JIANG SAIZHEN v. CHINA COME RIDE NEW ENERGY GROUP LTD AND ANOTHER

HCA 1627/2020

[2026] HKCFI 553

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1627 OF 2020

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BETWEEN

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JUDGMENT

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A. Overview

1.  In the present action, the Plaintiff sues the Defendant for a sum of HK$5,830,000 pursuant to a bond purchase agreement dated 8 July 2019 (the “Bond Agreement”), in relation to which a bond certificate dated 16 July 2019 was issued (the “Bond Certificate”).

2.  It is the Plaintiff’s case that she is a lawful bondholder. There is no dispute that 2 former directors of the Defendant signed and/or issued the Bond Agreement and Bond Certificate on behalf of the Defendant.

3.  The forefront of the Defendant’s case is that the 2 former directors who were involved in the transaction had no authority to act on its behalf at all.

4.  It is Defendant’s alternative case that even if it were privy to the Bond Agreement/Bond Certificate, the transaction thereunder is anyhow invalid and/or unenforceable for want of consideration.

5.  In the premises, the issues to be determined in this action are:-

(1) whether the 2 former directors of the Defendant had authority to enter into the transaction under the Bond Agreement/Bond Certificate on behalf of the Defendant (the “Authority Issue”)?

(2) if the 2 former directors had authority to enter into the transaction under the Bond Agreement/Bond Certificate on behalf of the Defendant, whether the transaction is invalid and/or unenforceable for want of consideration (the “Consideration Issue”)?

B. Material Background

6.  The Defendant is a listed company, whose shares are listed on the Hong Kong Stock Exchange (stock code: 8039).

7.  It is not in dispute that at the time when the Bond Agreement and Bond Certificate were executed and issued, Ms Shi Lijie (“Ms Shi”) and Mr Sun Xiao Li (“Mr Sun”) (ie the 2 former directors whose authority is in question) were the Defendant’s executive directors.

8.  The Plaintiff came from the Mainland. She is now a Hong Kong resident. However, as of July 2019, she had not yet become a Hong Kong resident.

9.  According to the Plaintiff[1], back in early July 2019, she had an available fund of HK$5,500,000. In order to qualify for the Government’s capital investment entrant scheme, she had to invest the said fund of HK$5,500,000 in Hong Kong[2].

10.  At the time, Mr Chiu Tin Chit（趙天喆）advised the Plaintiff on various investment matters. Mr Chiu introduced the Plaintiff to Mr Fan Chi Pang（范志鵬）, Mr Terry Man（文浩全）, and Mr Mok Wan Fung（莫雲峰）, who were in the financial industry. They recommended the Plaintiff to purchase the bonds issued by the Defendant, and the Plaintiff was told that the Defendant was financially robust. The Plaintiff was persuaded[3].

11.  In the circumstances, on 8 July 2019, the Plaintiff, together with Mr Chiu, Mr Fan, Mr Man, Mr Mok, and his son, attended the office of a security firm named Yuen Tai Securities Ltd (元大證券) (“Yuen Tai”)[4]. There:-

(1) The Plaintiff signed and executed the Bond Agreement for acquiring a bond in the principal sum of HK$5,500,000, repayable in 1 year and carrying interest at 6% per annum. It is not in dispute that Mr Sun signed and executed the Bond Agreement[5] on behalf of the Defendant. It is also not in dispute that the Bond Agreement bears a chop that carries the Defendant’s name[6].

(2) The Plaintiff also signed various documents to set up an investment account with Yuen Tat. This was done for the purpose of acquiring the bond issued by the Defendant.

12.  As evidenced by the bank records[7], on 11 July 2019, the Plaintiff paid a sum of HK$5,510,000 to Yuen Tai. Whilst HK$5,500,000 thereof was the subscription sum under the Bond Agreement, the remaining sum of HK$10,000 was the fee charged by Yuen Tai.

13.  As stated in the Defendant’s annual report for the financial year ended 31 March 2020[8], the Defendant’s group did receive the aforesaid sum of HK$5,500,000 through its wholly owned subsidiary, namely Golden Legend Capital Ltd (the “Subsidiary”). This admission is consistent with:-

(1) the payment instruction dated 8 July 2019 issued by Ms Shi on the Defendant’s behalf[9], wherein the information of the bank account of the Defendant’s Subsidiary is set out; and

(2) the official receipt dated 16 July 2019 issued by Mr Sun on behalf of the Defendant’s Subsidiary[10], which confirmed that a sum of HK$5,500,000 for acquiring or subscribing the bond under the Bond Agreement had been received.

14.  On 16 July 2019, Ms Shi and Mr Sun, on behalf of the Defendant, issued the Bond Certificate[11] in favour of the Plaintiff. The Bond Certificate sets out, inter alios:-

(1) the principal amount of the bond (ie HK$5,500,000);

(2) the interest payable to the Plaintiff (ie 6% per annum);

(3) the period of the bond (ie from 16 July 2019 to 16 July 2020);

(4) the Plaintiff’s status as the registered holder of the bond and her rights to receive payment;

(5) the Plaintiff’s rights to assign the bond to third parties and the procedure in respect thereof; and

(6) the parties’ agreement that the Bond Certificate is subject to and should be construed in accordance with Hong Kong law.

15.  Based on the terms set out in the Bond Agreement and the Bond Certificate, the bond purchased by the Plaintiff matured on 16 July 2020.

16.  However, when the Plaintiff claimed repayment of the principal sum of HK$5,500,000 and the 6% interest in the amount of HK$330,000, the Defendant refused to pay a single penny to the Plaintiff.

17.  In gist, it is the Defendant’s case that the transaction in question had to be approved by its board of directors, but Ms Shi and Mr Sun had never obtained the approval of the Defendant’s board of directors before they purportedly executed and/or issued the Bond Agreement/the Bond Certificate on the Defendant’s behalf.

18.  The Defendant relied on a document dated 31 August 2015 that is titled “material contracts and legal commitment policy”[12] (hereinafter the “Contracts Policy”)[13]. According to the Contracts Policy:-

(1) it applies to all directors in any situation where they are involved in entering into material contracts and other legal commitments;

(2) an officer of the Defendant is authorized to enter into negotiations and/or approve or sign contracts on behalf of the Company only pursuant to (i) a valid board resolution and/or (ii) a valid delegation of authority from a board authorized officer, the chairman, or other member of the board; and

(3) the issuance of bonds always requires the approval of the Defendant’s board of directors.

19.  Relying on the Contracts Policy, Mr Justin Ismail (for the Defendant), in his opening submissions, submitted that the Defendant’s board of directors is the organ that retains the power to issue bonds, but it may delegate such a power to a director. However, the evidence shows that the Defendant’s board of directors had never authorized Ms Shi and Mr Sun[14] to issue bonds. Accordingly, Ms Shi and Mr Sun did not have actual authority to execute and/or issue the Bond Agreement/Bond Certificate on behalf of the Defendant, and the transaction thereunder is invalid and/or unenforceable for want of authority.

20.  Insofar as the Plaintiff’s reliance on the ostensible authority on the part of Ms Shi and Mr Sun is concerned, Mr Ismail contended that:-

(1) The Defendant’s board of directors had never, by words or conduct, made a representation to the Plaintiff that Ms Shi and Mr Sun had authority to execute and/or issue the Bond Agreement/Bond Certificate; and

(2) The Plaintiff entered into the transaction under the Bond Agreement/Bond Certificate irrationally and recklessly. In this connection, it is the Defendant’s pleaded case[15] that the Plaintiff ignored the facts that (i) the Bond Agreement/Bond Certificate did not bear the Defendant’s common seal; (ii) the Bond Agreement was not countersigned by a witness; and (iii) there was no formal board resolution from the Defendant.

21.  Further, Mr Ismail also contended that the transaction under the Bond Agreement/Bond Certificate is invalid and/or unenforceable for want of consideration. He stressed that whilst the Defendant and its Subsidiary are separate legal entities, the sum of HK$5,500,000 was paid to the Defendant’s Subsidiary, not the Defendant.

C. Legal Principles on Assessment of Credibility

22.  In Lee Fu Wing v Yan Paul Po Ting [2009] 5 HKLRD 513 at 534, DHCJ Au (as Au JA then was) set out the well-established approach to assessing credibility. In the course of assessing the credibility of a party’s case, the court shall consider the following matters:

(1) whether the party’s case is inherently plausible or implausible;

(2) whether the party’s case is, in a material way, contradicted by other evidence (documentary or otherwise) which is undisputed or indisputable;

(3) where it is shown that a witness has been discredited over one or more matters to which he has given evidence using the above tests, this is relevant to the assessment of his overall credibility; and

(4) the demeanour of the witnesses.

23.  In the context of adjudicating a dispute in relation to an alleged oral agreement or understanding, in Joint and Several Trustees of the property of Yeung Wing Sing v Yeung Wing Sing & Anor [2021] HKCFI 2018 at para 26, Recorder Yvonne Cheng SC (as Cheng J then was) pointed out that:

(1) contemporaneous written documents and documents which came into existence before the problems in question emerged are of the greatest importance in assessing credibility;

(2) in deciding whether to accept a witness’s account, importance should also be attached to the inherent likelihood or unlikelihood of an event having happened, or the apparent logic of events;

(3) care should be taken in regard to the consistency of the witness’s evidence with undisputed or indisputable evidence, and the internal consistency of the witness's evidence;

(4) care should be taken in drawing conclusions about truthfulness and reliability solely or mainly from the appearance of a witness or from the assessment of a witness’s character; and

(5) witnesses’ credibility should be tested by reference to the objective facts proved independently of their testimony, and the court should consider their motives and the overall probabilities.

D. Deliberation: the Authority Issue

D1 Actual Authority

Article 101(2) of the Defendant’s Articles of Association

24.  Whilst Mr Kwan Ping Kan, together with Ms Phobe Lee, (for the Plaintiff) made extensive submissions on questions relating to implied actual authority[16], they also pertinently referred to article 101(2) (“Article 101(2)”)[17] of the Defendant’s amended and restated articles of association (the “Defendant’s Articles of Association”), which states that:-

“Any person contracting or dealing with the [Defendant] in the ordinary course of business shall be entitled to rely on any written or oral contract or agreement or deed, document or instrument entered into or executed as the case may be by any two of the Directors acting jointly on behalf of the [Defendant] and the same shall be deemed to be validly entered into or executed by the [Defendant] and the same shall be deemed to be validly entered into or executed by the [Defendant] as the case may be and shall, subject to any rule of law, be binding on the [Defendant].” (emphasis added)

25.  Mr Ismail sensibly accepted that in considering whether a director has actual authority to enter into an agreement or a transaction on behalf of a company, the starting point is the company’s articles of association[18]: see Hoi Bun Investments No 1 Ltd v Bdh Commercial (Hong Kong) Ltd [2025] HKCFI 4998 at para 21 and Zhang Kan v SPH (Hong Kong) International Trading Co Ltd [2022] 3 HKLRD 813 at para 12[19].

26.  Under Article 101(2), so long as an outsider deals with the Defendant in the ordinary course of business and 2 directors jointly enter into an agreement or execute a document or an instrument on behalf of the Defendant, such agreement, document, or instrument shall be treated as valid. The agreement, document, or instrument shall be binding on the Defendant, and the outsider shall be entitled to rely on the same as against the Defendant.

27.  As Lord Neuberger NPJ explained in Akai Holdings Ltd (in Liquidation) v Thanakharn Kasikorn Thai Chamkat (Mahachon) (2010) 13 HKCFAR 479 at para 58 (referring to Northside Developments (1990) 170 CLR 146, 198 (per Dawson J)), the indoor management rule cannot be invoked to create authority when none otherwise exists, and it only has scope for operation if it can be established independently that the person purporting to represent the company had actual or ostensible authority to enter into the transaction.

28.  However, it would be incorrect to assume that Article 101(2) is a mere reiteration of the indoor management rule or the Turquand rule[20] at common law. This is not the case. Article 101(2) goes further.

29.  Article 101(2) seeks to create a substantive and affirmative state of affairs where 2 directors would have adequate authority to bind the Defendant in the ordinary course of business. It appears to me that the purpose of Article 101(2) is to ensure that notwithstanding any internal resolutions and/or internal guidelines adopted by the Defendant, (i) 2 directors would be in a position to enter into transactions on behalf of the Defendant in the ordinary course of business; and (ii) outsiders who deal with the Defendant in the ordinary course of business could safely assume that 2 directors would have the authority to enter into transactions on behalf of the Defendant.

30.  In the premises, I am of the view that Article 101(2) does confer actual authority to 2 directors of the Defendant to enter into agreements and execute documents or instruments on behalf of the Defendant in the ordinary course of business.

31.  Since the Bond Agreement/ Bond Certificate were executed and issued by Ms Shi and Mr Sun (who were directors) on behalf of the Defendant, it appears that Article 101(2) is determinative of the disputes between the parties.

The Contracts Policy

32.  Mr Ismail invited me to construe Article 101(2) alongside the Contracts Policy.

33.  However, in the present context, there is no room to reconcile Article 101(2) with the provisions in the Contracts Policy on which the Defendant seeks to rely (see paragraph 18 above). They are plainly incompatible with each other. Whilst Article 101(2) effectively provides that 2 directors would have adequate authority to bind the Defendant, the relevant provisions in the Contracts Policy provide that the approval of the board of directors must be obtained.

34.  I cannot see how the Defendant may rely on the Contracts Policy to defeat, override, or qualify Article 101(2). Obviously, the Contracts Policy is not part of the Defendant’s Articles of Association.

35.  In this connection, there is no evidence showing that the Defendant had passed a shareholders’ resolution and/or a directors’ resolution to adopt and/or approve the Contracts Policy. It appears that the Contracts Policy is merely an internal guideline that somehow found its way to the Defendant’s internal records. In the circumstances, there is simply no evidential basis for alleging that an outsider, who is in the Plaintiff’s position, would know (or should have known) about the existence of the Contracts Policy.

36.  In any event, even if the Plaintiff knew (or should have known) about the existence of the Contracts Policy (which was not the case[21]), this would not avail the Defendant at all. As pointed out, the Contracts Policy (which has not been adopted by the Defendant’s shareholders by virtue of a validly passed resolution) is not part of the Defendant’s Articles of Association. As such, the same is incapable of defeating, overriding, or qualifying Article 101(2).

The Bond Certificate was issued/executed by 2 Directors

37.  I do not lose sight of the fact that the Bond Agreement was only executed by Mr Sun on behalf of the Defendant. Nonetheless, the Bond Certificate was executed by both Mr Sun and Ms Shi on behalf of the Defendant.

38.  As pointed out, Article 101(2) provides that a document or an instrument that is executed by 2 directors shall be treated as valid and binding, and outsiders would be in a position to rely on the same as against the Defendant. As such, by virtue of Article 101(1), the Plaintiff is plainly entitled to rely on the Bond Certificate.

39.  In this connection, it is noteworthy that the term of the bond that was acquired by the Plaintiff did not commence on the day when the Bond Agreement was signed (ie 8 July 2019). Instead, the term commenced on the day when the Bond Certificate was issued (ie 16 July 2019). Since the Plaintiff, via Yuen Tai, paid the subscription sum of the bond (ie HK$5,500,000) on 11 July 2019 and the official receipt was not issued until 16 July 2019[22], this is understandable.

40.  As stated in the Bond Certificate, this document constitutes evidence of the Plaintiff’s interests in respect of the bond. As mentioned, the Bond Certificate further set out (i) the principal value of the bond (ie HK$5,500,000); (ii) the interest to which the Plaintiff is entitled (ie 6% per annum); and (iii) the duration of the bond (ie 1 year). Furthermore, it also states that the bond is subject to and governed by the underlying terms of the Bond Agreement.

41.  In the premises, by executing and/or signing the Bond Certificate on behalf of the Defendant, the 2 directors (ie Mr Sun and Ms Shi) must have (i) affirmed the validity and enforceability of the transaction under the Bond Agreement and (ii) acknowledged the Plaintiff’s rights and interests as a bondholder under the transaction. Mr Sun and Ms Shi did, on behalf of the Defendant, confirm the validity of the bond and the Plaintiff’s rights and entitlements in respect thereof. In the circumstances, any defect in the Bond Agreement regarding the question of authority must have been ratified. I cannot see how the Defendant could wriggle out of the Bond Certificate.

Ordinary Course of Business

42.  Article 101(2) would only be engaged if the transaction in question is within the “ordinary course of business”.

43.  According to clauses 3(a) and 3(b) of the Defendant’s memorandum of association[23], the Defendant is a “holding company” as well as an “investment company”, and it was established to “acquire, hold, dispose, sell, dealing in or trade…shares, stock, debentures, debenture stock, annuities, notes, mortgage, bonds, obligations and securities, foreign exchange, foreign currency deposits and commodities...”.

44.  In this connection, when Mr Chung Yuk Lun (who was a director of the Defendant prior to August 2024) testified for the Defendant, he said that the Defendant is an investment holding company, and the substantive business operations are carried out by the Defendant’s subsidiary companies.

45.  In my view, there is nothing unusual or extraordinary about the fact that a listed company, whose objects and functions include holding investments and the interests in subsidiary companies, would take steps to acquire financing from outsiders. This kind of financing exercises can enable the listed company to expand its investment activities as well as the business operations of its subsidiary companies. They are obviously advantageous.

46.  When Mr Chung Yuk Lun was cross-examined by Mr Kwan, he candidly accepted Mr Kwan’s suggestion that as a listed company, what the Defendant is normally expected to do is to raise funds, and one of the ways for achieving this is to issue bonds. Whilst this was a fair concession, Mr Chung suggested that Article 101(2) is not engaged because the Defendant does not issue bonds on a “recurring” basis, and it cannot be said that issuing bonds is a “day-to-day” activity of the Defendant.

47.  With no disrespect to Mr Chung, I am not of the view that his subjective understanding of Article 101(2) is correct:-

(1) Article 101(2) does not provide that its application is confined to the Defendant’s “day-to-day” activities. The question is whether transaction in question is within the Defendant’s “ordinary course of business. In my view, the focus is on the nature of the transaction in question, rather than merely the frequency with which transactions of similar kinds take place. Depending on the circumstances, transactions that do not take place on a daily basis can still fall within a company’s “ordinary course of business” (see Michael Wilson & Partners v Emmott [2015] EWCA Civ 1028 at para 22 (per Lewison LJ)), and the question of frequency is merely one of the matters to take into account. In the present case, the salient feature is that the Defendant is an investment-holding vehicle as well as a listed company whose function is to raise and gather funds. As fairly accepted by Mr Chung, issuing bonds is one of the activities, which the Defendant is normally expected to carry out. I cannot see how Mr Chung can simultaneously suggest that an activity that the Defendant is normally expected to carry out would fall outside of the Defendant’s “ordinary course of business”. This is self-contradictory.

(2) In any event, on the evidence available to this court, it is not correct to assume that the Defendant did not issue bonds on a “recurring” basis. For instance, the Defendant’s annual report for the financial year ended 31 March 2020[24] shows that on 30 August 2018, an independent third party subscribed bond in the amount of HK$5,000,000 carrying interest at 8% per annum. I simply cannot see how it can be said that it would be unusual or extraordinary for a listed company like the Defendant to issue bonds.

48.  Further, having considered the full circumstances relating to the transaction under the Bond Agreement/Bond Certificate, I am unable to discern any unusual or onerous feature in respect of the transaction in question. As Mr Kwan pertinently pointed out, the interest under the bond (ie 6% per annum) was, to say the least, modest. I am not of the view that the transaction in question was onerous and/or unusual, and thus should be treated as falling outside of the Defendant’s “ordinary course of business”.

49.  I do not lose sight of the evidence of Mr Chung[25] that the Defendant had commenced HCA 1276/2010 against Ms Shi, Mr Sun, and another director for alleged breach of fiduciary duties[26]. In my view, this would not avail the Defendant’s defence in the present action at all. There has been no suggestion that the Plaintiff colluded with Ms Shi and Mr Sun in committing wrongdoings against the Defendant. Having heard the evidence of the Plaintiff, I have no doubt that she was a bona fide outsider who was genuinely interested in acquiring the bond issued by the Defendant, and this was why she paid the subscription sum of HK$5,500,000. In my view, the Plaintiff, at all material times, sought to transact with the Defendant in a bona fide manner. There is simply not a shred of evidence showing that the Plaintiff knew about (or ought to know about) Ms Shi and Mr Sun’s alleged acts of causing the Defendant’s subsidiary companies to grant unauthorized loans.

50.  For the above reasons, I disagree with the suggestion that the transaction under the Bond Agreement/Bond Certificate is outside of the Defendant’s “ordinary course of business”, such that Article 101(2) is not engaged at all.

“Subject to any Rule of Law”

51.  Mr Ismail pointed out that under Article 101(2), the validity of the agreement, instrument or document that is signed by 2 directors is expressly said to be “subject to any rule of law”.

52.  I am not of the view that this observation would avail the Defendant.

53.  As pointed out, Article 101(2) (which is placed under a section that deals with the general powers of the Defendant’s directors[27]) effectively empowers 2 directors to enter into transactions on the Defendant’s behalf in the ordinary course of business. It appears obvious to me that Article 101(2) is a self-contained provision that deals with the question of whether 2 directors have adequate authority to bind the Company. There is no room to suggest that the legal principles on agency at common law (such as the doctrine of ostensible authority) shall replace, override, or qualify the operation of Article 101(2).

54.  In my view, the purpose of the phrase “subject to any rule of law” is to make clear that if the underlying transaction entered into by 2 directors is void ab initio or voidable, neither the Defendant nor the outsiders dealing with the Defendant can rely on Article 101(2) to contend that the underlying transaction is otherwise valid and/or enforceable. For instance, if the underlying transaction entered into by 2 directors is void ab initio or voidable by reason of illegality, against public policy, misrepresentation, or undue influence, the party that seeks to uphold the transaction cannot rely on Article 101(2) to contend that a fiction or convention of validity has been created.

55.  In the premises, I am not of the view that the Defendant can rely on the phrase “subject to any rule of law” to contend that Article 101(2) is inapplicable.

Article 107 of the Defendant’s Articles of Association

56.  In his closing submissions, Mr Ismail drew my attention to Article 107 of the Defendant’s Articles of Association, which provides that:-

“The Board may exercise all the powers of the [Defendant] to raise or borrow money and to mortgage or charge all or any part of the undertaking, property and assets (present and future) and uncalled capital of the [Defendant] and, subject to the Law[28], to issue debentures, bonds and other securities, whether outright or as collateral security for any debt, liability or obligation of the [Defendant] or of any third party” (emphasis added)

57.  Relying heftily on Active Base Ltd v Roderick John Sutton & Ors (HCCW 470/2005, 4 June 2008), Mr Ismail submitted that Article 107 of the Defendant’s Articles of Association stipulated that the power to borrow money is vested with the board of directors, and 2 directors of the Defendant did not have actual authority to issue bonds without the authorization of the board.

58.  In Active Base Ltd (supra):-

(1) One of the disputes concerned whether 2 directors executed corporate loan documents without authority (para 101).

(2) The bye-laws (ie articles 104(2) and 110) of the company (ie Moulin Global Eyecare Holdings Ltd (“Moulin”)) were almost identical to Articles 101(2) and 107 of the Defendant’s Articles of Association (para 102).

(3) Kwan J (as Kwan VP then was) pointed out that the power to borrow money and to charge the company’s assets was vested with the company’s board of directors (para 103). On the facts of that case, the learned Judge held that the relevant board meeting where the corporate loan documents were approved was invalid for want of notice, and certain directors would not have agreed to the loan transaction (para 104 to 106).

(4) In holding that the applicant or outsider (ie Active Base) was not entitled to rely on article 104(2) (ie the equivalent of Article 10(2) of the Defendant’s Articles of Association), the learned Judge stated that this article was “subject to the condition that Active Base was dealing with Moulin in good faith and did not know or was not put on inquiry of the irregularity that there was no properly notified board meeting to approve the [corporate loan documents] and to authorize [the 2 directors] to execute the same.” (paras 109(1) and 110).

59.  Each case will have to be decided on its own facts.

60.  In my view, a salient feature that distinguishes Active Base Ltd from the present case is that unlike the scenario in the present case, in Active Base Ltd, the loan transaction in question involved a debenture by which all the assets of the company (ie Moulin) was charged in favour of the lender under a first floating charge (para 21(1))[29]. This was obviously extraordinary. In contrast, the present case involves a modest and unsecured bond transaction. As accepted by Mr Chun Yuk Lun, who testified for the Defendant, one of the things that the Defendant is normally expected to do for raising funds is to issue bonds.

61.  Against this background, the way in which the applicant or outsider in Active Base Ltd relied on article 104(2) of the bye-laws of Moulin was fundamentally different from the way in which the Plaintiff relied on Article 101(2) of the Defendant’s Articles of Association:-

(1) In Active Base Ltd, the applicant or outsider simply relied on article 104(2) of the bye-laws of Moulin to contend that as the corporate loan documents were executed by 2 directors, they were deemed to be validly executed (para 109(1)). Having said that the loan transaction in question involved a debenture that charged away all the assets of Moulin (ie the company), it is understandable why the applicant or outsider did not seek to contend that the transaction was within Moulin’s ordinary course of business, such that article 104(2) of the bye-laws would confer actual authority to the 2 directors. It appears that the applicant or outsider merely relied on article 104(2) as if it reiterated the indoor management rule or the Turquand rule at common law. This explained why instead of discussing the question of whether article 104(2) conferred actual authority, in paragraph 110 of the Decision, Kwan J emphasized the applicant or outsider had to act in good faith and was not put on enquiry. This was obviously a response to the argument pursued by the applicant or outsider in that case.

(2) In contrast, in the present case, having said that 2 directors (ie Ms Shi and Mr Sun) entered into the bond transaction on the Defendant’s behalf and that such a bond transaction was within the Defendant’s ordinary course of business, the Plaintiff contended that Article 101(2) of the Defendant’s Article of Association created a substantive and affirmative state of affairs where these 2 directors would have adequate authority to bind the Defendant. It is the Plaintiff’s case that Article 101(2) did confer actual authority to Ms Shi and Mr Sun. This is the core issue in this action.

62.  Put simply, unlike Active Base Ltd, the present case involves a scenario where the applicable article (ie Article 101(2) of the Defendant’s Article of Association) conferred actual authority to the 2 directors, whose authority is in question. Based on the decision in Active Base Ltd, it appears that the issue of whether the article in question conferred actual authority was not argued before Kwan J. In the premises, Active Base Ltd does not shed light on the core issue in dispute in the present action, and it would not avail the Defendant’s defence.

63.  I now consider the question of whether Article 101(2) of the Defendant’s Articles of Association is indeed overridden, defeated, or qualified by Article 107 as contended by Mr Ismail.

64.  For the following reasons, I answer this question in the negative.

65.  Whilst Article 101(2) and Article 107 shall be construed together with each other, they are not mutually exclusive at all. There is no basis to suggest that the 2 directors’ authority to enter into a bond transaction in the ordinary course of business under Article 101(2) is inconsistent with the power of the board of directors to borrow money and/or to issue bonds under Article 107. As pointed out by the learned authors of Bowstead & Reynolds on Agency (23^rd Ed) at para 3-001(3):-

“[a] conferral of authority does not remove the principal’s privilege to perform the same tasks personally”

66.  My difficulty with Mr Ismail’s proposed interpretation is that if he were correct, Article 101(2) would be completely otiose and/or futile. This cannot be correct. It is trite that in interpreting a contractual document, all parts of it must be given effect where possible, and no part of it should be treated as inoperative and surplus. This is a corollary to the principle that a contractual document should be construed as a whole: see Sir Kim Lewison, The Interpretation of Contracts (8th Ed) at para 7.24.

67.  It is important to bear in mind that Article 107 is merely a “permissive” provision. By using the word “may”, Article 107 merely “permits” the Defendant’s board of directors to cause the Defendant to borrow monies and/or to charge its assets. In this connection, as pointed out by Mr Kwan, article 2(2)(d) of the Defendant’s Articles of Association[30] expressly provides that ‘the words “may” shall be construed as permissive’, whereas ‘the words “shall” or “will” shall be construed as imperative’.

68.  Without adopting the words “shall” or “will”, Article 107 does not stipulate that only the Defendant’s board of directors shall have the power to cause the Defendant to borrow money and/or to charge its assets. Meanwhile, Article 101(2) does not provide that its effect and/or operation is limited by or subject to Article 107; nor does Article 101(2) provide that transactions relating to borrowing money and/or issuing bonds shall be carved out.

69.  In the premises, Article 107 does not have the effect of defeating, overriding, or qualifying Article 101(2).

70.  In my view, the gross effect of Article 101(2) and Article 107 is such that:-

(1) The Defendant’s board of directors are permitted by Article 107 to borrow money and/or issue bonds.

(2) Meanwhile, under Article 101(2), so long as the transaction for borrowing money and/or issuing bonds is within the Defendant’s ordinary course of business, 2 directors shall have adequate authority to bind the Company, and outsiders shall be able to rely on the contracts, documents, and instruments that the 2 directors execute on behalf of the Defendant.

71.  I am of the view that this interpretation is capable of giving effect to both Article 101(2) and Article 107 of the Defendant’s Articles of Association. Meanwhile, it also makes commercial sense and is fair. Having adopted Article 101(2), the Defendant has obviously accepted that 2 directors would have adequate authority to bind itself viz-a-viz outsiders in the ordinary course of business.

72.  For completeness, I should also repeat that as pointed out in paragraphs 27 to 29 above, the effect of Article 101(2) is not to regurgitate the indoor management rule or the Turquand rule at common law. Instead, it seeks to create a substantive and affirmative state of affairs where a transaction entered into by 2 directors in the ordinary course of business shall be binding on the Defendant. In the premises, the Plaintiff’s case is simply not premised on the operation of the indoor management rule or the Turquand rule at common law. There is, thus, no room for the Defendant to contend that Article 101(2) does not operate as the Plaintiff did not act in good faith and/or was put on enquiry. In any event, for those reasons mentioned in paragraphs 35 and 49 above and paragraph 81 below, I am not of the view that the Plaintiff acted in bad faith and/or was put on enquiry.

Sum Up

73.  For all the above reasons, I conclude that:-

(1) Article 101(2) of the Defendant’s Articles of Association did confer actual authority to Ms Shi and Mr Sun to enter into the transaction in question under the Bond Agreement/Bond Certificate.

(2) By virtue of Article 101(2), the Plaintiff is entitled to rely on the Bond Certificate (which was executed by Ms Shi and Mr Sun on the Defendant’s behalf).

(3) By jointly executing the Bond Certificate, Ms Shi and Mr Sun had affirmed the Plaintiff’s rights and interests as a bondholder and/or ratified the transaction in question, and any defect in regard to the execution of the Bond Agreement (which was only done by Mr Sun) had been cured.

(4) The transaction in question was within the Defendant’s ordinary course of business. As such, Article 101(2) must be engaged.

(5) The transaction under the Bond Agreement/Bond Certificate is not invalidated by any “rule of law” within the meanings of Article 101(2).

(6) The operation of Article 101(2) in the present case is not defeated, overridden, or qualified by Article 107.

74.  In the premises, I decide the Authority issue in favour of the Plaintiff.

D2 Ostensible Authority

75.  In light of my conclusion on the question of actual authority, it is unnecessary to decide the question of ostensible authority. However, for completeness, I should set out my views as follows.

76.  I am of the view that if the position were such that (as Mr Ismail contended) only the Defendant’s board of directors might lawfully cause the Defendant to enter into the transaction under the Bond Agreement/Bond Certificate, the Plaintiff would not be able to rely on the alleged ostensible authority on the part of Ms Shi and Mr Sun.

77.  As Lord Neuberger NPJ pointed out in Akai Holdings Ltd (supra) at para 43 (referring to Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 at 506), in order for an outsider to enforce a contract against a company entered into by a purported agent, the 4 conditions that have to be satisfied are as follows:-

“(1) a representation that the agent had authority to enter on behalf of the company into a contract of the kind sought to be enforced was made to the contractor;

(2) such a representation was made by a person or persons who had ‘actual’ authority to manage the business of the company either generally or in respect of those matters to which the contract relates;

(3) the contractor was induced by such a representation to enter into the contract, that is, he in fact relied upon it; and

(4) under its memorandum or articles of association the company was not deprived of the capacity either to enter into a contract of the kind sought to be enforced or to delegate authority to enter into a contract of that kind to the agent.”

(see also Re Power Ease Development Ltd [2025] HKCFI 2392 at paras 32 to 33 (per Peter Ng J))

78.  Insofar as the 1^st and 2^nd requirements are concerned (ie the existence of a representation emanating from a person with authority that the purported agents had authority):-

(1) Mr Kwan relied on the following facts:-

(a) Ms Shi and Mr Sun were appointed as the Defendant’s executive directors; and

(b) The Bond Agreement bears the Defendant’s chop.

(2) In my view, the mere fact that Ms Shi and Mr Sun were appointed as the Defendant’s executive directors could not ipso facto constitute a representation to outsiders that they necessarily had the authority to enter into the transaction in question. If Mr Kwan’s suggestion were correct, any director who has been validly appointed would, by virtue of their office, necessarily have ostensible authority to bind the company. This cannot be correct. Depending on the circumstances of the case, it appears to me that something more is required. At least, it would have to be shown that the company’s board of directors affirmatively places the directors or agents whose authority is challenged in a position that carries the ostensible authority in question. However, in the present case, there is simply no evidence showing that the Defendant’s board of directors had placed Ms Shi and Mr Sun in a position that carried ostensible authority. I am unable to discern any conduct on the part of the Defendant’s board of directors that was tantamount to making a representation that Ms Shi and Mr Sun had authority.

(3) I am also of the view that the mere fact that the Bond Agreement bears the Defendant’s chop would not avail the Plaintiff. As pointed out by Deputy District Judge Gary CC Lam (as he then was) in Zhang Kan (supra) at para 23, the mere use of the company’s chop does not ipso facto constitute a representation for the purpose of ostensible authority. This is because the purported agent may use the company’s chop without the company’s proper approval, and anyone may readily purchase a company chop crafted by a vendor. In the present case, there is simply no evidence showing that the Defendant’s board of directors had permitted Ms Shi and/or Mr Sun to place the Defendant’s chop on the Bond Agreement. I cannot see how it can be said that there was a representation emanating from Defendant’s board of directors.

(4) On the evidence available to the court, it appears to me that the only fact that the Plaintiff may plausibly rely on is Article 101(2) of the Defendant’s Articles of Association. As pointed out in section D1 above, Article 101(2) effectively empowers 2 directors to enter into transactions on the Defendant’s behalf in the ordinary course of business. Obviously, the Defendant’s Articles of Association was available to the public at all material times. Nonetheless, the Plaintiff did not make plea and/or give evidence, suggesting that she had perused or studied the Defendant’s Articles of Association before she entered into the transaction under the Bond Agreement/Bond Certificate. In the premises, the reality was that the Plaintiff, at the material times when the transaction took place, was simply unaware of the existence of Article 101(2). Thus, it cannot be said that a representation that 2 directors had authority was made to the Plaintiff.

(5) For the above reasons, I am not of the view that the 1^st and 2^nd requirements for establishing ostensible authority are satisfied.

79.  As regards the 3^rd requirement (ie reliance on the representation):-

(1) For the reasons elaborated in the paragraph immediately hereinabove, I am of the view that Article 101(2) of the Defendant’s Articles of Association might constitute a representation to the public that 2 directors could have adequate authority.

(2) However, since the Plaintiff was unaware of the existence of Article 101(2) before she entered into the transaction under the Bond Agreement/Bond Certificate, there is simply no factual basis for suggesting that the Plaintiff had relied on the representation under Article 101(2).

(3) In the premises, I am not of the view that the 3^rd requirement for establishing ostensible authority is satisfied.

80.  For the above reasons, had it been necessary for me to decide the question of ostensible authority, I would have held that ostensible authority is not established.

81.  For completeness, it should be mentioned that Mr Ismail extensively cross-examined the Plaintiff on the issue of whether she was reckless and/or irrational in entering into the transaction under the Bond Agreement/Bond Certificate. In this connection:-

(1) The Plaintiff (who was, by and large, a candid witness) emphasized that the Defendant is a listed company, and Hong Kong is subject to the rule of law. More pertinently, she also relied on the following facts:-

(a) the Bond Agreement bears the Plaintiff’s chop;

(b) the Bond Agreement and the Bond Agreement bear the signatures of Ms Shi and Mr Sun, who were the Defendant’s executive directors;

(c) clause 7.1 of the Bond Agreement[31] provides that her notices should be (i) sent to an address belonging to the Defendant (which was consistent with the public records) and (ii) addressed to the Defendant’s board of directors or company secretary; and

(d) she received an official receipt[32] in respect of the subscription payment of HK$5,500,000, which was issued by Mr Sun on behalf of the Defendant’s Subsidiary.

(2) Mr Ismail pointed out that the aforesaid matters do not show that Ms Shi and Mr Sun were duly authorized to enter into the transaction on the Defendant’s behalf. Mr Ismail also vigorously challenged the Plaintiff by pointing out, inter alios, the facts that she had never:-

(a) taken steps to obtain a board resolution from the Defendant[33];

(b) verified whether the chop appearing on the Bond Agreement is genuine and whether the use thereof had been authorized[34];

(c) investigated why despite the existence of a witness clause[35], the execution of the Bond Agreement was not witnessed by any person[36]; and

(d) investigated why payment instruction dated 8 July 2019 bears a chop showing an English name that does not belong to the Defendant[37].

(3) I accept Mr Ismail’s submissions that the matters relied on by the Plaintiff do not ipso facto show that Ms Shi and Mr Sun acted with authority. Obviously, with the benefit of hindsight, the Plaintiff could have taken further steps to protect her own interests.

(4) However, I would not go so far as to find that the Plaintiff was reckless and/or irrational. I understand why an unsophisticated individual investor, who was in the Plaintiff’s position, would rely on the signatures of a listed company’s executive directors as well as a chop that appears to belong to the listed company. On the available evidence, I am not of the view that the Plaintiff knew (or should have known) that the transaction was illegitimate or irregular. In this connection, clause 7.1 of the Bond Agreement does provide that the Plaintiff’s notices should be addressed to the Defendant’s board of directors or company secretary. In my view, there was an overwhelming impression that the transaction was legitimate and known to other officers of the Defendant, and it was not the case that the transaction was hijacked by 2 directors only.

(5) In the premises, had it been necessary for me to decide the question of whether the Plaintiff was reckless and/or irrational, I would have answered the same in the negative.

D3 Usual Authority

82.  As a further fallback, Mr Kwan also sought to rely on the alleged “usual authority” on the part of Ms Shi and Mr Sun. As a matter of taxonomy, it has been suggested that this is a sub-category of implied actual authority. According to the learned authors of Bowstead & Reynolds on Agency (23^rd Ed) at para 3-028:-

“An agent who is authorized to conduct a particular trade or business or generally for the principal in matters of a particular nature, or to do a particular class of acts, has implied authority to do whatever is incidental to the ordinary conduct of such trade or business, or matters of that nature, or is within the scope of that class of acts, and whatever is necessary for the propose and effective performance of the duties undertaken: but not to do anything that is outside of the ordinary scope of the agent’s employment and duties.”

83.  Mr Kwan emphasized that:-

(1) The Defendant did not have a chief executive officer at the material times.

(2) According to page 9 of the Defendant’s annual report for 2019, the board of directors delegated the day-to-day responsibility to the executive directors and the senior management.

(3) As stated in pages 29 and 30 of the Defendant’s annual report of 2019, Ms Shi and Ms Sun’s background was concerned with finance and corporate management.

84.  Despite Mr Kwan’s submissions, I am unable to infer that Ms Shi and Ms Sun were impliedly authorized to enter into the transaction under the Bond Agreement/Bond Certificate by virtue of their positions as executive directors of the Defendant. As evidenced by page 10 of the Defendant’s annual report for 2019, the Defendant had 8 executive directors at the material times, and Ms Shi and Mr Sun were only 2 of them. There was simply no evidence before the court showing that Ms Shi and Ms Sun were tasked with the responsibility for raising funds for the Defendant and/or its subsidiary companies, such that they must have been impliedly authorized to enter into the bond transaction in question. I am unable to infer that Ms Shi and Ms Sun must have been delegated with the responsibility for raising funds by reason of their personal background.

85.  Had the position been such that (as Mr Ismail contended) Article 101(2) was not engaged and that the power to authorize the transaction in question was only vested with the Defendant’s board of directions, I would have held that Ms Shi and Ms Sun did not have usual authority.

E. Deliberation: the Consideration Issue

86.  For the reasons set out in section D1 above, I find that the Defendant is privy to the transaction under the Bond Agreement/Bond Certificate by virtue of the actual authority on the part of Ms Shi and Mr Sun under Article 101(2) of the Defendant’s Articles of Association.

87.  It is, thus, necessary to determine whether the transaction in question is invalid and/or unenforceable for want of consideration.

88.  As mentioned, Mr Ismail stressed that the Plaintiff’s sum of HK$5,500,000 for acquiring the bond issued by the Defendant was paid to and/or received by the Defendant’s Subsidiary, not the Defendant itself. Thus, it cannot be said that the Defendant had received any consideration in the transaction.

89.  I cannot accept Mr Ismail’s contention.

90.  It is trite that consideration needs to move from the promisee, but it does not need to move to the promisor: see Chitty on Contracts (35^th Ed) at paras 6-040 and 6-041.

91.  Further, it has been suggested where the parties acted on the basis that a valid contract existed, it would take very compelling reasons for the court to hold that the contract in question is invalid in law for want of consideration, and the court will adopt a pragmatic approach. In Chong Cheng Lin Courtney v Cathay Pacific Airways Ltd (CACV 7/2010, 16 November 2010) at paras 50 to 51, A Cheung J (as Cheung CJ then was) stated:-

“50. However, the rigour of the general rule as to consideration has been ameliorated, but not without critics… In City Polytechnic of Hong Kong v Blue Cross (Asia-Pacific) Insurance Ltd [1995] 2 HKLR 103, 109, cited by the trial judge in para 33 of his judgment, Rhind J pointed out ‘a trend towards a pragmatic appraisal of consideration in commercial relationships’. Rhind J attributed the observation of this trend to Lord Wilberforce in New Zealand Shipping Co Ltd v AM Satterthwaite & Co Ltd [1975] AC 154, 167C-E…

51. The law must not depart from the reality of everyday life for no good reason. Having concluded that the relevant provisions in the 1991 Handbook were indeed intended by the parties to have contractual force, and having observed that throughout both Cathay and its cabin attendants had honoured those provisions on that footing (save where genuine disagreement appeared regarding its scope of application, like what happened in the present case), it would take very compelling reasons for the Court to hold that what were regarded as contractual by the parties actually had no contractual force in law for want of consideration.” (emphasis added)

92.  Applying the legal principles, I cannot see how it can be said that the transaction in question is unenforceable for want of consideration.

93.  Whilst clauses 1.1 and 2.1 of the Bond Agreement[38] stipulate that the Plaintiff shall pay the subscription sum of HK$5,500,000, the bank records[39], the Defendant’s annual report for the financial year ended 31 March 2020[40], and the official receipt[41] show that the Plaintiff did pay the said subscription sum of HK$5,500,000, and the same had been received by the Defendant’s Subsidiary via Yuan Tai.

94.  In the premises, there was, in fact, good consideration moving from the Plaintiff: see Chitty on Contracts (35^th Ed) at paras 6-040 and 6-041.

95.  Further, it is incontrovertible that Yuan Tai, in pursuant to the payment instruction that Ms Shi issued on the Defendant’s behalf[42], paid the subscription sum of HK$5,500,000 to the Defendant’s Subsidiary on the Plaintiff’s behalf. The official receipt issued by Mr Sun on behalf of the Defendant’s Subsidiary on 16 July 2019[43] expressly refers to the Bond Agreement and the bond acquired by the Plaintiff, and there is every reason to believe that the Defendant’s Subsidiary received the Plaintiff’s subscription sum on the Defendant’s behalf. On the same day when the official receipt was issued, Ms Shi and Mr Sun, on behalf of the Defendant, further issued the Bond Certificate in favour of the Plaintiff. In the circumstances, it is plain and obvious that the parties regarded the transaction as valid and completed, and it was not the case that the subscription sum of HK$5,500,000 was paid to and received by the Defendant’s Subsidiary out of the blue. I cannot see any reason why the law should treat the parties’ transaction as invalid and/or unenforceable.

96.  Accordingly, I decide the Consideration Issue in favour of the Plaintiff. I find that the transaction under the Bond Agreement/Bond Certificate is supported by good consideration, and thus valid and enforceable.

F. Disposition

97.  For the reasons set out in sections D1 and E above, I allow the Plaintiff’s claim against the Defendant. I order the Defendant to pay the Plaintiff the sum of HK$5,830,000[44].

98.  The Plaintiff’s claim and/or cause of action accrued on 16 July 2020 (ie the day when the bond became mature).

99.  In the premises, it would be just and fair to order that there be interest at 1% above the prime rate on the said sum of HK$5,830,000 from 16 July 2020 to the date of this judgment, and thereafter there be interest at judgment rate until payment in full.

100.  There is no reason why costs should not follow the event.

101.  I make a costs order nisi that the costs of these proceedings, including all costs reserved, be paid by the Defendant to the Plaintiff to be taxed if not agreed (with certificate for 1 counsel).

102.  Lastly, I thank Mr Kwan Ping Kan, Ms Phoebe Lee, and Mr Justin Ismail for their helpful assistance.