HUANG QINGZHAN v. CHINA DING YI FENG HOLDINGS LTD

CACV 103/2020

[2023] HKCA 237

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 103 OF 2020

(ON APPEAL FROM HCMP NO 1102 OF 2019)

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J U D G M E N T

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Hon Chow JA (giving the Judgment of the Court):

INTRODUCTION

1.  The principal issue which arises for determination in this appeal is whether China Ding Yi Feng Holdings Limited (formerly known as China Investment Fund Company Limited, “the Company”) committed a default in relation to the first interest payment due and payable on 31 March 2016 to Huang Qingzhan (“Mr Huang”), a subscriber of 10 fixed interest rate notes (“the Notes”) in the aggregate principal amount of HK$10,000,000 issued by the Company to him on 30 April 2015, and such default continued for a period of 5 days.

BACKGROUND

(i)  The Notes

2.  The Company, incorporated in the Cayman Islands, is listed as an investment company on The Stock Exchange of Hong Kong Limited (“HKEx”).

3.  Mr Huang was a Mainland resident.

4.  On 26 March 2015, the Company entered into a Placing Agreement with China Rich Securities Limited (“China Rich”), whereby the latter agreed to procure, as agent of the Company, subscribers for the Notes of up to HK$70,000,000 to be issued by the Company. The Notes carried a fixed interest rate at 5% per annum, and were redeemable on the 8^th anniversary of the date of issue of the Notes. The Notes were a form of “qualifying investment” under the Capital Investment Entrant Scheme of Hong Kong.

5.  Guoco Capital Limited (國浩資本有限公司) (“Guoco”) was a broker of China Rich, and procured Mr Huang to be a subscriber of the Notes. Apparently, Mr Huang subscribed for the Notes in support of his application for settlement in Hong Kong under the aforesaid scheme.

6.  On 29 April 2015, the Company and Mr Huang entered into a subscription agreement (“the Subscription Agreement”), whereby Mr Huang agreed to subscribe for the aggregate principal amount of HK$10,000,000 of the Notes. The name and details of Mr Huang are set out in Schedule 5 to the Subscription Agreement, including the following:

(1)  居住地址：福建省晉江市陳埭鎮[redacted] 36號 (“the Mainland Address”);

(2)  香港通訊地址：香港皇后大道中99號中環中心12樓 (“the HK Address”);

(3)  用於付款的經登記港元銀行帳戶：

銀行帳戶：星展銀行(香港) (“DBS”)

銀行帳戶號碼：016-451-51-1833345 (“the Account”)

帳戶名：國浩資本有限公司

(4)  電郵地址：[redacted]@qq.com (“the Email Address”).

7.  On 30 April 2015, the Subscription Agreement was completed, and the Company issued 10 certificates with number 0021-0030 (“the Certificates”) in respect of the Notes in the aggregate principal amount of HK$10,000,000 to Mr Huang.

8.  Each Certificate states, inter alia, the following:

(1)  “The Notes are subject to, and have the benefit of, the Instrument, which is enforceable severally by each Noteholder against the Company insofar as each Noteholder’s Notes are concerned.” - the “Instrument” mentioned is a reference to the “Notes Instrument”, a form of which appears in Schedule 2 to the Placing Agreement/Schedule 1 to the Subscription Agreement.

(2)  “The Company hereby certifies that the person whose name and address … specified below is, at the date hereof, entered in the register of Noteholders as the holder of the Notes in the principal amount indicated below” - in the table following immediately after this statement, the name of Mr Huang and the Mainland Address are stated under the sub-heading “Noteholders and address”, and the sum of HK$1,000,000 is stated under the sub-heading “Subscription amount of Note”.

9.  The terms and conditions of the Notes (“Conditions”) are set out at the back of Certificates. The following Conditions are relevant for the present purpose:

“The issue of the aggregate principal sum of up to HK$70,000,000 5.0 per cent. per annum Notes due on the eighth anniversary of its issue date (the ‘Notes’) of [the Company] was authorised by resolution of the Board of Directors of the Company passed on 26 March 2015. The Notes are constituted by a deed poll (the ‘Instrument’ …) executed by the Company …

4. INTEREST

The Notes shall bear interest from, and including the date of its issue at the rate of 5.0 per cent. per annum of the outstanding principal amount of the Notes. Interest is payable semi-annually in arrears on 31 March and 30 September in each year (each an ‘Interest Payment Date’) subject to the deduction referred to below provided that the first Interest Payment Date shall fall on 31 March 2016 ...

5. PAYMENTS

(A) Method of payment

... All payments due under these conditions will be paid to the holder shown on the Register. Payments will be made in immediately available funds by transfer in Hong Kong dollars to the registered account of the Noteholder or by Hong Kong dollar cheque drawn on a bank in Hong Kong mailed at the risk of such Noteholder to the registered address of the Noteholder if he does not have a registered account.

(B) Registered Accounts

For the purpose of this Condition, a Noteholder’s registered account means the Hong Kong dollar account maintained by or on his behalf in the Approved Investment Bank, details of which appear on the Register at the close of business on the Business Day before the due date for payment, and a Noteholder’s registered address means its address appearing on the Register at that time.

(C) Payment Initiation

Where payments is to be made by transfer to a registered account, payment instructions will be given and, where payment is to be made by cheque, the cheque will be mailed, on the due date for payment.

6. REDEMPTION AND CANCELLATION

(A) Early Redemption by the Noteholder

Unless expressly provided herein, no Noteholder shall have the right to early redemption.

(B) Redemption on default

The Instrument provides that upon the occurrence of an event of default as stipulated in Condition 8 and at any time thereafter, the Noteholder may, unless such event of default has been waived in writing by it, by notice in writing require the Company to redeem the whole (but not part) of the outstanding principal amount of the Notes together with interest accrued thereon whereupon such sum shall become due and payable in the [manner] provided in Condition 5 on the 15^th day following delivery of such notice.

8. EVENTS OF DEFAULT

Any Noteholder may give notice to the Company requiring the Company to redeem the whole of the outstanding principal amount of the Notes upon the occurrence of any of the following events and at any time thereafter:

(i) Payment default: a default is made in the payment of the principal or in the payment of interest, in respect of any of the Notes when and as the same ought to be paid in accordance with these Conditions and such default continues for a period of 5 days…”

10.  As mentioned in the Conditions, the Notes Instrument was executed by the Company by way of a deed poll. In the Notes Instrument:

(1)  the expression “Approved Investment Bank” is defined to mean “an investment bank or other reputable financial institution in Hong Kong selected by the Subscriber”; and

(2)  the expression “Register” is defined to mean “the register of Noteholders required to be maintained pursuant to Clause 8”.

11.  Clause 8.4 of the Notes Instrument states as follows:

“The Company shall maintain and keep a full and complete register at such location in Hong Kong as it shall from time to time of the Notes and the Noteholders from time to time, such register shall contain details of exchange and/or cancellation and the destruction of any Note and the issue of any replacement Note issued in substitution for any mutilated, defaced, lost, stolen or destroyed Notes and of sufficient identification details of all Noteholders from time to time. The Company shall further procure that such register shall be made available to any holder of the Notes for inspection at all reasonable times.”

12.  According to the Company, the details of the Account appearing in Schedule 5 to the Subscription Agreement were duly noted as the “registered account” of Mr Huang, and Guoco was duly noted as the Approved Investment Bank selected by Mr Huang.

(ii)  The Company’s attempt to make the first Interest Payment on 31 March 2016

13.  Under Condition 4, the first interest payment (“Interest Payment”) under the Notes fell due on 31 March 2016. On that date, the Company delivered a cheque in the amount of HK$459,726 (being the amount of the first Interest Payment) drawn on its own DBS account and made payable to Guoco, to DBS for payment into the Account. However, the Company was informed by DBS that it was unable to accept the Cheque and process the payment into the Account as “the bank account details provided were insufficient”. The Cheque was thus returned to the Company.

14.  Pausing here, it may be noted that the Company delivered the Cheque together with 3 other cheques relating to some other subscribers to DBS on 31 March 2016, but apparently they were all returned by DBS on that date.

15.  Not being able to effect the first Interest Payment into the Account, Ms Hong (the Company Secretary of the Company) then contacted China Rich to find out how to contact the Approved Investment Bank, and was directed to one Mr Lok of Guoco. Ms Hong informed Mr Lok that the Company was unable to pay in the Cheque to the Account because of insufficient details. Mr Lok told her that he could deal with the Cheque and asked her to deliver it to him at the HK Address (being also the office address of Guoco). Ms Hong sent the Cheque (together with the other 3 returned cheques mentioned above) to Guoco (for the attention of Mr Lok) under cover of a letter dated 31 March 2016. Mr Lok acknowledged receipt of the 4 cheques by his signature together with a company chop of “Mason Securities Limited” (“Mason”), the new name of Guoco.

16.  However, on 24 May 2016, Mr Lok returned the 4 cheques to the Company, stating that Mason had no agreement with the Company and could not receive the 4 cheques.

(iii)  The first Interest Payment eventually made on 23 August 2016

17.  Troutman Sanders (the Company’s former solicitors) sent a letter dated 25 May 2016 to Mr Huang by email (to the Email Address) and by post (to the HK Address and the Mainland Address). In that letter, Troutman Sanders informed Mr Huang about what had happened in respect of the first Interest Payment (including the fact that DBS had informed the Company there was insufficient information for DBS to accept the Cheque). There was no reply to Troutman Sanders’ letter of 25 May 2016. The email had apparently not been read by Mr Huang, and the letter sent to the HK Address (being the correspondence address of Mr Huang as stated in Schedule 5 to the Subscription Agreement) was returned through the post marked “address incomplete”.

18.  Troutman Sanders sent a further letter dated 20 June 2016 to Mr Huang by email (to the Email Address) and by post (to the Mainland Address). In that letter, Troutman Sanders stated that the Company had not been able to effect the first Interest Payment through no fault of its own, and informed Mr Huang that the Company was holding the sum of HK$459,726 on trust for Mr Huang unless and until he provided complete and accurate details of a bank account to receive the money. Again, Mr Huang did not reply to this letter, although there was a “read” report received by Troutman Sanders in respect of the email.

19.  On 22 July 2016, Patrick Mak & Tse (Mr Huang’s former solicitors) wrote to the Company, stating that they were instructed by a Madam Lin who had been authorized by (inter alia) Mr Huang to receive the interest payment and to discuss matters relating to the redemption of the Notes. Patrick Mak & Tse further asked the Company to provide information regarding the amount of interest payable by the Company and the date of payment of the interest. Troutman Sanders responded to Patrick Mak & Tse’s letter on 29 July 2016. For the purpose this judgment, it is not necessary to set out the contents of Troutman Sanders’ letter of 29 July 2016.

20.  Subsequently, Patrick Mak & Tse sent another letter to Troutman Sanders dated 16 August 2016, alleging that Mr Huang was entitled to redeem the Notes by reason of the Company’s default in making the first Interest Payment contrary to (inter alia) Condition 8(i). Patrick Mak & Tse further requested, on behalf of Mr Huang, that the Notes be redeemed, and that the redemption amount together with the outstanding interest be paid to an account of Mr Huang at China Construction (Bank) Asia Corporation Limited. On 23 August 2016, the Company, through Troutman Sanders, sent a cheque drawn in favour of Mr Huang in the amount of HK$459,726 to Patrick Mak & Tse in satisfaction of the first Interest Payment.

21.  Thereafter, the parties engaged in further correspondence on the issue of the Company’s alleged failure to make the first Interest Payment on the due date. In the meantime, the Company continued to make Interest Payments by cheques made payable to Mr Huang’s authorised representative (Madam Lin), and those payments were accepted by Madam Lin without prejudice to Mr Huang’s rights under the Notes (including the right to seek early redemption of the Notes by reason of the Company’s default in relation to the first Interest Payment). The last Interest Payment was made by the Company on or about 29 March 2019 in respect of the seventh Interest Payment due on 31 March 2019.

22.  By a letter to the Company dated 13 March 2019, Tso Au Tim & Yeung on behalf of Mr Huang demanded for early redemption of the Notes on the grounds of (i) the Company’s default in relation to the first Interest Payment, and (ii) the suspension of trading of the Company’s shares on the HKEx on 8 March 2019 (“the Suspension”) upon the direction of the Securities and Futures Commission, which it was alleged constituted a breach of warranty (“Warranty 2.2”) contained in the Subscription Agreement and a further event of default by the Company under Condition 8(iii) of the Notes.

23.  On 2 May 2019, Tso Au Tim & Yeung served a statutory demand on the Company, requiring it to pay to Mr Huang the sum of HK$10,041,666.67, being the principal amount of the Notes and interest thereon from 1 April 2019 to 30 April 2019 at the rate of 5% per annum.

THE ACTIONS

24.  On 17 May 2019, the Company issued an originating summons in HCMP 719/2019 to seek the court’s determination of the following 2 questions:

(1)  Whether the Company was in breach of Warranty 2.2 by reason of the Suspension; and

(2)  Whether Mr Huang was entitled to seek early redemption of the Notes by reason of the Suspension.

25.  On 29 July 2019, Mr Huang issued an originating summons in HCMP 1102/2019 to seek the court’s determination of (inter alia) the question of whether he was entitled to seek early redemption of the Notes by reason of the Company’s late payment of the first Interest Payment due on 31 March 2016.

26.  With the consent of the parties, the 2 actions were determined together by the Honourable Madam Justice Linda Chan on paper without an oral hearing.

THE DECISION

27.  On 19 March 2020, the Judge gave a written decision (“the Decision”) in the 2 actions ([2020] HKCFI 484).

28.  In respect of HCMP 719/2019, the Judge found in favour of the Company, holding that it was not in breach of Warranty 2.2 by reason of the Suspension, and thus Mr Huang was not entitled to seek early redemption of the Notes on that ground. It is not necessary to say anything further about this matter because there is no appeal against the Judge’s decision in HCMP 719/2019 (save in relation to the issue of costs).

29.  In respect of HCMP 1102/2019, Mr Huang contended that he was entitled to seek early redemption of the Notes by reason of the Company’s default in making the first Interest Payment due on 31 March 2016. His arguments were summarized by the Judge at §48 of the Decision:

(1)  The Company failed to pay the first Interest Payment within 5 days of the due date, as required by Conditions 4 and 8(i).

(2)  Although the Company attempted to pay the first Interest Payment by delivering the Cheque to Guoco on 31 March 2016, such payment was not an agreed method of payment under Condition 5(A), which required either payment “in immediately available funds by transfer in Hong Kong dollars to the registered account of the Noteholder” or by a Hong Kong dollar cheque mailed to the Mainland Address.

(3)  Even if the Company mistakenly thought that Guoco had been authorised to receive the first Interest Payment on behalf of Mr Huang, by mid-May 2016, the Company was aware that Guoco could not receive the Cheque on his behalf, but no attempt was made to contact Mr Huang (whether through his Mainland Address or his Email) or to tender the first Interest Payment by mailing a cheque to Mr Huang at his Mainland Address.

(4)  The late payment of the first Interest Payment constituted an event of default under Condition 8(i), which entitled Mr Huang to seek an early redemption of the Notes, and he exercised that right by serving a written notice on the Company through Patrick Mak & Tse’s letter of 16 August 2016.

30.  On the other hand, the Company argued that:

(1)  It had fully complied with the first method of payment prescribed by Condition 5(A) in that it had on 31 March 2016 issued and delivered the Cheque to Guoco which was the “registered account” stated in Schedule 5 to the Subscription Agreement[1].

(2)  The Company’s obligation was to pay the first Interest Payment on the due date. There was no duty on the Company to ensure that Mr Huang actually received the Interest Payment. It was as a result of Mr Huang’s own failings in having provided incorrect information on the “registered account” that he did not receive the first Interest Payment on the due date. Therefore, Mr Huang could not complain as the Company’s breach (which was denied) was a consequence of his own failure[2].

31.  The Judge found against the Company, holding that (i) it had failed to make the first Interest Payment on 31 March 2016, which constituted a breach of Conditions 4 and 5 of the Notes, and (ii) as the breach continued for more than 5 days, there was a “Payment Default” under Condition 8(i), thereby entitling Mr Huang to seek early redemption of the Notes, which he did through Patrick Mak & Tse’s letter of 16 August 2016.

32.  The Judge’s reasoning for her decision can be found at §§50-56 of the Decision, as follows:

(1)  Under Condition 4, the Company was obliged to pay the first Interest Payment by 31 March 2016, and the Company could only pay such Interest using one of the two methods prescribed by Condition 5(A).

(2)  The first method required payment to be “made in immediately available funds by transfer in Hong Kong dollars to the registered account of the Noteholder”.

(3)  The Company’s argument that it had complied with this method in that it had on 31 March 2016 issued and delivered the Cheque to Guoco, being the “registered account” stated in Schedule 5 to the Subscription Agreement, was rejected, because -

(a)  There was nothing in Condition 5(A), 5(B) or 5(C) which permitted the Company to issue and deliver a cheque to the HK Address, in lieu of transferring the amount to the “registered account” on or before 31 March 2016.

(b)  Even assuming the Account was the “registered account” of Mr Huang, the Company was required to transfer the amount to the “registered account”, but the Company never did so. The Company could not re-write Conditions 5(A) and 5(C) and contend that the issue and delivery of the Cheque to the HK Address was a “transfer” to the “registered account”.

(4)  The Company’s submission that giving the Cheque to Guoco would have effected a transfer of immediately available funds to the Registered Account and hence in full compliance with the Conditions of the Notes was rejected. Common sense suggested that unless and until the Cheque was presented, the fund would remain in the bank account of the Company. Indeed, this was what happened – Guoco did not present the Cheque for payment and the fund was never transferred to the “registered account”, whether on 31 March 2016 or at all.

(5)  The Company’s argument that it was as a result of Mr Huang’s own failings in having provided incorrect information on the “registered account” that he did not receive the first Interest Payment on the due date could not provide a valid basis for the Company to deliver the Cheque to the HK Address in lieu of a transfer to the “registered account”. Leaving aside the fact that it had never been made clear, let alone proved, why the information on the Account was incorrect or incomplete, once the Company became aware that the information on the “registered account” was incorrect, it could resort to the second method prescribed in Condition 5(A).

(6)  The second method required the payment to be made by a Hong Kong dollar cheque drawn on a bank in Hong Kong mailed to the “registered address of the Noteholder if he does not have a registered account”. Nowhere in Condition 5(A) (or, for that matter, Condition 5(B) or 5(C)) permitted the Company to draw the cheque to anyone other than the Noteholder. More importantly, the “registered address” of Mr Huang should be the Mainland Address. This was confirmed by the information set out in the Certificates. It was thus open to the Company to mail a cheque representing the amount of the first Interest Payment to the Mainland Address, assuming the Company was right in its assertion that the information on the “registered account” was incorrect.

(7)  The Company’s contention that the Account was the “registered account” of Mr Huang for the purpose of Condition 5(A) was not accepted, for the following reasons -

(a)  The term “registered account” was not defined in the Subscription Agreement or the Notes Instrument. In Condition 5(B), a Noteholder’s “registered account” was defined to mean “the Hong Kong dollar account maintained by or on his behalf in the Approved Investment Bank, details of which appear on the Register at the close of business on the Business Day before the due date for payment…”.

(b)  The definition of “registered account” in Condition 5(B) made it clear that it was the “registered account” appearing on the Register of Noteholders which was determinative. As the Company had not produced the Register, let alone the Register on the Business Day before 31 March 2016, there was no evidence in support of the Company’s contention that the Account was the “registered account” for the purpose of Condition 5.

(c)  In any event, the wordings in Schedule 5 did not support the Company’s contention that the Account was the “registered account” designated by Mr Huang to receive the Interest Payment.

(8)  It follows that the Company could have used the second method prescribed by Condition 5(A) to pay the first Interest Payment, whether on 31 March 2016 or upon discovering the alleged incorrect information on the Account, but it failed to do so.

33.  The Judge accordingly ordered the Company to forthwith return to Mr Huang the principal sum of HK$10,000,000 together with interest thereon at 5% per annum from 1 October 2019 to the date of judgment (19 March 2020) and thereafter at judgment rate from 20 March 2020 to the date of payment (“the Order”).

THE PRESENT APPEAL

34.  The Company appealed against the Order by a Notice of Appeal dated 4 April 2020. The Notice of Appeal contains 8 paragraphs, raising the following 5 substantive grounds of appeal:

(1)  The Judge erred in holding that the Account as particularised in Schedule 5 to the Subscription Agreement was not the “registered account” designated by Mr Huang for the purpose of payment under Condition 5 of the Notes (§§3 and 4 of the Notice of Appeal).

(2)  The Judge erred in finding that the Company failed to comply with Condition 5 in respect of the first Interest Payment (§5 of the Notice of Appeal).

(3)  The Judge erred in holding that the Company should have mailed the Cheque to the Mainland Address (§6 of the Notice of Appeal).

(4)  In so far as may be necessary, the Judge ought to have found that the fact that the Company was only able to effect payment of the first Interest Payment to Mr Huang on or about 23 August 2016 was due to the fault of Mr Huang, and he should be precluded by the “prevention principle” from seeking early redemption of the Notes (§7 of the Notice of Appeal).

(5)  Further or alternatively, the Judge should have found that Mr Huang had waived any default on the part of the Company in making the first Interest Payment on the due date (§7 of the Notice of Appeal).

GROUND (1): THE “REGISTERED ACCOUNT”

35.  This ground raises the question of whether the Account as particularised in Schedule 5 to the Subscription Agreement should be regarded as beingis the “registered account” for the purpose of Condition 5 of the Notes. In our view, it is clear that the answer is in the affirmative, for the following reasons:

(1)  The Subscription Agreement (including Schedule 5 thereto), the Notes Instrument and the Conditions, which together set out the contractual terms relating to the issue by the Company, and the subscription by Mr Huang, of the Notes, ought to be read together and consistently with each other so far as reasonably possible.

(2)  Clause 8.4 of the Notes Instrument states that “[t]he Company shall maintain and keep a full and complete register … of the Notes and the Noteholders from time to time, [and] such register shall contain … sufficient identification details of all Noteholders from time to time”.

(3)  Condition 5 (B) states, so far as material, that “[f]or the purpose of this Condition, a Noteholder’s registered account means the Hong Kong dollar account maintained by or on his behalf in the Approved Investment Bank, details of which appear on the Register at the close of business on the Business Day before the due date for payment …”.

(4)  In Schedule 5, the Account of Guoco at DBS is expressly referred to as being “用於付款的經登記港元銀行帳戶” (the registered HKD account for the purpose of payment).

(5)  It seems to us to be clear that the Account as specified in Schedule 5 is the designated “registered account” of Mr Huang for the purpose of receiving payments from the Company under Condition 5 of the Notes.

(6)  The above view is supported by the evidence of Ms Hong (the Company Secretary), who affirmed that the bank details of the Account as set out in Schedule 5 “were duly noted as [Mr Huang’s] registered account and Guoco was duly noted as his Approved Investment Bank”[3].

(7)  Mr Huang himself admitted that the Account was his “registered account” for the purpose of Condition 5 -

“… pursuant to Condition 5 of the Terms and Conditions of the Notes:- (a) Payments will be made in immediately available funds by transfer in Hong Kong dollars to my registered account the details of which appear on the Register, namely the account of Guoco Capital Limited (國浩資本有限公司)… held with DBS Bank (Hong Kong) Limited with account number 016-451-51-1833345”[4].

(8)  That the Account was the registered account of Mr Huang for receiving payments from the Company for the purpose of Condition 5 was also accepted by his solicitors (Patrick Mak & Tse) in their letter to the Company dated 16 August 2016 (at §2).

(9)  In our view, there could not be any real argument that the Account ought properly to be regarded as being the “registered account” for the purpose of Condition 5.

36.  The Judge held otherwise, for 3 main reasons:

(1)  The Judge referred to the fact that in Condition 5(B), the registered account was defined to mean “the Hong Kong dollar account maintained by or on his behalf in the Approved Investment Bank, details of which appear on the Register at the close of business on the Business Day before the due date for payment...” (underlining added), and thus it was the “registered account” appearing on the Register of Noteholders which was determinative, but the Company had not produced the Register (let alone the Register on the Business Day before 31 March 2016) and thus there was no evidence in support of the Company’s contention that the Account was the “registered account” for the purpose of Condition 5[5]. The Judge’s finding that there was no evidence in support of the Company’s contention that the Account was the “registered account” for the purpose of Condition 5 is incorrect in view of the matters referred to in §35(6) to (8) above. Further, since there was no dispute between the parties that the Account was the “registered account” for the purpose of Condition 5, we do not consider that any adverse inference should be drawn against the Company for not producing the Register.

(2)  The Judge found that the wordings in Schedule 5 did not support the Company’s contention that the Account was the “registered account” designated by Mr Huang to receive the Interest Payment[6]. This finding is difficult to understand in view of the fact, as mentioned above, that in Schedule 5, the Account of Guoco at DBS is expressly referred to as being “用於付款的經登記港元銀行帳戶” (the registered HKD account for the purpose of payment).

(3)  The Judge placed reliance on Mr Huang’s statement at §9 of his 2^nd Affirmation filed on 25 October 2019 that he “understood that Guoco Capital Limited’s information appeared in Schedule 5 of the Subscription for the purposes of payment of [his] HK$10,000,000 investment in the Notes issued by [the Company]”[7]. Mr Huang’s understanding that the account details set out in Schedule 5 were provided for the purpose of his payment of the subscription money (HK$10,000,000) to the Company, and not for the purpose of receiving payments from the Company under the Notes, is an odd one. Under Clause 2.1 of the Subscription Agreement, the issue of the Notes to Mr Huang was subject to the payment of the subscription money by him and the receipt of the same by the Company. What mattered to the Company was the due receipt of the subscription money. Mr Huang’s choice of account for effecting his payment was a matter of no real concern to the Company. In the ordinary course of the events, there would be no further payment to be made by Mr Huang to the Company during the lifetime of the Notes. On the other hand, it was known to the parties that under the Notes, there would be a series of payments in Hong Kong dollars to be made by the Company to Mr Huang over a period of some 8 years. Taking into account the fact that Mr Huang was at that time a resident in Mainland China, it would plainly be commercially sensible for the parties to agree on a designated HKD account with a bank in Hong Kong for the purpose of the payments to be made by the Company to Mr Huang under the Notes. In our view, that was the true purpose and function of setting out the details of the Account in Schedule 5. We do not consider that Mr Huang’s aforesaid understanding should carry any weight in the determination of the question of whether the Account ought properly to be regarded as being the registered account of Mr Huang for the purpose of Condition 5.

37.  In all, we consider that the Judge erred in her view that the Account was not the registered account of Mr Huang for the purpose of Condition 5.

GROUNDS (2) AND (4): TRANSFER OF IMMEDIATELY AVAILABLE FUNDS IN HONG KONG DOLLARS TO THE REGISTERED ACCOUNT

38.  These 2 grounds of appeal can be considered together.

39.  Two alternative methods of payment are prescribed under Condition 5(A), namely:

(1)  by “immediately available funds by transfer in Hong Kong dollars to the registered account of the Noteholder”, or

(2)  by “Hong Kong dollar cheque drawn on a bank in Hong Kong mailed at the risk of such Noteholder to the registered address of the Noteholder if he does not have a registered account”.

40.  Condition 5(C) further provides (inter alia) that where payment is to be made by transfer to a registered account, the “payment instructions will be given on the due date for payment”.

41.  Reading these 2 provisions together, where the first method of payment is used, the following requirements must be satisfied:

(1)  the payment is made in “immediately available funds”,

(2)  by “transfer”,

(3)  to the “registered account” of the Noteholder,

(4)  with the relevant payment instruction being given on the due date for payment.

42.  In the present case, the Company attempted to make the first Interest Payment to Mr Huang by delivering the Cheque to DBS for payment into the Account on 31 March 2016. The question is whether what the Company did sufficiently complied with the 4 requirements mentioned in §41 above.

43.  We shall first consider the 2^nd requirement, ie “transfer”. Mr Benjamin Yu, SC submits that “transfer” is a word of wide import, and there is nothing in Condition 5 to restrict the meaning of that word to any particular form or mode of transfer. We agree with this submission. The relevant context here is the transfer of a sum of money to a bank account. Generally speaking, a transfer of money to a bank account may be effected in a variety of ways, eg by depositing cash into the bank account, inter-bank transfer/CHATS, intra-bank transfer, telegraphic transfer, or some other more modern methods such as FPS, PayMe etc. So long as the account is ultimately credited with the money, there would be an effective transfer. In so far as payment by cheque is concerned, a cheque is, by definition, an unconditional order in writing given by the drawer of the cheque to his banker to pay on demand a sum of money to, or to the order of, the payee in the case of an order cheque (or to bearer in the case of a bearer cheque)[8]. In our view, the requirement of “transfer” under Condition 5 does not preclude the use of a cheque for making the relevant payment where the cheque is presented by the Company to the payee's bank for deposit into the payee's account and not simply given to the payee.

44.  By delivering the Cheque to DBS for payment into the Account, the Company in substance gave a payment instruction to DBS to transfer the amount of the Cheque into the Account. Had the Cheque been accepted by DBS and cleared, there could not have been any doubt that the 2^nd requirement (ie “transfer” of funds) was satisfied. We shall further consider the reason why the transfer could not be effected later in this Judgment.

45.  The 3^rd and 4^th requirements are easily satisfied on the facts of the present case:

(1)  Insofar as the 3^rd requirement (ie transfer to the “registered account”) is concerned, the Company directed the Cheque to be paid into the Account which, as held above, was the “registered account” of Mr Huang for the purpose of Condition 5.

(2)  Insofar as the 4^th requirement (ie payment instruction to be given on the due date for payment account) is concerned, the Cheque was delivered to DBS for payment into the Account on 31 March 2016. In other words, the relevant payment instruction was given on the due date for the first Interest Payment.

46.  This leaves the 1^st requirement (“immediately available funds”). There was no evidence before the Judge as to the time that it would normally take for a cheque drawn on a bank account and paid into an another account with the same bank to be cleared. We are prepared to assume in favour of Mr Huang that the Company’s attempted payment by delivering the Cheque to DBS for payment into the Account on 31 March 2016 could not be regarded as payment in “immediately available funds”. This having been said, but for the fact that the Cheque was not accepted by DBS due to “insufficient details”, we believe that the Cheque, in the normal course of events, would have been cleared within 5 days. In other words, even if there was a default by the Company in relation to the first Interest Payment, the default would not have continued for a period of 5 days, and thus the right to early redemption of the Notes under Condition 6(B) would not have been triggered.

47.  As we see it, the root problem in the present case lies in the fact that the Cheque was not accepted by DBS for payment into the Account because “the bank account details provided were insufficient”. Neither party has sought to find out why DBS considered the bank account details provided to be “insufficient”. There is evidence that Guoco changed its name to Mason Securities Limited (民信證券有限公司) on 25 February 2016[9], and it is possible that DBS rejected the Cheque because it was made out in favour of 國浩資本有限公司 (the old name of Guoco). On the other hand, in Mr Lok’s letter to the Company dated 24 May 2016, it was stated the change of name only took place in April 2016 (ie after the date on which the Company delivered the Cheque to DBS for payment into the Account). We consider that the Court should not speculate into the reason(s) why the Cheque was not accepted by DBS, but should proceed on the unchallenged evidence of Ms Hong that the Cheque was not accepted because the bank account details provided were insufficient.

48.  We accept Mr Yu’s submission that it was an implied term of the agreement between the parties, being an obvious inference therefrom and to give business efficacy to the same, that insofar as Mr Huang provided to the Company details of an account for receiving payment of interest under the Notes, he was under an obligation to provide accurate and adequate information of that account. Further, we consider that this implied obligation on the part of Mr Huang extended to the provision of updated information if there was any material change in the information previously provided. The materials before the Court suggest that the details of the Account provided by Mr Huang were either not accurate or adequate (or were no longer accurate or adequate by 31 March 2016), and thus the Account could not be used for effecting transfer of payment to him. Mr Huang claims that he does not know why the information relating to the Account of Guoco appeared in Schedule 5. This alleged lack of knowledge cannot assist Mr Huang, because the information must have been provided by him or by Guoco on his behalf, and he signed the Subscription Agreement and was therefore bound by the contents of the Subscription Agreement.

49.  The above state of affairs brings into play the “prevention principle” relied upon by Mr Yu. As explained by Ribeiro PJ (with whom the other members of the Court of Final Appeal agreed) in Kensland Realty Ltd v Whale View Investment Ltd (2001) 4 HKCFAR 381, the prevention principle is, at its heart, the long-established legal principle that a person is not permitted to take advantage of his own wrong (§91), and the principle may be given effect in different ways, including implementation “as a substantive principle of law that precludes the wrongdoer from taking advantage of his own wrong, whatever the contract may say and however clearly the contract may appear to confer on the wrongdoer an unqualified right to enjoy such advantages” (§97), or “as one of construction, holding that the contractual terms with which they are concerned must be construed by applying the principle as a canon or presumption of construction” (§98), or “by deeming the condition to have been met” (§99). In the contractual context, there are two conditions to the principle’s operation: (i) the need to show a relevant breach of contract by a party, and (ii) the need to show that the contractual rights or benefits which the party in question is seeking to assert or claim arise as a direct consequence of that party's prior breach (§§94 & 96).

50.  Both conditions are satisfied on the facts of the present case. In respect of (i), Mr Huang was in breach of his obligation to provide accurate and adequate, up-to-date, details of an account to receive payments from the Company under the Note, which led to the Company being unable to make the first Interest Payment to the Account by the first method as prescribed in Condition 5(A). In respect of (ii), Mr Huang’s claimed entitlement to redeem the Notes early by reason of a “Payment Default” committed by the Company under Condition 8(i), ie a failure to make the first Interest Payment on the due date and such failure continued for 5 days, was the direct consequence of his breach of the said obligation.

51.  The Judge rejected the Company’s reliance on the prevention principle for 2 reasons. She considered that: (i) it had never been made clear, let alone proved, why the information on the Account was incorrect or incomplete, and (ii) once the Company became aware that the information on the “registered account” was incorrect, it could resort to the second method prescribed in Condition 5(A)[10]. Neither reason seems to us to be valid or sufficient to deny the application of the prevention principle in the present case. As for (i), we consider that the precise reason why the information on the Account was regarded by DBS to be incorrect or incomplete is not determinative, so long as the evidence points to Mr Huang being in breach of his obligation to provide accurate and adequate, up-to-date, details of an account to receive payments from the Company under the Note. As for (ii), we consider that the second method of payment under Condition 5(A) was not applicable (see the discussion under Ground (3) below), and the Company was under no obligation to resort to that method to make the first Interest Payment.

52.  For the foregoing reasons, we are of the view that Mr Huang was not entitled to demand for early redemption of the Notes under Condition 6(B).

GROUND (3): WHETHER THE COMPANY SHOULD HAVE MAILED THE CHEQUE TO THE MAINLAND ADDRESS

53.  As earlier mentioned, Condition 5(A) provides two alternative methods for the Company to make payment to Noteholders. However, the second method (ie mailing a HKD cheque to the registered address of a Noteholder) can only be resorted to if the Noteholder “does not have a registered account”.

54.  We have concluded that Mr Huang did have a “registered account”. It follows that the Company was not entitled, and in any event not obliged, to utilize the second method prescribed by Condition 5(A) to make the first Interest Payment to Mr Huang. To the extent that the Judge held that the Company was under an obligation to do so[11], we disagree.

GROUND (5): WAIVER

55.  Having reached the above conclusions, it is unnecessary for us to consider the issue of waiver raised under this ground of appeal.

DISPOSITION

56.  The Company’s appeal is allowed, the Order is set aside, and Mr Huang’s action against the Company in HCMP 1102/2019 is dismissed. We do not have information on whether the Company has returned the principal amount of the Notes and interest thereon to Mr Huang pursuant to the Order, and (if yes) the date on which the Company made payment to Mr Huang. We give liberty to the parties to apply (if so advised) for such further or other relief as may be necessary to give effect to this judgment.

57.  The Company shall have the costs of the appeal, to be taxed if not agreed, with certificate for 2 counsel. As for the costs of the action below, the Judge made no order as to costs in the two actions (which were determined together but not formally consolidated) in view of the fact that the Company was successful in HCMP 719/2019 but Mr Huang was successful in HCMP 1102/2019. Since we have now allowed the appeal in HCMP 1102/2019, the Company is successful in both actions. Prima facie, the Company should have the costs of both actions. In the Notice of Appeal dated 2 April 2020, the Company has sought an order that it should have the costs of the action in HCMP 719/2019 as well. The Company has not lodged any separate notice of appeal against the Judge’s order as to costs in HCMP 719/2019, although it obtained leave to appeal from the Judge on 14 May 2020. It may be that, strictly speaking, a separate notice of appeal should have been served, or the existing Notice of Appeal (including its title) ought to have been amended to make it clear that the appeal is against 2 separate orders made by the Judge in two actions. As a matter of fact, in Lau, Horton & Wise LLP (the Company’s solicitors)’s letter dated 30 October 2020 to the Registrar of Civil Appeals (copied to Mr Huang), they proposed to amend the Notice of Appeal by adding HCMP 719/2019 to the heading and also making reference to the Judge’s order granting leave to appeal. However, on 23 December 2020, the Registrar of Civil Appeals directed that -

“[7] Given the two actions in HCMP 719/2019 and HCMP 1102/2019 were interrelated and dealt with together on paper by Linda Chan J in one judgment and in light of her ladyship’s comment made on 2 April 2020, it would appear that the costs order made in HCMP 719/2019, in substance, formed part of the overall judgment, to which the Notice of Appeal lodged on 7 May 2020 relates.

[8] It would therefore appear that Order 59, rules 4 and 5 do not separately apply to the appeal against the costs order in HCMP 719/2019. In the circumstances, no further step needs to be taken in this regard”.

In all the circumstances, we are prepared to deal with the costs of the action in HCMP 719/2019 as well, granting leave to the Company to make such amendments to the Notice of Appeal as may be necessary for this matter to be dealt with by the Court. We further make an order that the Company shall have the costs of both actions, to be taxed if not agreed.

58.  The above order as to costs is an order nisi, which shall become absolute unless an application is made to vary the same within 14 days from the date of the order.

59.  Lastly, we record that at the hearing on 16 December 2022, the Court made an order that the Company’s appeal in CACV 134/2020 be dismissed with costs to Mr Huang, to be taxed if not agreed.