RED ASSET MANAGEMENT LTD AND ANOTHER v. SANCUS GROUP LTD AND ANOTHER

HCA 1493/2022

[2025] HKCFI 4166

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1493 OF 2022

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DECISION

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1.  Introduction

1.1  By a decision handed down on 23 January 2025 (“Decision”)[1], I acceded to Ps’ application for summary judgment against D1 for (1) a declaration that Ps have validly terminated the STA by reason of D1’s breach and (2) return of the consideration paid as money had and received on the basis of a total failure of consideration: Decision §§1.7(1) and 6.1.

1.2  As recorded at Decision §1.7(2), the only ground for determination was whether there was a triable issue on P’s claim that there was a total failure of consideration. On 20 February 2025, D1 filed his Notice of Appeal (“NOA”), the overarching ground being that, as it was common ground that the shares in BOAIFS had been transferred to P1’s nominee, I should have held that there was an arguable defence on Ps’ case that there was a total failure of consideration. In support of the overarching ground set out at NOA §1, NOA §2 sets out 6 “elaborating” grounds, essentially asserting that I had erred in my interpretation of the suite of agreements, namely the MOU, the STA, the SPA, the SA and/or the Supplemental SPA.

1.3  This is my decision on D1’s application for a stay pending appeal. D1’s primary ground is that the merits of the appeal are of such strength that, of themselves, they constitute a good reason for a stay. In the alternative, D1 says that, on the basis that the appeal is only arguable, a stay should be granted and he has demonstrated that the appeal would be rendered nugatory absent a stay.

1.4  I have received helpful written submissions from the same counsel team who appeared at the hearing of the summary judgment application, namely Mr Roger Phang (leading Mr Kelvin Tse) for Ps and Mr Vincent Chiu for D1.

2.  The appeal grounds

2.1  The appeal grounds set out at NOA §2 may be summarized as follows:

(1)  NOA §2.1 (“Ground 1”): In concluding that the transfers of, on the one hand, the shares in Target Company, and on the other, those of BOAIFS, were separate and distinct matters (Decision §§5.3-5.4), such treatment was artificial and contrary to commercial common sense and contrary to Recital (2) of the MOU (set out at Decision §2.15(1));

(2)  NOA §2.2 (“Ground 2”): I failed to appreciate that the MOU was entered into for the purpose of agreeing on the way forward, and accordingly and consistently with Recital (2) of the MOU, Clause 3 (set out at Decision §2.15(4)) should be interpreted as making provision for the acquisition of BOAIFS as part of the Target Company. Reliance as placed on the sentence before the operative clauses of the MOU, namely “本協議各方在通過友好及坦誠的協商，就 [Target Company] 的股權買賣及認購的對價方面達成一致的協訂如下[2]”;

(3)  NOA §2.3 (“Ground 3”): I had erred in holding that, according to the 18/2/19 Proposal, there were business contemplated which were not expressly spelt out in the Recitals in the SPA, the SA and/or the Supplemental SPA, eg MTB in Latvia (Decision §5.3). I had erred in misapprehending the evidence in that the removal of MTB from the Target Company had been contemplated by the parties since July 2017 (Exhibit CW-3);

(4)  NOA §2.4 (“Ground 4”): I had erred in relying on the 18/2/19 Proposal as an aid of my interpretation of the MOU and/or the STA (Decision §5.4) as it is not permissible use of pre‑contractual negotiations. Even were the 18/2/19 Proposal used as an aid to interpretation, I was wrong in concluding the Target Company and BOAIFS as two separate issues;

(5)  NOA §2.5 (“Ground 5”): The third recital to the STA (set out at Decision §2.16)[3] makes it clear that the sums of US$20,000,000, HK$13,500,000 and RMB20,000,000 were for the purpose of acquiring the shares in both the Target Company and BOAIFS and would give rise to a contractual estoppel and I had erred in failing to consider or address the issue of contractual estoppel at all (Decision §5.5);

(6)  NOA §2.6 (“Ground 6”): I had erred in my interpretation of Clause 1.1 of the STA (set out at Decision §2.16), in particular the reference to “組成部份”, contrary to my interpretation set out at Decision §5.6, should be interpreted to mean that only part of the Total Consideration was to constitute the consideration for the acquisition of the Target Company.

3.  The applicable principles

3.1  There is no dispute between counsel that the applicable principles are those set out at Star Play Development Ltd v Bess Fashion Management Co. Ltd [2007] 5 HKC 84 §§6-10.

3.2  As has also been pointed out by Mr Phang:

(1)  Repeating arguments previously made and rejected by the court in a Notice of Appeal cannot be a valid ground of appeal. The Court of Appeal will not entertain an appeal simply because an applicant wishes to regurgitate arguments already considered below with the hope that the Court of Appeal may come to a different assessment of the situation: Symphony Partners Ltd v Fullerton Bay Investment Ltd [2018] 4 HKLRD 264 §33;

(2)  It is well-established that it is not the function of a judgment to deal with each and every point raised by a litigant in his evidence and submissions without regard to its significance in the overall exercise. It is sufficient that adequate reasons are given to explain how the determination has been reached: Yu Wing Cheong & Anor v Yu Wing Yin [2022] HKCA 101 §20.

3.3  In the light of the detailed submissions made by the parties on the merits of the grounds advanced in the NOA, it is perhaps useful to reiterate the observations made in Ming Hsieh v Xu Zhe & Ors [2018] HKCA 390:

"[8] Five broad grounds are raised in the notice of appeal: there is no evidence of actual damage caused by the injunction (grounds 1 and 2); there is no basis to hold there was loss of opportunities to sell the shares caught by the injunction (ground 3); the 2nd defendant had failed to mitigate her loss (ground 4); and the period for assessing loss is erroneous (ground 5). Ms Chan contended there are strong merits in the appeal. Mr Victor Dawes, SC argued to the contrary that the grounds of appeal do not have a reasonable prospect of success.

[9] We do not propose to set out their arguments. This is not a dry run of the appeal. It is well established that for the purpose of this application, the court only needs to form a preliminary view on the merits. It would be impractical and even undesirable for the court to go deeply into the strengths of the appeal and it should refrain from embarking upon detailed discussion and analysis of the grounds of appeal.

[10] For the grounds of appeal to be regarded as very strong such that the existence of these grounds by themselves would constitute a good reason for stay of execution, it is well established that the requisite strength must be such that the court takes the view that "something has grievously gone wrong with the process of law in the court below", or in other words, the appellant is "almost bound to succeed" in the appeal. If all that can be demonstrated is that the appeal is arguable or even that good arguments exist, something more needs to be shown by the appellant to obtain a stay of execution.

[11] The grounds of appeal in this instance plainly do not reach that level of requisite strength. We agree with the judge this appeal is arguable. The minimum requirement for considering whether a stay should be granted is met, but additional reasons would need to be provided by the plaintiff why a stay is justified." (emphasis added)

4.  Analysis

4.1  Mr Phang has made extensive submissions as to why the present appeal is unarguable such that D1 has not even met the minimum requirement before the court’s exercise of its discretion to grant a stay is engaged.

4.2  As has been pointed out by Mr Phang, Mr Chiu in his written materials has not been any substantive submissions on Ground 3. I further agree with Mr Phang that the submissions made in respect of Grounds 1, 2, 4 and 6 can fairly be characterized as regurgitation of the submissions previously made by D1 which I had considered and rejected.

4.3  My preliminary view is that the appeal grounds are certainly not very strong:

(1)  In respect of Grounds 1 and 2, I had set out D1’s arguments at Decision §§5.1(1) and (3) and dealt with them at Decision §5.3. There is no appeal against my conclusion that by the MOU, the parties had effectively agreed to renegotiate the agreement reached between them as contained in the SPA, the SA, and the Supplemental SPA. There is equally no attempt by D1 to identify any errors in my conclusion (set out at Decision §§5.3(1)-(3)) that the terms of the MOU plainly envisaged that (a) by Clause 4, the Target Company would only comprise of its shareholding in BOA (BVI) and all other assets would be stripped away from the Target Company at nil consideration and (b) by Clause 3, P1 was entitled, at its option, to call for the transfer of 86% shareholding in BOAIFS at nil consideration;

(2)  In respect of Ground 4, the position taken by D1 that it is impermissible to rely on the 18/2/19 Proposal in aid of the interpretation of the MOU and/or the STA amounts to a volte‑face, since it was D1’s own position, as set out at Decision §§5.1(2) and (3) that the 18/2/19 Proposal aided the D1’s case. In any event, whilst Mr Chiu has pointed to various excerpts of the 18/2/19 Proposal as showing that the proposal was one made in respect of the shares in both the Target Company and the BOAIFS, I maintain my view that the 18/2/19 Proposal, when considered as a whole, plainly shows that D1 himself was treating the Target Company and BOAIFS as two separate issues, as set out at Decision §5.4;

(3)  In relation to Ground 6, the argument made by Mr Chiu is that since the term “轉讓款" was defined in the third recital of the STA, there would have been no need for Clause 1.1 to specify that the Total Consideration constituted the Down Payment and the Further Payments. D1’s argument was set out at Decision §5.1(5) and dealt with at Decision §5.6. My preliminary view is that I am not persuaded that Mr Chiu has pointed to any error on my part, especially when the contractual arrangement between the parties as embodied in the MOU and the STA is looked at in the round.

4.4  I should here say a few words about Ground 5. Mr Chiu complains that I had not dealt with the issue of contractual estoppel. However, I must make clear D1’s argument on contractual estoppel was couched in the following terms in D1’s Skeleton Submissions lodged for the hearing on 23 October 2024:

“[22] The Third Recital to the STA made it clear that the Three Sums as mentioned (US$20,000,000, HK$13,500,000, and RMB ¥20,000,000) were for the purpose of acquiring shares in both the Target Company and BOAIFS. Further, the STA was made expressly pursuant to the MU, and hence the understanding as per the MU as analysed above would apply to the STA as well. A contractual estoppel would arise and Ps are estopped from denying such state of affairs: Nokia Corp v TCT Mobile Ltd [2017] 3 HKC 102 [D1#7] at §§18-24 per Barma JA...”

4.5  At Decision §5.1(4), that part of Mr Chiu’s submissions was set out almost in verbatim, but without the reference to contractual estoppel. As I then understood Mr Chiu, his argument on contractual estoppel was premised on his interpretation of the third recital of the STA, which I had rejected. I therefore did not further deal with the argument on contractual estoppel. In any event, the effect of the alleged contractual estoppel depends on the prior question on what is the proper interpretation of the clause(s) allegedly giving rise to the contractual estoppel. As has been stated at Spencer Bower: Reliance-Based Estoppel (5^th Ed) at §8.70:

“Estoppels by the recitals are non-operative words of an instrument recording a transaction arise because, on the true construction of the instrument, the parties have agreed to assume the facts as the conventional basis of their transaction.”

4.6  For the above reasons, I have formed the preliminary view that that appeal grounds are certainly not very strong. However, as the grounds are predominantly targeted at issues of interpretation, I am prepared to proceed on the basis that the appeal is (just barely) arguable.

5.  Whether appeal nugatory

5.1  The only factors relied on by D1 are (1) Ps are foreign companies incorporated in the Cayman Islands and the BVI and (2) there is a purported lack of assets in the jurisdiction. D1 submits that Ps have chosen not to file any evidence in opposition for the purpose of the present stay application.

5.2  Mr Phang relies on., inter alia, King Victory Investment Ltd v Chan Hon Wing & Anor [2023] HKCFI 2992 §§24-25 and Toeca National Resources BV v Baron Capital Ltd & Anor, CACV 55 of 2013, 16 August 2013 §12 for the following propositions:

(1)  The burden is on D1 to show by way of credible evidence that there is a real risk and legitimate fear that any payment to Ps cannot be recovered should D1 succeed in his appeal;

(2)  The burden is not on the successful party to make an exhaustive list of assets to disprove such a risk and to allay such a fear;

(3)  For example, the assertion that a party is a shell company with an issued share capital of $1 and has no other assets has been held to be insufficient to make out a case of impecuniosity;

(4)  The mere fact that the successful party is a foreign plaintiff is an argument for making a payment into court but is not itself an argument for a stay.

5.3  Ps had offered to D1 in March 2025 that they were agreeable to a stay so long as full payment of the judgment sum was paid into court, which offer was rejected by D1.

5.4  In the present case, I agree with Mr Phang that D1’s evidence has fallen far short of demonstrating that there is a real risk and legitimate fear that the judgment sum could not be recovered from Ps if D1 succeeds in its appeal.

6.  Conclusion

6.1  For the above reasons, I dismiss D1’s application for stay pending appeal. There is no reason why costs should not follow the event. I make a costs order nisi that D1 is to pay to Ps the costs of the present application, to be summarily assessed on the papers. Ps are to lodge and serve their statement of costs within 7 days hereof and D1 his objections within 7 days thereafter.