VPOWER GROUP HOLDINGS LTD v. CRRC HONG KONG CAPITAL MANAGEMENT CO LTD

HCMP 1551 & 1552/2024

(Heard together)

[2025] HKCFI 2388

HCMP 1551/2024

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1551 OF 2024

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BETWEEN

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AND

HCMP 1552/2024

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1552 OF 2024

_________________

_________________

BETWEEN

_________________

(Heard together)

_________________________________

DECISION

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Introduction

1.  After this court handed down the decision dated 3 February 2025 (“the Injunction Decision”) in which the summonses taken out by each of the plaintiffs in these two proceedings were dismissed. By summonses both dated 13 February 2025 (“the Leave Summonses”), the plaintiffs apply for leave to appeal against the Injunction Decision.

2.  The parties with the same legal representations agree that the Leave Summonses should be determined by paper disposal and written submissions have been lodged pursuant to my directions. This court has read the written submissions and is grateful for the assistance rendered.

3.  In this decision, I shall adopt the same abbreviations used in the Injunction Decision, unless otherwise stated. I shall also refer to the Injunction Decision for the background facts narrated therein and I shall not repeat the same in this decision.

Relevant principles

4.  The applicable principles relating to applications for leave to appeal are well settled and not in dispute. Leave to appeal is not lightly granted and the court must be satisfied that the intended appeal has reasonable prospect of success or there is some other reason in the interests of justice that the matters should be heard on appeal: section 14AA(4) of the High Court Ordinance, Cap.4 (“the HCO”). A reasonable prospect of success means an appeal with prospects that are more than fanciful without having to be probable: SMSE v KL [2009] 4 HKLRD125 per Le Pichon JA at §17.

5.  Since the Injunction Decision involves an exercise of my discretion to refuse Ps’ applications for interlocutory injunctions, Mr Dawes SC, leading Mr Chen for Ps, pertinently refers to New Sparkle Roll International Group Limited v Sze Ching Lau [2024] HKCA 336 in which Kwan VP at §§67-68 said this,

“For an appeal against the granting of an interlocutory injunction, which is an exercise of discretion of the court, the well-established principles are that the appeal court must defer to the judge’s exercise of discretion and not interfere with it merely on the ground that it would have exercised the discretion differently. The appeal court will not disturb the judge’s exercise of discretion unless one or more of these grounds are established: the judge had misdirected himself with regard to the principles or the evidence in accordance with which his discretion had to be exercised; he had taken into account irrelevant matters; he failed to take into account relevant ones; his exercise of discretion is so plainly wrong that it is outside the generous ambit within which reasonable disagreement is possible. It is only if and after the appeal court has reached the conclusion that the judge’s exercise of discretion must be set aside for one or other of these reasons that it becomes entitled to exercise an original discretion of its own.”

Grounds of the intended appeal

6.  Mr Dawes has advanced 5 broad grounds and I shall deal with each of them in turn.

7.  The first group of complaints relate to my alleged mischaracterisation of Ps’ core contention. Ps say that I have mistaken that their case is that the Finance Lease Agreements were shams when they merely say that by reason of the Alleged Understanding the parties did not intend to act in strict compliance with the express terms of the Finance Lease Agreements. Such a mischaracterisation led to my failure to apply the proper test, which is whether the arrangement between the parties amounts to in substance and effect a loan of money within the definition of section 2(1) of the MLO and not whether Ps are able to discharge the onus to prove that the Financial Lease Agreements were in fact a sham.

8.  I see no merit in these complaints.

9.  The main case of Ps is premised upon the Alleged Understanding, which, according to Ps, rendered the Financial Lease Agreements to be in substance and effect a loan agreement and D, being an unlicenced money lender at the material time, should be debarred from enforcing the Financial Lease Agreements, which are disguised loan agreements.

10.  I have given my reasons why I reject the allegation of the Alleged Understanding summarily in the Injunction Decision and I shall not repeat my reasons here. I referred to the relevant evidence purportedly in support of the Alleged Understanding including the Affirmation of Mr Lo, the IPO prospectus of VP ListCo and the Feasibility Report. I expressed my view on such evidence. Nothing in the written submissions of Mr Dawes causes me any concern about the validity of the reasons given in the Injunction Decision.

11.  Mr Lo is the only one who has given direct evidence of the Alleged Understanding on behalf of Ps and his evidence is unsatisfactory and unconvincing. I find that his evidence relating to the Alleged Understanding consists of bare assertions only with little particulars and lacks cogency. His relevant evidence is contained in one single paragraph in his affirmation (§15). He merely said there was a discussion between the parties that the parties should enter into some purported finance lease agreements and Ps would buy back the machinery and equipment from D at the end of the expiry of the lease term as repayment of the principal of the loan advanced thereunder. Then, in the following paragraph, Mr Lo mentioned the execution of the agreements between the parties including the Finance Lease Agreements.

12.  Mr Lo did not give any details about the alleged discussion and how the Alleged Understanding came into being and eventually shared between the parties in the course of the alleged discussion. It is noteworthy that it was the first time when Ps had ever dealt with D and all of them were sizable business entities. Cogent evidence was expected from Ps as to why D would be attracted to share the Alleged Understanding.

13.  In light of my refusal to accept the allegation of the Alleged Understanding, I reject that the allegation that the Finance Lease Agreements were in substance and in effect loan agreements and conclude that the MLO is not engaged at all: §75 of the Injunction Decision. I do not accept that I misdirected myself as to the proper test.

14.  As regards Ps’ criticism that I have mischaracterised their case, I should first highlight what Ribeiro PJ said about the approach adopted by the courts in deciding whether a transaction should be categorised as loans or otherwise within the meaning of the MLO in Secretary for Justice v Global Merchant Funding Ltd (2016) 19 HKCFAR 192 at §§13-15:

“13. Perhaps because the legislation is penal and, if misapplied, may be commercially disruptive, the Courts have consistently taken a restrictive view of what constitutes money lending. Thus, in Olds Discount Co Ltd v John Playfair Ltd, a case dealing with the MLA 1927, it was held that an agreement for the purchase by a hire-purchase company of book debts owing by customers to a drapers company which had sold them goods on credit did not constitute a loan “notwithstanding that the operative reason in the minds of the defendants for entering into it was that they desired to raise money as a temporary matter in the same way as they would have raised it if they had merely entered into a transaction of loan”. This was because, as Branson J explained:

“... it is the nature of the agreement entered into, and not its object, at which the court has to look in order to decide whether in any particular case the agreement is a moneylending agreement or otherwise.”

14. Olds Discount was approved by the Privy Council in Chow Yoong Hong v Choong Fah Rubber Manufactory, where Lord Devlin elucidated the Court’s approach in the following terms:

“There are many ways of raising cash besides borrowing. One is by selling book-debts and another by selling unmatured bills, in each case for less than their face value. Another might be to buy goods on credit or against a post-dated cheque and immediately sell them in the market for cash. Their Lordships are, of course, aware, as was Branson J, that transactions of this sort can easily be used as a cloak for moneylending. The task of the court in such cases is clear. It must first look at the nature of the transaction which the parties have agreed. If in form it is not a loan, it is not to the point to say that its object was to raise money for one of them or that the parties could have produced the same result more conveniently by borrowing and lending money. But if the court comes to the conclusion that the form of the transaction is only a sham and that what the parties really agreed upon was a loan which they disguised, for example, as a discounting operation, then the court will call it by its real name and act accordingly.”

15. When the New Zealand Court of Appeal considered the meaning of “moneylending” under the applicable Act, after citing Chow Yoong Hong v Choong Fah Rubber Manufactory, Richardson J stated:

“... the first step in determining whether the transactions under review were loans is to ascertain their true nature or substance. ... It is well settled that, where documents have been drawn to define the relationship of persons involved in a business operation, the true nature of the transaction can only be ascertained by careful consideration of the legal arrangements actually entered into and carried out. ... It is the legal character of the transaction which is decisive, not the overall economic consequences to the parties ... That character is not determined conclusively by the nomenclature used by the parties. Consideration must be given to the whole of the contract in order to determine the true nature of the relationship.”

15.  Ribeiro PJ went on to review several authorities on this topic including Orion Finance Ltd v Crown Financial Management Ltd [1996] 2 BCLC 78. Ribeiro PJ cited the following words of Millett LJ (as Lord Millett then was) at §20:

“...proper legal categorisation is a matter of construction of the documents. This does not mean that the terms which the parties have adopted are necessarily determinative. The substance of the parties' agreement must be found in the language they have used; but the categorisation of a document is determined by the legal effect which it is intended to have, and if when properly construed the effect of the document as a whole is inconsistent with the terminology which the parties have used, then their ill-chosen language must yield to the substance.

The question is not what the transaction is but whether it is in truth what it purports to be. Unless the documents taken as a whole compel a different conclusion, the transaction which they embody should be categorised in conformity with the intention which the parties have expressed in them.”

16.  Eventually, Ribeiro PJ concluded that the approach adopted in the authorities reviewed by him was applicable. In §21, Ribeiro PJ said,

“The MLO’s definition of a “loan” to include “every agreement (whatever its terms or form may be) which is in substance or effect a loan of money” must be understood to be referring to an agreement which has the legal substance or effect of a loan and not an agreement with such an economic or commercial substance or effect. Methods of financing which may be economically indistinguishable from a loan repayable with interest may well be differently categorised in law.”

17.  It can be seen that the courts determine whether there was a loan within the meaning of the MLO by finding out the legal substance and effect of the agreement reached by the parties and a restrictive view is invariably taken in such determinations.

18.  Mr Dawes submits that the case of Ps is not that the Finance Lease Agreements were a sham. He submits that my characterisation of Ps’ case of a sham is not supported by the relevant authorities and on the undisputed/indisputable evidence.

19.  In the first place, as rightly pointed out by Mr Man SC, leading Mr Tang for D, Mr Dawes in his skeleton submissions filed for the hearing of the Summonses (“the Hearing”) and throughout the Hearing characterised the Finance Lease Agreements as “disguised loan agreements” and “a façade”. In his oral submission, he once suggested that the Finance Lease Agreements could not be a genuine finance lease arrangement. I am unable to understand how it can be argued that I was mistaken about the nature of Ps’ case to be that the Finance Lease Agreements were mere shams.

20.  Ps’ contention is that despite the provisions in the Finance Lease Agreements that Ps had an option to repurchase the Leased Assets, the Alleged Understanding was that Ps were liable to repay the loan principals to D regardless whether the option was exercised.

21.  In the Injunction Decision (§46), I set out the legal principles concerning sham transactions expounded by Arden LJ (as she then was) in Stone & Ors v Hitch [2001] STC 214 cited by DHCJ KC Chan in Aurum Pacific Finance Limited v T & V International Holdings Limited [2024] HKCFI 1798.

22.  Had the Alleged Understanding really been in existence, the right of Ps to exercise the option in the Finance Lease Agreements would have been in truth Ps’ obligations to repay the loan principals.

23.  Mr Dawes draws my attention to Belvedere Court Management Limited v Frogmore Development Ltd [1997] QB 858 and National Westminster Bank Plc v Jones [2001] 1 BCLC 98 for the proposition that an apparently artificial transaction is not a sham despite its intention to circumvent a result a statue would otherwise have brought about in the absence of an element of pretence.

24.  Mr Dawes argues that the Finance Lease Agreements were entered into to circumvent the application of the MLO, despite its potential artificialities, does not render them shams. I note that Mr Lo does not allege or suggest anything about the parties’ discussion regarding D’s status under the MLO and their intention to avoid the application of the MLO in his evidence: see §65 of the Injunction Decision. §47 of his affirmation does not suffice.

25.  I agree with Mr Man that neither Belvedere nor National Westminster Bank assists Ps.

26.  In Belvedere, at p.876D, Sir Thomas Bingham MR (as he then was) held that the arrangements in question were not a sham on the ground that there was no element of pretence and the parties were not doing one thing and saying another.

27.  In National Westminster Bank, at §40, Neuberger J (as he then was) quoted the often-cited definition of sham by Diplock LJ in Snook v London and West Riding Investments Ltd [1967] 1 All ER 518 at 528:

“… it is, I think, necessary to consider what, if any, legal concept is involved in the use of this popular and pejorative word. I apprehend that, if it has any meaning in law, it means acts done or documents executed by the parties to the “sham” which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create. One thing I think, however, is clear, in legal principle, morality and the authorities … that for acts or documents to be a “sham”, with whatever legal consequences follows from this, all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating.”

28.  Eventually, the learned judge concluded that the agreements in question, despite being artificial transactions, were not a sham in the absence of any degree of dishonesty on the part of the parties involved.

29.  With the Alleged Understanding, the Finance Lease Agreements were in fact loan agreements. The parties’ legal rights and obligations were different from what they appeared in the Finance Lease Agreements. There was an element of pretence and a degree of dishonesty. On the authorities, the case advanced by Ps cannot be anything less than a sham in my view.

30.  Mr Dawes further points out that in the skeleton submissions of Mr Man lodged for the purpose of the Hearing, Mr Man himself recognised that a case of a collateral agreement might be run by Ps which is less than a sham.

31.  The relevant part of Mr Man’s written submissions reads,

“Fifth, if Ps are permitted to run a case which is less than a sham, the argument would be that the Finance Lease Agreements are subject to a collateral undertaking (either orally or by conduct) to the effect of the Alleged Understanding.”

32.  It is evident that the alternative case of a collateral agreement is suggested by Mr Man in the subjunctive. I do not think that Mr Man was changing his primary position that P was running a sham case with the Alleged Understanding.

33.  Next, Mr Dawes submits that I was wrong to find that Clause 19.1 was akin to an entire agreement clause and Clause 19.3 was akin to a no oral modification clause. He further argues that I failed to explain why Clause 19.1 could exclude the Alleged Understanding and that no subsequent modification to the Finance Lease Agreement was ever involved with the implementation of the Alleged Understanding.

34.  In my view, the combined effect of these two provisions is that all the terms of the Finance Lease Agreements had been explained to Ps and the parties had an accurate understanding of their obligations thereunder. Further, the terms of the Finance Lease Agreements were not amenable to any subsequent oral modifications.

35.  The terms of the Finance Lease Agreements in these two provisions, read in context, must mean their written terms only. They could not possibly include the Alleged Understanding. Otherwise, these provisions are meaningless.

36.  It is plain to me that these two provisions effectively exclude all promises, understandings and assurances not embodied in any of the written terms of the Finance Lease Agreements. There is simply no room for the Alleged Understanding.

37.  I do not agree that the implementation of the Alleged Understanding does not involve any modification of the Finance Licence Agreements. To begin with, D could not enforce the disguised loan agreement alleged by Ps to demand Ps to repay any part of the loan if Ps opted not to exercise their right to repurchase the Leased Assets upon expiry of the lease term in accordance with the actual terms of the Finance Lease Agreements.

38.  Mr Dawes further points out that the Alleged Understanding is supported by Ps’ early repayments of principals. I have explained in the Injunction Decision why I could not accept this evidence of Mr Lo and I have nothing to add.

39.  Mr Dawes then complains that I erred in concluding that the examples of the parties’ actual performance of the Finance Lease Agreements negate the existence of the Alleged Understanding. He submits that they are equally consistent with Ps’ case of a disguised loan agreement in which the Leased Assets were to be held as securities.

40.  In the Injunction Decision, it is clear that after giving all the reasons why I was unimpressed by the evidence of the Alleged Understanding, I indicated my acceptance of the evidence of Mr Tang of D that the examples given by him could show that the parties did treat the Finance Lease Agreements as genuine sale and leaseback agreements.

41.  Lastly, Mr Dawes submits that I failed to consider the lack of any evidence indicating which Leased Assets were to be bought back by Ps before any payments were made. He says that this lack of evidence is supportive of the existence of the Alleged Understanding.

42.  Mr Man is right in his submission that this argument was not raised in the skeleton submissions lodged for the Hearing. It was briefly made at the Hearing. I have considered this though I did not express any view on this particular argument in the Injunction Decision. Considering all the evidence in the round, I believe that this argument could not have any significant impact on my conclusion.

43.  To conclude, I am not convinced that there is any reasonable prospect that my finding of the non-existence of the Alleged Understanding would be successfully challenged. The main case of Ps should collapse. I should continue to dispose of other grounds of Ps’ intended appeal briefly.

44.  In the Injunction Decision, this court accepted the submission of Mr Man that even if the Finance Lease Agreements were loans, they were “exempted loans” within the meaning of the Provisions, i.e. paragraphs 14 and 15 of Schedule 1 Part 2 of the MLO since they were made to a company whose shares are listed on the Stock Exchange of Hong Kong.

45.  I accepted the submission of Mr Man that though VP ListCo was listed only after the Finance Lease Agreements were executed on 2 December 2015, any loans extended to it under the Finance Lease Agreements should be exempted loans within the meaning of the MLO. The reason is that there is no express stipulation in the Provisions that at the time of the loan, the borrower must be a listed company.

46.  Mr Dawes submits that my conclusion on the applicability of the Provisions must be wrong and my interpretation of the Provisions would lead to absurd results. For example, a listed company who has borrowed a loan may subsequently become delisted. The loan would cease to be an exempted loan upon delisting and the lender would be rendered in default in its obligations under the MLO when making the loan such as section 18. This is unreasonable. He submits that the relevant time to determine whether a loan is qualified to be an exempted loan must be at the time when the loan is made.

47.  I am convinced that it is reasonably arguable that my interpretation of the Provisions of the MLO is erroneous. However, I do not think that it has any bearing on my firm conclusion that there was no loan at all and the MLO is not engaged on the evidence. Whether the alleged loan is an exempted loan within the meaning of the MLO is simply academic.

48.  In addition, I have found that there is no evidence that the parties had ever considered the Provisions before the execution of the Finance Lease Agreements and even if either parties had any doubts about their applicability, there was no consideration of a postponement of their execution pending the listing of VP ListCo. There is no evidence that the parties had any discussion about D’s lack of a money lender licence. This shows that the parties did not really consider that there was a loan since they did not do anything to ascertain their respective legal positions under the MLO: see §62 and 65 of the Injunction Decision.

49.  My interpretation of the Provisions is, therefore, of little relevance to the disputes between the parties.

50.  Another ground of Ps’ intended appeal relates to my interpretation of Clause 4 of the 2022 Repayment Schedules. It is submitted that I erred in finding that VPG and VPT are jointly liable for the debt referenced in the 2022 Repayment Schedules.

51.  I relied on the acknowledgement of the outstanding principals and interest and the promise to repay them by VPG and VPT and I construed Clause 4 in light of this acknowledgement: §79 of the Injunction Decision. I am unable to agree that it is reasonably arguable that my conclusion could be faulted.

52.  Lastly. Mr Dawes submits that firstly, this court erred in saying that he did not make submissions on Ps’ contention that the Guarantee does not cover the indebtedness of VPT. Secondly, he submits that given this court’s acceptance as non-controversial facts that under the Guarantee, VP ListCo irrevocably and unconditionally guarantees all amounts payable by VP ListCo and its subsidiaries and that VPT was not a subsidiary of VP ListCo at the time when the Guarantee was executed, it is self-contradictory for this court to find that the Guarantee covers the indebtedness of VPT as well.

53.  I accept that I did make a misstatement when I noted that Mr Dawes made no submission on the contention: §83 of the Injunction Decision. In fact, I had the benefit of the relevant submissions of both Mr Dawes and Mr Man.

54.  As shown in §76 of the Injunction Decision, I referred to Mr Lo’s evidence and stated correctly Ps’ contention concerning the scope of the Guarantee. To deal with the said contention, I first relied on my conclusion that VPG and VPT are jointly liable for the outstanding principals and interests under the 2022 Payment Undertaking. I then relied on the liabilities to be covered expressly by the Guarantee as highlighted to me by Mr Man. I finally rejected Mr Lo’s explanation that the figure in the Guarantee was a sheer mistake: see §84-85 of the Injunction Decision.

55.  Despite the misstatement, I disposed of the said contention with the benefit of counsel’s submission and gave my reasons for my rejection of the said contention.

56.  I am not convinced that my conclusion that the Guarantee covers both the liabilities of VPG and VPT is self-contradictory in light of my reasons given.

57.  All in all, I find that there is no real substance in this ground.

Conclusion and orders

58.  For the reasons stated above, I find that none of the grounds of the intended appeal is reasonably arguable. I conclude that Ps’ intended appeal has no reasonable prospect of success and Ps fail to meet the threshold in section 14AA(4) of the HCO. Leave to appeal must be refused and the Leave Summonses fall to be dismissed accordingly.

59.  There is no reason why costs should not follow the event. I make an order nisi that each of Ps do pay costs of and occasioned by their respective Leave Summons including any costs reserved to D, to be taxed if not agreed, with certificate for two counsel.

60.  It remains for me to thank Mr Dawes SC, Mr Chen, Mr Man SC and Mr Tang for their helpful submissions.