in the Fund;

(3)  Subsequently, the relationship between P and D turned sour, and P demanded an early exit from the Fund, and as a result, the SPA was executed.

2.7  In addition to present action, the disputes between the parties have generated other legal proceedings here and elsewhere. For example, in evidence is an application by D in the BVI to set aside a statutory demand dated 7 November 2023 issued by P, which demand is similarly based on D’s breach of the SPA (“BVI Proceedings”).

3.  Issue to be determined

3.1  Section 803(5)(a) of CO provides as follows:

“(5) Any process or notice required to be served on a non-Hong Kong company (other than a registered non-Hong Kong company) is sufficiently served –

(a) in the case of a company that has established a place of business in Hong Kong, if it is left at, or sent by post to, the place of business”

3.2  Mr Ko’s argument that the CO Service was not valid ran as follows.

3.3  He submitted that P bears the burden to establish that a particular place is D’s place of business. At English Sewing (HK) Ltd v Eastern Shipping Lines Inc, HCA 996/1982, 28 October 1983, Hooper J said:

“[14] The Okura case was expressly followed by Barker J.A. in the Hong Kong Court of Appeal this year in ‘The Artemis’ (Civil Appeal 14 of 1983) in which he quotes from the judgment of Buckley LJ as setting out the relevant principles in this connection. The passage appears at page 5 of the judgment as follows:-

‘The question in this case is whether the defendants, who are a foreign corporation, can be served with a writ in this country. The answer to that question depends on whether the defendants can be found ‘here’ for the purpose of being served. In one sense, of course, the corporation cannot be ‘here’. The question really is whether this corporation can be said to be ‘here’ by a person who represents it in a sense relevant to the question which we have to decide. The point is, do the facts show that this corporation is carrying on its business in this country? In determining that question, three matters have to be considered. First, the acts relied on as showing that the corporation is carrying on business in this country must have continued for a sufficiently substantial period of time ... Next, it is essential that these acts should have been done at some fixed place of business .... The third essential, and one which it is always more difficult to satisfy, is that the corporation must be ‘here’ by a person who carries on business for the corporation in this country. It is not enough to show that the corporation has an agent here; he must be an agent who does the corporation’s business for the corporation in this country. This involves the still more difficult question, what is meant exactly by the expression ‘doing business’?’

[15] Barker JA also expressed the view that in each case the question as to whether a foreign corporation is carrying on business ‘here’ is a question of fact and referred to the judgment of Hewson J in ‘The World Harmony’ [1965] 1 Lloyd’s Report 244 at p.251.

[16] Huggins VP, the other judge in ‘The Artemis’, recognised that ‘one company may undertake so much of the functions of another company that the latter is in reality carrying on the business of the former’ and expressed that to be the position in ‘The World Harmony’. He also asserted on the strength of ‘The Theodohos’ [1977] 2 Lloyd's Report 428 that the burden of proof is on the plaintiff to establish that. He said:

‘The mere fact that a person employs an agent (as distinct from a servant) within the jurisdiction does not ipso facto mean that the principal is carrying on business within the jurisdiction. Prima facie each is carrying on his own business. Thus it was conceded that, if a foreign ship owner employed a solicitor in Hong Kong for the purposes of litigation here, the solicitor would not be carrying on the business of ship owner. See Okura & Co Ltd v Forsbacka Jervererks Aktiebolag (supra) at p.718.’

[17] Later he added

‘I think Mr Pollock is right when he says that the carrying on of business predicates in this context some possibility of profit making.’

[18] Clearly both judges were relying on the common law authorities to support their contentions except perhaps in respect of the last mentioned quotation. In any event counsel before me both accept that the burden of proof is on the plaintiff and that the question is one of fact. They both rely extensively upon the common law authorities as illustrations as to how the facts have been determined in the past.” (emphasis added)

3.4  The meaning of ''place of business" was considered by the Court of Final Appeal in Kam Leung Sui Kwan v Kam Kwan Lai (2015) 18 HKCFAR 501:

“[13] … In our view “place of business” connotes a place where or from which the company either carries on or possibly intends to carry on business. While “business” is not confined to commercial transactions or transactions which create legal obligations, there is no reason to suppose that it covers purely internal organisational changes in the governance of the company itself. The notion that it does, seems to follow from a belief that a company must have a place of business somewhere, but (leaving aside the share transfer and registration office) there is nothing in fact or law which requires a company which does not carry on business at all to have a place of business, and there is nothing strange in finding that such a company has not established one anywhere.

[14] The fact that a company’s directors discuss its affairs and hold their board meetings in a particular place is not sufficient by itself to make that place the company’s “place of business”…

[15] We also accept the judge’s statement that the word “establish” indicates that some degree of regularity and permanence of location is required…” (emphasis added)

3.5  Mr Ko emphasized that an address which is used as a correspondence address is not sufficient to render it a place of business: Re Yung Kee Holdings Ltd [2014] 2 HKLRD 313 at §96. In the present case, the SCB Address was given as the correspondence address in the SPA. Such correspondence, pursuant to the SPA, should be addressed to a Ms Christy Zhu (“Zhu”).

3.6  There is no dispute that the Writ was left at the SCB Address on 22 September 2023. However, D contends that the SCB Address was not D’s place of business for the following broad reasons:

(1)  D does not and at all material times did not carry on any business in Hong Kong. D is an offshore investment holding company and has no actual business operations. This is underscored by the fact that the SPA includes Clause 17.1 to appoint a process agent;

(2)  The SCB Address is and was at all material times the registered office of Blossom HK;

(3)  There is no dispute that D had issued correspondence on stationery bearing the SCB Address. The explanation offered is that as D was an offshore investment holding company without any business operation, it did not have its own letterhead. For the purpose of issuing correspondence only, D used the letterhead of Blossom HK.

3.7  The sole issue which requires my determination is therefore, on the facts of this case, whether the SCB Address is D’s place of business as opposed to merely a correspondence address.

4.  Analysis

4.1  I am prepared to proceed on the basis, as submitted by Mr Ko, that an address which is merely used as a correspondence address, is insufficient to render it a place of business.

4.2  However, in my view, there is ample evidence in the present case to show that D did and does carry on business in Hong Kong and has established a place of business at the SCB Address. It seems to me that D’s evidence that it has no actual business operations is entirely inconsistent with the documentary evidence.

4.3  I deal with the evidence largely chronologically. I start with the officers of D and its associated entities:

(1)  The sole shareholder and sole director of D is one Ms Yang Fang (“Yang”);

(2)  Yang is also the sole shareholder and sole director of Blossom HK (according to the Form NAR1 made up to 25 October 2023). In the Form NAR1, the address of Yang is stated to be an address in a residential development in Ho Man Tin, Kowloon;

(3)  The Chief Executive Officer of D is one Ms Ding Zhiyi (“Ding”). In an affirmation filed in the BVI Proceedings, she gave the SCB Address as her address;

(4)  As set out at Schedule 1 of the SPA, Yang and Ding are directors of the Fund.

4.4  As pointed out by Mr Lung, it is plain from the Supplemental Agreement between D and R&H that D does carry on operations. It is apparent from the terms that the Fund was to embark upon (at least) trading in listed companies in Hong Kong (Clause 3). Whilst the actual trading would be carried out by the Fund, there were specific obligations imposed upon D (eg Clauses 4(1) and (2)) and rights conferred upon D (eg Clause 4(3)). On the foregoing basis, it cannot be said that D is simply a holding company of the Fund and all the operations are carried out by the Fund.

4.5  My observation is supported by the fact that D has appointed Ding as its Chief Executive Officer. As noted above, Yang is the sole shareholder and sole director of D, and in that position, she alone would be capable of transacting the “administrative” businesses of D such as those described at Kam Leung Sui Kwan §13, were D only a “inactive” holding company. Further, under the SPA, Zhu is already designated to receive correspondence. Had all the operations been undertaken by the Fund (and where Ding is already a director of the Fund), it is unclear what then is the purpose of Ding’s appointment as Chief Executive Officer of D.

4.6  Moreover, it is also plain from the evidence that D has maintained at least one bank account in Hong Kong. On P’s case, the Partial Payments (§2.5 above), the total of which exceeded HK$20 million, were remitted from D’s account numbered 38257710197xxxx[2] on 4 occasions between 26 June and 10 August 2023 to P’s account at Citibank NA (Hong Kong). Bank Code 382 is that of Bank of Communications (Hong Kong) Ltd. In other words, this is not the case where all the commercial activities are undertaken by a subsidiary or an operating company without direct involvement by the holding company. The Partial Payments were also not made on a single occasion but over a period of months. Mr Ko told me that D is disputing the nature of the Partial Payments. But even were they not related to the Consideration, the fact remains that substantial sums were remitted by D from its bank account in Hong Kong to P which is a commercial third party.

4.7  On 5 October 2023, D issued a letter to P’s former solicitors (“October Letter”) disputing service of the Writ. The letterhead is generic, in that it only contains a logo and the word “Blossom”. The letter was signed off in the name of D. At the bottom of the October Letter, it is there set out the SCB Address, a phone number and a fax number. Under Clause 11.2 of the SPA, as stated above, for the purpose of providing the means for communication or document to be made or delivered under or in connection with the SPA, D provided the SCB Address and a phone number. It seems to me important to note that the phone number set out in the October Letter (28795000) is different from that in the SPA (28795060).

4.8  It is D’s evidence that the October Letter was issued under Blossom HK’s letterhead. The foregoing is a bare assertion, as the letterhead, apart from containing a logo and the word “Blossom”, does not identify a specific Blossom entity. In that sense, the letterhead on its face is capable of D’s own letterhead. But even proceeding on D’s own evidence that the letterhead is that of Blossom HK, it would then be the case that D itself maintains and is designated a separate Hong Kong telephone number.

4.9  The evidence also shows that the BVI Proceedings are handled by D (in particular Ding) in Hong Kong. As D’s Chief Executive Officer, Ding was plainly a servant and not an agent of D (see English Sewing §16 set out at §3.3 above). As stated earlier, she gave the SCB Address as her address in her affirmation filed in the BVI Proceedings. Her affirmation was affirmed at the offices of Messrs Deacons on 20 November 2023, whose location is near the SCB Address. It seems to me clear that defending a case concerning a business transaction entered into by D must be considered a facet of the carrying on of D’s business, not least because it may involve the flip side of a possibility of profit making (ie a possibility of avoiding loss).

4.10  Mr Ko submitted that I must be satisfied with the 3 requirements identified in English Sewing (underlined at §3.3 above), namely: (1) the acts relied on as showing that the corporation is carrying on business in this country must have continued for a sufficiently substantial period of time, (2) it is essential that these acts should have been done at some fixed place of business and (3) the corporation must be 'here' by a person who carries on business for the corporation in this country.

4.11  Drawing the above threads together, I am of the view that each of the requirements is satisfied. D in the timeframe identified in the above chronology has (1) assumed contractual obligations and acquired rights, (2) appointed a Chief Executive Officer who worked at the SCB Address, (3) maintained at least one bank account in Hong Kong for the purpose of substantial transactions, (4) its own Hong Kong telephone number and (5) handled a substantial litigation from the SCB Address.

4.12  I accept that there is no direct evidence that the matters set out at (1) and (3) of the preceding paragraph necessarily have to be performed from the SCB Address. For example, with the technological advancements, the bank account may be operated electronically from any location and D’s contractual obligations and decision-making may be performed remotely outside the SCB Address.

4.13  But it seems to me that where, as here, I reject D’s evidence that it is merely a holding company with no business operations in Hong Kong, on the evidence, it seems to me plain that such business operations were centrally carried out, authorized and/or executed at the SCB Address (as evidenced by the October Letter and Ding’s affirmation in the BVI Proceedings).

5.  Conclusion

5.1  For the above reasons, I am satisfied that the Writ was duly served by the CO Service. As a result, I dismiss paragraph 1 of D’s summons. Mr Ko had asked, in that eventuality, that D be granted 28 days to file and serve its defence (D’s summons §2). Whilst Mr Lung had submitted that a shorter duration is warranted, I accede to Mr Ko’s request, on the basis that P would likely in the 28-day period apply to amend its Statement of Claim to correct a number of errors.

5.2  Although P has prevailed, I have not lost sight of the fact that P had abandoned its primary case on Contractual Service. I order D to pay P 40% of its costs of D’s summons. P has provided its statement of costs for summary assessment. On a broad-brush basis, the costs of D’s summons (in their entirety) are summarily assessed at HK$180,000. In other words, D is ordered to pay HK$72,000 to P.

5.3  The above costs order and assessment are nisi, not least because D has not commented on P’s statement of costs for summary assessment. The foregoing shall become absolute unless within 14 days an application to vary the same is made.

Mr Vincent LUNG and Mr Calvin NG instructed by Messrs King & Wood Mallesons for the Plaintiff

Mr Jason KO instructed by Messrs Sidley Austin for the Defendant