RICH REGION HOLDINGS LTD AND ANOTHER v. GOLD BRILLIANT INVESTMENT LTD AND OTHERS

HCA 1811/2023 and HCMP 1764/2023

(Heard Together)

[2024] HKCFI 2034

HCA 1811/2023

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTIONS NO. 1811 OF 2023

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BETWEEN

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AND

HCMP 1764/2023

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1764 OF 2023

____________________

____________________

BETWEEN

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(Heard Together)

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JUDGMENT

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I. INTRODUCTION

1.  This is the substantive hearing of two sets of proceedings, HCMP 1764 and HCA 1811, which have been initiated by Rich Region and Concept Pioneer as Plaintiffs. Although its history is convoluted, this case is essentially about the struggle for control over Gold Brilliant. Control of Gold Brilliant is regarded as valuable because of the company’s residual rights to the surplus proceeds or profits of an MTR development project in Ho Man Tin. Those profits may be worth between $500 million and $1.46 billion.

2.  Gold Brilliant’s immediate shareholders are Rich Region and Concept Pioneer. Rich Region and Concept Pioneer are now in liquidation. So, the factions in the struggle have for some time been the liquidators of Rich Region and Concept Pioneer on the one hand and what might be called “the Pan camp” on the other. By the expression “the Pan camp,” I refer to those persons who at one time were in control of Rich Region and Concept Pioneer, namely, Pan Sutong, Cheng Ka Yan, Hou Qin, and Wong Kin Ming.

3.  The complication in this case arises from the apparent charging by Rich Region and Concept Pioneer of their shares in Gold Brilliant shares to Great Bliss (a company controlled by the Pan camp) as security for an alleged loan by Great Bliss to Gold Brilliant. Subsequently, Great Bliss claims to have assigned the benefit of its security over Gold Brilliant’s shares to Seashore (a company under the control of Riri Hiraishi) for valid consideration.

4.  Liquidators were appointed over Rich Region and Concept Pioneer after they defaulted on substantial debts owed (among others) to Industrial and Commercial Bank of China (Macau) Ltd (ICBC) and CNCB (Hong Kong) Investment Ltd (CNCB). ICBC initially appointed receivers to collect and realise the Plaintiffs’ assets, including their shares in Gold Brilliant. This proved challenging. The receivers encountered heavy resistance from the Pan camp. In these proceedings, the liquidators go so far as to accuse the Pan camp of having stripped the Plaintiffs of their principal asset (in particular, the Plaintiffs’ shares in Gold Brilliant) during the time gained from the Pan camp’s resistance efforts.

5.  In October 2023, at a hearing of the ICBC-appointed receivers’ application to gain control of Gold Brilliant, Seashore appeared out of the blue and claimed to be legally and equitably entitled to Gold Brilliant’s shares, instead of Rich Region and Concept Pioneer.

6.  Seashore produced a purported loan agreement signed between Great Bliss and Gold Brilliant on 2 March 2022, a date shortly before ICBC appointed receivers over the Plaintiffs. According to Seashore, Gold Brilliant had charged its shares to Great Bliss as security for the loan agreement. Seashore claimed that, on 1 September 2022, Great Bliss assigned the benefit of the loan agreement and share charge to Seashore as further security for the repayment of debts owed by entities controlled by the Pan camp to Riri Hiraishi’s group of companies. In the exercise of its rights as chargee, through powers of attorney allegedly granted to it by Rich Region and Concept Pioneer for the purposes of making good its charge, Seashore caused itself to be registered as the owner of Gold Brilliant’s shares.

7.  The Plaintiffs reject Seashore’s case.

8.  The Plaintiffs say that the loan agreement is a sham and that no loan monies were ever advanced to Gold Brilliant by Great Bliss. This means that there could never have been a genuine assignment of the loan agreement to Seashore. The loan agreement was concocted purely to serve as a pretext for charging Gold Brilliant’s shares to Great Bliss. The reality is that the share charge secured nothing and must itself likewise be a nullity. Thus, regardless of the veracity or otherwise of the circumstances underlying the assignment of the loan agreement and share charge by Great Bliss to Seashore, there can be no basis for Seashore contending that it is entitled to a legal or equitable interest in Gold Brilliant’s shares by reason of the share charge.

9.  The main issue for me is therefore to determine who is entitled to Gold Brilliant’s shares. In other words, was the loan agreement between Great Bliss and Gold Brilliant a sham and (if so) with what consequences on the assignment to Seashore of the loan agreement and share charge? Depending on how the main issue is determined, there are subsidiary issues on (1) the amounts due and owing from Gold Brilliant to Rich Region and Concept Pioneer under certain loan agreements and (2) the final disposition of HCMP 1764.

II. BACKGROUND

A. Rich Region, Concept Pioneer and Gold Brilliant

10.  Rich Region was incorporated in the BVI on 11 October 2016. In November 2016, its sole shareholder was Goldin Financial Holdings Ltd, then a Hong Kong listed company. At the time, Pan held about 70%, and the public about 25%, of Goldin Financial. In December 2016, Rich Region issued five more shares to Goldin Financial (increasing the latter’s holding in Rich Region to six shares) and four shares to Great Discovery Global Ltd. Great Discovery was indirectly owned by Pan. Goldin Financial remained a 60% shareholder of Rich Region until 25 April 2019, when Goldin Financial’s six shares in Rich Region were transferred to Glamorous Smart Ltd, a company indirectly owned by Pan. Ting Mun Chung Tommy and Wong were directors of Rich Region from 9 August 2019 and 22 February 2022. Cheng and Hou Qin were directors of Rich Region from 10 January to 6 April 2022.

11.  Rich Region has an 83.5% in Gold Brilliant (167 of 200 shares). On 17 February 2017, Rich Region agreed to lend $2,622,900,000 to Gold Brilliant. Of that amount, $1,363,072,898 remained due as of 30 June 2020.

12.  Concept Pioneer was incorporated in the BVI on 8 January 2016. In January 2016 Linewear Assets Limited held all 100 of its shares. Linewear is a wholly owned subsidiary of Huarong International Financial Holdings Ltd, a listed company. China Huarong Asset Management Co Ltd holds 51% of Huarong International. China Huarong is indirectly controlled by the PRC Ministry of Finance. On 28 June 2018, Linewear’s shares in Concept Pioneer were transferred to Solar Achiever Limited. As a result, through his indirect 100% interest in Solar Achiever, Pan became Concept Pioneer’s beneficial owner. Pan was a director of Concept Pioneer from 28 June 2018 to 1 March 2022. Cheng and Hou Qin served as directors of Concept Pioneer from 10 January to 12 July 2022, when they were replaced by Zorya Limited.

13.  Concept Pioneer holds 16.5% of Gold Brilliant (33 out of 200 shares). On 21 December 2016 Concept Pioneer agreed to lend Gold Brilliant $660,000,000. As of 30 June 2020, $269,349,734 of that loan remained outstanding.

14.  Gold Brilliant was incorporated in Hong Kong on 30 November 2016 as a joint venture between Goldin Financial (through Rich Region) and Huarong International (via Concept Pioneer). The joint venture agreement was signed on 21 December 2016.

15.  Gold Brilliant was the developer of the Ho Man Tin Station Package One Property Development (the Ho Man Tin Project), situated on property owned by MTR Corporation Ltd. On 12 January 2017, MTR, Gold Brilliant, Pan and Goldin Financial entered into an agreement for the development of the Ho Man Tin Project. Under that agreement, Gold Brilliant was to pay the land development premium.

16.  Rich Region and Concept Pioneer, as joint venture partners in Gold Brilliant, thus had to come up with financing to enable Gold Brilliant to meet the premium and development costs of the Ho Man Tin Project. It was decided that Concept Pioneer would make a shareholder loan of $660 million, while Rich Region would lend $2,622,900,000, to Gold Brilliant. These amounts are mirrored in the loan agreements mentioned in [11] and [13] above. The loan agreements were the subject of public annual reports and announcements. These public documents evidence Rich Region’s, Concept Pioneer’s and Gold Brilliant’s intentions on how the financing for the Ho Man Tin Project would be shared between Rich Region and Concept Pioneer.

17.  By 31 March 2018, Gold Brilliant had paid the land premium of $6,282,370,000 for the Ho Man Tin Project.

18.  In April 2018 Goldin Financial announced the sale of its Rich Region shares to a company owned by Pan. At about the same time, Huarong made a similar announcement in respect of its shares in Concept Pioneer.

19.  On 25 June 2018, Pan and Solar Achiever obtained $2 billion of external financing from CNCB and another investor under an equity participation agreement.

20.  By a loan facility agreement dated 10 December 2018 ICBC lent $3.3 billion to Rich Region.

B. The Pan camp’s loss of control over Rich Region and Concept Pioneer

21.  By a It will be seen from section II.A above that, by mid-2018, Gold Brilliant, Rich Region and Concept Pioneer had come under the Pan camp’s control. Shortly afterwards, Pan’s financial empire began to collapse.

22.  In August 2017 Pan decided to privatise Goldin Properties Holdings Ltd (then a Hong Kong listed company). To accomplish this, Pan caused Silver Starlight Ltd (a wholly owned subsidiary) to obtain a RMB 8 billion loan from various CITIC banks. Pan guaranteed the loan. In November 2019 Silver Starlight defaulted on the loan. The CITIC banks issued statutory demands against Silver Starlight and Pan on 24 December 2020 and 16 February 2021 respectively. Pan also defaulted on other guarantees, including (1) a guarantee in favour of Bank of China Ltd for a loan of RMB 696,424,582.60 to Proman International Ltd (a Pan company) and (2) a guarantee in favour of CNCB in connection with the CNCB equity participation agreement mentioned in [19] above. On 22 February 2021, Silver Starlight applied to restrain the CITIC banks from presenting a winding-up petition based on the CITIC loan. On 5 March 2021, Pan applied to set aside the statutory demand served on him in respect of the CITIC loan guarantee. Pan’s applications were dismissed by the court and on 8 July 2022, Linda Chan J then made a bankruptcy order against Pan. An appeal against that order was dismissed.

23.  Rich Region failed to pay the amount outstanding on the final maturity date (10 April 2020) of the ICBC loan facility agreement. From 30 July 2020 onwards, ICBC sent letters to Rich Region demanding repayment. On 9 March 2022 ICBC appointed Tang Chung Wah, Anita Hou and Kan Lap Kee as receivers over Rich Region under share charges given by Rich Region.

24.  The receivers attempted, initially unsuccessfully, to appoint directors over Rich Region. On 11 March 2022, the receivers executed written resolutions for the replacement of Rich Region’s directors. The resolutions had been pre-signed by Rich Region’s then directors Wong and Ting as security for ICBC’s loan facility. But Wong and Ting having ceased to be Rich Region directors on 22 February 2022, the resolutions were invalid. On 6 April 2022 the receivers passed further resolutions to replace Rich Region’s directors. However, Rich Region’s registered agent in the BVI had been changed without the receivers’ knowledge. The new agents disregarded the resolutions and refused to update Rich Region’s register of directors. Finally, on 6 September 2022 the receivers managed to update Rich Region’s register to show that they had been appointed as directors on 6 April 2022.

25.  On 5 July 2022 ICBC issued a statutory demand against Rich Region. The Pan camp applied in the BVI to set aside the statutory demand. On 31 July 2023, Small Davis KC J (Ag) dismissed the Pan camp’s setting aside application. Rich Region went into liquidation. On ICBC’s application, the BVI Court appointed Karen Chu, Ho Kwok Leung Glen and Ryan Jarvis as liquidators on 6 November 2023. An ancillary winding up order was made in Hong Kong on 24 April 2024.

26.  On 25 June 2018 Pan executed a Deed of Undertakings and Personal Guarantee in CNCB’s favour in connection with the equity participation agreement mentioned in [19] above. As security, Solar Achiever charged its Concept Pioneer shares to CNCB on 2 June 2020. Pan having defaulted on his obligations, on 2 June 2022 CNCB enforced the charge by causing Lau Wing Yi Connie and James Drury to be appointed as receivers over Solar Achiever’s Concept Pioneer shares. The receivers passed resolutions on 12 July 2022 to replace Concept Pioneer’s directors with Zorya.

27.  The Pan camp argued before the BVI court that the latter resolutions were invalid. However, on 30 November 2023, Mangatal J declared that the receivers had been validly appointed and Zorya had become Concept Pioneer’s sole director on 12 July 2022. Connie Lau and Law Chun Yin were appointed as Concept Pioneer’s liquidators by resolution of Solar Achiever as sole shareholder on 16 February 2024.

C. Struggles for the control of Gold Brilliant

28.  On 25 April 2022 an extraordinary general meeting (EGM) of Gold Brilliant’s shareholders was convened to replace the company’s directors with Rich Region’s receivers. Tang attended as Rich Region’s proxy. Wong as chairperson declared the EGM to be inquorate.

29.  On 1 September 2022, a second EGM took place. Anita Hou attended as Rich Region’s proxy. Cheng also showed up, proclaiming herself to be a director of Rich Region and its duly appointed proxy. Shek Lai Him Abraham, a director of Goldin Financial and Gold Brilliant, acted as the EGM’s chair. He accepted Cheng as Rich Region’s representative and rejected Anita Hou’s proxy.

30.  On 18 September 2023, Gold Brilliant gave notice of a third EGM to be held on 16 October 2023. The receivers commenced HCMP 1764 on 10 October 2023 for interim and permanent injunctions to prevent any chair of Gold Brilliant’s general meetings from disallowing the receivers’ votes. The application for an interim injunction was scheduled for 13 October 2023. On 12 October 2023 (that is, the day before), Xue Wen filed an affirmation in opposition on the ground that Seashore was Gold Brilliant’s sole shareholder and Kevin Sun and Xue were Gold Brilliant’s duly appointed directors.

31.  Seashore is a wholly owned company of Hiraishi. It manufactures electronic parts, including printed circuit boards for telecommunication and multimedia products. It operates through the trading company Guangzhou Singulargold, which is held by Favor Mega Group Limited (another Hiraishi group company).

32.  Xue’s affirmation explained that, on 22 March 2022, Great Bliss had advanced $1,708,731,975 to Gold Brilliant under a loan agreement between Great Bliss and Gold Brilliant. The loan was said to have been secured by a charge over all of Gold Brilliant’s shares. According to Xue, on 1 September 2022, Great Bliss assigned its rights under the loan agreement to Seashore. Xue further deposed that, on 10 October 2023, Rich Region and Concept Pioneer had executed powers of attorney in Seashore’s favour. Thereafter, as attorney for Rich Region and Concept Pioneer, Seashore caused (1) the Gold Brilliant shares held by Rich Region and Concept Pioneer to be transferred to it and (2) Gold Brilliant’s share register to be amended accordingly. Having obtained control over Gold Brilliant, Seashore appointed Sun and Xue as Gold Brilliant’s directors.

33.  On 13 October 2023, expressing serious doubts over the validity of the powers of attorney executed by Rich Region and Concept Pioneer and the genuineness of the loan agreement between Great Bliss and Gold Brilliant, Linda Chan J granted the interim injunction sought in HCMP 1764.

34.  At the 16 October 2023 EGM, resolutions were passed appointing Rich Region’s receivers as Gold Brilliant’s directors. Despite this, Xue and Sun still claimed to be Gold Brilliant’s directors. Both notified the Companies Registry on 12 October 2023 of their appointment as Gold Brilliant’s directors. On 17 October 2023, the receivers in turn notified the Companies Registry of their appointment as Gold Brilliant’s directors. Xue and Sun’s solicitors wrote to the Companies Registry on 19 October 2023, disputing the validity of the receivers’ appointment. Consequently, on 3 November 2023, Rich Region commenced HCA 1811.

D. The present proceedings before the court

35.  The defendants in HCMP 1764 and HCA 1811 are Seashore, Gold Brilliant, Great Bliss and any individual acting as chairperson of a Gold Brilliant general meeting. Seashore and the chairpersons were represented by PC Woo & Co. The remaining defendants failed to acknowledge service. I am satisfied, however, that Great Bliss and Gold Brilliant were properly served with notice of these proceedings and the documents filed in this matter. Both defendants are thus fully aware of the trial before me. The court can thus proceed with the substantive hearing of the case against the two defendants. The HCMP 1764 proceedings against Cheng and Wong (the 3^rd and 4^th Defendants) were discontinued by my Order of 26 June 2024. On the day before the trial, PC Woo applied to cease to act. An order in terms of that application was granted.

36.  Nevertheless, on the day of trial, Mr. Avery Chan appeared in court on Seashore’s behalf on instruction from PC Woo. Mr. Chan informed the court that he had only been instructed at 8 am on the day of the trial itself. He did not seek an adjournment. Although Huang Mo Han had submitted a witness statement in support of Seashore’s case, Mr. Chan confirmed that he did not intend to call Huang on Seashore’s behalf and only had five minutes’ worth of cross-examination for the Plaintiffs’ witnesses (Anita Hou and Karen Chu). After discussion with the court and Mr. Jason Yu (counsel for the Plaintiffs), it was agreed by all that it would be more efficient for the court simply to admit the statements of Anita Hou and Karen Chu into the record, without prejudice to any submissions from Mr. Chan on the weight to be given to their evidence. Thereafter, having handed up written Opening Submissions of Seashore to the court, Mr. Chan delivered oral closing submissions. Mr. Yu followed with his closing submissions.

37.  The hearing bundle includes the affirmation evidence which the parties submitted during the interlocutory proceedings leading to the trial before me. However, neither party applied under RHC Order 38 rule 2 for any affirmation (or parts of the same) to stand as evidence-in-chief at trial. Further, by a Consent Order dated 5 July 2024, the court directed that all witness statements shall stand as evidence-in-chief, provided that the deponents attend the trial for cross-examination. Anita Hou and Karen Chu were available for cross-examination on the day of trial. In contrast, Seashore did not tender any live witness at trial. In those circumstances, the affirmations used in interlocutory proceedings do not constitute evidence on any disputed matter for the purposes of the trial.

III. DISCUSSION

A. Main issue: Who is entitled to the Gold Brilliant shares?

A.1 Seashore’s case

38.  Seashore’s case is that Great Bliss advanced a loan to Gold Brilliant and assigned the benefit of the same to Seashore. Great Bliss’ charge over Gold Brilliant’s shares were transferred to Seashore in consequence. In support, Mr. Chan refers to Recital (B) of the loan agreement:

“The Lender [Great Bliss] is the indirect holding company of the immediate holding companies [Rich Region and Concept Pioneer] and on various dates, advanced loans to the Borrower [Gold Brilliant] through payments made by the immediate holding companies and other related parties at the direction of the Lender at the aggregate amount equivalent to the Total Indebtedness [$1,708,731,975] as of the date hereof.”

39.  According to Mr. Chan, since even the Plaintiffs accept that Rich Region and Concept Pioneer advanced loans of $2,622,889,475 and $660,000,000, there can be no doubt that monies were advanced as Recital (B) states. More particularly, Recital (B) functions like a receipt clause. It can be displaced by evidence to the contrary, “unless the parties are precluded from adducing such evidence because it is established that they intended to contract or make their deed on the contractual basis that the money”.

40.  Mr. Chan accepts that Great Bliss was incorporated after Rich Region and Concept Pioneer advanced their loans to Gold Brilliant. That means Great Bliss did not exist at the time of its purported loan to Gold Brilliant. But Mr. Chan says that such reality is no problem because it is “well established that contracting parties can bind themselves by contract to accept a particular state of affairs even if they know that state of affairs to be untrue”. Mr. Chan argues that “the specifically drafted Recital (B) (which was never disputed by the contracting parties i.e. Great Bliss and [Gold Brilliant]) strongly suggests that Great Bliss and [Gold Brilliant], both intended to proceed on the basis that the [loan] has in fact been advanced”.

41.  Mr. Chan submits that, even if the court finds that no sums were advanced by Great Bliss to Gold Brilliant, the loan agreement would not be void. This is because Great Bliss and Gold Brilliant “would continue to be bound by [the loan agreement] unless it is liable to be set aside on other grounds”. Mr. Chan concludes from this that the mere fact that no sum was advanced by Great Bliss to Gold Brilliant under the loan agreement would not be fatal to Seashore’s case. The loan agreement and the share charge p would not be devoid of legal effect for that reason alone.

A.2 Analysis

42.  I am unable to accept Mr. Chan’s submissions. In my judgment, the loan agreement was a sham. It functioned as a pretext or window dressing for the purported creation of a charge over Gold Brilliant’s shares in Great Bliss’ favour as security for the repayment of the supposed loan. The Pan camp sought through such “charge” to ring fence Gold Brilliant’s shares from the liquidators of Rich Region and Concept Pioneer. It was hoped in that way to thwart the liquidators’ efforts at gaining control of Gold Brilliant and reaping the benefit of Gold Brilliant’s residual entitlement under the Ho Man Tin Project. \

43.  Plainly, no monies were ever advanced under the loan agreement. Recital (B) cannot be right. Monies could not have been advanced by Rich Region and Concept Pioneer to Gold Brilliant at Great Bliss’ instruction, since Great Bliss was only incorporated on 26 March 2019. That was well after July 2018, by which time Rich Region and Concept Pioneer had already advanced the relevant monies to Gold Brilliant. Mr. Chan suggests that Great Bliss’ non-existence as at July 2018 is irrelevant, because parties can contractually agree to treat a state of affairs as true even if that state of affairs is false. But I do not see how that submission answers Mr. Yu’s point. The submission does not explain how a non-existent company (as Great Bliss was at the time) could have caused Rich Region and Concept Pioneer to loan monies to Gold Brilliant. Contractual estoppel is not apposite, since not being privy to the loan agreement, Rich Region, Concept Pioneer and their liquidators are not bound by the fictious situation asserted in Recital (B).

44.  If no monies were ever advanced to Gold Brilliant under the loan agreement, it is hard to see what repayments Great Bliss could expect from Gold Brilliant. Nothing having been paid, there would be nothing to repay. Mr. Chan suggests that the loan agreement would still have some legal effect, despite the absence of consideration from Great Bliss. But it is not apparent what that legal effect would be from a practical business standpoint.

45.  There are more profound ramifications. One asks rhetorically: If no money was ever lent, then what was the share charge security for? In other words, what possible commercial motive would Great Bliss and Gold Brilliant have had for executing a loan transaction (consisting of a loan agreement and a charge as security) whereby no monies were ever advanced, but Gold Brilliant acknowledged that it owed some $1.7 billion to Great Bliss? The obvious answer would be that the loan agreement was prepared to give a patina of plausibility to the share charge.

46.  Seashore attempted, by an affirmation from its sole director Kevin Sun, to explain how Great Bliss became Gold Brilliant’s creditor. Sun accepted that the amounts due from Gold Brilliant to Great Bliss under the loan agreement were originally owed to Rich Region and Concept Pioneer. But (Sun says) those sums were later “reallocated” to Great Bliss “upon account reconciliation within the group”. A difficulty with Sun’s explanation is that Sun was not tendered as a trial witness. His affirmation is untested by cross-examination. No weight can be given to it.

47.  In any event, Sun himself does not appear to have personal knowledge about the matters to which he deposes, relying instead on what is stated on the face of sundry Gold Brilliant documents. He states:

“On 2 March 2022, upon accounting reconciliation within the group, the outstanding sum owed by the company to Rich Region and Concept Pioneer are reallocated to Great Bliss (see Summary Table p.1 (SWYK-1 p.449)), which led to the execution of the GBIL Loan Agreement on the same date. The Share Charge (XW-1 pp.9-39) was also executed on the same date as security for the GBIL Loan.”

The explanation is cryptic and raises more questions than it answers. What exactly was the rationale for the “re-allocation” and consequent “account reconciliation”? Sun produced a statement entitled: “Gold Brilliant Investment Limited – Shareholder Loan – Summary” with his affirmation. But the statement is unaudited. Its provenance is unknown. The statement does not explain (1) why the amounts due to Rich Region and Concept Pioneer were re-classified as due to Great Bliss and (2) why Great Bliss was deemed to be a lender to Gold Brilliant in lieu of Rich Region and Concept Pioneer, despite never apparently having advanced monies to Gold Brilliant.

48.  The express terms of the loan agreement contradict Sun’s explanation. Clause 2.1 states that Great Bliss “is willing to make” a loan facility available to Gold Brilliant upon any request for drawdown made under Clause 3.1”. Clause 3.1 provides that Gold Brilliant “may” make drawings by giving notice of drawdown. Clause 3.2 acknowledges that, as of the date of the loan agreement, the full amount of the facility remained available for drawdown. However, no subsequent document has been produced to the court showing a drawdown of any specific amount on some particular date.

49.  Other circumstances cast further doubt on the loan agreement’s authenticity. For example, two different versions have been produced to the court. The definition of “Facility” appears twice one version, but not the other. The Schedules to the two versions (dealing with the “Form of Irrevocable Power of Attorney”) are not the same. No explanation has been given for the discrepancies. In addition, there is no contemporaneous record of the due execution of the loan agreement. The loan agreement and share charge only suddenly popped up in October 2023.

50.  Given the foregoing and the Pan camp’s silence on the matter, the ineluctable conclusion is that the loan agreement is a concoction which cannot be taken at face value. The loan agreement appears to have been hastily put together at the last minute by the Pan camp to stave off attempts by the liquidators of Rich Region and Concept Pioneer to gain control of Gold Brilliant. The haste would explain the discrepancies in the loan documentation, the lack of any evidence of monies having been advanced, and the fact that the existence of the loan agreement and share charge did not surface until the HCMP 1764 proceedings in October 2023. The loan agreement being a sham, the charge over Gold Brilliant’s shares purportedly in Great Bliss’ favour was equally bogus.

51.  The loan agreement and share charge being nullities, they could not have become genuine instruments by reason only of their assignment to Seashore. The latter could not magically have obtained a better legal or equitable title to Gold Brilliant’s shares than Great Bliss ever had. Great Bliss having never had title to the shares, Seashore never obtained title.

52.  Seashore has pleaded an explanation for the assignment of the Great Bliss’ loan and the charge over Gold Brilliant’s shares to Seashore.

53.  According to Seashore’s pleading, Pan has long had a business relationship with Hiraishi. For instance, in 2008 Pan wanted to acquire Hiraishi’s business. Hiraishi incorporated Favor Mega to facilitate the acquisition. In February 2009 Pan and Hiraishi concluded a contract for the sale and purchase of Favor Mega. But in March 2009 the transaction fell through.

54.  Seashore’s pleading continues that from 2010 Hiraishi has been investing in Pan’s Tianjin Project. Hiraishi is said to have invested US$637 million in Digitech Communication Pte Ltd, a Singapore company controlled by Pan. In 2012 Hiraishi and Pan apparently agreed to re-classify Hiraishi’s investment in Digitech as a loan to Pan’s group. Favor Mega and Goldin Group (Investment) Limited entered into a loan agreement on this understanding. Pan guaranteed the Goldin Group loan. The loan’s maturity date was extended in 2015 and 2018. In August 2021, Hiraishi incorporated Seashore to hold the Goldin Group loan. Thar loan was assigned to Seashore on 8 October 2021. At the same time, Pan and his companies charged their shareholdings in Great Bliss, Loyal Faith Group Limited and Goldin Global Holdings Limited to Seashore as additional security for the Goldin Group loan. On 1 September 2022, Pan caused the loan from Great Bliss to Gold Brilliant and the charge over Gold Brilliant’s shares to be transferred to Seashore as yet further security for the Goldin Group loan.

55.  Seashore did not call any witness to back up its pleaded assertions. I am therefore unable to accept that case. But assume that Seashore’s pleading as just summarised is true. Even then, I am unable to see how Seashore could have acquired an interest in Gold Brilliant’s shares. An assignee cannot acquire a better legal or equitable title than its assignor. The loan agreement and share charge being void and inoperative, they were worthless in Great Bliss’ hands as security, and they remained worthless as security for the Goldin Group loan in Seashore’s hands.

56.  Mr. Chan fairly accepted in his written submissions that, if the charge over Gold Brilliant’s shares constituted a sham, then “Seashore has no dispute that such finding would render the relevant transaction(s) void as a result”.

A.3 Conclusion on main issue

57.  The loan agreement between Great Bliss and Gold Brilliant was fictitious. The charge over Gold Brilliant’s shares in Great Bliss’ favour was constantly inoperative and did not convey any interest in Gold Brilliant’s shares to Great Bliss. It follows that the assignment of the loan and share charge to Seashore did not transfer any interest in Gold Brilliant’s shares to Seashore. There will be declarations accordingly.

58.  The Plaintiffs’ Amended Statement of Claim in HCA 1811 (ASOC) prays for a plethora of consequential declarations, injunctions, and orders (including rectification of Gold Brilliant’s register and an account of profits) by way of relief. Following delivery of this Judgment, I shall hear counsel as to what reliefs are truly necessary and which are not needed to give effect to the declarations that I have made.

59.  Seashore has counterclaimed for declarations that (1) the transfer of Rich Region’s and Concept Pioneer’s shares to Seashore was validly executed and (2) Seashore is the legal and beneficial owner of Rich Region’s and Concept Pioneer’s Gold Brilliant shares. It follows from the voidness of the loan agreement and the charge over Gold Brilliant’s shares that Seashore’s counterclaim fails. Seashore did not acquire a legal or equitable interest in Gold Brilliant’s shares from the transfer by Great Bliss of the loan agreement and the share charge. Seashore’s counterclaim is dismissed.

B. Other issues: Outstanding loan amounts and final orders in HCMP 1764

B.1 Amounts due from Gold Brilliant to Rich Region and Concept Pioneer

60.  Rich Region and Concept Pioneer respectively claim $1,363,072,898 and $269,349,734 as outstanding sums due on the loans advanced by them to Gold Brilliant. The latter’s liability to pay the foregoing outstanding amounts was recognised in Note 16(b) of Gold Brilliant’s Audited Accounts dated 28 August 2020. I am satisfied that the amounts claimed by Rich Region and Concept Pioneer respectively are due and owing to them.

61.  Rich Region contends that Gold Brilliant also owes it the amount of $76,529,843.12. This is based on ASOC paragraph 20 which pleads:

“According to the management accounts of [Gold Brilliant], as of 30 June 2021, ... a further amount was due from [Gold Brilliant] to Rich Region in the sum of HK$76,529,843.12. ”

But, as Mr. Yu fairly points out, Gold Brilliants Audited Accounts dated 28 August 2020 merely recognise $58,062,871 as an additional amount due to Rich Region. I am therefore unable to accept that Gold Brilliant owes the claimed amount of $76,529,843.12. In my view, in keeping with what is evidenced by the Audited Accounts, the additional amount due is $58,062,871.

62.  On Gold Brilliant’s liability to Rich Region, I note that Rich Region assigned the benefit of its Gold Brilliant shareholder loan to ICBC as security for ICBC’s loan of $3.3 billion to Rich Region. Such assignment operates in equity and does not prevent Rich Region from suing Gold Brilliant as a party to the loan agreement.

63.  On Gold Brilliant’s liability to Concept Pioneer, I note that, Gold Brilliant having failed to pay the Rich Region shareholder loan when it fell due on 17 February 2022, there was an “Event of Default” under clause 5.1(b)(iii) of the loan agreement.[1] This accelerated the date when Concept Pioneer’s loan had to be repaid under clause 5.2 of the loan agreement. The loan automatically became “immediately due and payable”. ASOC does not expressly plead clause 5.1(b)(iii). But I accept Mr. Yu’s submission that sufficient facts on which to rest Concept Pioneer’s legal conclusion based on clause 5.1(b)(iii) have been pleaded in ASOC. Thus, ASOC paragraph 100 explicitly refers to Gold Brilliant’s cross-default on the loan from Rich Region and the acceleration of Gold Brilliant’s liability to repay Concept Pioneer’s loan under clause 5.2.

B.2 Final disposition of the HCMP 1764 proceedings

64.  Mr. Yu concedes that “the HCMP Proceedings serve little utility if the Court is minded to grant the reliefs in the HCA Proceedings”. He submits, however, that the proceedings were reasonably brought.

65.  I do not think that it is necessary to make substantive final orders in HCMP 1764, apart from dealing with the costs of those proceedings. All relevant final relief should be granted as part of HCA 1811. Whether the HCMP 1764 were properly brought or not is a question that goes towards the incidence of costs in those proceedings. I shall hear counsel on that matter after the delivery of this Judgment.

IV. CONCLUSION

66.  There will be declarations that:

(1) the loan agreement between Great Bliss and the charge over Gold Brilliant’s shares as security for that loan agreement were shams, and,

(2) the assignment of the loan agreement and the charge to Seashore did not convey any legal or equitable interest in Gold Brilliant’s shares to Seashore.

67.  Gold Brilliant owes the amounts of (1) $1,363,072,898 and (2) $58,062,871 to Rich Region and the amount of $269,349,734 to Concept Pioneer.

68.  Seashore’s counterclaim in HCA 1811 is dismissed.

69.  Save in relation to costs, there will be no final order in HCMP 1764.

70.  For good measure, to deal with any difficulty that might later arise in carrying out the foregoing declarations and orders, I grant a liberty to apply in HCA 1811.

71.  I shall now hear counsel on (1) consequential orders in HCA 1811, (2) interest on the amounts owed by Gold Brilliant to Rich Region and Concept Pioneer, (3) the costs of HCA 1811 and HCMP 1764, and (4) any other matters.