CHINA PING AN INSURANCE OVERSEAS (HOLDINGS) LTD v. LUCK GAIN LTD AND OTHERS

HCA 1196/2022

[2023] HKCFI 3315

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1196 OF 2022

____________

____________

_________________

J U D G M E N T

_________________

1.  This is a summary judgment application by the plaintiff (“P”) against the 1^st and 2^nd defendants (“D1” and “D2”) for specific performance of clause 4.2 of the Subscription Agreement (set out in [8] below) dated 8 December 2020 (“Subscription Agreement”) entered between them.

2.  The 3^rd and 4^th defendants (“D3” and “D4”) are nominal parties and are joined as defendants to be bound by the result of this action. They maintain a neutral position and are excused from the hearing.

3.  Under the Subscription Agreement, P agrees to subscribe for US$50,000,000 in principal amount of US$200,000,000 in aggregate principal amount of guaranteed bonds (“Bonds”) issued by D1. D2 is the guarantor of D1’s obligations under the Subscription Agreement, and has executed a Deed of Guarantee dated 10 December 2020 in relation to the Bonds for such purposes.

4.  The Bonds are constituted by a Deed of Covenant dated 10 December 2020 (“Deed of Covenant”) executed by D1 as the issuer of the Bonds, and are the subject of a Fiscal Agency Agreement dated 10 December 2020 (“Agency Agreement”) made between D1, D2 and D4 which is the registrar, transfer agent and fiscal agent.

5.  The Bonds are cleared and settled through Euroclear Bank S.A./N.V. (“Euroclear”), a major clearinghouse that settles and clears securities trades executed on European exchanges. The way in which an electronic trading system for interests in securities operates is described in Secure Capital SA v Credit Suisse AG [2017] 2 CLC 428 (commenting on the Clearstream system in Luxembourg) as follows:

“9. Typically, as in this case, the securities are represented by a bearer note that is physically held on a permanent basis by a custodian. In this way, the note is said to be ‘immobilised’. It is not the bearer note, but interests in the note, that are traded through the Clearstream system. This is achieved through a descending succession of interests. The custodian holds the note for the Clearstream system. Clearstream maintains accounts for members (banks and others) which hold and deal in interests in securities as Account Holders. Each Account Holder’s interests in securities at any time are recorded by Clearstream. The interests are fungible and are traded between Account Holders through electronic book entries. Account Holders may hold interests for themselves as principal or to the order of their customers (Account Owners).

10. The system operates on the basis of a ‘no look through’ principle, whereby each party has rights only against their own counterparty. Payments of sums due on the securities are made by the issuer or other payer to Clearstream which then makes payment to the Account Holders in respect of their recorded interests. The Account Holders pass on the appropriate sums to their Account Owners.”

6.  P is not an account holder in Euroclear. It holds its beneficial interests of its portions of the Bonds through Bank of China (Hong Kong) Limited (“BOC(HK)”), which is an account holder in Euroclear.

7.  The Bonds are represented by a Global Certificate issued on 10 December 2020 (“Global Certificate”). D3 is named as the sole registered holder and is be treated as its absolute owner for all purposes. D3, in turn, holds the Global Certificate on behalf of Euroclear.

8.  The Subscription Agreement relevantly provides as follows:

(1)  Recital C

“The Bonds will be in registered form and in the denomination of US$200,000 each and integral multiples of US$1,000 in excess thereof. The Bonds will be represented by a global certificate (the “Global Certificate”), which will be exchangeable for individual bond certificates (together with the Global Certificate, the “Certificates”) in the circumstances specified in the Global Certificate.”

(2)  Clause 4.2

“The Issuer [D1] shall, and the Guarantor [D2] shall procure the Issuer to, make satisfactory arrangement to the Subscriber [P] to ensure that the Certificates are delivered to the Registrar [D4] for authentication in the form required by, and otherwise in accordance with, the Agency Agreement, and shall, where applicable, take all actions necessary to procure clearance of the Bonds through Euroclear and Clearstream, Luxembourg.”

9.  Under the Deed of Covenant, clause 3.1 entitled “Direct Rights – Creation” provides as follows:

“If the Determination Date[1] occurs in respect of the Global Certificate in accordance with its terms then, subject to Clause 3.3 (Notification and No Further Action), each Accountholder[2] shall acquire rights of enforcement against the Issuer [D1] (“Direct Rights”) to compel the Issuer to perform its obligations to the Holder [D3] in respect of the Bonds evidenced by the Global Certificate, including the obligation of the Issuer to make all payments when due at any time in respect of such Bonds in accordance with the Conditions[3] as if such Bonds had (where required by the Conditions) been duly presented and surrendered on the due date in accordance with the Conditions.”

10.  Under the Agency Agreement, clause 4 entitled “Exchanges of Global Certificates for Definitive Certificates” provides as follows:

“If the Global Certificate becomes exchangeable for Definitive Certificates in accordance with its terms, the Registrar shall authenticate and deliver any Definitive Certificate in accordance with the terms of this Agreement and the Regulations.[4]

If the Issuer [D1] is required to deliver Definitive Certificates evidencing the Bonds pursuant to the terms of the Global Certificate, the Issuer shall promptly arrange for a stock of Definitive Certificates (unauthenticated and with the names of the registered Bondholders left blank but executed on behalf of the Issuer and otherwise complete) to be made available to the Registrar [D4] as soon as practicable.

For the avoidance of doubt, the Issuer, failing whom the Guarantor [D2], shall bear all properly incurred costs and expenses associated with the exchange of interests in the Global Certificate for Definitive Certificates.”

11.  The Global Certificate relevantly provides as follows:

(1)  Paragraph 3 – D1 as the issuer promises to repay the principal amount of the Bonds to the holder [D3] on the maturity date, which is 9 December 2021 as per the terms and conditions of the Bonds attached to the Global Certificate.

(2)  Paragraph 4 – Exchange for Definitive Certificates

“This Global Certificate will be exchanged in whole (but not in part) for duly authenticated and completed Definitive Certificates (the “Definitive Certificates”) in substantially the form (subject to completion) set out in Schedule 2 (Form of Definitive Certificate) to the Fiscal Agency Agreement if any of the following events occurs:

(a)  if the Bonds represented by this Global Certificate are held on behalf of Euroclear or Clearstream or any other clearing system (an “Alternative Clearing System”) and any such clearing system is closed for business for a continuous period of 14 days (other than by reason of holidays, statutory or otherwise) or announces an intention permanently to cease business or does in fact do so; or

(b)  any of the circumstances described in Condition 9 (Events of Default) occurs. Such exchange shall be effected in accordance with paragraph 7 (sic) (Delivery of Definitive Certificates) below.

The Issuer shall notify the Holder of the occurrence of any of the events specified in (a) and (b) as soon as practicable therefafter.”

(3)  Paragraph 5 – Failure to deliver Definitive Certificates or to pay

“If

(a) Definitive Certificates have not been issued and delivered by 5.00 p.m. (Local Time) on the thirtieth day after the date on which the same are due to be issued and delivered in accordance with paragraph 7 (sic) (Delivery of Definitive Certificates) below; or

(b) any of the Bonds evidenced by this Global Certificate has become due and payable in accordance with the Conditions or the date for final redemption of the Bonds has occurred and, in either case, payment in full of the amount of principal falling due with all accrued interest thereon has not been made to the Holder [D3] on the due date for payment in accordance with the terms of this Global Certificate,

then, at 5.00 p.m. (Local Time) on such thirtieth day (in the case of paragraph (a) above) or at 5.00 p.m. (Local Time) on such due date (in the case of paragraph (b) above) (in each case, the “Determination Date”) the Accountholder shall acquire Direct Rights in accordance with the Deed of Covenant, without prejudice to the rights which the Holder may have hereunder and under the Deed of Covenant.

Terms defined in the Deed of Covenant shall have the same meanings when used in this paragraph 6.”

(4)  Paragraph 6 – Delivery of Definitive Certificates

“Whenever this Global Certificate is to be exchanged for Definitive Certificates, such Definitive Certificates shall be issued in an aggregate principal amount equal to the principal amount of this Global Certificate within five business days of the delivery, by or on behalf of the Holder [D3], to the Registrar [D4] of such information as is required to complete and deliver such Definitive Certificates (including, without limitation, the names and addresses of the persons in whose names the Definitive Certificates are to be registered and the principal amount of each such person’s holding) against the surrender of this Global Certificate at the Specified Office (as defined in the Conditions) of the Registrar. Such exchange shall be effected in accordance with the provisions of the Fiscal Agency Agreement and the regulations concerning the transfer and registration of Bonds scheduled hereto and, in particular, shall be effected without charge to any Holder, but against such indemnity as the Registrar may require in respect of any Tax or other duty of whatsoever nature which may be levied or imposed in connection with such exchange. In this paragraph, “business day” means a day on which commercial banks are open for business (including dealings in foreign currencies) in the city in which the Registrar has its Specified Office.”

12.  The terms and conditions of the Bonds attached to the Global Certificate provide as follows:

(1)  Condition 4(f) – the maturity date of the Bonds falls on 9 December 2021;

(2)  Condition 6(a) – the Bonds shall be finally redeemed at their principal amount on the maturity date; and

(3)  Condition 9(a) – the failure to pay when due and payable, inter alia, the principal amount of the Bonds or any interests on any of the Bonds, constitute an event of default.

13.  P duly paid the subscription amount of US$50,000,000 for the Bonds under the Subscription Agreement. P later acquired further interest in the Bonds through the market. As of today, P is the beneficial owner of an aggregate principal amount of US$190,000,000 of the Bonds (out of the total issued aggregate amount of US$200,000,000) (“PAOH Bonds”).[5]

14.  Despite the expiry of the maturity date of the Bonds on 9 December 2021, which constitutes an event of default under the terms and conditions of the Bonds, neither D1 (as issuer of the Bonds) nor D2 (as D1’s guarantor) has paid the principal amount (US$190,000,000) due and owing to P on the PAOH Bonds (“Debt”).

15.  P tried to directly enforce the Debt by presenting a winding up petition against D1 on 13 April 2022. D1 objected on the basis that P is not the registered bondholder and therefore has no standing to recover the outstanding principal and interest due under the PAOH Bonds. On 19 September 2022, the petition was dismissed with no order as to costs.

16.  In July 2022, D4’s requests (on P’s demand) to D1 and D2 to convert the Global Certificate into Definitive Certificates were unanswered.

17.  In order to overcome the obstacle that P as the beneficial owner of the PAOH Bonds has no direct right per se to enforce the Debt against D1 and D2, P commences this action and relies on clause 4.2 of the Subscription Agreement, which P says confers a direct enforcement right on P to compel D1 and D2 to have the Global Certificate exchanged into Definitive Certificates (or individual bond certificates) to be registered in the name of P. This would allow P to directly sue on the Debt and/or to present a winding petition against D1 and D2.

18.  Mr Martin Ho (appearing for P) submits that this is one of the situations contemplated in Secure Capital SA where the subscriber could enjoy direct rights against the issuer:

“48. The general position, that only the holder of the Notes enjoys enforceable rights against Credit Suisse [the issuer], is further made clear by the provisions that, in limited circumstances, enable parties to proceed directly against Credit Suisse.

49. If principal in respect of any Notes was not paid when due, the PGS [Permanent Global Security] should be exchanged for definitive securities which could then be distributed among those with interests in the Notes, creating a direct relationship with Credit Suisse and enabling the holders to sue Credit Suisse directly.

…

52. The overall effect of these express provisions is clear. The only party with a right to sue Credit Suisse is BNYM as holder of the Notes, unless there is default in the payment of principal on the Notes, in which event Account Holders may acquire directly enforceable rights against Credit Suisse.”

19.  Mr Ho also draws my attention to the recent case of Cithara Global Multi-Strategy SPC v Haimen Zhongnan Investment Development (International) Co Ltd, Claim No BVIHC(COM) 2022/0183 (19 July 2023) where the Eastern Caribbean Supreme Court (in the context of the locus of a contingent creditor to present a winding up petition) made observations on the issuance of definitive notes or securities to the ultimate beneficial owners at [69]-[71], based on the following authorities:

(1)  Re Castle Holdco 4 Ltd [2009] EWHC 3919 (Ch) at [23]:

“On the occurrence of an event of default, there is a provision that the global security is to be transferred to the beneficial owners in the form of definitive certificates upon the request by the owner of a book entry interest. It has been submitted to me, and I accept, that the ultimate beneficial owners may therefore be properly regarded as contingent creditors of the company and indeed of each of the subsidiaries who have provided a guarantee.”

(2)  Re Gallery Capital SA [2010] 4 WLUK 287 at [10]:

“I am also satisfied that each of those ultimate beneficial owners is a contingent creditor entitled to vote. It is true that at present the direct rights of action are vested in the holder of the global note, but the terms of the global note are such that, in certain events (one of which is not at the option of Gallery), definitive notes can be issued directly to the ultimate beneficial owners.”

(3)  Re Co-operative Bank Plc [2013] EWHC 4072 (Ch) at [40]:

“I have stressed that my conclusion in that regard is case-specific, it being the case here that the beneficiaries have an absolute right to require the Bank to issue definitive notes directly. It seems to me that since there is such a mechanism to trigger a direct right and therefore obtain control over that contingency, which is defined, they are properly described as contingent creditors and thus as creditors for the purpose of the relevant provision of the Act.”

20.  As the above cases make clear, whether and when an ultimate investor has the right to claim against the issuer directly based on a definitive note is of course case-specific, but the cases do demonstrate, as illustrations, that this situation is not unconventional in the commercial world.

21.  Mr Ho develops his arguments as follows:

(1)  Clause 4.2 of the Subscription Agreement confers a direct contractual entitlement on P to compel D1 (as issuer) and D2 (as guarantor required to procure D1 to act) to make arrangements satisfactory to P to ensure that the “Certificates” (which include “individual bond certificates” as per Recital C, i.e. the Definitive Certificates) are delivered to D4 (the registrar) for authentication as required by, and in accordance with, the Agency Agreement.

(2)  Paragraph 4 of the Global Certificate provides that the Global Certificate “will be exchanged in whole” for duly authenticated and completed Definitive Certificates if, inter alia, an event of default occurs. This has taken place, when the principal amount of the PAOH Bonds has not been paid on the maturity date. The obligation to exchange the Global Certificate into Definitive Certificates is hence triggered.

(3)  Clause 4 of the Agency Agreement provides that if the Global Certificate becomes exchangeable for Definitive Certificates in accordance with its terms, D4 (as the registrar) shall authenticate and deliver any Definitive Certificates in accordance with the terms of the Agency Agreement, and D1 shall promptly arrange for a stock of Definitive Certificates that are duly executed, but with the names left blank and unauthenticated, to be made available to D4 as soon as practicable.

(4)  Despite D1 and D2’s contractual obligation to exchange the Global Certificate with Definitive Certificates upon the occurrence of an event of default, D1 has failed to (and D2 has failed to procure D1 to) make arrangements satisfactory to P to ensure that the “Certificates” (which include the Definitive Certificates) are delivered to D4.

(5)  By reason of D1 and D2’s breach, the Court is entitled to make an order for specific performance against D1 and D2 to compel them to perform their contractual obligations owed to P.

22.  Mr Lai Chun Ho (appearing with Mr Sim Jing En for D1 and D2) raises three main arguments in response.

23.  First, Mr Lai argues that properly construed, clause 4.2 of the Subscription Agreement could not have intended to confer upon P a direct right against D1 and D2 to compel (or to make arrangement to compel) the issuance of Definitive Certificates.

24.  Mr Lai refers me to the well-known principles on contractual interpretation that a contract must be construed as a whole, and that the “surer guide” to interpretation is context of the relevant background against which the relevant contract and contractual terms must be viewed. The Court must have regard not only to the individual words used, but to the agreement as a whole, the factual and legal background against which the agreement was concluded and the practical objects which the agreement was intended to achieve. The meaning of a document is what the parties using those words against the relevant background would reasonably have been understood to mean. If one would conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had.[6]

25.  Mr Lai submits that the Subscription Agreement must be interpreted in the context of this case, i.e. the Bonds were issued in “global” form and held in the intermediated securities system, and intended to be constituted by the Deed of Covenant, the Agency Agreement and the Global Certificate (collectively, “Bond Documents”). Insofar as enforcement of the Bonds is concerned, the Bond Documents provide for an “exhaustive” contractual regime. In line with the underlying rationale of the intermediated securities system, the “starting point” or the prima facie “default position” must be that the ultimate investor (like P) should not have any direct right of enforcement against the issuer (like D1) unless it is expressly provided for in the Bond Documents. Any suggestion that clause 4.2 of the Subscription Agreement confers on P some direct right of enforcement against D1 must therefore be “closely scrutinized”. There should be “minimal encroachment” to the “no look through” principle.

26.  As the argument goes, Mr Lai submits that the suggestion that P has a direct right against D1 and D2 to compel the issuance of Definitive Certificates is inconsistent with the contractual context and design of the Bond Documents and the Subscription Agreement. Specifically:

(1)  The Deed of Covenant is the only document in the Bond Documents that do not exclude third party reliance on it. As such, P’s entitlement for direct enforcement (if any) should be found in the Deed of Covenant.

(2)  However, the Deed of Covenant does not provide any entitlement to P where there is a failure to exchange the Global Certificate for the Definitive Certificates. It only provides that it would be the account holders (not the ultimate investor such as P) which would have the direct rights against D1.

(3)  Accordingly, it could not have been the intention of the parties for P to be able to proceed directly against D1 to compel the issuance of Definitive Certificates. On the contrary, it must have been the parties’ intention that P should rely on the account holder’s rights in such scenario to protect its interests.

(4)  The obligation to exchange the Global Certificate with Definitive Certificates is contained in clause 4 of the Agency Agreement. P is not a party to it. The Agency Agreement specifically excludes a third party (including P) from relying on its provisions. This is a strong sign that the obligation to exchange is not intended to be enforceable by P.

(5)  Had it been intended that P, as the ultimate investor or initial subscriber, should have the right to compel the issuance of the Definitive Certificates where there is a failure to exchange, this would have been spelt out in the Bond Documents.

(6)  The contractual design that it is for the account holders to sue where there is a failure to exchange the Global Certificate for the Definitive Certificates is consistent with generally accepted practice, as described in The Law and Practice of International Finance Series Volume 5: International Loans, Bonds, Guarantee, Legal Opinions (3^rd ed.) at §31-018, Goode & Gullifer on Legal Problems of Credit and Security (7^th ed.) at §6-29, and Scott & Gelpern, International Finance: Law and Regulation (3^rd ed.) at §10-072.

(7)  It is of paramount importance that ultimate investors cannot enforce their rights directly, or else it would lead to a duplicity of actions in that different entities (the account holders and the initial subscribers) can proceed against D1 at the same time. If direct enforcement rights are conferred on the investors, this negatives the simplicity in the intermediated securities system that each party has rights only against their own counterparty.

27.  I do not find Mr Lai’s submissions to be convincing.

28.  There is no inconsistency between clause 4.2 of the Subscription Agreement and the Bond Documents, since they deal with different parties who are governed by different contractual relationships. The right of direct enforcement against the issuer given to an account holder is a recourse that is separate and independent from the rights and obligations as between P and D1/D2 governed by the Subscription Agreement. The duplicity of actions is the natural consequence of there being different contracts governing different parties. The wording of clause 4.2 is clear and must be given full effect: D1 and D2 owe P the obligation to ensure that the “Certificates”, which on a plain reading include the Definitive Certificates (in the event that the Global Certificate becomes exchangeable when there is an event of default), are delivered to D4 for authentication. There is no contrary or conflicting interpretation open to D1 and D2. I agree with Mr Ho that this is one of the “vast majority of cases” where the ordinary and plain meaning of the words used is both the starting and end point of the analysis: Eminent Investments (Asia Pacific) v DIO Corp (2020) 23 HKCFAR 487 at [43]-[44].

29.  Indeed, even if one were to gauge the contractual terms against commercial reality, there is no commercial reason why P as a sophisticated investor and direct subscriber of the Bonds would want to exclude any right of direct recourse against D1 and D2.

30.  I agree with Mr Ho that the reliance on the “no look through” principle is circular and misplaced. What P is seeking to do is to comply with that principle so that P can become the direct bondholder (of the Definitive Certificates) and then sue the issuer D1 and its guarantor D2.

31.  Insofar as D1 and D2 seek to rely on the “expert opinion” set out in the affirmation of Mr Warren Lee who is the founding member of Yu Ming Investment Management Limited (a licensed financial adviser), his views on the “market practice” behind intermediated securities add nothing of real substance to Mr Lai’s submissions set out in [23]-[26] above. His “opinion” on the effect of the contractual documents and the recourse of an ultimate investor is no more than an attempt to put forward a legal submission on the proper construction of clause 4.2 of the Subscription Agreement, which is a question of law for the Court: AAChen (Asia Pacific) Consultants Ltd v Khoo Ee Liam [2012] 6 HKC 486 at [156]; Dragonrider Opportunity Fund LP v Lam Fung, HCA 752/2012 (unreported, 21 March 2013) at [31]. I give no weight to Mr Lee’s evidence. Mr Lai in his oral submissions sensibly did not place emphasis on this point.

32.  Second, Mr Lai argues that the language of the Subscription Agreement suggests that it is intended to govern only the “initial offer, sale and issuance of the Bonds”. He points to various terms in the Subscription Agreement (recitals A and D, and clauses 2, 8.1.1(b) and 9.1) which primarily deal with matters arising before the Bonds are cleared through Euroclear. Clause 4.2 itself also states that its purpose is to impose an obligation on D1 and D2 to “procure clearance of the Bonds through Euroclear and Clearstream, Luxembourg”. Clause 4.2, construed in the context of the other terms of the Subscription Agreement, therefore only stipulates the initial obligation of D1 and D2 to make arrangements satisfactory to P and take all actions necessary to procure clearance of the Bonds through Euroclear and enable the start of the free trading of the Bonds, and could not have been intended to be concerned with what should happen in the event that the Bonds have already been cleared on Euroclear, and there is an event of default or a failure to exchange the Global Certificate for the Definitive Certificates.

33.  I reject the submission. Clause 4.2 must be construed against the Subscription Agreement as a whole. There are other terms which deal with matters after the Bonds are cleared through Euroclear. For instance:

(1)  Under clause 3.1, D1 and D2 jointly and severally represent and warrant to P the matters set out in Schedule 1. Clause 3.2 makes clear that such representations and warranties shall be deemed to be repeated on the “Closing Date”, i.e. the date of closing of the issue of the Bonds. For instance, item 44 of the representations and warranties provide that the sole shareholder of D1 holds and “continues to hold” all outstanding shares of capital stock of D1 on the sole shareholder’s own account and not as nominee of any other person. This must refer to post-closing of Bonds.

(2)  Clause 10 entitled “Survival” provides that the provisions of the agreement shall continue in full force and effect notwithstanding the completion of the arrangements set out in the agreement for the issue of the Bonds.

(3)  Clause 4.2 refers to delivery of the “Certificates” which include Definitive Certificates. The Global Certificate is exchangeable for Definitive Certificates if: (a) the clearing system which holds the Bonds is closed either for a continuous period of 14 days or permanently; or (b) an event of default occurs: see [11] above. This covers events that happen after the Bonds are cleared for trading through Euroclear. Mr Lai’s contention that the term “Certificates” refers to Definitive Certificates only in the first of the two scenarios (i.e. the clearing house goes under) – which may take place prior to closing of the Bonds – is difficult to understand. This is blue penciling and is not permissible.

34.  In the premises, on a proper construction, it is not possible, and incorrect, to limit the scope of clause 4.2 of the Subscription Agreement in the way as Mr Lai advocates.

35.  Third, Mr Lai submits that if clause 4.2 of the Subscription Agreement gives P a direct right to compel D1 and D2 to issue Definitive Certificates to it and make arrangements for clearance with Euroclear, this is “antithetical” to the functioning of intermediated securities and “unworkable in reality”. He relies on the following matters to make good his point:

(1)  If only P but not any other investor is given the right against D1 and D2 under clause 4.2, the Bonds cannot be said to be fungible, because P would have uniquely possessed an additional right of enforceable that is unavailable to other investors of the Bonds.

(2)  P’s interpretation would lead to the absurd situation whereby P would retain some right of enforcement against D1 and D2 even if P has already disposed of its ultimate beneficial interest in the PAOH Bonds by selling it on Euroclear.

(3)  In the intermediated securities system, D1 as issuer only deals with the identifiable account holder on the Euroclear. Euroclear has no knowledge of the beneficial ownership of securities held by the participants. P’s interpretation of clause 4.2 imposes a direct link between P and D1 and D2, and is entirely at odds with the above premises. The only available information to D1 and D2 would be those reflected on the Euroclear system, which only points to the account holder, namely BOC(HK). It could not have been the contractual intention that D1 shall be under some direct continuing obligation to an ultimate investor such as P, when D1 is not in a position to ascertain whether P continues to retain a beneficial interest in the PAOH Bonds.

36.  I do not accept Mr Lai’s submissions:

(1)  P enjoys rights against D1 and D2 which are not available to other investors of the Bonds because P has signed a separate contract with D1 and D2, namely the Subscription Agreement. P’s interests in the Bonds remain the same as other investors. The Bonds do not cease to be fungible.

(2)  If P has disposed of all its interests in the PAOH Bonds, it is difficult to see why and how P could (and would) still demand D1 and D2 to issue Definitive Certificates for the purpose of enabling P to sue on the PAOH Bonds, when there is plainly nothing further for D1 and D2 to repay P. In any event, the continuing obligation of D1 and D2 owed to P arises out of the Subscription Agreement. The fact that D1 only deals with the account holders in the Euroclear system, and there is a lack of information on the identity of the ultimate investor in normal circumstances, are besides the point.

37.  For the above reasons, I reject all of the arguments advanced by Mr Lai on behalf of D1 and D2, and conclude that there is no triable issue or arguable defence to P’s claim. I therefore enter final judgment against D1 and D2 in the terms set out in paragraph 1(1)(a), (b) and (c) of the summons dated 3 November 2022, save that as regards paragraph 1(1)(c), I direct P to propose, within 7 days from the date of this Judgment, a person other than the Registrar of the High Court to execute the Definitive Certificates. I give parties liberty to apply for further directions to carry out the terms of the Order.

38.  I order D1 and D2 to pay P’s costs of this action, including the costs of the summary judgment application, and any costs reserved. Having considered the statements of costs of P and the lists of objections of D1 and D2, I summarily assess the costs payable to P at $650,000.[7]