CAI ZHENRONG v. THE STOCK EXCHANGE OF HONG KONG LTD

HCAL 2337/2020

[2021] HKCFI 2202

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST NO 2337 OF 2020

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D E C I S I O N

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A. Introduction

1.  By my Decision dated 9 July 2021 – the definitions in which I shall continue to adopt – I dismissed the Applicant’s application for leave to apply for judicial review.  By that application, the Applicant was seeking to challenge a decision of the LRC upholding the Listing Committee’s decision to cancel the listing of the Company under rule 6.01A of the Listing Rules.

2.  The background leading to the LRC Decision, and the intended bases of challenge to it by way of judicial review, can be found in my Decision.  So can, of course, my reasoning for my Decision and my conclusion that none of the intended bases of challenge were reasonably arguable.

3.  The Applicant has filed a Notice of Appeal under CACV 359/2021 dated 22 July 2021, by which he seeks to appeal against the Decision.

4.  Now, the Applicant makes an urgent application for an injunction pending appeal, to prohibit the Exchange from cancelling the Company’s listing.  In effect, the Applicant seeks a stay of my Decision pending appeal.  He does so, in light of the fact that the Exchange has said that it intends to carry out the delisting decisions, albeit that it would withhold from doing so until 28 July 2021.

5.  On this application, the Applicant is represented by Mr Martin Hui SC, now leading Mr Tony Ko, who appeared at the original hearing.  The Exchange is again represented by Mr Victor Dawes SC, leading Mr Joshua Chan.

B.      Applicable Principles

6.  The application is made pursuant to RHC Order 59 rule 10(9), and there is no dispute that I have the power to grant such an injunction as is sought.

7.  As to the appropriate approach, Mr Hui has referred me to Ketchum International plc v Group Public Relations Holdings Ltd [1996] 4 All ER 374, at 378-380.  Those pages are cited in support of the proposition that when there is an appeal about to be prosecuted, the litigation is to be considered as not at an end, and that being so, if there is a reasonable ground of appeal, and if not making the order to stay the execution of the relevant order would make the appeal nugatory, that is to say would deprive the appellant if successful of the results of the appeal, then it is the duty of the Court to interfere and suspend the right of the party who, so far as the litigation has gone, has established his rights.

8.  These broad principles have been applied in Hong Kong, for example in Chinacast Education Corporation v Chan Tze Ngon (unreported, HCA 1062/2012, 19 September 2017), which referred to the Ketchum case as setting the merits threshold as at least as high as that has to be satisfied when the court considers whether or not to grant leave to appeal, and which also referred to the usual principles applicable to the test on an application for leave to appeal.

9.  Mr Dawes has referred me to the approach canvassed by Kwan JA (as she then was) in Registrar of Hong Kong Institute of Certified Public Accountants v X [2017] 3 HKLRD 541 at §§ 43-45, where it was identified that a person in the position of the Applicant must satisfy one of two alternative tests.

10.  The first test is similar to the well-established American Cyanamid test, comprising three elements: (1) the appeal has real prospects of success; (2) if the injunction is not granted and the appeal is successful, the applicant will suffer irreparable harm that is difficult to, or cannot, be compensated by way of a damages award; and (3) the applicant will suffer greater harm if the injunction is not granted than the respondent will suffer if the injunction is granted.

11.  Obviously, in the context of judicial review, that test can be modified slightly where damages are not normally awarded as a remedy, nor is there normally any cross-undertaking in damages even if an injunction is granted.  The focus will be on the metis and the balancing of risks of harm.

12.  The second test is that there are exceptional circumstances that would make it fit and just that the stay be granted.

13.  I also specifically bear in mind the principles applicable to granting an interim injunction pending appeal where the claimant has lost at first instance as summarised by Floyd LJ in Novartis AG v Hospira UK Ltd [2014] 1 WLR 1264 at §41, as was cited with approval by Kwan JA in the X case at §43.

14.  Perhaps an overall approach can be summarised by saying that on an application for an injunction or stay of execution on a decision pending an intended appeal:

(1)  the Court will first look to be satisfied that the appeal has shown reasonable grounds of appeal on which there is a real prospect of success, and

(2)  the Court will then endeavour to arrange matters so that the Court of Appeal is best able to do justice between the parties once the appeal has been heard, so that

(3)  if not making the order to stay the execution of the relevant order would cause the applicant to suffer irreparable harm – for example by making the appeal nugatory, meaning it would deprive a successful appellant of the results of the appeal – then the Court may interfere

(4)  where the balance of convenience points in favour of the grant of the stay or injunction.

15.  Of course, each case will turn on its own particular set of circumstances.

C.      Merits of Intended Appeal

16.  The detail of the grounds of appeal is set out in the Notice of Appeal, including several pages of quotations from authority. Those grounds have been summarised by Mr Hui, as follows (with my own definitions added):

(1)  the Court erred in considering not even reasonably arguable that there was a systemic deficiency in the delisting regime in breach of the requirements of Article 10 of BORO (“Systemic Challenge Ground”);

(2)  in finding that the Applicant lacked standing, the Court failed to recognise sufficiently the distinction between the principles applicable in the commercial company law context and those applicable in the public law context (“Standing Ground”); and

(3)  the Court erred in finding it not even reasonably arguable that the LRC had failed to take into account the complications created by the Regulating Order (which was discharged only some seven months after the suspension of trading and the notification of the Resumption Guidance).  There was in fact no evidence from the LRC or the Exchange in this regard, and the finding was inconsistent with what appeared on the face of the LRC Decision and the position taken by the Exchange at the hearing (“Regulating Order Ground”).

17.  Though in his oral submissions Mr Hui focuses on the first two grounds, Mr Hui submits that there are merits to each of the grounds which, individually or collectively, demonstrate a reasonable prospect of success, and hence would satisfy the threshold for the grant of an injunction pending appeal.

18.  I disagree.

19.  First, the Systemic Challenge Ground seems primarily to be based upon one sentence in §105 of my Decision, to suggest that I adopted the wrong test as to the standard to be applied for there to be a fair hearing by an independent and impartial tribunal.  In essence, Mr Hui suggests that I failed to assess whether the composition of the LRC and the manner of appointment of the members of the LRC give rise to a reasonable apprehension of bias.

20.  But, with respect, there are numerous references in my analysis at §§99-115 which identify that I was fully aware of and addressed the linked concepts of independence and objective impartiality, including the appearance of independence to a reasonable observer.  In my use of the specific words and phrases, I clearly had in mind both bias and the reasonable perception or appearance of bias.

21.  Indeed, as to the further point raised in the Notice of Appeal that it was inapt to refer to or rely on the Onshine Securities case, because the law has developed since 1994, I referred to that case – at §§106-107 of my Decision – to identify that the challenge in this case seemed to me on its facts to be even weaker as regards demonstrating any reasonable appearance of bias.

22.  I can also refer to the fact, as I did in the Decision, that the decision-maker in this case was not just one person but a tribunal of five persons (drawn from a wider group of potential membership on any individual LRC) acting collectively.  With the particular diversity of experience, background and representation of interests, it is even less likely that anyone would reasonably perceive or apprehend that tribunal to be biased or potentially biased.

23.  I also agree with Mr Dawes that the remaining points of the Systemic Challenge Ground are really repetitions of arguments made at the leave hearing which I have considered and rejected, and so on which I do not think that there are reasonable arguments.

24.  Secondly, as to the Standing Ground, the criticism in the Notice of Appeal is that I failed “sufficiently” to distinguish between the principles applicable in the commercial and company law context and those principles applicable in the public law context.  Again with respect, I do not see any merit in that point.  In the criticised §§90-91, I actually recognised that the analogy with the commercial or company law situation ought not be taken too far, and that the Court should adopt an appropriate degree of flexibility for each case.  On the particular facts of this case, after the relevant weighing exercise, I took the view that however flexible the approach to be taken, the Applicant does not have standing.

25.  Insofar as the Notice of Appeal suggests that it was inappropriate to have regard to the apparent merits of the challenge when looking at standing, I had in mind the passage from the Grierson case, which I quoted at §89 of my Decision, which specifically identified elements of the flexibility in the approach to standing as including the importance of the issue and its apparent merits.

26.  As to the Regulating Order Ground, it seems to me that the only reason why the LRC would have referred to the appointment of the current Liquidators, and the period since their appointment, would have been in recognition that the Regulating Order had caused some previous delay of around seven months.  Further, the relevant remedial period ended on 18 May 2020, and yet even by the time of the hearing before the LRC, six months or so later in November 2020, there was an application (further extended by another six months from the originally sought date of December 2020) asking for a delay until June 2021.  Against that timetable, the current criticism even appears irrelevant.

27.  It might also be borne in mind that there was the (as I held) abusive last-minute attempt to derail the hearing of the Applicant’s application for leave to apply for judicial review in this case, made on the basis of evidence which showed at best that significant further time would be required.

28.  I therefore do not think that there are grounds of appeal now put forward with any reasonable prospect of success.

D.      Balance of Convenience

29.  Mr Hui argues that without the injunction pending appeal, the Company would be delisted by the Exchange, so that would render the appeal nugatory, and even if the judicial review challenge were to succeed the harm done to the Applicant would be irreparable.  On the other hand, he says, the maintenance of the status quo in the Company’s shares remaining suspended from trading (as they have been since 19 November 2018) would prejudice no party.  Mr Hui submits that the Applicant should not be deprived of the fruit of ultimate success, in the event that he might succeed on appeal.

30.  Mr Hui also submits that the delisting of the Company has the effect of irreparable damage to the Company.  But I do not think that submission can be made good in the absence of any evidence coming from the Company or its Liquidators.  Again, I might mention the previous absence of interest demonstrated by the Liquidators in the intended challenge by way of judicial review, though I do note that in a letter dated 23 July 2021, the Liquidators express awareness of the current application, as well as the intended appeal, and have stated:

Since a successful restructuring of a distressed listed company, together with the resumption of trading of its shares, should be of benefit to the company’s creditors and shareholders, we have no objection to an appeal of the Decision being made (together with an application for an injunction pending appeal).

31.  Whilst the Liquidators have now expressed having “no objection” to the appeal and this injunction application, it does seem to me that the basis upon which no objection is expressed focuses on a matter broadly irrelevant to the actual intended challenge by way of judicial review. Essentially, it is focusing on potential future activity in the form of a putative successful restructuring of the distressed Company and putative resumption of trading of shares, rather than the correct focus on the decision making process (including, perhaps, any systemic challenge to the delisting decision making process as a whole) leading to the LRC Decision on the material available at the time.

32.  But I agree with Mr Dawes that the balance of convenience tilts in any event against the grant of injunctive relief pending appeal in the circumstances of this case.

33.  Even leaving aside my view as to the lack of merits in the appeal, this whole case arises in the context of the delisting process with the underlying policy intentions which I canvassed in my Decision (and which policy intentions are not the subject of any intended appeal).  I do not think it is fair or correct to suggest that there is no prejudice in the maintenance of the status quo of the continued long-term suspension of trading, when the policy is to ensure that listed companies whose shares have been suspended from trading for a lengthy period should have the listing cancelled.

34.  Again, in this case, it is relevant that the remedial period for the Company to resume trading expired on 18 May 2020.  It is now late July 2021 and, as the failed adjournment application made plain, the Company is still in no position likely to be able to resume trading even within the coming months.

35.  It is clear that it is increasingly common for long-suspended issuers to commence judicial review proceedings as a last-ditch effort to delay or prevent delisting.  In that context, it can be noted that one of the points made for the Applicant in the argument leading to my Decision was that there were companies potentially lining up to make a challenge, hence the assistance that would be provided by a decision on whether there was any merit in the proposed systemic challenge.  By my Decision, I intended to make clear that there is no merit in that challenge.  That remains my view.

36.  I also agree that the mere assertion of irreparable harm is not sufficient.  In this case, not only has the Company said nothing, the Applicant has filed little evidence to set out the nature or extent of the harm he is likely to suffer if an injunction is wrongly withheld and the Company is delisted, but if he were to pursue a successful appeal.  In the solicitor’s affidavit leading this application, it is simply asserted that if the Company is delisted, the Applicant’s shares in the Company will suffer associated harm to its value in a way that is unlikely to ever recover and may become worthless.

37.  I do not think the delisting itself necessarily leads to loss, not least where the Applicant says the Company retains a substantial business capable of generating substantial revenue and profit. Indeed, though obviously of a different nature, a privatisation of a formerly listed company is an example where the removal of listing status does not make the shares valueless.  That is to say, each case will depend upon its own particular circumstances.

38.  I have also posed the question whether delisting is indeed irreparable, in circumstances where it would be open to a company (or, if it is in liquidation, its liquidators) to make an application for renewed listing in circumstances it felt appropriate.  Mr Hui’s answer to that question is that the focus of the current application is really on maintaining the status quo, namely the continued listing albeit the continued suspension of trading in the listed shares.  I have already dealt with that submission above.

39.  Of course, I accept that delisting might have some possible impact on the value of a shareholding.  But, any investment in shares in a listed company bears the potential that the value of the shares can go down as well as up, and value might go down for a variety of reasons including (as in this case) that the company is wound up on the ground of insolvency and is unable to comply within the remedial period with any resumption guidance or conditions set so as to permit resumption of trading in its shares.

40.  This possible impact on value is not sufficient, in my view, to constitute a significant factor tilting the balance of convenience in favour of the grant of the intended injunction.  This particular company was made the subject of a winding up order, on the ground of insolvency, and is in liquidation.

41.  Putting it shortly, in the particular circumstances of this case, the risk that the Court of Appeal would not be able to do justice between the parties if the injunction is wrongly refused is lower than the risk of injustice which seems to me to be caused if the injunction is wrongly granted.

E.      GPI Limb

42.  I do not think the intended appeal involves any point of general public importance, and so the Application fails the second test identified in the X case.

43.  Nor are there any other exceptional circumstances as seem to me to warrant the grant of the injunctive relief.

44.  I take note again of the potential line-up of other companies facing delisting which might wish to make some form of systemic challenge to the delisting process.  But I do not think that is a proper reason for the grant of leave to appeal.  If I am of the view, as I am, that the systemic challenge raised is not reasonably arguable, I do not think the fact that other persons may wish to raise the same argument is really a matter pointing to the need for appellate consideration.  Nor is the position altered simply because the challenge might be described, as it was by Mr Hui, as raising a “novel point” about a systemic deficiency.

F.      Fall-Back Position

45.  As a fallback position, Mr Hui submits that if the Court is not minded to grant an injunction pending an appeal as sought, the Court should grant a limited injunction in the interim period pending the making of an application to the Court of Appeal for the same injunctive relief.

46.  I do not think there is any dispute that I have the power to make such a limited injunction.  Such power was expressly identified both in the Ketchum case at 380-381 and in the Chinacast case at §§52-54.  In the latter, it was thought that there was no good arguable appeal with a reasonable prospect of success, but an interim injunction was granted pending the renewal of the application to the Court of Appeal.

47.  Of course, it is also common ground that a limited injunction is not granted as a matter of course, simply because an intended appellant expresses the intention to go to renew his application to the Court of Appeal.

48.  Though this is a fine point, it seems to me that the analytically correct approach is as follows.  Where I am not satisfied that the intended grounds of appeal are even arguable, and where I have also decided that the balance of other matters points against the grant of an injunction, then it is difficult to see why the status quo should be maintained even for a short extended period whilst the matter of a potential stay or injunction can be revisited by the Court of Appeal.

49.  In the circumstances, and even recognising that the practical reality is that the Applicant will simply seek to bring the matter up to the Court of Appeal with some urgency, I refuse the limited injunctive relief sought as well.

50.  It is a matter entirely for the Exchange as to whether it is content to give any further extension beyond 28 July 2021 before it proceeds with the delisting, unless earlier restrained from so doing.

G.      Result

51.  The result is that the application is dismissed, with costs to the Exchange to be taxed if not agreed with certificate for two Counsel.