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

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

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D E C I S I O N

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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.