CHINA OCEAN INDUSTRY GROUP LTD v. THE STOCK EXCHANGE OF HONG KONG LTD

HCAL 616/2023

[2025] HKCFI 3186

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST NO 616 OF 2023

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REASONS FOR DECISION

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A.  Introduction

1.  By its Form 86 dated 26 April 2023, the Applicant (“Company”) sought leave to apply for judicial review to challenge the LD Decision and LRC Decision (as defined below) made by the Listing Division (“LD”) and the Listing Review Committee (“LRC”) of the Putative Respondent (“Exchange”).

2.  The LD Decision and LRC Decision came about as follows.

3.  On 4 April 2023, the LRC upheld the decision of the Listing Committee (“LC”) to cancel the Company’s listing under Listing Rule 6.01A of the Listing Rules.

4.  On 17 April 2023, the Company’s legal representatives stated their intention to commence judicial review proceedings and invited the Exchange to withhold cancellation of the Company’s listing.

5.  On 19 April 2023, the Exchange agreed to refrain from implementing the LRC’s decision – but on the conditions that the Company had to make its application promptly and in any event on or before 26 April 2023 and the grounds contained therein must be “potentially viable”.

6.  On 25 April 2023, the Company’s financial advisors sent a letter to both the LRC secretary and the LD team responsible for the Company’s listing and informed them of an allegedly material new development that was relevant to the Company’s financial viability. On the strength of this material new development (“New Information”), the Company pressed the LD and/or LRC to reconsider the Company’s listing cancellation.

7.  On the same day, Mr Fabian Roday, Vice President of the LD, materially responded as follows (emphasis in original):

As set out in our email, the Exchange voluntarily decided to temporarily refrain from implementing the LRC’s decision based on two conditions: (i) the Company proceeds with the Leave Application promptly on or before 26 April 2023, and (ii) the Company can identify potentially viable grounds for judicial review in the Leave Application.

We note that the Company has not yet proceeded with the Leave Application. As the Company has not made the Leave Application, the Exchange is not yet able to assess whether the Company has identified viable grounds for a judicial review. For the avoidance of doubt, the Exchange does not consider that any of the evidence or grounds set out in the letter of 25 April 2023 present a viable ground for judicial review.

Both conditions for the Exchange’s voluntary decision to refrain from implementing the LRC’s decision remain unfulfilled. The Exchange therefore reserves its right to proceed with the cancellation once it has had sight of the grounds of the Leave Application, or if the Company fails to take out the Leave Application by the 26 April 2023 deadline. Should the Exchange subsequently decide to proceed with the cancellation, the Exchange will provide you/the Company with not less than 72 hours’ notice in advance of the publication of the announcement relating to any rescheduled cancellation.

8.  According to the Company’s Form 86, this singular email constitutes “decisions” made by both the LD and LRC to (i) refuse to reconsider the cancellation of the Company’s viability, and (ii) reconsider its decision upholding the LC’s decision to cancel the Company’s listing respectively, even though “both” had been presented with the new information. They are the “LD Decision” and “LRC Decision” respectively – though the question will need to be addressed as whether either is in fact a reviewable decision.

9.  I fixed an oral hearing of the Company’s application for leave to apply for judicial review. At the hearing, the Company was represented by Mr Tony Ko of Counsel, and the Exchange was represented by Mr Victor Dawes SC leading Mr Joshua Chan of Counsel.

10.  Both Mr Ko and Mr Dawes had filed written submissions in advance of the hearing. I heard Mr Ko’s oral submissions, but did not need to call on Mr Dawes to make any oral submissions.

11.  At the end of the hearing, I dismissed the application for leave to apply for judicial review, with costs to the Exchange, and for reasons to be handed down later.

12.  These are my Reasons for Decision.

B.  Background

B.1  The Company’s financial position

13.  The Company is a company incorporated in Bermuda with limited liability. It was first listed on the Main Board of the Stock Exchange on 6 April 1995.

14.  The Company principally engages in three businesses:

(1)  since 2008, the provision of shipbuilding and ship repair services, which involves the provision of vessel modification services, and the development of Company land and factories as docks and storage facilities (“Shipbuilding Business”);

(2)  since 2017, the building, manufacturing and sales of steel structures and fittings for ship, marine equipment, mining equipment, and bridges (“Steel Structure Business”); and

(3)  since 2015, the manufacturing and sales of car equipment, investment, and the operation and management of car parks and electronic automotive devices (“Intelligent Car Parking Business”).

15.  The Company’s businesses ran into various problems. In respect of the Shipbuilding Business (and according to the LD’s Report dated 19 December 2022):

(1)  Since 2009 and 2010 respectively, the Company has remained in a net current liability position and a net liability position in respect of its Shipbuilding Business. That unpromising financial position worsened in 2016, when the Company failed to timely deliver 7 vessels to its customers, causing the London Maritime Arbitrators Association to make awards in favour of one customer in the sum of HK$882.8 million. Since 2017, due to further financial constraints, the Company failed to secure a shipbuilding contract of similar scope as before (i.e. to build an entire vessel).

(2)  This prompted a new business model. The Company started deploying its land and factories as docks and storage facilities to earn docking and rental income. On the side, it would provide (amongst other things) coating, painting and welding services for vessels.

(3)  But this new business model was not particularly successful. The Company generated revenue of no more than HK$23 million since 2018. In fact, for the six months ended 30 June 2022, this Business generated revenue of HK$9 million. In stark contrast, for 2020, 2021 and 1H2022, the Company incurred losses of HK$370 million, HK$204 million, and HK$91.1 million respectively. In other words, the revenue simply did not cover the corporate administrative expenses and substantial finance costs.

(4)  Indeed, as at 19 December 2022, the Shipbuilding Business had a very small base of 7 existing customers.

16.  The Steel Structure Business began well. It generated revenue of HK$281 million upon its commencement in 2017. But business deteriorated in 2018 due to the lack of funds and factors outside the Company’s control. As a result, this segment has only generated revenue of approximately HK$21.2 m in 2018. Things got worse in 2019, when certain subsidiaries engaged in the Steel Structure Business were held bankrupt, and the Company lost control of these assets – including their property, plant, and equipment of HK$317 million and trade and other receivables worth HK$418 million.

17.  Even based on the Company’s unaudited management accounts for the 8 months ended 31 August 2022, the Steel Structure Business only generated sales of HK$12.7 million. Further, the Steel Structure Business is only supported by three secured contracts with expected annual sales of HK$17.6 million in total.

18.  In truth, the Intelligent Car Parking Business never really got going. It was severely affected by litigation in 2019. This caused the Company to scale back its business in this area. In the first half of 2022, the Intelligent Car Parking Business only generated revenue of HK$2 million. For the 8 months ended 31 August 2022, it only generated revenue amounting to HK$4.4 million.

19.  Objectively speaking, the Company did not have sufficient assets to support its operation. Since 2017, the Company recorded substantial net current liabilities and net liabilities over HK$2.1 billion and HK$896 million respectively. In particular, it only had cash of approximately HK$4.6 million but had current borrowings of HK$3,428.5 million as of 30 June 2022. Further, the assets themselves were mostly land use rights, and trade and other receivables. The rest – including the goodwill and intangible assets associated with the Steel Structure and Intelligent Car Parking Businesses – were fully impaired in 2019.

20.  In short, the Company’s financial position was nothing short of precarious.

21.  On 2 August 2019, a creditor filed a winding-up petition against the Company for its inability to pay its debts (“Petition”).

B.2  Cancellation of the Company’s listing

22.  Trading in the Company’s shares was suspended on 1 April 2021, by reason of delay in the publication of its annual results for the year ended 31 December 2020 (“FY 2020 Results”). The deadline for the Company to resume trading in its shares – failing which it could be delisted under Rule 6.01A of the Listing Rules – was 30 September 2022.

23.  Thereafter, the Exchange set the following Resumption Guidance:

(1)  First, the Company must publish all outstanding financial results required under the Listing Rules and to address any audit modifications (“RG1”).

(2)  Second, the Company must demonstrate its compliance with Rule 13.24 (“RG2”). Rule 13.24 provides that an issuer must carry out, directly or indirectly, a “business with sufficient level of operations and assets of sufficient value to support its operations to warrant the continued listing of the issuer’s securities”.

(3)  Third, the Company must have the Petition (or winding-up order, if made) against the Company withdrawn or dismissed (“RG3”).

(4)  Fourth, the Company must inform the market of all the material information for the Company’s shareholders and other investors to appraise the Company’s position (“RG4”).

(5)  Plainly – and as the Company accepts – fulfilment of RG4 is contingent upon the fulfilment of the other RGs.

24.  On 19 December 2022, the LD prepared and published its Report, which took into account the Company’s submissions as to why RG1 to RG4 were met. The LD found RG3 to have been met as the Petition was dismissed on 13 June 2022.

25.  However, it held that RG1, RG2, and RG4 had not been satisfied and recommended that the Exchange delist the Company.

26.  In respect of RG1, the Company had published its audited annual reports for FY 2020 and FY 2021. However, in both sets of annual results, the Company’s auditors issued a disclaimer of opinion. This was because, amongst other reasons, (1) there was a material uncertainty related to its going concern (“Audit Issue 1”), and (2) they were unable to obtain sufficient information or explanation to determine whether an “Unsold Vessel” – which resulted from a rescinded contract under the Shipbuilding Business and the Wuhan Maritime Court tried to sell thrice thereafter – had a carrying value of approximately HK$27.8 million as at 31 December 2021, stated at the lower of cost and net realizable value (“Audit Issue 2”).

27.  The Company had submitted that it had tried to resolve Audit Issue 1 by (1) obtaining letters from two of its creditors, the Jianxi Branch of the Bank of China Limited and China Huarong Asset Management Co Ltd, to support the Company’s opposition against the Petition, and (2) negotiated with two potential investors in relation to an investment cooperation arrangement to establish an asset management company with a registered capital of RMB 750 million, the funds of which would be pledged to restore the Shipbuilding Business. But the Company’s auditors did not provide their view as to whether the proposed plans could adequately resolve the issue. The LD gave it even shorter shrift: in particular, it noted that the latter arrangement did not have any concrete details. In any event, it was wholly inadequate in light of the net current liabilities of RMB 4.7 billion.

28.  In respect of Audit Issue 2, the Company’s auditors agreed that this could be resolved as long as the disposal of the Unsold Vessel could be completed on or before the publication of the 2022 Annual Reports. But the LD was not optimistic about its prospects, particularly when any disposal would be conditional upon the Wuhan Court’s approval.

29.  Thus, the LD was of the opinion that these two Audit Issues remained unaddressed and “unresolved”.

30.  In respect of RG2, the Company had submitted that in 2021, if the impairments of HK$14 million and automotive parking devices of HK$25.5 million were excluded, the Company would have recorded gross profit of HK$12 million. The Company further submitted that, based on its unaudited management accounts ended 31 August 2022, it recorded revenue of HK$49.7 million and gross profit of HK$10.6 million. However, it did not explain how the Company did so, when it only recorded revenue of HK$13 million in the first half of 2022.

31.  Despite the Company’s submissions, the LD was of the opinion that Rule 13.24 had not been complied with (and, if necessary, I would say for good reason). The LD took into account how the Company had for many years maintained a very low level of operating activities and revenue which had been insufficient to cover its corporate expenses – indeed, this was not any temporary downturn, but a state of affairs with considerable permanence. Nor did it have any “solid business strategies or model” that could continuously secure sufficient customers. Nor was there a credible financial forecast to demonstrate its business prospects. This was further demonstrated by the Company’s continued net liability and net current liability issues.

32.  On 23 December 2022, the LC decided to cancel the Company’s listing for substantially the same reasons. The Company applied for a review of the LC Decision.

33.  A day before the hearing of the review of the LC Decision on 28 March 2023, the Company announced that the possible auction of the Unsold Vessel was delayed and scheduled to occur in April 2023.

34.  Before the LRC, the Company submitted, amongst other things, (1) summaries of its future business plans, including negotiations for contracts to build further vessels, (2) a nascent plan to enter into a joint venture agreement with another company to build and operate a bulk terminal pursuant to which the Company would contribute a land use right as a capital contribution for a 51% share of equity interest in the joint venture, and (3) further revenue forecasts for FY 2023 to FY 2025.

35.  However, the LRC did not find these convincing. In particular, the LRC noted that the forecasts were not supported by signed contracts and supportable customer demand, and the profits so generated would in any event “fall well short of covering the Company’s costs of over HK$300 million per year historically incurred for the last few years”.

36.  Hence, despite the Company’s renewed efforts before the LRC as to why it satisfied RG1 and RG2, the LRC decided to uphold the LC Decision on 4 April 2023 (“Delisting Decision”).

C.  The New Information

37.  On 25 April 2023 (i.e. 21 days after the LRC Decision), the Company’s financial advisors, Draco Capital Limited, wrote to the LRC secretary and the LD Division in relation to a new “material development to the businesses and operations” of the Company (i.e. the New Information). According to the Company, where the Company had not yet been delisted, the New Information necessitated a reconsideration both (1) by the LD whether the Company should be delisted, and (2) by the LRC of the LRC Decision.

38.  The New Information was this. One of the Company’s wholly-owned subsidiaries, Jiangxi Jiangzhou Union Shipbuilding Co Ltd (江西江州聯合造船有限責任公司) had entered into a tripartite agreement with the Ruichang Municipal People’s Government and Ruichang Investment Company Limited for the purpose of resolving the historical problems of the Company (“Tripartite Agreement”). Most significantly, under this Tripartite Agreement, the Company would be able to obtain RMB 700 million. The Company considered that this sum would be “critical” in reversing the Company’s financial underperformance, to the extent that it could “effectively restore” the Shipbuilding Business. Hence, the Company’s reconsideration requests.

39.  This led to the reply email from the Exchange on 25 April 2025, which I have set out above. It can immediately noted that the Exchange did not “refuse” – let alone mention – the New Information.

40.  Mr Ko, for the Company, contended that the New Information would be relevant to whether RG1 and RG2 were satisfied. He submitted that RG1 could plausibly be satisfied as the “capital provided under the Tripartite Agreement would alleviate financial pressure on the Company and allow it to revive the Shipbuilding Business”. He also submitted that RG2 could plausibly be satisfied as (amongst other things) the Tripartite Agreement was effected by a binding contractual commitment on behalf of the PRC Government, which represented “more than a preliminary plan to raise additional capital”.

D.  Intended Grounds of Review

41.  Accordingly, the Form 86 identified four grounds of review against the LD Decision and LRC Decision.

(a)  Ground 1: The LD Decision was in breach of the LD’s Tameside duty, because the LD failed to consider the effect of the New Information on the Company’s ability to meet the Resumption Guidance.

(b)  Ground 2: The LRC Decision was in breach of the LRC’s Tameside duty for substantially similar reasons.

(c)  Ground 3: The LD fettered its discretion by refusing to consider new evidence – here, the New Information. In particular, the LD has the power to consider the delisting of an issuer before the delisting actually happens.

(d)  Ground 4: The LRC fettered its discretion by refusing to consider the New Information for substantially similar reasons. In particular, the LRC is not functus after taking a decision and can re-open a decision it has made provided that the listed issuer’s listing is not cancelled.

E.  Analysis

E.1  No Reviewable Decision

42.  Mr Dawes, leading Mr Chan for the Exchange, submitted that the LD and LRC Decisions did not in fact exist. As such, the Company’s intended challenge is doomed to failure from the outset. M Dawes submitted the following:

(1)  Not every decision by a decision-maker is susceptible to judicial review. Were it otherwise, the functioning of the executive arm of government and statutory bodies and tribunals would be ensnared in multiple applications in the courts. What is important is that decision is decisive. Thus, in R v Statutory Visitor of St Lawrence’s Hospital, ex parte Pritchard [1953] 1 WLR 1158, the court refused to grant the remedy to quash a mere report, as it was an instrument for the ultimate determination of whether the applicant had to be detained: see Financial Secretary v Wong (2003) 6 HKCFAR 476 at §§93-95.

(2)  Put differently, decisions that are “intermediate” or procedural in nature, which do not give rise to a substantive consequence, will not be subject to the Court’s supervisory jurisdiction: Law Fei Shing v Disciplinary Committee of Hong Kong Institute of Certified Public Accountants [2019] 4 HKLRD 225 at §§16(1), 28.

(3)  In tandem, the declining of an invitation to reconsider a decision does not automatically give rise to a fresh decision which is amenable to judicial review. It must be shown that, as a matter of substance and reality, such a fresh decision has been made: R (London Borough of Lambeth) v Secretary of State for Work and Pensions [2005] EWHC 637 (Admin) at §38.

(4)  The Court will also be particularly slow to find that there is a fresh reviewable decision where there is reason to believe the applicant seeks to avoid some procedural or substantive requirement by asking the decision-maker to reconsider the matter and rely upon the “reconsideration decision”.

(5)  Similarly, an applicant cannot bring himself within time to apply for judicial review under Order 53 rule 4 of the Rules of the High Court Cap 4A “simply by asking the decision-maker to reconsider the application, and thereby artificially bring himself within time, by relying upon the reconsideration decision”: Martin Tao Ming Lee v Secretary for the Civil Service and anor (HCAL 82/2010, 8 August 2011) at §8; ET Investment v Director of Health [2016] 1 HKLRD 1389 at §18.

43.  I accepted all of the above, and found the LD and LRC Decisions not to be fresh reviewable decisions for the following reasons:

(1)  The decision which was decisive in nature was the Delisting Decision. This is supported by Rule 2B.16, which states that the decision of the LRC shall be “conclusive and binding” on the listed issuer. From that moment on, there was no further question as to whether the Company would be delisted. The only question was when. Indeed, the Company squarely recognised this in the emails dated 17 April 2023 and 25 April 2023 asking the Exchange to refrain from “implementing” the Delisting Decision.

(2)  Thus, as the Exchange rightly noted, the decision which should have been challenged was the Delisting Decision. But that had no prospects, because there is nothing to challenge – the Company failed to comply with the Resumption Guidance before the prescribed remedial period (i.e. 30 September 2022). I agree that the Company’s challenge is exactly what previous Courts have warned against, namely that applicants should not be allowed to rely on the “softer target” of a reconsideration decision and circumvent a substantive bar (namely, that the Delisting Decision disclosed no public law error).

(3)  As I noted above, the email said to comprise the LD Decision / LRC Decision did not even the refer to the New Information.

44.  Perhaps most significantly, I considered the possibility of reviewing the LD Decision / LRC Decision in such a manner to be an absurd proposition. Listed issuers could abuse the delisting and judicial review processes by coming up with “new information”, “changes of circumstances”, or “material new developments” and, on their alleged strength, repeatedly ask the Exchange to reconsider its delisting decisions. Then the issuer would treat each refusal to respond as a fresh reviewable decision, no doubt in the hope that this would force the Exchange to refrain from implementing its substantive delisting decision.

45.  This would obviously not be beneficial to the investing public, precisely because it creates continuing uncertainty over whether the issuer should continue to be listed, which runs contrary to the spirit of the relevant Listing Rules, including Rule 6.01A, and Guidance Letter 95-18 (“Guidance Letter”) §§12 and 19.

46.  For this reason alone, I dismissed the Company’s application for leave to apply for judicial review.

E.2  No Public Law Error

47.  But, in any event, I also did not consider there to be an arguable public law error.

48.  The Company’s argument on Grounds 1 to 4 rested upon the critical premise that, on proper interpretation of the Listing Rules, the LD / LRC is obliged to or should undertake a process of “reconsideration” as long as the Company has not been actually delisted. Thus, if it fails to do so, the Exchange breaches its Tameside duty to acquaint itself with relevant information. Similarly, if the Exchange fails its purported “obligation” to consider reconsider the delisting, and thus decides not to consider the New Information, then LD’s or LRC’s policy is “too rigid”.

49.  The Company sought to rely heavily on (1) Rule 6.01 of the Listing Rules, and (2) Guidance Letter §§13 and 33. Respectively, they provide that:

(1)  “Listing is always granted subject to the condition that where the Exchange considers it necessary for the protection of the investor or the maintenance of an orderly market, it may at any time…cancel the listing of any securities in such circumstances and subject to such conditions as it thinks fit” (Rule 6.01).

(2)  “The issuer may also consult the Exchange at any stage. When the issuer considers that it has remedied the issues and recompiled with the Rules, it must then seek a confirmation from the Exchange that this is the case” (Guidance Letter §13).

(3)  “Where without being required to submit a new listing application, an issuer considers that its business operations has re-complied with Rule 13.24, it must demonstrate to the Exchange’s satisfaction that its business is one of substance and is viable and sustainable in a longer term… The Exchange’s assessment of the issuer’s re-compliance with Rule 13.24 is a continuing process, based primarily on these disclosures…” (Guidance Letter §33).

50.  But nothing in those provisions supports the Company’s interpretation.

51.  Indeed, the Company was essentially contending that the Exchange is obliged to give listed issuers every opportunity not to be delisted. That cannot be right.

52.  Under Rule 6.01A, the listed issuer has 18 months – the prescribed remedial period – to show that it should not be delisted. I agreed with Mr Dawes that if listed issuers have the power to request the Exchange to reopen its decision in light of subsequent developments, the prescribed remedial period would no longer represent a certain and fixed deadline. Indeed, that the Company’s own admission at §11 of its Form 86 that there are no provisions within the Listing Rules which provide a mechanism whereby listed issues can submit further materials for the Exchange’s consideration after a delisting decision has been made by the LRC.

53.  Though already set out in a number of previous decisions, it bears repetition that the remedial period of 18 months is not to promote the resumption of trading, but to create an effective delisting framework in light of the Exchange’s statutory objective.

54.  I also consider the Company’s interpretation of the relevant Listing Rules to be wrong for the following reasons:

(1)  In effect, the Company was asking to play some part in deciding when a delisting decision is really final and conclusive. But that is inconsistent with both Rules 2A.08 and 2B.06, which provide that (1) the LC has reserved to itself the power to cancel the listing of a listed issuer, (2) the LC’s decision (and, if the LRC is requested to review the same, the LRC’s decision) is conclusive and final.

(2)  Given that only the LC / LRC has the power to cancel a listed issuer, the LD has no such power to reconsider their decisions. A fortiori, the LD has no power– as the Company seems to suggest – to reconsider the Delisting Decision.

55.  It is thus difficult to see how the LD and LRC can be accused of failing to acquaint themselves with relevant information or fettered their discretion for a process that they are not obliged to undertake.

56.  The Exchange was wholly entitled simply to disregard the Company’s request to reconsider the Delisting Decision without exercising any discretion or carrying out any inquiry.

E.  Conclusion

57.  It was for the above reasons that I dismissed the Company’s application for leave to apply for judicial review, with costs to the Exchange.