HE WEI v. DIRECTOR OF IMMIGRATION

HCAL 2091/2019

[2020] HKCFI 328

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST NO 2091 OF 2019

________________________

________________

____________________

J U D G M E N T

____________________

Introduction

1.  This is the hearing of the substantive application for judicial review, made in the terms of a Form 86 dated 22 July 2019, and following the grant of leave on 18 December 2019.  The Applicant seeks to challenge a decision communicated by the Respondent, the Director of Immigration (“Director”), in a letter dated 2 July 2019 (“Decision”).

2.  The Applicant and his wife and two children (together “Family”) are Chinese nationals and permanent residents of Guinea-Bissau.  On 21 May 2013, the Family entered Hong Kong pursuant to resident entry permits granted by the director under the Capital Investment Entrance Scheme (“Scheme”).  Those permits were granted on 10 May 2013, on the basis that the Applicant had invested more than $10 million in permissible investment assets (“PIA”) within the meaning of the Scheme.  (For the avoidance of any doubt, all references to dollar sums in this Judgment are denominated in Hong Kong dollars.)  The original PIA chosen were investments in Hong Kong blue-chip bank shares.

3.  Following extensions granted twice in 2015 and 2017, the Family’s permission to remain was due to expire on 21 May 2019. However, the original investments had in March 2013 been transferred to a shareholding in Long Success International (Holdings) Limited (“Long Success”), a company listed on the GEM.  Unfortunately, shortly after that investment, Long Success encountered significant difficulties involving likely fraud and gross mismanagement.  Its shares were suspended from trading on 3 December 2013.  The listed market price of the Applicant’s total shareholding in Long Success (“Shares”) on the last trading day before suspension was $6,698,700 (“$6.7 million”).  Trading never resumed.  Long Success’ listing status was cancelled, and it was delisted on 19 October 2016.  Ultimately, Long Success was formally dissolved on 31 July 2018.

4.  By the Decision, the Director stated that, to facilitate consideration of the applications for further extension of the resident permits under the Scheme, the Applicant must reinvest $6.7 million in other PIA.  The Director said so, because he has placed a value on the Shares as at 19 October 2016 of $6.7 million, that is at the last traded price on 3 December 2013.

5.  The Applicant challenges the Decision on two grounds of review, which Mr Shaphan Marwah, Counsel for the Applicant, says can be distilled into two questions:

(1)     Has the Director correctly applied the Scheme to the Applicant’s factual circumstances, in particular the references concerning “market value”? (Ground 1)

(2)     Does the Decision operate unreasonably in the public law sense, for one or more of three reasons, namely (a) it is based on the incorrect factual premise that the Applicant’s investment had a market value of $6.7 million at the material time; (b) it has an oppressive effect on the Applicant; or (c) it treats the Applicant partially and inconsistently without justification? (Ground 2)

6.  It is common ground that these questions give rise to the core consideration of, or focus on, the market value of the Shares as at 19 October 2016.  But Mr Julian Lam, Counsel for the Director, says that Ground 1 overlaps with and cannot go further than existing public law principles, so that it stands or falls with Ground 2, and that the Applicant cannot establish the Director made a reviewable error or was unreasonable in the public law sense.

The Scheme and Other Factual Background

7.  There is little, if any, significant factual dispute between the parties.  It is, however, fair to point out that some of the matters relating to Long Success may not have been known to the Director contemporaneously, though they have later been brought to his attention.

8.  The Applicant and his Family were amongst the successful applicants for resident entry permits granted by the Director under the Scheme.  The Scheme had been launched in October 2003, and (albeit with some changes) continued until suspended with effect from 15 January 2015.  The launch timing was when Hong Kong was suffering an economic recession, at least in part from the impact of SARS.  The purpose of the Scheme was to attract the inflow of capital, and the expected positive benefit to the Hong Kong economy which might flow from the injection of additional funds for investment and business generation and employment.  The Scheme was intended to be generous, flexible, and attractive by reference to similar schemes in other jurisdictions.  The Scheme contemplated that entrants might apply for permanent residence or unconditional stay after participating in the Scheme for 7 years.

9.  One aspect of the intended flexibility was to leave the choice of investment assets to the entrant, albeit that the investment would have to be in certain permissible investment assets, namely the PIA.  The PIA are defined in §1.15 as the assets defined in §4 of the Scheme.  All PIA must be assets denominated in Hong Kong dollars.  The PIA originally included real estate assets, but that was suspended in October 2010, albeit that there was then included permission to invest in investment-linked assurance scheme products.  Materially for present purposes, the PIA always included “shares of companies that are listed on the Hong Kong Stock Exchange and traded in Hong Kong Dollars”, that is Hong Kong listed securities of the kind invested in by the Applicant.

10.  §4.1 of the Scheme provides that an entrant must “invest and remain invested throughout the period of the Scheme applicable to him” in one of or a combination of the PIA classes.  This is a core requirement for first and continued eligibility under the Scheme.

11.  §5.1 of the Scheme provides that, in order to qualify and remain qualified under the Scheme, an entrant must comply with the various requirements in respect of his portfolio of PIA.  §5.1(b) relating to specified financial assets includes procedural restrictions on how the investments are held, such as in a specified account, and requirements to notify the Director of the appointed financial intermediary, and the requirement to prove to the satisfaction of the Director all relevant details of transactions.  Whilst an entrant is required to transact only in specified financial assets, he is permitted to switch between different types of specified financial assets at any time.  §5.1(b)(vii) provides that (emphasis in original):

“An Applicant may at any time dispose of or realise the value of the Specified financial assets which qualify under the Scheme but will only continue to be eligible and to qualify under the Scheme if he reinvests NOT LESS THAN the entire Market value of those Specified financial assets in [PIA].”

12.  §6 of the Scheme addresses changes in value, and provides for “ring-fencing” of the investment.  The ring-fencing principle is a key feature of the Scheme.  So long as the investment is ring-fenced, the Scheme is not concerned with whether the Applicant gains or loses in the investment (and, of course, neither the Director nor the HKSAR Government can be made liable for any loss on any investment made by an entrant pursuant to the Scheme).

13.  §6.1 provides that:

“The Applicant/Entrant is not required to top-up the value of his investment in either class of [PIA] should its Market value fall below the requisite minimum level of [$10 million] Net even in the event of a total loss.”

14.  §6.2 provides that an entrant must not withdraw any appreciation from his investment, stating in part:

“… the investment that qualifies the Entrant’s entry to Hong Kong and continued stay in Hong Kong will be ring-fenced within the Scheme and must be reinvested under the Scheme Rules.”

15.  §8 of the Scheme deals with matters relating to entry, stay and extensions.  §8.1 provides that:

“Upon the Entrant furnishing proof to the satisfaction of the Director that the investment in [PIA] has been completed, permission to stay as a non-Hong Kong permanent resident will be granted for 2 years subject to the condition that the Entrant must continue to satisfy the requirements of the Scheme throughout this period. Further extensions for 2 years will be granted on the same conditions and on the same basis.”

16.  There are also aspects of the Scheme intended to guard against potential abuses, and to ensure effective monitoring of entrants’ investments.

17.  As to the assessment of market values, §1.13 applies.  §1.13.1 identifies a reasonably standard or familiar definition, and provides that:

“As a general principle [”Market value”] means the best price reasonably obtainable for which assets or property should exchange as between a willing buyer and a willing seller in an arm’s length transaction after appropriate marketing wherein the parties had each acted knowledgeably, prudently, without compulsion or regard to the Scheme. The best price reasonably obtainable is the gross price not the net proceeds.

18.  §1.13.3 expressly gives to the director the discretion to adopt the methodology of his choice in determining the market value of assets.  It provides that:

“The value of any assets or property for the purposes of the Scheme including the Surplus Equity will be ascertained by the Director in such manner and by such means as he thinks fit. The Director is expected for example to scrutinise closely:

(a) transactions between parties not at arm’s length for example relatives or associated persons such as companies or trusts under the influence of or influenced by the Applicant, the Entrant or his or their relatives or associates; and

(b) suspected “back-to-back” arrangements where the Applicant or Entrant has raised money on the security of Real estate qualifying for the Scheme in order to circumvent the prohibition on financing the acquisition or holding of Specified financial assets by borrowing or leveraging against Specified financial assets.”

19.  §1.13.4 materially provides that:

“In the event that the price or consideration advanced or relied upon by the Applicant or Entrant as being the Market value of the asset or property in question for any purpose of the Scheme is not the Market value of that asset or property, the Director may substitute the Market value for all purposes of the Scheme. This may result in the Applicant or Entrant not becoming eligible for or being or becoming disqualified from the Scheme. …”

20.  Also as regards market value, reference may be made to §5.1(b)(iii) of the Scheme which, amongst other things, identifies that;

“The Director may check with the Hong Kong Stock Exchange or other reputable information service for the Market value of any Specified financial asset at the date of any sale or purchase, and that he may substitute such price as the Market value in place of any figure provided by the Applicant/Entrant.”

21.  It may also be worth noting overall that §1.1 of the Scheme provides that:

“The Scheme Rules, which expression includes throughout these Rules all amendments to them from time to time, are written in simple English and are intended to be given a fair, large and liberal interpretation to ensure the attainment of the objects of the Scheme.”

22.  The Applicant first applied for entry under the Scheme on 6 December 2011, and approval in principle was granted on 22 August 2012.  The Applicant and Family were regarded as eligible to be granted resident entry permits because the Applicant had invested more than $10 million in PIA, being Hong Kong listed securities of which he was the beneficial owner.  The original securities invested in were shareholdings in well-known Hong Kong banks.  But the investment was transferred by the Applicant’s broker (“Yuanta”) – presumably on the instructions of, or with the consent of, the Applicant – to the investment in the Shares of Long Success.

23.  That new investment was completed on 12 March 2013.  Shortly after, on 17 April 2013, Long Success announced the resignation of its Chairman, Mr Wong Kam Leong. It seems that Mr Wong left Hong Kong in April 2013, and has never since returned.  On 22 April 2013, Long Success announced that a writ of summons had been issued against it concerning an alleged dishonoured cheque, claiming $80 million.  On 30 April 2013, Long Success announced the dishonoured cheque for the Chairman’s signature, but that there was no board approval and that the matter had been referred to the police for possible theft and/or conspiracy to defraud.

24.  As noted above, trading in Long Success shares was suspended on 3 December 2013, and was never resumed.  On 18 August 2014, Long Success, Mr Wong and two other directors were censored by the GEM Listing Committee for mismanagement, and amongst other things it was stated that Long Success did not have any meaningful, let alone adequate, internal controls.  On 24 November 2014, Long Success announced that the GEM Listing Committee had decided to cancel its listing, unless a viable resumption proposal were to be submitted.  On 2 October 2015, Long Success announced the resignation of its CFO.

25.  On 12 February 2016, Long Success’ financial results for Q3 of 2015 showed: (a) no revenue over the entire period and a net loss of $17.2 million; (b) an increase in shareholders’ negative equity from minus $6.6 million to $-46.7 million; (c) which cast doubt about the group’s ability to continue as a going concern; (d) litigation against the company continue to be outstanding, including the $80 million claim on the cheque signed by the former Chairman; and (e) the company had not been operating in the accounting period, and had put all its resources on the completion of a conditional acquisition.

26.  Announcements in July and October 2016 made by Long Success related to a loan agreement, conditional on a resumption proposal being accepted by the GEM Listing Committee, and the possible acquisition agreement or reverse takeover, also similarly conditional. However, neither matter came to fruition.  On 7 October 2016, Long Success announced that the GEM Listing Committee had finally rejected its resumption proposal, and that its listing would be cancelled. Long Success was delisted on and with effect from 19 October 2016.

27.  In February 2018, Long Success formally ceased to have a place of business in Hong Kong.  On 31 July 2018, Long Success was formally dissolved by the Bermuda Registrar of Companies, on the basis that it was not carrying on business and/or was not in operation.

28.  During this sorry story relating to Long Success, permission for the Family to remain in Hong Kong as residents under the Scheme was extended twice.  The first time was in 2015, and the second was on 7 April 2017.  It can be noted that the second extension was granted after Long Success was delisted, but this may be because the Director was not duly notified of the delisting as was required under the Scheme.

29.  On 26 April 2019, the Family applied for a third extension of permission to remain in Hong Kong as residents for two years under the Scheme.  Whilst it is correct that those applications have yet to be finally determined by the Director, the correspondence between the parties relating to the application have identified the current likely result.

30.  The Director’s first response to the application, on 10 May 2019, appeared to suggest that he was taking legal advice on whether the Applicant had to reinvest. Later, by letter dated 29 May 2019, the Director sought proof from the Applicant that he had reinvested $6.7 million in PIA.  This was on the basis that, following the listing of Long Success, the Shares were no longer PIA, the Applicant was required to invest in PIA, and the value of the Shares prior to the delisting of Long Success was $6.7 million.

31.  In further correspondence, the requirement for proof of reinvestment was effectively explained as a precursor to the further processing of any extension application.  In the evidence given for the Director by Mr Choi Chi Yuen, he has further explained that it is the Director’s position on the application of the ring-fencing principle and §4.1 of the Scheme, analogously to entrants who realize or dispose of their investments, that the Applicant must reinvest not less than $6.7 million, being the Director’s stated value of the Shares in Long Success before they cease to be PIA on delisting.

32.  The same point was made in the Decision, which led to the application for judicial review.  The Applicant’s and the Family’s permission to remain mean time expired on 21 May 2019.

Applicable Principles

33.  It is settled law that judicial review is not a full merits review or an appeal.  The court is not concerned with the wisdom or correctness in fact or policy.  Rather, the court is exercising a supervisory role, and so is concerned with the lawfulness of an administrative decision, looking to see whether it has been demonstrated that the decision maker’s decision is so absurd or irrational that it can be said to be Wednesbury unreasonable: see, for example, Television Broadcast Ltd v Communications Authority [2016] 2 HKLRD 41 at §146.

34.  The principles which apply to a judicial review premised on the meaning of a Government policy are also well settled: see, for example, Hong Kong Television Network Limited v Chief Executive in Council [2015] 2 HKLRD 1035 at §37, expressly approved on appeal [2016] 2 HKLRD 1005 at §50.  First, the formulation of policies is a proper course for the provision of guidance in the exercise of an administrative decision.  Secondly, what is the meaning of a policy is a matter for the court to construe objectively in accordance with the language used and in its proper context, and the material policy should not be construed as if it was a statutory or contractual provision.  Thirdly, an administrative decision made in departure from a stated policy by the decision-maker’s misinterpretation of its meaning or misunderstanding of the policy itself is defective and unlawful and may be quashed in a judicial review.  This approach gives rise to the consideration of two questions: (1) what is the meaning of the policy in question, that is what does the policy require of the administrator? and (2) has the administrator departed from it?

35.  Decisions can also be found unreasonable in the Wednesbury sense where they are unduly oppressive, because they subject an applicant to an excessive hardship or an unnecessarily onerus infringement of his rights or interests: see R (Khatun) v Newham LBC [2005] QB 37 at §41:

“Clearly a public body may choose to deploy powers it enjoys under statute in so Draconian a fashion that the hardship suffered by the affected individuals in consequence will justify the court in condemning the exercise as irrational and perverse.”

36.  Further, partial treatment without objective justification is unreasonable at common law and may be outside the four corners of the powers entrusted to the decision maker.  Partial treatment may occur in circumstances where (a) persons are in relevantly different circumstances but are treated alike, or (b) are in like or similar circumstances but are treated materially differently: see Director of Immigration v QT (2018) 21 HKCFAR 324 at §§24 & 33.

37.  Ordinarily, where the existence or non-existence of the fact is left to the judgment and discretion of a public body, and that fact involves a broad spectrum ranging from the obvious to the debatable to the just conceivable, it is the duty of the court to leave the decision of that fact to the public body, save where it is obvious that the public body, consciously or consciously, is acting perversely: see, for example, Puhlhofer v Hillingdon LBC [1986] AC 484 at 518D-E, and Building Authority v Appeal Tribunal (Buildings) (25/2014) [2019] 1 HKLRD 512 at §§59-60.

38.  Courts will on occasions intervene to correct an erroneous conclusion on a question of fact, and having examined any relevant material may decide the question for itself: see, for example, Begum v Tower Hamlets LBC [2003] 2 AC 430 at §99, which identifies that:

“A decision may be quashed if it is based on a finding of fact or inference from the facts which is perverse or irrational; or there was no evidence to support it; or it was made by reference to irrelevant factors or without regard to relevant factors. It is not necessary to identify a specific error of law; if the decision cannot be supported the court will infer that the decision-making authority misunderstood or overlooked relevant evidence or misdirected itself in law.”

39.  Recent Hong Kong authority also sets out the four matters which will ordinarily be required: see Chan Ka Lam v Country and Marine Parks Authority [2017] HKCFI 2077 at §132:

(1)     there must have been a mistake as to an existing fact, including a mistake as to the availability of evidence on a particular matter;

(2)     the fact or evidence must have been “established”, in the sense that it was uncontentious and objectively verifiable;

(3)     the appellant (or his advisers) must not have been responsible for the mistake; and

(4)     the mistake must have played a material (but not necessarily decisive) part in the tribunal’s reasoning.”

40.  It is common ground between Mr Lam and Mr Mahwah that the ultimate touchstone is that of substantive unfairness as a result of the error.

Ground 1

41.  I tend to agree with Mr Lam that the two grounds identified by Mr Marwah overlap, and that therefore Ground 1 and Ground 2 may stand or fall together.  However, I think that it remains helpful to consider the two challenges separately (at least at first), as they are different ways of approaching the criticism as to the lawfulness of the Decision.

42.  Mr Marwah says the issues covered by Ground 1 have narrowed because, in the Director’s submissions on the leave application, the Director has clarified that he does not contend that when an entrant suffers a total loss while an asset remains a PIA the entrant nevertheless needs to re-invest any additional amount of money in a PIA.  Hence, the “no top up rule” in §6.1 of the Scheme is not in issue between the parties.  What is in dispute is the value of the Shares during the suspension from trading and before they ceased to be PIA upon delisting.

43.  Mr Marwah submits that the Applicant’s investment in Long Success was spectacularly disastrous by any measure, and that it is plain and obvious from the various public announcements that Long Success had completely collapsed, so that the Shares were worthless by the time of delisting on 19 October 2016.  So, submits Mr Marwah, this is not a case where there need be any “complicated hypothetical economic analysis” required to ascertain the value of the Shares.  Hence, this is a rare, but clear, case where the general concern expressed by Mr Choi simply does not arise.  As it was put by Mr Marwah, there was absolutely no point in considering what multiple of revenue or multiple of profits to apply (since there was neither revenue nor profit), whether discounted cash flow should be applied (since there was no income generating activity), whether the business would get premium or discount to book value (since there was no business left) nor its liquidation value to shareholders (since it was deep in negative equity).

44.  On the definition of market value given by the Scheme, Mr Marwah accepts that the Director has a degree of discretion in making the assessment of market value.  But he submits that the discretion must be exercised both fairly and in conformity with the definition.  He submits that, on the facts of this case, it is bizarre and absurdly rigid for the Director to assert that the last traded price is an accurate reflection of the value of the suspended shares.  Indeed, says Mr Marwah, whilst the Director correctly identifies that ascertainment of the market price is an evaluative exercise, no actual evaluation has been made because the Director simply regards the last traded price as conclusive in all cases.  But in this case, the last traded price was nearly 3 years old at the time of delisting, and predated the various announcements showing and explaining Long Success’ demise.  Here, says Mr Marwah, a ‘prudent investor’ would necessarily consider not just the last traded price but various market information, including public announcements, and the fact that Yuanta’s brokerage statements provided from 2014 onwards showed the Shares to have a value of either nil or n/a.

45.  Mr Marwah also relies upon the fact that other forms of PIA include specified financial assets that are not required to be listed, so that there would not always be a “public, transparent and readily accessible” price for those assets.  That would mean, contrary to the suggestion made by Mr Choi, that the Director would have to consider other information in assessing the market value.  Indeed, the Scheme envisages that the Director can demand material from entrants, or from their financial intermediaries, so as to assess their eligibility and entitlement.  Mr Marwah also relies on the Director’s own public announcements, including Press Release LCQ8, issued on 12 December 2018, which stated that each application would be assessed in accordance with the “changes in the value investment” stipulated in the Scheme Rules, and on its own merits.  Mr Marwah emphasises that the Director should have approached the question of market value as a prudent investor would, that is by an evaluative approach giving due weight to the relevant public information and the brokerage statements.

46.  On the application of the principles, and the two-step consideration as to whether the Director has improperly deviated from his own policy, Mr Lam submits that it is important properly to understand the Applicant’s complaint.  Mr Lam says that it is, and must be, confined to arguing that the Director has exercised his discretion improperly.  On analysis, says Mr Lam, the Applicant’s case appears to be that the Scheme imposes three requirements on the Director’s exercise of discretion: (1) he must exercise his discretion fairly; (2) he must exercise his discretion in conformity with the definition of “market value”; and (3) he must approach the question of “market value” as a prudent investor would.

47.  Mr Lam submits, and I agree, that the question of whether the Director has acted fairly can only be meaningfully judged by reference to public law principles, or otherwise the concept of fairness would be a nebulous standard against which to consider the Director’s conduct.  This is where Mr Lam says, and I tend to agree, there is the overlap with Ground 2 (see below).

48.  As to “market value”, Mr Lam says that §1.13.1 defines the ‘theoretical ideal’ as the general principle, and that this is no more than the standard definition of market value.  I agree that the definition is relatively standard, and that it would not and does not commit the Director to any specific methodology as to how the market value would be ascertained.  Indeed, Mr Lam relies on the express discretion afforded the Director by §1.13.3 which states that the determination of “market value” in practice is left to the Director in such manner and by such means as he thinks fit.

49.  But I do not agree with Mr Lam’s submission that this reflects the obvious point that it would usually be impossible to achieve the ideal given the difficulties of share and asset valuation.  I think that submission confuses what is “ideal” and what might be “perfect”.  Any valuation process applying the standard process is unlikely to give only one possible answer, but that does not mean that the answer ultimately reached is not in accordance with the application of the general principle or “ideal”.

50.  There is perhaps more force in the submission that there are necessarily limits to the extent to which the Director is able to conduct the valuation exercise.  But I do not think that that would permit the Director effectively not to conduct the exercise at all by taking a rigid or ‘one size fits all’ approach.  So, whilst I agree with Mr Lam that the Director may determine the market value of an asset in such manner and by such means as he thinks fit, bearing in mind that market value is supposed to represent the best price of an asset if sold between a willing buyer and a willing seller, I also think that identifies the problem in this case.

51.  On the facts of this case, the obvious question to have asked in any valuation exercise would be whether any buyer would be willing to pay the last traded price for the Shares, when that was immediately before a lengthy period of trading suspension which led to delisting, in the circumstances of publicly released information showing the cessation of business and collapse of a company following fraud and mismanagement.  I suppose on the facts of some cases the answer might be “yes”, and even if the answer is “no” that might not necessarily mean that the asset has no value at all. But it is still an obvious question to ask and answer by reference to the particular case on its own merits.

52.  As to the idea of requiring the Director to act as a ‘prudent investor’, Mr Lam submits that this cannot be implied from §1.13.1 and is contrary to §1.13.3 of the Scheme.  I tend to agree.  As Mr Lam says, the concept of ‘prudent investor’ is nebulous and could give rise to all sorts of arguments as to what particular individuals might suggest it would be prudent for them to have done in any given set of circumstances.

53.  But, in any event, the concept of ‘prudent investor’ is an unnecessary and inappropriate gloss on the relatively standard market valuation definition found in the Scheme, by reference to a willing buyer and willing seller.  The question remains whether, within the broad discretion given to the Director by the terms of the Scheme, the Director has acted inappropriately in the public law sense by the market valuation he has assessed simply by reference to the last traded price of the Shares.

Ground 2

54.  Because of the overlap, this does lead to consideration of Ground 2.

55.  Mr Marwah focused first on the argument that the Director made an unreasonable error of fact.  On this aspect, and against the principles set out above, Mr Marwah says the argument targets the $6.7 million valuation given by the Director to the Shares, as being neither a rational “market price” or “value” in any sense, whether in or outside the terms of the Scheme.

56.  Mr Marwah was submits that the Director operates an unpublished policy of valuing securities by reference to the price on their last trading day.  This is said to be justified by the Director (through Mr Choi’s evidence and the Director’s submissions) on the basis that it is: (1) the “most independent” and “objective” indicator; (2) is “public, transparent and readily assessable”; (3) does not depend on subjective views (though this point duplicates the first); and (4) it would be impracticable for the Director’s office to conduct “complicated hypothetical economic analysis” otherwise.

57.  Taking each of the four elements in the Chan Ka Lam case, Mr Marwah submits:

(1)     There has been a mistake of existing fact: (a) the existence of the relevant public documents and brokerage statements are uncontentious and objectively verifiable facts that have been (apparently deliberately) overlooked by the Director; (b) the only reasonable inference from those documents is that the Shares would have been worthless to any prudent investor at the time of delisting; (c) even if some other value could reasonably have been reached, it would necessarily have been less than the pre-suspension price of three years earlier.

(2)     The facts have been established: the public documents and statements are objectively verifiable, and the only reasonable inference from them, that is nil value to the Shares, is also objectively verifiable.  Even more obvious is the inference that the Shares must have decreased in value from the time of suspension.

(3)     The Applicant is not responsible for the mistake: the Applicant has tried to bring the reality of the situation to the attention of the Director, including in correspondence such as he is letter of 21 June 2019.

(4)     The mistake must have played a material part in the decision: the mistakes in overlooking the various documents and the necessary inferences that flow from them are at the heart of the assessment of the Shares’ value on delisting at $6.7 million.

58.  Mr Marhwah also submits that the substantive unfairness to the Applicant is obvious; having lost his entire investment, he is now faced with being denied an extension of permission to remain in Hong Kong if he refuses to invest an additional $6.7 million, flying in the face of the promise that he would not be required to top up his investment, even in the event of a total loss.

59.  In response, Mr Lam submits that findings of fact premised on the weighing or evaluation of conflicting evidence by the decision-maker, which might justify a conclusion either way, are generally outside the purview of judicial review.  Of course, that is correct.  But I do not think that this case requires traversing that territory.  Rather, the focus is on the Court’s exercise of supervisory jurisdiction, looking at the evidence as a whole and considering whether taken as a whole it is not reasonably capable of supporting the findings made.  In other words, the court focuses on whether no decision-maker could reasonably have reached the conclusion on the totality of the evidence.

60.  I do not think it is an answer to the Applicant’s complaint simply to state that, when listed shares are suspended, there is no easy answer as to what their value is.  I accept that it is frequently said, as Mr Lam reminds me, that valuation of shares in a private company is a “notoriously difficult” subject.  But Mr Lam’s extension of that observation to a listed company whose shares have been suspended seems to me to be counter-productive to his own argument.  He says the similarity arises because one no longer has the benefit of the ‘price-finding’ function of an active and public market.  Yet it is in precisely those circumstances that the Director has fixated on an historic price set by an active and public market, to apply a valuation on a date long after that market ceased to be, or could have been, publicly active.

61.  Of course, it might be said that the Shares do not have nil value simply because they have been suspended.  But that seems to me merely to require looking at other material, in addition to the last public traded price, so as to assess what value these particular shares have after a lengthy period of suspension and in the circumstances giving rise to delisting.  It is true, as Mr Lam says, that it is not uncommon for listed shares to be suspended from time to time, for example pending the release of price sensitive information, and that suspended shares may be traded or placed off market, and that even if later delisted they are not necessarily worthless.  But that only identifies the need to consider the particular circumstances in any given case.

62.  So whilst there might be, as Mr Lam submits, good and practical administrative reasons for adopting a starting point of looking at the last traded price, rigidly assuming that that is the end point would be deliberately shut one’s eyes to what might be other material information.  Indeed, relying on the historic last traded price as being “independent, objective, certain, public, transparent and readily assessable” seems to me to run counter to Mr Lam’s own observation that, once a listed company’s shares have been suspended, one no longer has the benefit of the ‘price-finding’ function of an active and public market.  This is certainly so, once shares have been suspended for any significant length of time, as on the particular facts of this case.  The facts of this case are, for example, extremely far from the circumstances of the case where there is a temporary suspension whilst price sensitive information is deployed.  The objectivity and certainty of the price on the last trading day may be important, but its importance is as a matter of common sense likely to diminish, possibly if not probably significantly, over any lengthy period of suspension.

63.  Mr Lam also made the submission that there are strong administrative reasons why the Director should not base his share valuation on public announcements, which are subjective statements by the company, not infrequently inaccurate and sometimes fraudulent.  But if that were right, it is difficult to see why any weight would be placed on share prices which are the public market’s assessment of various factors including the making of such statements.  I do not see any impossibility of drawing the line if there are available public statements to take into account.  The weight to be given to such statements might vary, but that does not simply mean one ignores them in a blanket fashion.  It may be right, as Mr Lam says, that the price impact of public announcements on suspended shares in terms of dollars and cents is highly uncertain, but again that does not mean such statements can simply be ignored in a blanket fashion.  Indeed, taking into account such public statements would help to avoid the concern as to speculating about what happened in between suspension and delisting.

64.  The ability to have taken into account the various public announcements, and to have given appropriate weight to their content in the process of evaluation, is only identified by the schedule to Mr Lam’s skeleton argument.  That schedule contained an analysis of the announcements between suspension and delisting, and the commentary essentially was that the various announcements were far from indicating that the value of the Shares was nil.  On the other hand, it seems to me that any analysis would have shown patently that the value of the Shares did not remain at the last traded price before suspension.

65.  Whilst it may not be practicable for the Director to engage in a complicated hypothetical economic analysis whenever an entrant wishes to argue that the ‘true’ market value of a PIA is in fact at a level different to the last traded price, as Mr Choi says in evidence, there may well be cases where no such complicated analysis (hypothetical or otherwise) needs to be made.  This is one of those cases.

66.  The Director does retain the discretion to ascertain the value of any assets in such manner and by such means as he thinks fit, but he cannot do so perversely.  It may be right, as Mr Lam submits, that one cannot conclusively say that the various public announcements and documents show that the value of Long Success’s shares was zero.  But it seems to me that any common sense evaluation of those announcements against the totality of circumstances would identify, conclusively, that the value of the Shares was not $6.7 million.

67.  In those circumstances, Mr Lam’s criticism of the Applicant’s alternative argument that if the Shares did not have a nil value, they were at least not worth $6.7 million, is misplaced.  It seems to me that the Applicant is asserting a nil value, and as part of his argument to challenge the Director’s valuation he is entitled to assert that the Shares are at least certainly not worth the valuation given by the Director.  I do not think it is manifestly unreasonable and unfair, as Mr Lam suggests, for the Applicant not to have given some alternate price between zero and $6.7 million; the Applicant’s case was and remains that the Shares had no value as at the relevant date of 19 October 2016, when they ceased to be a PIA on delisting.

68.  Again, if one returns to what I have described as the obvious question, namely whether a willing buyer would have paid $6.7 million for the Shares at the point of delisting on 19 October 2016, the only obvious answer is that no willing buyer would pay that sum.  Indeed, once the listing status of Long Success went, even the value that sometimes attaches to such a status disappeared.  Whilst it is correct that shares after delisting might have some value as shares in a (now) private company, on the materials available it seems outside the range of reasonableness to assume that the Shares had any actual value.  Indeed, on the facts, the eventual striking off and the registration of the company altogether seems to have been inevitable from at least 19 October 2016.

69.  In the circumstances, I am satisfied on the particular facts of this case that the Director has made an unreasonable error of fact.  Indeed, other than by blindly adopting the last traded price before suspension of trading on 3 December 2013, it is difficult to see how any person could reasonably reach a conclusion on the particular facts of this case that the value of the Shares upon delisting on 19 October 2016 remained the same as the last traded price.

70.  There is nothing in my conclusion that seems to me to offend any part of, or even spirit of, the Scheme.  The Applicant did invest the required $10 million in a suitable PIA.  It turns out to have been a very poor investment, through no fault of the Applicant (or, of course, the Director).  The value diminished by approximately one third, a not insignificant reduction, even by the date the trading in the Shares was suspended.  That the value of the investment in the PIA reduced ultimately much lower, possibly even to nothing at all, was something that was specifically envisaged as a possibility under the terms of the Scheme.  The ring-fencing requirement was honoured.  The Scheme required no top-up.  If the value of the Shares had dropped to a nil value by the time the investment ceased to be a PIA by virtue of the delisting, then the Scheme specifically envisaged no further investment would be required for continued eligibility under the Scheme.

71.  In those circumstances, I do not think it necessary for me to consider the alternate limbs of argument put forward by Mr Marwah under his Ground 2.  Suffice it to say that I think Mr Lam is correct that neither limb is likely to be independently sustainable.  Ultimately, the question remains whether the Director’s valuation can be impugned on public law grounds.  If not, the Applicant is unlikely to be able to complain that he has somehow been subjected to oppressive or partial treatment, or that there is some other way of attacking the valuation assessment.

Result

72.  The particular alternative forms of relief sought in the Form 86 are as follows:

(1)     a declaration that further investments (or “re-investments”) by the Applicant are not required in order that he and his dependent Family be entitled to extensions of permission to land and remain as residents for two years under the Scheme; or

(2)     a declaration it would be unreasonable and unlawful for the Director to require further investments (or “reinvestments”) from the Applicant in order that he and his dependent Family be entitled to extensions of permission to land and remain as residents.

73.  I think the two alternate forms of relief essentially amount to the same thing, in that the Applicant wishes it to be declared that he need not invest or reinvest in any PIA as a basis for continued entitlement to permission to land and remain as residents.  That presupposes that the Director’s current decision that the Shares were worth $6.7 million as at the date of delisting on 19 October 2016 is quashed, and in its place is put a nil valuation of the Shares as at that date.

74.  On my findings, the Director’s Decision that the Applicant’s and his Family’s extension applications will not be considered unless and until he invests $6.7 million in another PIA must be quashed. I have then to consider what flows from that.  One possibility is that the matter is remitted to the Director to make a particular decision on the particular facts of this case, rather than in the rigid application previously adopted by reference to the last traded price of the Shares.  However, I think in the circumstances and on the proper application of principle, I am able to go on to declare what further investment, if any, would be required for the continued consideration of the extension of stay applications.

75.  As I have already said by reference to the obvious question to ask, the idea that there would have been a willing buyer of the Shares on 19 October 2016 at all seems far-fetched.  On the particular facts of this case, the eventual deregistration of Long Success seems to have been inevitable.  It had no active business, and so no income generating activity capable of creating revenue let alone profit, and was deeply in negative equity.  It appears to have been the ‘victim’ of fraud and at least gross mismanagement.  It does not take any complicated or hypothetical economic analysis to see that Long Success almost certainly had no value which could be attributed to its shareholders.  Whatever approach to valuation, whichever methodology is adopted within the reasonableness demanded by public law principles, would in my view lead inexorably to the same conclusion.

76.  In the circumstances I grant the relief sought by paragraph 1 of the Form 86.

77.  Whilst Mr Marwah has emphasised in his submissions that §§2.1 and 8.1 of the Scheme provide that applicants or entrants who meet the investment criteria “will” be eligible for approval and later “will” be granted extensions of stay, those are not the only criteria determining or potentially affecting the decision whether or not to grant approval or extensions.  I, therefore, make clear that my ruling recognises that the ultimate determination of the Applicant’s and his Family’s applications for extensions of permission to land and remain as residents falls to the Director to make.  However, in making that determination, the Director is not lawfully permitted to require the Applicant to make any further investment in a PIA.

78.  As to costs, I presently see no reason why cost should not follow the event, and I propose to make an order that the Applicant’s costs be paid by the Respondent, to be taxed if not agreed. However, I shall make that order in the first instance on a nisi basis. The order will become absolute unless either party seeks to vary the order nisi within 14 days.  Any variation application will be dealt with on paper.