BIZSTAR GLOBAL LTD v. CHINA ON SECURITIES LTD (Formerly known as CHINA FUND SECURITIES LTD)

HCA 68/2020

[2025] HKCFI 5122

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 68 OF 2020

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REASONS FOR DECISION

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INTRODUCTION

1.  By summons dated 11 July 2025, the Plaintiff sought judgment in default in relation to various claims as set out in the Re-Amended Statement of Claim dated 3 June 2025 (“RASOC”). The Plaintiff invoked the Rules of High Court O.19 r.7 on the basis that the 1^st Defendant has not filed any defence.

2.  More specifically, the Plaintiff commenced the present claim against the 1^st Defendant on 14 January 2020. On 9 March 2020, the 1^st Defendant filed an acknowledgment of service out of time. But it never filed any defence notwithstanding the Plaintiff had served its original pleadings, the amended version and the RASOC on it. The present summons and the notice of intention to enter judgment were also served on the 1^st Defendant. Notice of hearing dated 16 July 2025 was also issued to the 1^st Defendant’s then solicitors, who on 23 September 2025 was given leave to cease to act for the 1^st Defendant. The 1^st Defendant did not appear at the hearing.

3.  Mr Isaac Chan and Mr Johnathan Tsang, counsel for the Plaintiff, made clear in their Skeleton Submissions that the Plaintiff would abandon all other claims in the RASOC, and would only proceed on the proprietary claim for the following relief as pleaded in the RASOC:

3.1  A declaration that the 1^st Defendant holds the sum of HK$55,522,800 (“Net Placing Proceeds”) deposited at the account no. 478781420239 with DBS (Hong Kong) Limited (“DBS Account”), being the Net Placing Proceeds arising from the placement of 216,000,000 shares of Hon Corporation Limited (respectively “Placing Shares” and “Hon Corp”) under a placing agreement dated 25 November 2019 (“Placing Agreement”), on trust for the Plaintiff.

3.2  An order that the 1^st Defendant do pay and/or transfer the Net Placing Proceeds from the DBS Account to the Plaintiff within 42 days.

3.3  There be no order as to costs, including the costs of the summons dated 10 November 2023, for these proceedings.

4.  Also present at the hearing was the Securities and Futures Commission (“’SFC”), which was given leave to intervene in these proceedings on 1 April 2025. The SFC took a neutral stance conditional upon the Plaintiff abandoning all its claims in the RASOC save its proprietary claim. As for the Plaintiff’s proprietary claim, the SFC took the view it was for the Plaintiff to satisfy the Court as to its entitlement to the relief sought. Consequently, the remaining primary purpose of the SFC’s intervention was to ensure that any judgment obtained by the Plaintiff in these proceedings would not unjustifiably prejudice the SFC’s claim in HCA 623/2023 (“Section 213 Proceedings”), which the SFC says it is pursuing for the benefit of investors who are apparently victims (“Victims”) of what is commonly known as a “ramp-and-dump” scheme (“Scheme”) involving Hon Corp’s shares. Mr John Scott SC leading Mr John Hui have filed Skeleton Submissions for that purpose.

5.  On 22 October 2025, the Plaintiff’s solicitors and the SFC submitted a joint letter informing the Court that they have reached an agreement on the terms of the order to be made insofar as the Plaintiff is able to satisfy the Court as to its entitlement to those orders.

6.  Having read all the papers and considered the parties’ submissions, I came to the view that default judgment should be given, and I gave the following order (based on the draft order agreed by Mr Chan and Mr Scott with minor amendments):

“Judgment be entered against the 1^st Defendant for:

(a) A declaration that the 1^st Defendant holds the sum of HK$55,522,800 deposited at the account no. 478781420239 with DBS Bank (Hong Kong) Limited, being the Net Placing Proceeds arising from the placement of the Placing Shares under the Placing Agreement, on trust for the Plaintiff.

(b) An order that the 1^st Defendant do pay and/or transfer the Net Placing Proceeds (i.e. HK$55,522,800) from the account no. 478781420239 with DBS Bank (Hong Kong) Limited to the Plaintiff within 42 days.

(c) There be no order as to costs, including the costs of the summons filed by the Intervener on 10 November 2023, for the proceedings.

(d) Save for the orders to be made in respect of paragraphs (a), (b) and (c) above, the reliefs sought by the Plaintiff in the Re-Amended Statement of Claim dated 3^rd day of June 2025 be discontinued with no order as to costs.”

7.  At the conclusion of the hearing, I said I will hand down my reasons in due course. These are my reasons.

BACKGROUND

8.  The following background is taken from RASOC. I have also borne in mind the emphasis placed by the parties in their submissions.

9.  The Plaintiff was and still is a shareholder of Hon Corp. Hon Corp’s shares were previously listed on the GEM Board of the Stock Exchange of Hong Kong under stock code 8259.

10.  The 1^st Defendant is a licensed entity under the Securities and Futures Ordinance (Cap. 571) and is allowed to carry out regulated activities, including dealing in securities and asset management. By the Placing Agreement between the Plaintiff and the 1^st Defendant, the latter agreed to act as the placing agent for the former to place the Placing Shares to not less than 6 placees at HK$0.265 per share (i.e. HK$57,240,000 in total “Placing Considerations”) upon the terms of the Placing Agreement. The following terms are pertinent:

10.1  Clause 2.1: the 1^st Defendant agreed, on the terms and subject to the conditions of the Placing Agreement, to act as the placing agent of the Plaintiff to procure the placees for the Placing Shares at HK$0.265 per share.

10.2  Clause 2.2: the Plaintiff appoints the 1^st Defendant as its placing agent to procure the placees for the Placing Shares on the terms and subject to the conditions of the Placing Agreement.

10.3  Clause 2.6(a): the 1^st Defendant shall, by no later than 4:00 pm on 24 December 2019 (or such later date as agreed) notify the Plaintiff of the number of Placing Shares required to be allotted by the Plaintiff and other details required to effect the placement of such shares.

10.4  Clause 5: completion shall take place at 4:00 pm on the placing completion date when (a) the 1^st Defendant shall pay or procure the placees to pay to the Plaintiff the aggregate of the placing price either by cashier order or telegraphic transfer to a Hong Kong bank account designated by the Plaintiff or other settlement method as agreed in writing by the Plaintiff and the 1^st Defendant and (b) the Plaintiff shall allot the Placing Shares in accordance with the details provided by the 1^st Defendant under clause 2.6(a).

10.5  Clause 6.1: the Plaintiff shall pay the 1^st Defendant a placing fee of 3% of the aggregate of the placing price of the Placing Shares, which the 1^st Defendant is irrevocably authorised to deduct from the payment to be made by it to the Plaintiff on completion.

11.  It is said that the 1^st Defendant as the Plaintiff’s placing agent owed fiduciary duties to the Plaintiff. Further or alternatively, it is said the 1^st Defendant was the express, resulting or constructive trustee of the Plaintiff’s assets and property in the 1^st Defendant’s possession or control including the Placing Shares and their sale proceeds, and owed trustee duties to the Plaintiff to protect, account for and deal with such assets and property in accordance with the Plaintiff’s instructions and/or authority.

12.  On or around 27 November 2019, the Plaintiff arranged the Placing Shares to be deposited in its securities account opened with the 1^st Defendant (“Securities Account”). It is said that on 27 November 2019, unbeknownst to the Plaintiff, the 1^st Defendant entered into 6 subscription agreements with 6 placees for the placement of the Placing Shares at the Placing Considerations.

13.  Further, it is alleged that in breach of clause 5 of the Placing Agreement and/or the 1^st Defendant’s fiduciary and/or trustee duties and unbeknownst to the Plaintiff:

13.1  On 6 December 2019, the 1^st Defendant (a) transferred the Placing Shares from the Securities Account to the securities accounts held by the 6 placees with the 1^st Defendant and (b) at the request of the 6 placees disposed of 215,000,000 of the Placing Shares at the open market for around HK$170,000,000.

13.2  On 9 December 2019, the 1^st Defendant disposed of the remaining 1,000,000 of the Placing Shares at the open market for HK$211,014.01.

14.  Also on 9 December 2019, the 1^st Defendant credited a sum of HK$53,000,000 to the Securities Account, whilst deducted a sum of HK$1,717,200 from the said sum as the 1^st Defendant’s 3% placing fee out of the Placing Considerations of HK$57,240,000. As such, the remaining balance in the Securities Account (as per the monthly statement) stood at HK$51,282,800. The Plaintiff claims that since it is entitled to the Net Placing Proceeds of HK$55,522,800, therefore, based on the sum of HK$51,282,800 stated in the monthly statement, there is a shortfall of HK$4,240,000. The relevant calculations are these:

HK$57,240,000 (Placing Considerations) – HK$1,717,200 (placing fee) = HK$55,522,800 (Net Placing Proceeds).

HK$55,522,800 (Net Placing Proceeds) – HK$51,282,800 (credit balance in the Securities Account) = HK$4,240,000 (shortfall).

15.  On 10 and 11 December 2019, the 1^st Defendant received all the sales proceeds for the Placing Shares sold on the open market in the total amount of approximately HK$170,000,000 (“Disposal Considerations”), which were paid into the DBS Account. It is over the sums in the DBS Account that the Plaintiff asserts its present proprietary claim in respect of the Net Placing Proceeds in the sum of HK$55,522,800.

16.  It is said that despite repeated demands, the 1^st Defendant failed and/or refused to pay the Net Placing Proceeds to the Plaintiff.

17.  Although not relevant – as it is trite that in an application for default judgment under O.19 r.7 the Court must consider whether to give judgment according to the pleadings alone (in this case the RASOC) – I should explain briefly the claim in the Section 213 Proceedings and its relationship with the present proceedings to give context as to the SFC’s intervention and submissions.

17.1  It is said that the 6 placees’ acquisition of the Placing Shares were part of the Scheme whereby 216,000,000 of the Placing Shares were sold on 6 December 2019 at hitherto artificially inflated prices drummed up by the defendants to the Section 213 Proceedings.

17.2  After the demand for the purchase of Hon Corp shares had exhausted, the share price collapsed, causing significant losses to the Victims estimated to be around HK$135,000,000.

17.3  On 20 January 2020, the SFC issued a Restriction Notice over the sums in the DBS Account of which the Net Placing Proceeds claimed by the Plaintiff in these proceedings form part of.

ANALYSIS

18.  As mentioned, given the present application is mounted under O.19 r.7, the Court must consider whether to give judgment according to the RASOC alone. The guiding principles concerning such an application, especially whether the Court should exercise its discretion to deviate from the normal practice (which is by no means a legal or inflexible rule) against granting declaratory relief without trial, are well-settled.

19.  I gratefully adopt a summary of the law in Cheung Sai Lon v Cheung Sai Ha [2020] HKCFI 2551 at §§30-34 (Coleman J) and South American International Bank Curacao NV v Ying Xin Trading Co Ltd (unreported, HCA 3012/2016, 20 January 2017) at §§13-17 (DHCJ Anson Wong SC). The touchstone is the Court’s paramount duty to do the fullest justice to the plaintiff to which he is entitled to bearing in mind all the relevant considerations in each case. The main considerations in the present case appear to be whether the Plaintiff has established a strong and obvious case for proprietary relief on the face of its pleadings, and if so, whether the Plaintiff would be prejudiced if no declaration of such proprietary interest were given (or putting it differently, whether the Plaintiff has a genuine need for such a declaration).

20.  Mr Chan submitted that the Plaintiff’s proprietary claim over the Net Placing Proceeds is essentially premised on the following elements pleaded in the RASOC:

20.1  The 1^st Defendant, as placing agent for the Plaintiff, held the Placing Shares (and the sales proceeds thereof) on trust for Plaintiff.

20.2  The 1^st Defendant acted in breach of trust in transferring the Placing Shares to the 6 placees and disposing of the same in the open market.

20.3  The Plaintiff is entitled to trace its proprietary interest to the Net Placing Proceeds to the funds in the DBS Account as it was used to receive the Disposal Considerations from the unlawful disposal of the Placing Shares on the open market.

21.  As regards, the first element, I am satisfied that a proper case has been made out on the pleadings. It is well-established at common law that generally, if not invariably, a broker/agent owes fiduciary duties to his client/principal including a duty to account for the client/principal’s property (whether it be money or securities) where it comes to the broker/agent’s hands so that the broker/agent holds the money or securities on trust for the client/principal: Re CA Pacific Finance Ltd [1999] 2 HKLRD 1 at 7D-H, Yuen J (as she then was); Re Peregrine Brokerage Ltd [2004] 1 HKLRD 856 at §9, Kwan J (as she then was). I also agree that the pleaded terms of the Placing Agreement indicate a fiduciary relationship that is consonant with the common law position.

22.  I am equally satisfied that a proper case has been made out on the pleadings regarding the 1^st Defendant’s breach, i.e. the second element. The Plaintiff has pleaded the 1^st Defendant owed the relevant fiduciary duties to it concerning the Plaintiff’s assets and property in the 1^st Defendant’s possession (see §11 above). The Plaintiff has also relied on the 1^st Defendant’s obligations under clause 5 of the Placing Agreement, which I have summarized at §10.4 above. The 1^st Defendant’s breach, as pleaded in the RASOC, is outlined at §§13-16 above.

23.  Turning to the third element, it seems to me Mr Chan’s submission is essentially this. The Placing Shares were disposed on the open market without the Plaintiff’s authorization and the proceeds of sale (i.e. the Disposal Considerations) sitting in the DBS Account were and still are in the 1^st Defendant’s hands. It follows, as the argument goes, the Plaintiff is entitled to trace its beneficial interest in the Placing Shares (i.e. the Net Placing Proceeds being the sum it would be entitled to under the Placing Agreement) to the funds in the DBS Account. Counsel also argued that the 1^st Defendant’s failure to book the entire Net Placing Proceeds (including the shortfall of HK$4,240,000) to the Plaintiff’s account within the 1^st Defendant’s own ledger does not affect the tracing analysis as the entire sum is still in the 1^st Defendant’s hands to which the Plaintiff has a continuing beneficial interest. Put differently, the Plaintiff’s proprietary interest does not depend on the 1^st Defendant’s internal booking or accounting treatment. I accept Mr Chan’s submission.

24.  All in all, I take the view that the Plaintiff has established a strong and obvious case for proprietary relief on the face of the RASOC, which is a factor indicating that it would be just in the circumstances of the present case to give the declaratory relief sought without trial. I also accept such a declaration would secure the Plaintiff’s proprietary interest against the 1^st Defendant’s creditors or those seeking to lay claim against the funds sitting in the DBS Account, and that the Plaintiff would suffer prejudice without such a declaration.

25.  Indeed, taking into account all the relevant circumstances in this case, I consider that it would be just to grant the declaration sought. Apart from the 2 points mentioned in the preceding paragraph, other key considerations include:

25.1  The 1^st Defendant filed an acknowledgment of service.

25.2  The 1^st Defendant did not file any defence despite the Plaintiff amending its pleadings several times.

25.3  The 1^st Defendant did not appear at the hearing despite being given notice and served with the relevant documents.

25.4  In the circumstances I take it that the 1^st Defendant has opted not to contest the case despite the potential impact the declaratory relief sought by the Plaintiff may have on its interest.

25.5  The SFC took the stance that if the Plaintiff is able to satisfy the Court that it is entitled to a proprietary claim based on the RASOC, the SFC would not object to the declaratory relief sought and payment of the Net Placing Proceeds out of the DBS Account to the Plaintiff so long as the Plaintiff abandons any claim to the remaining funds in the DBS Account, which would form the subject matter of the Section 213 Proceedings to be adjudicated separately in due course.

26.  In relation to the last factor, I should say that Mr Scott took issue with Mr Chan’s submission that the SFC did not file a defence on behalf of the 1^st Defendant . Mr Chan clarified that his submission is that as the SFC is essentially representing the interest of the Victims who may be looking to the funds in the DBS Account for compensation, it follows the said stance taken by the SFC (of remaining neutral and not objecting to the orders sought subject to the Plaintiff abandoning all other claims) should be taken as a factor in favour of granting the declaratory relief sought in the event the Court is satisfied the Plaintiff has made out a strong and obvious proprietary claim on the RASOC. I accept that submission as clarified.

27.  For all these reasons, I gave the order set out at §6 above.