TJIN JOEN JOE, ANDY TSJOE KONG AND ANOTHER v. oakwise value fund spc

HCA 1463/2022

[2025] HKCFI 1281

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1463 OF 2022

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D E C I S I O N

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1.  This is otherwise a straightforward claim by the 1^st and 2^nd Plaintiffs (respectively “Andy” and “Jessica”, together “Ps”) for the payment of the redemption proceeds by the Defendant (“D”), a segregated portfolio (“SP”) company incorporated in the Cayman Islands, in respect of the redemption of certain participating shares held by Ps in one of the SPs maintained by D.

2.  Hotly disputed by the parties is the issue, among others, as to whether Ps are entitled to obtain a default judgment and execute it by garnishee proceedings against the assets in Hong Kong of other SPs maintained by D.

3.  Before this Court for determination are these matters:

a.  D’s appeal against the Order of the Master dated 28 March 2024

i.  dismissing D’s summons dated 31 March 2023 (“the Setting Aside Summons”) for an order to set aside the default judgment for US$3,316,894.78 dated 16 January 2023 (“the Default Judgment”) and to set aside the garnishee order nisi dated 13 February 2023 (“the Garnishee Order Nisi”) for execution against all debts due from Standard Chartered Bank (Hong Kong) Limited (“the Garnishee Bank”), to D; and

ii.  making absolute the Garnishee Order Nisi (“the Garnishee Order Absolute”);

b.  Ps’ summons dated 20 August 2024 (“the Amendment Summons”) applying for leave to amend the Writ of Summons and the Statement of Claim (“the SOC”); and

c.  D’s summons dated 25 September 2024 as amended[1] applying for leave to adduce the 7^th affirmation of Wang Fengyu (“the New Evidence Summons”).

4.  Mr Norman Nip SC leading Mr Jeff Chan appeared for Ps. Mr Jin Pao SC leading Mr Danny Tang appeared for D.  The Garnishee Bank took a neutral stance and was absent.

THE BACKGROUND

5.  It is not disputed that Ps, both residing in Hong Kong, are sophisticated professional investors with substantial investment knowledge and experience.

6.  D was incorporated in the Cayman Islands on 10 October 2018 as an exempted company with limited liability and registered as a SP company under the laws of the Cayman Islands.  D has two directors, namely Mr. Wang Fengyu (“Wang”) and Mr. Xing Chao.  Apex Fund Services Limited is the administrator of D (“the Administrator”).

7.  One of the SPs maintained by D is the Enhanced Fixed Income SP (“EFI SP”) which was established on 20 March 2019.  It offered non-voting redeemable participating shares (“the Participating Shares”) to investors.  Other SPs maintained by D include Greater China High Yield Income SP (“GCHYI SP”) and Multi-Strategy Growth and Income Fund SP (“MSGIF SP”).

8.  On 11 December 2019, Ps signed a subscription agreement (“the 2019 Subscription Agreement”) to subscribe for and purchase Class A-12M Participating Shares and Class C Participating Shares in the EFI SP at the respective consideration of US$1,000,000 and US$1,000,000.  Ps later switched their Class A-12M Participating Shares to Class C Participating Shares such that they together held US$2,000,000 Class C Participating Shares.

9.  On 19 October 2021, Ps signed another subscription agreement (“the 2021 Subscription Agreement”) to subscribe for Class A-2M Participating Shares in the EFI SP at the consideration of US$1,500,000.

10.  It is common ground that the 2019 and 2021 Subscription Agreements (collectively “Subscription Agreements”) incorporate D’s Sixth Amended and Restated Private Placement Memorandum of March 2022 (“the PPM”), the Fourth Amended and Restated Supplement to the PPM of December 2021 (“the Supplement”) and D’s Amended and Restated Memorandum and Articles of Association dated 17 November 2020 (“the Articles”).  I shall refer to the afore-mentioned documents together as “the Constituent Documents”.

11.  It is not disputed by D that respectively on or around 6 April 2022 and on around 27 April 2022, Ps submitted to the Administrator the redemption form for redemption of all Class C Participating Shares held by them (“Ps’ Class C Redemption”) and the redemption form for redemption of all Class A Participating Shares held by them (“Ps’ Class A Redemption”).

12.  Around that time and thereafter, there were communications between the parties which are disputed.

13.  D’s case, broadly described, is that the investments in EFI SP were invested into various notes issued by real estate companies based in the Mainland and EFI SP experienced challenges in liquidity.  The directors of D therefore had decided in respect of EFI SP to suspend redemption and/or suspend the payments of redemption proceeds.  The liquidity challenge is neither accepted nor seriously disputed by Ps, but the alleged suspension is hotly disputed.

14.  The upshot was that the redemption proceeds for Ps’ Class C Redemption and Ps’ Class A Redemption were not paid to Ps.  On 1 November 2022, Ps commenced this action.

15.  I would also mention the following, though nothing significant turns on it.  From 22 September 2022 to 29 December 2022, D had paid into one of Ps’ joint bank accounts 4 sums totalling US$90,493.06 as part of the redemption proceeds but were said by D to be “without prejudice” payments.  It is now common ground that this total sum should be credited to D.  Indeed, Ps have offered to undertake to return the sum upon the successful execution of the Default Judgment by the garnishee proceedings.

16.  On 16 January 2023, upon default of D filing the Notice of Intention to Defend, the Default Judgment on the following terms was entered:

“ … IT IS THIS DAY ADJUDGED that the Defendant do pay the Plaintiff :-

1. The sum of US$3,316,894.78 together with interest thereon at the rate of 8.000% per annum from 1 November 2022 to the date hereof and thereafter at judgment rate until payment; and

2. Fixed costs of HK$11,045”.

PS’ CLAIM

17.  One of D’s grounds for setting aside the Default Judgment is that Ps’ pleading is fundamentally defective.  I would therefore summarize Ps’ pleaded case here.

18.  The SOC is short, consisting of 16 paragraphs.  After introducing the parties, Ps then pleaded in §9 thereof “the relevant fund terms”, namely, Section 6 of the PPM, Section 1.15 of the Supplement and Articles 1.1 and 9.3 of the Articles, as follows:

“ a. Section 6 of [the PPM] : “Subject to the provisions of the Articles and any Lock-up Period as set out in the relevant supplement, and unless otherwise determined by the Directors, a Participating Shareholder in a Segregated Portfolio shall have the right to request for redemption of its Participating Shares in a Segregated Portfolio from the issuance date of the relevant Participating Shares, by giving a completed redemption request form to the Administrator of no less than 15 Business Days (or any shorter or longer period provided in the relevant supplement) prior to each Redemption Day or such other deadline as the Directors may determine in their absolute discretion from time to time (“Redemption Deadline”). … Unless otherwise approved by the Directors, redemption proceeds should be paid to the relevant Participating Shareholder’s bank account which should be the account where the subscription monies originated from. Redemption proceeds will be paid in the base currency of the relevant Segregated Portfolio. …”

   b.  Section 1.15 of the [Supplement] : “[subject to the Lock-up Period], a Participating Shareholder shall have the right to request to redeem its Participating Shares from the issuance date of such shares, by giving a completed redemption request form to the Administrator by no later than 5:00pm (Hong Kong time) on the Business Day falling at least 10 Business Days before the relevant Redemption Day … Participating Shareholders in a Segregated Portfolio may obtain a redemption request form from either of the Managers or the Administrator and complete such form by stating the number of the Participating Shares in a Segregated Portfolio or the Class of the Participating Shares to be redeemed or the redemption amount in the Class Currency of the relevant Class of Participating Shares and giving payment instructions for the payment of redemption proceeds.  Unless otherwise approved by the Directors, redemption proceeds should be paid to the same bank account of the relevant Participating Shareholder from where the subscription monies were transferred.  Redemption proceeds will be paid in the Class currency of the relevant Class of the Participating Shares.”

   c.  Article 1.1 of [the M&A”] : “Redemption Day means in respect of any Class, such day or days as the Directors may determine on the creation and designation of the Class and such other day or days as the Directors may determine from time to time.”

   d. Article 9.3 of [the M&A] : “Submission of Redemption Notice  A Redemption Notice must be received by the [Fund] as such place and by such time prior to the Redemption Day for which the redemption is requested as the Directors may determine from time to time.  Any Redemption Notice received after the time determined by the Directors will be deemed to be a request for the redemption of the relevant Participating Shares on the next relevant Redemption Day””

   (all original emphasis)

19.  I need to mention that there is at least one mis-quote of Section 1.15 of the Supplement in that the original text was “Subject to the provisions of the Articles, the Lockup Period and unless otherwise determined by the Directors, a Participating Shareholder shall have the right …” and not just “[subject to the Lockup Period]” as quoted in the SOC.

20.  Ps then pleaded in §§10-12 that they contributed between 2019 and 2021 US$1.5 million for subscription of Class A Participating Shares and a further US$2 million for the subscription of Class C Participating Shares in EPI SP, and that they submitted the 2 redemption forms on or around 6 April 2022 and 27 April 2022 respectively.

21.  What follow are the parts D criticized :

“13. The Redemption Day for the Class C Redemption was 20 April 2022 (i.e. 10 business days from 6 April 2022), and the redemption amount payable by the Fund was US$1,751,868.39.

14. The Redemption Day for the Class A Redemption was 12 May 2022 (i.e. 10 business days from 27 April 2022), and the redemption amount payable by the Fund was US$1,565,026.39.

15. Despite repeated demands, the Fund did not pay a redemption amount in a total sum of US$3,316,894.78 or any part thereof to the Plaintiffs.”

D’S BANK ACCOUNTS IN THE GARNISHEE BANK, THE GARNISHEE PROCEEDINGS AND SOME RELEVANT PROCEDURAL HISTORY

22.  According to the Statement of Account of the Garnishee Bank generated on 25 April 2023^[2], D then maintained 35 bank accounts with the Garnishee Bank, 23 of which, according to Wang^[3], were inactive and the Statement of Account correspondingly showed 22 of them had nil balance and one had HK$0.13.  The remaining active 13 bank accounts are:

	Account No.	Account Name (as per the Statement of Account)
1.	36811558572	OAKWISE V F S – E F I S
2.	44719087158	OAKWISE VALUE F S – E F I S
3.	44719087174	OAKWISE VALUE F S – E F I S
4.	44719087204	OAKWISE VALUE F S – E F I S
5.	44719087239	OAKWISE VALUE F S – E F I S
6.	44719090345	OAKWISE V F S – E F I S
7.	44719190498	O C F S – G C H Y I SP
8.	44719190528	O C F S – G C H Y I SP
9.	44719190536	O C F S – G C H Y I SP
10.	44719209601	O V F S – S G A I F S
11.	44719209628	O V F S – S G A I F S
12.	44719209636	O V F S – S G A I F S
13.	44719209644	O V F S – S G A I F S

23.  According to Wang^[4], only the first 6 bank accounts (“the 6 EFIS Bank Accounts”) hold assets attributable to EFI SP, and the other 7 bank accounts hold the assets of GCHYI SP and MSGIF SP, and that the account names in the Statement of Account of “OAKWISE V F S – E F I S” and “OAKWISE VALUE F S – E F I S” are abbreviations for EFI SP, while “O C F S – G C H Y I SP” is the abbreviation for GCHYI SP and “O V F S – S G A I F S” is the abbreviation for MSGIF SP.

24.  This is disputed and not accepted by Ps who, while accepted that according to Cayman Islands law, the PPM and the Articles, D was required and was supposed to segregate the assets of different SPs, contended that there was no evidence showing that D actually did so, and that there were no mixing of funds.

25.  It is common ground that the 6 EFIS Bank Accounts only have a total balance of US$200,000 odd on 25 April 2023, and about US$37,000 now, so I was informed, which is far from sufficient to pay the redemption proceeds.  While, as informed by the Garnishee Bank, the total balance in the remaining 7 bank accounts D maintained with the Garnishee Bank is sufficient to meet in full the sum under the Default Judgment together with costs and interest.

26.  As said, on 13 February 2023 and upon Ps’ application, the Garnishee Order Nisi was granted.  After a contested hearing and on 28 March 2024, the Master made the Garnishee Order Absolute.

27.  On 3 April 2024, D filed a Notice of Appeal against the said Order of the Master dated 28 March 2024.

28.  On 8 April 2024, D filed a summons for interim stay of the execution of the Order of the Master pending appeal.  In respect of this summons, D filed the 3^rd and 4^th affirmations of Wang and the 3^rd affirmation of Jayson Nathan Wood (“Wood 3^rd”) and Ps filed the 3^rd affirmation of Andy on 24 April 2024 (“Andy 3^rd”).

29.  Upon the Garnishee Bank’s stance that it would make the payment to Ps under the Garnishee Order Absolute despite the formal protest to the Garnishee Bank by Glory Ocean Innovation Limited (“Glory Ocean”), an investor in GCHYI SP, and on 18 April 2024, D made an urgent application, supported by the 5^th affirmation of Wang filed on 2 May 2024 (“Wang 5^th”), for an interim stay of the said Order of the Master and was granted it by another Master on 25 April 2024.

SEGREGATION OF ASSETS BETWEEN EFI SP, GCHYI SP AND MSGIF SP

30.  I will first deal with the dispute over whether there was such segregation, to get it out of the way.

31.  Wang’s affirmation evidence given in his 1^st and 2^nd affirmations in this regard has been summarized in §§22 and 23 above.

32.  In the 2^nd affirmation of Andy filed on 29 September 2023, Andy said nothing to dispute Wang’s such evidence.  In Andy 3^rd[5], he merely repeated one of the Master’s reasons given on 28 March 2024 that “there was no supporting document to the effect that there was no mixing of funds in the Defendant’s accounts”.

33.  Then in Wang 5^th, Wang affirmed to the fact that the books and records of each of EFI SP, GCHYI SP and MSGIF SP have been audited separately and a separate set of audited financial statements was compiled in respect of each of these SPs.  He then exhibited true copies of the latest audited financial statements for each of EFI SP^[6], GCHYI SP^[7] and MSGIF SP^[8] and an updated Statement of Account from the Garnishee Bank dated 30 April 2024.  Wang then deposed, among others, that the auditor’s notes recorded that assets and liabilities of each SP were separate, that the statements recorded amounts due to and due from one SP to another and that the cash balance of EFI SP in the 6 EFIS Bank Accounts at the time tallied with the balance in the accounts of EFI SP as per the audited statements dated 31 December 2021^[9].

34.  Moreover, in Wood 3^rd, Wood, the Cayman Islands law expert of D, deposed to the opinion, among others, that under section 219(6) of the Cayman Islands Companies Act (“the CIC Act”), it is the duty of a director of a segregated portfolio company to segregate and keep segregate the portfolio assets, that a breach by a director is an offence by him and he is liable to be fined under section 77(1) of the CIC Act.

35.  Wang 5^th and Wood 3^rd had been filed by D in support of the interim stay application to show that there were merits in D’s present appeal.  They had been relied on by D at the hearing for the urgent stay.  Prior to this hearing, Ps have had opportunities to study and investigate these matters, and particularly to verify whether the audited financial statements of the SPs and the updated Statement of Account indeed showed matters as Wang expressly deposed to and to verify whether the sections in the CIC Act have the effect opined in Wood 3^rd.

36.  At this hearing, there was no dispute that the 3 SPs in fact had been audited separately and that separate sets of audited financial statements were compiled in respect of each SP, there was also no challenge that the bank balance of the EFI SP tallied with the figures in the audited financial statements of EFI SP, as Wang deposed to in Wang 5^th.

37.  At this hearing, the only contentions advanced by Mr Nip on behalf of Ps were (a) the forensic one that there was no evidence showing that there was actual segregation of the assets of the 3 SPs in the context of the bank accounts maintained by D in the Garnishee Bank or showing that there was no mixing of funds amount the bank accounts, and (b) the technical one that there was no formal application by D for leave to rely on Wang 5^th and Wood 3^rd.

38.  I do not accept either of these contentions.

39.  Firstly, the evidence set out above is some evidence in support of segregation of assets between the 3 SPs that this Court can take into account.  Additionally, the fact that the directors of D themselves would be committing an offence under the CIC Act supports the inherent probability that there was actual segregation.  Moreover, it would be most difficult and taxing for D to produce direct documentary evidence to show a negative (which was what Ps have been requiring) - that there was no mixing of funds in the bank accounts held with the Garnishee Bank.  To require D to do so means effectively that D had to collate and produce voluminous documents to account for every entry in the 13 bank accounts from day one onwards to verify that each entry pertains only to the corresponding SP.  Incidentally, D in a way attempted to do so by adducing the 7^th affirmation of Wang by the New Evidence Summons, which was hotly disputed by Ps.

40.  Secondly, if formal leave were required, I would have readily given it to D to rely on Wang 5^th and Wood 3^rd for the reasons that :

a.  They were not filed in other proceedings or in relation to other unconnected application in this action.  As said, they were filed for applying for the interim stay pending this appeal and filed in support of D’s contention that there are merits in its appeal.

b.  The key pieces of evidence provided by Wang 5^th are documentary evidence and by Wood 3^rd are references to sections of the CIC Act, as opposed to factual allegations.

c.  The points made by Wang 5^th set out in §33 above could readily have been either verified or shown to be wrong by referring to the very documents he exhibited, and yet Ps did not dispute them as a matter of substance, but asked this Court not to consider them.

d.  Importantly, as a matter of discretion, the aim of its exercise is to ensure that the parties’ dispute can be adjudicated substantively, and not based on mere technicalities.

41.  In the round, I am satisfied by the evidence mentioned that for the purposes of dealing with the appeal and applications before me that there was actual segregation of the assets of the 3 SPs, including in respect of the bank accounts maintained by D in the Garnishee Bank, as Wang deposed.

THE DEFAULT JUDGEMENT

The Grounds for setting aside the Default Judgment advanced by D

42.  At the hearing, Mr Pao re-formulated ground 1 and put a different emphasis on ground 2, and advanced the following 3 grounds for setting aside the Default Judgment :

a.  The Default Judgment is larger in scope than what Ps’ contractual rights entitled them to and the Default Judgment is liable to be varied, and it therefore ought to be set aside (“the Outside Contractual Right Ground”).

b.  Ps’ pleading was so fundamentally defective that it would be “a travesty of justice” to allow the Default Judgment to be entered on such palpably bad and defective pleading, citing GM Commercial Consultants Corp v Euro-Asia Zhong Ji (HK) Ltd[2021] HKCFI 1378, DHCJ Le Pichon (as the learned JA was then acting as) at §82, affirmed by the Court of Appeal [2022] HKCA 1719 at §28, and applied by this Court in Crowe Christopher Paul Andrew v Wen Xingshun[2024] HKCFI 980 at §§28-38 (“the Defective Pleading Ground”).

c.  There is a defence of merits with a real prospect of success in that Ps’ Class A Redemption and Ps’ Class C Redemption or the payment of the redemption proceeds have been suspended pursuant to the contractual provisions (“the Meritorious Defence Ground”).

The Outside Contractual Right Ground

43.  Mr Pao contended that by the contractual provisions discussed below, Ps’ have a contractual right to be paid the redemption proceeds only from the assets of EFI SP, and contractually they have no recourse into the assets of other SPs or the general assets of D, but the Default Judgment was not so limited, which therefore was a judgment larger in scope that Ps’ contractual entitlement.

44.  I understand that by this ground, D was not contending that the Default Judgment was irregularly entered, but that D has a defence in merits in varying the presently improperly enlarged scope of the judgment to limit it to its proper scope according to Ps’ contractual rights.   Such being the case, I will evaluate the parties’ respective contentions against the threshold of whether D has shown that its such contention has a real prospect of success.

45.  It is not disputed that for a SP company registered under Cayman Island laws, of which D is one, the segregation or ring-fencing of the assets of different SPs is imposed and mandated by ss.219 to 222 of the CIC Act :

“ Assets

219.   (1) The assets of a segregated portfolio company shall be either segregated portfolio assets or general assets.

(2) The segregated portfolio assets comprise the assets of the segregated portfolio company held within or on behalf of the segregated portfolios of company.

(3) The general assets of segregated portfolio company comprise the assets of the company which are not segregated portfolio assets.

(4) The assets of a segregated portfolio comprise —

(a) assets representing the share capital and reserves attributable to the segregated portfolio; and

(b) all other assets attributable to or held within the segregated portfolio.

(5) In subsection (4) –

“ reserves” includes profits, retained earnings, capital reserves and share premiums.

(6) It shall be the duty of the directors of a segregated portfolio company to establish and maintain (or cause to be established and maintained) procedures —

(a) to segregate, and keep segregated, portfolio assets separate and separately identifiable from general assets;

(b) to segregate, and keep segregated, portfolio assets of each segregated portfolio separate and separately identifiable from segregated portfolio assets of any other segregated portfolio; and

(c) to ensure that assets and liabilities are not transferred between segregated portfolios or between a segregated portfolio and the general assets otherwise than at full value.

Segregated portfolio assets

220. Segregated portfolio assets

(a) shall only be available and used to meet liabilities to the creditors of the segregated portfolio company and holders of segregated portfolio shares who are creditors or holders of segregated portfolio shares in respect of that segregated portfolio and who shall thereby be entitled to have recourse to the segregated portfolio assets attributable to that segregated portfolio for such purposes; and

(b) shall not be available or used to meet liabilities to, and shall be absolutely protected from, the creditors of the segregated portfolio company and holders of segregated portfolio shares who are not creditors or holders of segregated portfolio shares in respect of that segregated portfolio, and who accordingly shall not be entitled to have recourse to the segregated portfolio assets attributable to that segregated portfolio.

Segregation of liabilities

221. (1) Where a liability of a segregated portfolio company to a person arises from a matter, or is otherwise imposed, in respect of or attributable to a particular segregated portfolio —

(a) such liability shall extend only to, and that person shall, in respect of that liability, be entitled to have recourse only to —

(i) firstly, the segregated portfolio assets attributable to such segregated portfolio; and

(ii) secondly, unless specifically prohibited by the articles of association, the segregated portfolio company's general assets, to the extent that the segregated portfolio assets attributable to such segregated portfolio are insufficient to satisfy the liability, and to the extent that the segregated portfolio company's general assets exceed any minimum capital amounts lawfully required by a regulatory body in the Islands; and

(b) such liability shall not extend to, and that person shall not, in respect of that liability, be entitled to have recourse to the segregated portfolio assets attributable to any other segregated portfolio.

(2) Where a liability of a segregated portfolio company to a person arises or is imposed otherwise than from a matter in respect of a particular segregated portfolio or portfolios, such liability shall extend only to, and that person shall, in respect of that liability, be entitled to have recourse only to, the company's general assets.

General liabilities and assets

222.   (1) Liabilities of a segregated portfolio company not attributable to any of its segregated portfolios shall be discharged from the company’s general assets.

(2) Income, receipts and other property or rights of or acquired by a segregated portfolio company not otherwise attributable to any segregated portfolio shall be applied to and comprised in the company's general assets.”

46.  Mr Nip reminded that the CIC Act is not part of the Hong Kong law.  That was not disputed by Mr Pao.

47.  Mr Pao’s submission was that the Constituent Documents reflected, if not incorporated, the statutory provisions in the CIC Act on segregation:

a.  In the Subscription Agreements, both contained (i) a confirmation^[10] by Ps that “I/We hereby irrevocably apply for such number of Participating Shares … on the terms of the Memorandum [the PPM], the Articles …”, and (ii) clause 1.17^[11] that “I/We acknowledge that I/We have received, considered and understood in full the Memorandum [the PPM] and this application is made on the terms of and subject to the Memorandum [the PPM] and the Articles”.

b.  In the PPM, there are the following provisions :

 i.  Under section 2 “STRUCTURE OF THE FUND”^[12],

“… As a segregated portfolio company, the Fund is permitted to create one or more segregated portfolios in order to segregate the assets and liabilities of the Fund held in respect of one Segregated Portfolio from the assets and liabilities of the Fund held in respect of any other Segregated Portfolio and/or the general assets and liabilities of the Fund. Under Cayman Islands law, the assets of one Segregated Portfolio will not be available to meet the liabilities of another Segregated Portfolio. … The assets held in each Segregated Portfolio shall be applied solely in respect of the liabilities of such Segregated Portfolio in accordance with the provisions of the Articles and the Companies Act. Any surplus assets in a Segregated Portfolio shall be held, subject to the provisions of the Articles and the Companies Act, for the benefit of holders of participating shares attributable to such Segregated Portfolio.”

ii.  Under section 5 “RISK FACTORS”,

“The Fund is established as a segregated portfolio company. As a matter of Cayman Islands law, the assets of one Segregated Portfolio will not be available to meet the liabilities of another.”^[13]

“Cross liability among classes within a Segregated Portfolio

As a matter of Cayman Islands law, the assets of one Segregated Portfolio will not be available to meet the liabilities of another Segregated Portfolio. Each Segregated Portfolio will maintain separate portfolios of securities representing investments made with proceeds of the issue of each class of Participating Shares that participates in such Segregated Portfolio. …”^[14].

c. In the Articles :

i.  Under Article 1 “DEFINITIONS AND INTERPRETATION”,

“Portfolio means a segregated portfolio created and maintained pursuant to the Companies Law and these Articles for the purpose of segregating the assets and liabilities of the Company held within or on behalf of such segregated portfolio from the assets and liabilities of the Company held within or on behalf of each other segregated portfolio and the assets and liabilities of the Company not held within or on behalf of any segregated portfolio.

Portfolio Assets means, in relation to any Portfolio, the assets of the Company held within or on behalf of such Portfolio”^[15].

ii.  Article 5.3^[16] provides that

“Portfolio Assets. The Portfolio Assets of each Portfolio shall be kept separate and separately identifiable from Portfolio Assets attributable to any other Portfolio and from the General Assets. Subject to the provisions of these Articles, the Portfolio Assets of a Portfolio shall be applied solely in respect of the liabilities of such Portfolio in accordance with the provisions of the Companies Law. Any surplus in such Portfolio shall be held, subject to the provisions of the Companies Law and these Articles, for the benefit of the holders of the Participating Shares attributable to such Portfolio.”

48.  Importantly and directly on the subject of payment of redemption proceeds, Article 5.6^[17] of the Articles expressly provides :

“ 5.6 Distributions. Any Distribution declared in respect of, or redemption proceeds payable on the redemption of, a Participating Share shall be paid solely out of the Portfolio Assets of the Portfolio to which the Participating Share is attributable.”

49.  Ps contended that D’s ground has no real prospect of success.  Mr Nip advanced a very nuanced argument and submitted that under the PPM and the Articles, there was no provision expressly prohibiting Ps, as creditors of D (and as the general law in Hong Kong allows), from having recourse to all the assets owned in Hong Kong by D, regardless of whether they are attributable to SPs other than EFI SP.

50.  As I understand it, his argument ran thus:

a.  Under section 6 of the PPM entitled “SUBSCRIPTION AND REDEMPTION OF PARTICIPATING SHARES”, it is provided :

“ Redemption of Participating Shares

… From the relevant Redemption Day, a redeeming Shareholder will be treated as a creditor for the redemption proceeds of the Participating Shares being redeemed (rather than a Shareholder).  After the relevant Redemption Day, the redeeming Shareholder will have no rights as a Shareholder in respect of the Participating Shares being redeemed save for the right to receive the redemption proceeds and any dividend (if any) which has been declared in respect of the relevant Participating Shares prior to the relevant Redemption Day …”

(my emphasis, to be explained in due course).

b.  Therefore, once the Redemption Notice has been validly given, there would be a significant change in the status of Ps from that of holders of Participating Shares to that of creditors of D.

c.  In Article 1 of the Articles, a “General Creditor” and a “Portfolio Creditor” are respectively defined^[18], the former “means a creditor of the Company who is not a Portfolio Creditor”, while the latter “means a person who is a creditor of the Company in respect of a liability which arises from a matter, or is otherwise imposed, in respect of or attributable to a particular Portfolio”.

d.  Article 9.8 of the Articles provides :

“ Effect of Redemption. … from the Redemption Day, the redeeming Member shall cease to be entitled to any rights in respect of that Participating Share except the right to receive the redemption proceeds and any Distribution which has been declared prior to the relevant Redemption Day (in respect of which the redeeming Member shall be treated as a creditor of the Company)”.

(my emphasis)

e.  Mr Nip emphasized and focused on the term “creditor of the Company” in Article 9.8 and argued that it was used to describe the redeeming member and the defined term “Portfolio Creditor” was not used, and also that there was no other Article in the Articles describing a redeeming member as a “Portfolio Creditor”.

f.  Therefore, as creditors of D not prohibited by any provisions in the contractual documents from recourse to all the assets of D, and as EFI SP is not recognized as a separate legal entity in Hong Kong (which is common ground), and under Hong Kong where there is no law recognizing the segregation, Ps are entitled as judgment creditors of D to execute the judgment on all assets belonging to D.  Therefore, the Default Judgment is not improperly wide as D complained, and the Garnishee Order Absolute should not be set aside.

g.  He further referred to the following statements appearing in the PPM to make the point that D and Ps both acknowledged that other jurisdictions (including Hong Kong) may not recognize the segregation :

“ … the Fund is a single legal entity and no Segregated Portfolio constitutes a legal entity separate from the Fund itself”^[19]

“ However, the Fund is a single legal entity which may operate or have assets held on its behalf or be subject to claims in other jurisdictions which may not necessarily recognise such segregation.”^[20]

“ However, the Fund may operate or have assets held on their behalf or be subject to claims in other jurisdictions which may not necessarily recognise such segregation. There is no guarantee that the courts of any jurisdiction will respect the limitations on liability associated with the Segregated Portfolio Company.”^[21]

51.  With respect, I am unable to accept the contention.

52.  As set out in the provisions of the Constituent Documents referred to by Mr Pao, and I accept his submission, that the provisions in CIC Act concerning segregation of assets among the various SPs maintained by D have been incorporated into the Constituent Documents; and indeed this segregation is the very foundational structure of a segregated portfolio company and the substratum of the investment into EFI SP, which was well understood and contractually agreed to by Ps.

53.  In my view, as a matter of construction of contract, it would require very clear language in the Constituent Documents to show that the parties’ objective intention as expressed therein was such that the redemption proceeds payable for the redemption of any Participating Shares in any SP could be paid out from the assets of any other SPs, for these reasons :

a.  This concept and arrangement of segregation is so evidently provided by and runs through all the Constituent Documents.

b.  It is common ground that the Subscription Agreements are governed by the laws of the Cayman Islands.  The CIC Act is part of the laws of Cayman Islands such that this Court in construing any provisions in the Constituent Documents should presume strongly against any interpretation to the effect that the CIC Act would be violated and not complied with.

c.  Considering the practical and commercial consequences of the interpretation now advocated by Ps, it would not at all be hard to postulate the chaos, uncertainties, unfairness and even absurdity that would result.  For instance, just imagine a scenario in which the investors in 2 SPs, which have been performing wonderfully financially, find the assets of the 2 SPs vanishing, because the assets therein have been used, or are being claimed to be used, to pay the redemption proceeds of the other 5 SPs which performed poorly and their participating shareholders are scrambling to exit by redeeming. The point is so evident that I do not think any further discussion concerning other ramifications whether at a practical level or other level is necessary. There seems to me no logic, commercial or even common sense (quite apart from violation of the CIC Act) in that.  In short, if Ps’ interpretation is adopted, the integrity and viability of the whole structure of segregated portfolios would be undermined.

54.  Not only is Ps’ interpretation not clearly provided by the provisions Ps relied on, quite the contrary Ps are clearly stretching the language, to say the least, to attempt to achieve it.  In my view, Article 9.8 of the Articles (the key provision relied on in Ps’ argument), by merely using the word “creditor” or the phrase “creditor of the Company”, could hardly be interpreted as thereby intended to have a meaning resulting in the aforementioned draconian effect and resulting in the overthrowing all the other provisions that so clearly provided for segregation.  In other words, I find it very difficult to accept that such a draconian undermining of the segregation was intended by such a side-wind.  Rather, and in my view very arguable that, the phrase “creditor of the Company” in Article 9.8 should be read on proper construction as meaning “creditor for the redemption proceeds” as stated in section 6 of the PPM.

55.  Pivotally, Article 5.6 of the Articles, which was conveniently ignored by Ps, in my view directly and in quite certain terms provides that any redemption proceeds payable on the redemption of a Participating Share shall be paid solely out of the Portfolio Assets of the Portfolio to which the Participating Share is attributable.

56.  It seems to me that in the face of and against the clear provision in Article 5.6, there is little room to introduce the consequence advocated by Ps by so interpreting Article 9.8. In my judgment, it is eminently arguable that Article 5.6 controls the contractual rights of Ps whereby contractually the redemption proceeds of Ps’ Class A Redemption and Ps’ Class C Redemption, if payable to Ps, can only be paid solely out of the assets of EFI SP.

57.  I therefore accept D’s submission that there is a real prospect of success in the contention that such only is the contractual right of Ps that they are entitled to enforce in this action. 

58.  Having so concluded, Ps’ point that EFI SP is not a recognized legal entity under Hong Kong law is a red herring as it is the contractual right of Ps that is limiting and not any issue relating to the so-called legal personality of EFI SP.

59.  There is no dispute that the terms of the Default Judgment are such that Ps would be enabled to enforce the judgment as against the assets of the other 2 SPs maintained by D (in fact, that is exactly what Ps want to do), and on the facts, that is not a mere matter of technicality but a matter of substance.

60.  In the circumstances, I find that there is a dispute of substance by D with a real prospect of success that the judgment should be varied to reflect this limitation and that on this ground alone I would exercise my discretion to set aside the Default Judgment.

The Defective Pleading Ground

61.  Having so concluded above, strictly speaking it is not necessary for me to deal with the other grounds.  However, in case I am wrong above and in deference to counsel’s rather full arguments thereon, I will proceed to deal with this ground.

62.  As have mentioned, by this ground, D sought to apply GM Commercial Consultants Corp v Euro-Asia Zhong Ji (HK) Ltd [2021] HKCFI 1378 affirmed by the Court of Appeal in [2022] HKCA 1719 and Crowe Christopher Paul Andrew v Wen Xingshun [2024] HKCFI to the effect that because Ps’ pleading is so fundamentally defective, it would be “a travesty of justice” to allow the Default Judgment to be entered, or if entered, to stand.

63.  I would mention at this juncture, firstly, that initially in D’s written submissions, the main emphasis of this contention was that Ps’ claim should have been for the payment of the redemption proceeds under the terms, and therefore the specific performance, of the Subscription Agreements but it was now dressed up in the SOC as a claim for a debt by such defective pleading so as to enable Ps to proceed under O.13 r.1 to obtain the Default Judgment; and therefore the Default Judgment was irregularly entered. I understand that as D’s submissions developed at the hearing, this emphasis was no longer pursued, so that the main contention on this point was shifted away from the dispute as to whether Ps could or could not have maintained a claim of debt.

64.  Secondly, the parties have addressed the Court further in their short Supplemental Submissions on the Court’s query that strictly speaking, Ps were not required to file and serve the SOC to obtain the Default Judgment under O.13 r.1, but Ps have here, therefore whether the Court is entitled to entertain the contention that the SOC was defectively pleaded and therefore the Default Judgment should be set aside.  Mr Nip referred to O.13 r.9 and a number of cases, included the 2 said cases, and fairly, and I think rightly, accepted that this Court is so entitled.

65.  This ground so re-emphasized operates outside the norm in that in both GM Commercial Consultants Corp and Crowe Christopher Paul Andrew, the regularly entered default judgments were set aside without the applying defendants showing a defence on merits.  Indeed, in GM Commercial Consultants Corp, for reasons that need not be delved into here, the applying 1^st defendant has been debarred from filing evidence in support of the application and the Court therefore could not and did not consider the merits of 1^st defendant’s defence case but only consider the matter on the evidence and materials proffered by the plaintiff.  In Crowe Christopher Paul Andrew, the 1^st defendant, then acting in person, merely filed 2 short affirmations stating that the subject crypto-currency transactions went through on the online platform as usual without him knowing that any alleged fraud was involved.

66.  Apart from other disputes in respect of this ground, Mr Pao and Mr Nip disputed a matter of legal principle concerning the threshold or the test to be applied to trigger this “defective pleading ground” as a ground to set aside a regularly entered default judgment.  Mr Pao submitted that the logical and appropriate threshold or test is that the pleading does not disclose a reasonable cause of action, as one would consider in a striking out application under O.18 r 9.  Mr Nip submitted that to fall within the “travesty of justice” formulation, the defects had to be of a sufficiently high level catered for extreme cases only.

67.  This calls for a closer examination of the two cases.

68.  In GM Commercial Consultants Corp, the plaintiff claimed HK$7 million odd as money had and received being the proceeds of sale of the plaintiff’s 21.5% share in a company.  The body of Statement of Claim was very short and “curiously worded” (per Yuen JA at §7.2 of the CA Decision).  Its pertinent part is worth quoting :

“ 1.   The Plaintiff’s claim is for HK$7,523,955 ... (“the said sum”), being money payable by the Defendants to the Plaintiff as money had and received by the Defendants to the use of the Plaintiff.

PARTICULARS

         On a date unknown to the Plaintiff, the Defendants sold and received from their Head-office or Principal, Zhong Ji (Holdings) Ltd (now known as Zhong Ji Ltd) [State‑owned enterprise belonging to PRC Government] the said sum being the proceeds of sale of the Plaintiff’s 21.5% share in Jiyuan Shopping Town 吉源商城 (“JST”) which has a building floor area of about 89,754 square meters and the current estimated value of over RMB¥160,000,000.00, of which the Plaintiff was/is the true beneficial owner thereof”.

69.  As were set out in §§6-17 of the Decision by DHCJ Le Pichon (as the learned former JA then was acting as) and §§5.2, 14 & 15 of the CA Decision, contrary to what appeared in the Statement of Claim, the dealings in connection with the so-called sale of the 21% share in JST were much more complicated and contentious, and the parties involved were many and their relationship intertwined.  For the present purpose, I do not think it necessary to set out all these factual complexities. The defects in the plaintiff’s pleaded cases were comprehensively analyzed and set out in §§26 to 67 of the Decision of the learned Lady Deputy Judge - under 3 big headings of “The Statement of Claim”, “P’s action is time-barred” and “P has no plausible claim to ownership of the 21.5% share in JST” and various sub-headings thereunder.  Again, it is unnecessary to go into all the details of these defects, which were rather involved against the backdrop of the facts of the case.  Suffice it to mention that her Ladyship concluded very clearly that “there is no question but that P’s cause of action as presently pleaded is not sustainable as a matter of law” (at §80) and “it would be a travesty of justice if the Court were to allow a default judgment to be entered on a palpably bad and defective pleading” (at §82).

70.  In her Ladyship’s decision refusing leave to appeal ([2021] HKCFI 2941), she further said at §22:

“ Where, in the court’s view, P’s pleading was “palpably bad and defective”, a refusal to set aside the default judgment would be tantamount to upholding a judgment that was not founded on a valid cause of action.  The ends of justice would not have been served by such an outcome.”

71.  In affirming the lower court’s decision, Yuen JA giving the judgment of the CA in gist reasoned that (a) a claim in unjust enrichment has not been properly pleaded in that the three basic ingredients required to be pleaded as to “(1) was the defendant enriched? (2) was the enrichment at the plaintiff’s expense? (3) was the enrichment unjust?”  were not pleaded, (b) what were pleaded were the incomprehensible references in the Particulars and the assumption that the money had been received by the defendants and not facts, and (c) then the assertion of a claim of “money had and received”.

72.  In Crowe Christopher Paul Andrew, the plaintiff pleaded against the 1^st and 2^nd defendants the causes of action of “fraudulent and/or wrongful inducement” and “complicit in illegal activities”, and as against all 3 defendants misrepresentation, inducement and conspiracy. In the Decision, this Court (a) set out the elements required to be pleaded in respect of these causes of action (§§21 – 25) and the plaintiff’s acceptance that there was no cause of action known as “wrongful inducement”, (b) emphasized the seriousness of a plea of fraud and reiterated the trite principle that it must be pleaded clearly and with particularity and that it may only be pleaded when there is sufficient and proper evidence, otherwise such plea is liable to be struck out (§20), (c) set out the entirety of the relevant part of the Statement of Claim, and (d) examined the evidence filed by the plaintiff including his contemporaneous complaints by solicitors’ letter (§§12,16-17). This Court found that the factual matters making up the elements of these causes of actions were not at all pleaded or set out in the complaint letter or deposed to in the affirmations.  In other words, the plaintiff’s various causes of action were not only seriously defectively pleaded but was unsupported by evidence.  Essentially, and very much like GM Commercial Consultants Corp, the plaintiff’s entire case rested solely on bare assertions by using the labels of “fraudulent and/or wrongful induced”, “misrepresentation”, “conspiracy” and such.  This Court thus applied GM Commercial Consultants Corp, and concluded, without the need for the showing by the 1^st defendant of a meritorious defence, that it was a travesty of justice if the default judgment was not set aside.

73.  Thus, it can be readily noted that in both cases, while the Statements of Claim were evidently seriously defective, the Court on both occasions would also go behind the pleadings to examine the evidence proffered by the plaintiffs such as to assess, on the plaintiff’s own case, whether it could be causing substantial and real injustice if the default judgment was allowed to stand.  Such an approach was very much in line with the well-established principle that the purpose of the discretionary power under O.13 r.9 to set aside a default judgment is to avoid the injustice which may be caused if judgment follows automatically on default (Hong Kong Civil Procedure 2025 §13/9/12).

74.  One of the evident manifestation of injustice in Crowe Christopher Paul Andrew was this.  Unless and until the plaintiff pleaded clearly the elements of the causes of action and their factual averments, it would be difficult, if not impossible, for the 1^st defendant who was being accused of complicity with others in such serious allegations of fraud and impropriety to meaningfully respond.  It would have been entirely unfair for him to have to guess.  He would not be in a position to offer a meritorious defence save giving bare denials.  He would be in a very difficult position to condescend into particulars in his evidence to show that his “defence” of denial had a real prospect of success, if such were required of him as a threshold he had to meet.

75.  It therefore seems to me that though the defects in pleading were the matters discussed in both the cases and the expression “travesty of justice” was used, still, these two cases were but particular instances of the exercise of the discretion, having considered all the circumstances, to avoid the injustice that judgment follows automatically on default.

76.  Such discretion should remain unfettered and be kept flexible.  This has been livelily reminded by the Chief Justice, as he was sitting as a CFI Judge then, that “the exercise of [the discretion] has been the subject of a substantial body of case law, which has laid down guidelines for the exercise of the discretion … .  However, … guidelines constitute ‘guidance and not tramlines’”(Wan How Wan v Wan Hoi Wei (HCA 578/2006, unrep., 18 February 2011 at §9)).

77.  I am therefore wary that D’s advocated “defective pleading” ground, which requires no showing of a meritorious defence, should not be accepted as an independent ground lest it could become a springboard for use by defaulting defendants with no meritorious defence to try to bypass their defaults and escape judgment by mounting challenges to the statement of claim as being “defective”.

78.  I am therefore not persuaded and would not recognize that there is such an independent “defective pleading” ground with the test being whether the pleading discloses a reasonable cause of action as we generally understand it under O.18 r.9.

79.  In my view, if there indeed exist such defects in the pleading (in all its potential varieties and not just limited to disclosing no reasonable cause of action) as would in all the circumstances cause injustice if the default judgment is entered or allowed to stand, the defendant could persuade the Court to set aside the default judgment based on the well-established tenet to avoid the injustice, but not simply based on there being “defects” in the pleading per se.

80.  Such being the principles and approach I have in mind to apply, I turn to examine the defects in the SOC criticized by D and assess whether it would cause such injustice to D as would justify exercising the discretion to set aside the Default Judgment.

81.  Excluding the broad objection that Ps have not pleaded their case according to their true contractual right that they only have recourse to the assets of EFI SP (which I have dealt with above), D has these criticisms against the SOC.

82.  The first criticism concerned the defective pleading relating to “Redemption Day”.   Mr Pao contended that Redemption Day was an important date under the provisions of the Constituent Documents.  A Redemption Notice received after the Redemption Day shall be deemed to be a request for redemption on the next relevant Redemption Day (Article 9.3 of the Articles).  When the Redemption Notice was so received on such a Redemption Day, the effect of Redemption provided under Article 9.8 of the Articles would kick in.  However, the respective Redemption Day for Ps’ Class C Redemption and Ps’ Class A Redemption was merely barely asserted in §§13 and 14 of the SOC as “20 April 2022 (i.e. 10 business days from 6 April 2022)” and “12 May 2022, (i.e. 10 business days from 27 April 2022)”.  The relevant contractual provisions relevant to the determination of the respective Redemption Day were not pleaded.

83.  The second criticism concerned the pleading of the amounts of the redemption proceeds.  It was barely asserted in §§13 and 14 of the SOC respectively that “the redemption amount payable by the Fund was US$1,751,868.39” and “the redemption amount payable by the Fund was US$1,565,026.39”.  Not pleaded were the many contractual provisions setting out how the redemption proceeds were determined and calculated, namely and among others, Article 11.1 of the Articles defining “Redemption Price” as “Net Asset Value per Share of the relevant Class or Series as at the Valuation Point on the Valuation Day immediately preceding the relevant Redemption Day, adjusted in accordance with the Articles if the Directors so determined”, “Valuation Day” and “Valuation Point” were defined in Article 1.1, “Net Asset Value” and “Net Asset Value per Share” were respectively provided in Articles 14.1 and 14.2, while the detail methods of calculation were set out in Article 14. The calculations pursuant to these provisions were not pleaded.  Thus, the whole basis for establishing these figures as the redemption amounts payable by D was not pleaded at all.

84.  Mr Pao submitted that these are essential pleas because unless and until the Redemption Price was determined, the redemption proceeds would not be due and payable to Ps, and that moreover, until so determined, the redemption proceeds were not liquidated sums and Ps should not have proceeded under O.13 r.1 to obtain the Default Judgment.

85.  Mr Nip pointed out that under the Constituent Documents, the Redemption Day should by default unless determined otherwise by the directors be the first business day of each calendar month (the Glossary of the Supplement^[22]) and the completed redemption form should be given to the Administrator no less than 10 business days prior to each Redemption Day (Section 1.15 of the Supplement ^[23]).  He then pointed out that (a) there was no dispute here that the respective redemption forms were received by the Administrator on or around the dates pleaded, (b) it was Ps’ case that the respective amounts of US$1,751,868.39 and US$1,565,026.39 were in fact provided by Nana Lau (“Nana”), the Product & Operations Manager of D, on 2 occasions, upon the request of Andy, first by a WeChat message on 12 May 2023^[24] and second by a WhatsApp message dated 16 June 2023^[25], and (c) in the affirmations filed by Wang, there was no serious dispute on the 2 amounts.  Those said, the crux of his submission was that the essential dealings between the parties and factual matters giving rise to Ps’ claim were pleaded, which disclosed a valid cause of action, D well knew what Ps were claiming and they should have no difficulty in responding; and therefore there simply was no such degree of injustice to justify the setting aside of the Default Judgment on this basis of “defective pleading”.

86.  I would have taken the view that D’s criticisms on the SOC have much force had this been a striking out application under O.18 r.9 on the ground that the SOC disclosed no reasonable cause of action, in which the essential elements constituting Ps’ claim would be identified and considered as to whether each such element has been sufficiently pleaded.  However, I am dealing with an application by D, essentially for indulgence, to set aside a judgment allowed to be entered upon its own default in failing to appear to defend.  As I reasoned and concluded above, my approach and perspective should be to evaluate whether in all the circumstances, these defects or inadequacies in the SOC would occasion such real and substantial injustice to D such that I should not allow the Default Judgment to stand.

87.  So viewed, I have no difficulty in accepting Mr Nip’s submission as narrated above and in not accepting Mr Pao’s contention that D had not been thereby fairly and adequately informed to enable it a fair and adequate opportunity to decide whether to contest this action or as to how to respond to it.

88.  I note that in the SOC the Subscription Agreements, the actual subscriptions and payments of contributions by Ps pursuant thereto, the contractual right to redeem, the giving of the respective Redemption Notices, and the non-payment of the redemption proceeds were all pleaded, albeit not entirely correctly or every relevant provision referred to fully.  And, as Mr Nip pointed out, the matter of and related to Redemption Day and the quantum of the amount of the redemption proceeds payable were not serious disputed in the affirmation evidence of Wang; but what were hotly disputed by D now were the recourse by Ps to the assets of the other 2 SPs and the case that D has suspended Ps’ redemption or payment of the redemption proceeds.  Thus, I find there is little substance in D’s complaint that it had not been fairly informed of Ps’ claim so as to decide whether to contest this action or as to how to respond.

89.  Moreover, both of the above-mentioned matters now hotly disputed by D are positive cases or averments for D to set up and are matters that could have been pleaded independently unhindered by the defects now criticized by D.

90.  In the premises, I do not find that there was such substantial and real injustice caused in allowing the Default Judgment to stand, and I would not set aside the Default Judgment on this ground.

The Meritorious Defence Ground

91.  For completeness, I will also deal with this ground.

92.  First, D referred to Article 9.3^[26] and Article 11.6^[27] and, as part of the context, made a point that the Constituent Documents do not provide a time within which the Director must process a Redemption Notice and they do not provide a default date of payment of the redemption proceeds.  Rather, the timing of these 2 matters is respectively provided in these 2 Articles as “as the Directors may determine”.  On this, Mr Nip contended that the timing must be within a reasonable time.

93.  Under the Constituent Documents, the directors of D are given very wide discretion in a number of important matters, no less that of suspending redemption, the determination of the Net Asset Value per Share and payment of redemption proceeds.  Article 15 of the Articles provides for matters relating to suspensions :

“ 15.1 Declaration of Suspension. The Directors may, in such circumstances as they may deem appropriate, declare a suspension of:

(a) the redemption by a Member of Participating Shares of any Class and may (but need not) combine such a suspension with a simultaneous suspension of the determination of the Net Asset Value per Share of such Class; and/or

(b) the determination of the Net Asset Value per Share of any Class and may (but need not) combine such a suspension with a simultaneous suspension of the redemption of Participating Shares by a Member of such Class; and/or

(c) the payment of redemption proceeds.

15.2 Period of Suspension. Any suspension declared pursuant to this Article shall take effect at such time as the Directors shall determine and shall continue until the Directors shall declare the suspension to be at an end.

15.3 Notice to Members.  Whenever the Directors declare a suspension under the provisions of these Articles the Directors shall, as soon as may be practicable after any such declaration, give notice of the suspension to Members holding Participating Shares of any affected Class.  At the end of any period of suspension the Directors shall give notice to Members holding Participating Shares of any affected Class stating that the period of suspension has ended. Any such notice may be given in such manner as the Directors determine.”

94.  The PPM at p.33 to 34^[28] set out a number of circumstances under which the directors of D may so suspend, including the last one being “other circumstances that the Directors may determine at their sole discretion for the best interest of the Fund as a whole or the relevant [SP]”.  There, it was also provided that such suspension shall continue until the directors shall declare such suspension to be at an end.

95.  Ps did not seek to dispute the existence of such discretion to suspend. Ps disputed whether in fact there was such a suspension, and even if so, whether it has been validly declared according to the contractual provisions, namely and according to Ps, by a written notice to all the holders of Participating Shares of EFI SP.

96.  Wang deposed that Nana had orally informed Andy of the suspension.  Mr Nip criticized that D did not have Nana filed her own affirmation but relied on hearsay of Wang.  Wang said Nana has left the employment of D.

97.  There were produced by both parties a number of WhatsApp and WeChat messages between Andy and Nina and Andy and one Laurel Rong (“Laurel”), another employee of D.  A number of them seem to be supporting D’s case that suspension had been communicated to Ps :

a.  The WhatsApp message from Laurel to Andy on 31 May 2022^[29]: “Andy, Nana之前和你解釋了贖回暫緩的情況，如果你還有什麼疑問，我們可以通個電話再解答一下…”.  Andy replied: “Laurel，你好.  沒有人解釋贖回暫緩的情況，只有說等著“internal”的答覆. 現在情況是我早提供了 redemption application，那樣redemption request effective on May 3 2022.  正常是不是7天之內redemption payment應該完成?  今天5月30日”.  Laurel then sent to Andy the picture of a page of document (the contents of which is illegible).  And Laurel then said: “Andy 這個條款給你參考，因為liquidity的原因進行了suspension”.  Andy then replied: “收到”;

b.  Andy’s WhatsApp message to Laurel on 9 June 2022^[30]: “Laurel, 我想確定一下.  不但我原本買的 C class不能贖回，我原本買的A class也一樣不能全部一次性贖回 ? 我原本的A class應該可以全部贖回吧 ? A class我是每個月renew，沒有做長期的.  我早已經申請贖回了”;

c.  Andy’s WhatApp message to Nana on 30 June 2022^[31]: “As you can imagine the whole situation of having redemptions suspended is worrisome what can you tell me about the current situation and any reassurance that the situation is stabilizing …”; and

d.  Andy’s WhatsApp message to Nana on 4 August 2022^[32]: “Hello Nana, is there any news?  I have some other questions.  Was there a notice to shareholders regarding suspension?  If so when was it sent and what were the basis and details for the suspension?  If it was liquidity, what was the cashflow of the fund?  Please provide details of the reasoning for suspension based on liquidity.”  Nana replied: “Hi Andy, I left Oakwise yesterday”.

98.  Mr Nip referred to some other messages between them a bit earlier in time to those mentioned in the preceding paragraph :

a.  Nana’s WeChat message to Andy sent on 12 May 2022^[33]: “Hi Andy, the redemption amount for class C is confirmed, amount is USD1,751,868.39”; and

b.  Nana’s WeChat message to Andy^[34] sent on 13 May 2022: “Hi Andy, I checked with internal.  The payment would be under preparation, and would be paid to later.”  Then Andy messaged back on 13 and 15 May 2022 respectively: “OK, will wait for your notice, thanks” and “Hello Nana, its now May 18^th, can you tell me when the payment will be made?”.  And Nana replied on 18 May 2022: “Hi Andy, I will check internal and get back to you.  Thank you.”

99.  I note that amidst the above messages being exchanged, there were also other discussions by WhatsApp/WeChat on whether Ps would renew the Participating Shares, particularly the Class A ones; and that there were some telephone calls referred to in those messages.

100.  There was also produced by D an email sent on 24 November 2022 from the Administrator^[35] to all holders of Participating Shares in EFI SP in which it was said:

“ We regret to inform you that the Segregated Portfolio is experiencing challenges in liquidating its assets due to its investments in certain notes issued by real estate companies in the PRC …” (§1)

“ Based upon the above provisions and for the best interests of the Participating Shareholders as a whole, the Directors decide to suspend redemptions from all Participating Shareholders as from 2 November 2022” (§3)

101.  Mr Nip contended that the email was sent after this action was commenced by Ps, that it sought to “declare” the suspension retrospectively, that it was an afterthought, and that it contradicted D’s case that there was already declared suspension in May 2022.

102.  Mr Pao pointed to the wide wording of Article 15 and contended that (a) under Article 15.3, it was provided that “Any such notice may be given in such manner as the Directors determine” and otherwise there was no express requirement that the “declaration” of suspension or its notice has to be in writing, and (b), it was provided that the suspension “shall take effect at such time as the Directors shall determine” which might include the suspension taking effect retrospectively.  Mr Pao referred to a number of provisions in the Constituent Documents giving wide discretionary powers to the directors of D as one of the contexts to interpret Article 15.

103.  Mr Nip referred to the serious commercial consequences of suspension and contended that these provisions could not be interpreted to give an effect as wide and loose.  He also pointed to wordings to contend that it was envisaged that notices relating to suspension be given to all the holders of Participating Shares.  He also contended that as the Redemption Notices had been submitted in April 2022, the timing must be such that D’s liability to pay the redemption proceeds has already accrued before 2 November 2022.

104.  Thus, there are clearly factual disputes concerning what were communicated between Andy and Nana and Laurel and concerning the effect of these communications.  These disputes evidently cannot be resolved without hearing oral evidence.  There is the dispute whether through these communications by Nana and Laurel to Andy the suspension has indeed been “declared”, and if so, whether validly declared contractually.

105.  I note that while in the affirmation evidence of Wang, he did not put forth any alternative quantum as the correct amounts of the redemption proceeds or focused his disputes on the quantum, it remains D’s broad case (a) that the figures given by Nina were not the Redemption Price determined according to the provisions of the Constituent Documents  and (b) due to liquidity issues, the assets invested by EFI SP could not be readily sold, in any case not without substantial loss, and Wang seemed to be also saying that the determination of the Net Asset Value was also suspended.

106.  Also, the disputes over the interpretation of various and quite a number of provisions in the Constituent Documents touching on redemption and suspension are disputes that are in my view not suitable to be resolved in these interlocutory proceedings.

107.  In the round, and despite Mr Nip’s able submissions trying to persuade this Court otherwise, I am persuaded, albeit by a thin margin, that the intended defence that there was suspension of Ps’ redemptions or of the payment of the redemption proceeds is one that has a real prospect of success.

108.  It has not been advanced any reason why, having so concluded, the discretion should not be exercised in favour of setting aside the Default Judgment, I would therefore also on this ground set the same aside.

THE GARNISHEE ORDER

109.  The Garnishee Order was obtained based on the Default Judgment, it follows that it will be set aside consequentially upon the Default Judgment being set aside.

110.  It is also not disputed that the decision whether to make a garnishee order absolute under O.49 r.1 involves an exercise of judicial discretion, that an order absolute will be refused when it would be inequitable, and that the question is whether there is any reasonable ground why the order should not be made (Hong Kong Civil Procedure 2025 §49/1/5).

111.  As discussed in the section above under the heading “The Outside Contractual Right Ground”, I concluded that it was eminently arguable that if the redemption proceeds are payable to Ps, contractually they can only be paid solely out of the assets of EFI SP.  As I said, I so conclude not by applying the Cayman Islands law, which Ps submitted against, but by ascertaining what Ps’ contractual right and entitlement are under the Subscription Agreements.

112.  For the purpose of deciding the appeal against the Garnishee Order Absolute, based on my finding above that there was segregation in respect of the bank accounts held with the Garnishee Bank and for the reasons expressed in that section, I find that there is reasonable ground why the Garnishee Order Absolute, which would cover all the bank balance in the 13 bank accounts held in the name of D with the Garnishee bank, should not be made, and that it would be inequitable to make such an order.  I particularly consider that (a) Ps fully understood and agreed by the Subscription Agreements that there would be ring-fencing of assets between the SPs and that they have no recourse to the assets of other SPs, (b) the Garnishee Order Absolute enables Ps to have recourse against the assets of the other 2 SPs, which is outside their contractual right and entitlement but are clearly detrimental to the holders of the Participating Shares in those 2 SPs who would thereby have assets they have a beneficial interest in and ring-fenced within their respective SPs being taken by Ps, and (c) the Garnishee Order Absolute may jeopardize the directors of D by exposing them to the risk of having breached s.219 of CIC Act and committed an offence.

113.  For this reason, I will also allow the appeal against the Garnishee Order Absolute.

THE AMENDMENT SUMMONS

114.  The amendments sought are few, though not insubstantial, consisting of pleading additionally the definition of “Redemption Day” as provided in the Supplement and the WhatApp and WeChat messages wherein Nana “confirmed … on behalf of the Fund” to Andy the respective amounts of US$1,751,868.39 and US$1,565,026.39 as the redemption proceeds.  I note the amendments do not go on to plead that such amounts were therefore given pursuant to certain provisions in the Subscription Agreements or otherwise should be regarded as the Redemption Price determined by the directors of D pursuant to the Constituent Documents.

115.  Ps said they took out this summons about 2 months prior to this hearing to meet D’s new argument, not raised before the Master, that the Default Judgment should be set aside because of defective pleading.  In their written submissions, Ps said that “the Amendment Summons should be allowed to cure the defects”^[36].

116.  First, I accept D’s submission that Ps are indeed seeking leave to amend the SOC post-judgment, which generally is rare and must be fully justified.

117.  Second, a default judgment is granted on the footing that by his default the defendant has impliedly admitted what was pleaded in the Statement of Claim, if the same has been served.  It therefore seems to me wrong in principle to allow a post-default judgment amendment, not to cure a slip under the slip rule, but in order to have the effect that the defaulting defendant is to be taken to have also impliedly admitted to the new averments introduced by the amendment.

118.  Third, if D indeed succeeded on its “defective pleading” ground in that it was a “travesty of justice” to allow the Default Judgment to stand, this Court would in the circumstances be compounding the injustice by giving Ps leave to so amend so as to belatedly “cure” the defects causing the injustice and thereby maintaining the Default Judgment.

119.  In the circumstances, I would for the above reasons dismiss the Amendment Summons.  I do so without the need to resort to the other submissions of Mr Pao that the amendments sought were in any case unable to cure the criticisms he made on the SOC.

THE NEW EVIDENCE SUMMONS

120.  By this summons, D sought to adduce the 7^th affirmation of Wang.  In a nutshell, this 7^th affirmation deposed to the actions taken by Glory Ocean and the communications between D and Glory Ocean who disputed, and tried to stop, the bank balances sitting in the accounts of the Garnishee Bank attributable to GCHYI SP be paid by the Garnishee Bank to Ps. There was also deposed the fact that serious allegations were made by Glory Ocean against D that it has failed to perform its duty to ring-fence the assets of the GCHYI SP.  Wang deposed that to answer the solicitors of Glory Ocean, the Administrator prepared the latest ledgers and NAV reports of EFI SP, which D received on 7 August 2024 and the same was enclosed to Glory Ocean’s solicitors by a letter dated 19 August 2024.  This letter together with the voluminous enclosures were exhibited to this affirmation.

121.  There is no denying that the purpose of adducing this affirmation by D was to use those latest ledgers and NAV reports as evidence to support D’s case that there has all along been segregation of assets between the SPs and there was no mixing of funds, as Ps challenged.

122.  I therefore accept Ps’ submission that even though the need for the communications with Glory Ocean arose from recent events that occurred after the hearing before the Master on 28 March 2024, the first of the Ladd v Marshall conditions, namely that the evidence could not have been obtained with reasonable diligence for use at the hearing below, has not been met.  These ledgers and NAV reports, or their underlying financial statements, records and books, clearly have been in existence.  With reasonable diligence, they could have been generated and collated and be adduced for the purpose of the hearing before the Master, but D had not done so.  The Court would and should not allow this new evidence to so slip by Ladd v Marshall through the coverage of a recent letter.

123.  I would dismiss the New Evidence Summons.

DISPOSAL

124.  In the premises, I allow the appeal against the Order of the Master dated 28 March 2024, set aside that Order, the Default Judgment and the Garnishee Order Nisi.  I dismiss the Amendment Summons and the New Evidence Summons.

125.  In D’s written submissions, it specifically asked for the costs of and occasioned by the Setting Aside Summons incurred up to 13 April 2023 be to Ps and after 13 April 2023 be to Ds.  Save provisionally ordering the costs of the garnishee proceedings to D, I am not prepared to so disturb the costs order made by the Master even on a nisi basis, and would let it be sorted out if and when D seeks a variation of the nisi costs orders I am giving in the next paragraph.

126.  I would order costs on nisi basis to follow the event, to become absolute in 21 days unless any party applies by summons for variation, that (a) the costs order made by the Master on 28 March 2024 be not disturbed save that D’s costs of the garnishee proceedings be paid by Ps, (b) Ps pay D’s costs of the appeal against the Order of the Master and of the Amendment Summons, (c) D pays Ps’ costs of the New Evidence Summons, and (d) there be certificate for 2 counsel in respect of the costs under (b) and (c).  In the absence of such summons to vary within time, all the costs under (b) and (c) will be summarily assessed by me on papers, and the parties do lodge and serve their respective Statements of Costs within 14 days after the costs orders become absolute, their respective Lists of Objections 14 days after, and their respective Replies, if any, 7 days thereafter.  The costs under (a) are to be summarily assessed by the Master. 

127.  Lastly, I express my gratitude for the able assistance rendered by both senior counsel and their juniors.