CCMD OVERSEAS LTD v. SINOM INVESTMENTS LTD AND ANOTHER

CACV 285/2024, [2025] HKCA [2025] HKCA 678

On Appeal From [2024] HKCFI 1525

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 285 OF 2024

(ON APPEAL FROM HCA NO 903 OF 2021)

________________________

________________________

________________________

REASONS FOR JUDGMENT

________________________

Hon G Lam JA (giving the Reasons for Judgment of the Court):

1.  The plaintiff brought an action against the defendants, as borrower and guarantor respectively, for repayment of the outstanding amount of a loan in a sum over USD 280 million. The Master granted summary judgment for the plaintiff for the amount claimed together with interest. The defendants’ appeal to a judge was dismissed by Deputy High Court Judge Maria Yuen.[1] The defendants’ further appeal to this court was dismissed at the conclusion of the hearing. We now give our reasons for judgment.

Factual background

2.  The relevant facts may be stated as follows.[2]  Asia Iron Holdings Ltd (“AIHL”)  is a Hong Kong company which holds a group of Australian companies with mining operations in Australia.  It was originally controlled by the 2^nd defendant, Zhang Chi (“Mr Zhang”), through the 1^st defendant, Sinom Investments Ltd (“Sinom”).  In May 2010, the defendants transferred a majority stake in AIHL to a group owned ultimately by the Chongqing Provincial Government.  In particular, on 11 May 2010, a Share Subscription Agreement was entered into between Sinom, Mr Zhang, AIHL and Chongqing Chonggang Minerals Development Investment Ltd (“CCMD”), as a result of which CCMD acquired 60% of the shareholding of AIHL leaving Sinom with 40%.  The plaintiff is a subsidiary of CCMD to which CCMD subsequently transferred its shares in AIHL on 30 June 2011.

3.  Shortly after the Share Subscription Agreement was entered into, on 17 September 2010, the following documents were executed:

(1)  a Shareholders Agreement between Sinom, CCMD and AIHL (“Shareholders Agreement”)  setting out AIHL’s shareholders’ respective rights and their agreement on the conduct of the business of AIHL and its subsidiaries, including a specific project for the mining of magnetite (“Project”)  to be financed by the shareholders in proportion to their shareholdings;

(2)  a Loan Agreement between the plaintiff as lender and Sinom as borrower (“Loan Agreement”)  under which a term loan facility of US$159,035,000 was made available to Sinom for general corporate purposes;

(3)  a Personal Guarantee by Mr Zhang as guarantor in favour of the plaintiff as lender (“Personal Guarantee”), guaranteeing the obligations of Sinom under (among other things)  the Loan Agreement; and

(4)  a Charge over Shares and Assignment (“Share Charge”)  between Sinom as chargor and the plaintiff as chargee, under which Sinom’s shares in AIHL (177.2 m shares, representing 40% of the issued share capital)  were charged to the plaintiff to secure Sinom’s liabilities under (among other things)  the Loan Agreement (“Charged Shares”).

4.  The Share Charge provided in clause 7.2 that the chargee may enforce the security by, inter alia, appointing a receiver of all or any part of the Charged Shares, or becoming the registered holder of them, selling them or otherwise receiving the benefit of them in any way it may decide.  Clause 7.8 in conjunction with Schedule 11 provided that the chargee and any receiver have the right and power, in such manner and upon such terms and conditions as the chargee or the receiver thinks fit, to take possession of the Charged Shares including to procure their transfer into the name of the chargee and to exercise all voting or other powers or rights available to a registered holder thereof, and to exercise and do all such rights and things as the chargee or the receiver would be capable of exercising or doing if it were the absolute beneficial owner of the Charged Shares and, in particular without limitation, exercise any rights of enforcing any security by entry into possession, foreclosure, sale or otherwise.

5.  On the same day of 17 September 2010, the full amount of the facility under the Loan Agreement was drawn down.  The repayment date was later by agreement amended to 15 June 2015.

6.  In the following years Sinom did not pay any interest, which was duly capitalized.

7.  There was no progress on the Project which, under the Shareholders Agreement, required financing by the two shareholders in proportion to their shareholdings.  Sinom only advanced USD 30 million by way of shareholder’s loans and was in default of further cash calls.  Before the repayment date under the Loan Agreement (15 June 2015), Mr Zhang wrote to the authorities in Chongqing about problems with the Project.  In response, CCMD submitted to a municipal authority a report entitled “Australian Mining Project Status Report” dated 1 April 2015 (“Status Report”).  We shall return to this report below which was relied upon by the defendants in this litigation as evidencing an improper motive on the part of the plaintiff in exercising its powers as chargee.

8.  On 15 June 2015, the defendants failed to repay any part of the loan.  It is common ground the defendants have failed to tender repayment at any stage thereafter.

9.  On 17 July 2015, the plaintiff’s solicitors sent demand letters to the defendants stating that based on the default in repayment, the plaintiff exercised its rights to terminate the facility and declare the outstanding amount repayable forthwith, and demanding repayment of the outstanding amount and default interest in full.  It was also stated that if Sinom failed to make repayment, the plaintiff would take action including exercising its rights under the “Transaction Documents” which included the Loan Agreement and the Share Charge.

10.  On 22 July 2015, CCMD’s solicitors wrote to the Foreign Investment Review Board (“FIRB”)  of the Australian Government seeking its approval for the CCMD group to acquire, through the plaintiff or another subsidiary, up to a 40% interest in AIHL through the enforcement of its security interest against Sinom.  By a letter dated 28 August 2015, FIRB confirmed it had no objection in terms of Australia’s foreign investment policy.

11.  Two months after its demand for repayment went unheeded, the plaintiff began to exercise its powers over the security.  It dated the Instrument of Transfer in relation to the Charged Shares (presumably executed in blank by Sinom at the outset pursuant to clause 6.4(a)(ii)  of the Share Charge)  with the date of 21 September 2015 and had it stamped.  The consideration was stated as “NIL (Transfer to chargee to secure the repayment of the loan)”.  By a letter dated 24 September 2015, the plaintiff gave notice to AIHL relating to the assignment of the shareholder’s loans due to AIHL.

12.  In response, Sinom commenced legal proceedings on 13 October 2015 (HCCT 43/2015)  against the plaintiff (with AIHL joined as an interested party)  seeking injunctive relief, in aid of arbitration, to prevent the plaintiff from enforcing the Share Charge, alleging that AIHL was being run by the plaintiff in a manner unfairly prejudicial to Sinom.  The plaintiff gave an undertaking not to enforce the Share Charge pending the determination of that application.  Arbitration proceedings were commenced by Sinom against the plaintiff in mid-2016.  After hearing the application, on 22 August 2016 Lok J handed down his judgment dismissing Sinom’s application for injunctive relief on the ground that Sinom had failed to establish – even to the threshold of a serious issue to be tried – that it had any legal basis for seeking to restrain the plaintiff from enforcing the security for the loan (see §35 of Lok J’s judgment).  The arbitration was by consent stayed in December 2016 and eventually terminated in January 2019.

13.  After the proceedings in HCCT 43/2015 came to an end, the plaintiff resumed its enforcement actions against the Charged Shares.  By letter dated 26 October 2016, the plaintiff instructed AIHL that repayment of Sinom’s shareholder’s loans should be made to the plaintiff as assignee.   The Instrument of Transfer dated 21 September 2015 mentioned above was registered on about 29 November 2016 whereupon the plaintiff became the registered holder of the Charged Shares.  As the previous letter of non-objection from FIRB had expired, approval was sought again.  On 2 December 2016 FIRB confirmed it had no objection.

14.  On 1 June 2017, the plaintiff appointed Mr Cosimo Borelli and Mr Song Kuan as joint and several receivers of the Charged Shares (“Receivers”)  pursuant to the Share Charge.

15.  The Receivers made two attempts to market and sell the Charged Shares in 2018 and 2020 respectively.  The 2018 process, as summarised by the judge, involved:

- making a potential buyer list which contained 287 target entities in Hong Kong, Mainland China and other parts of the world which the Receivers had after research identified as being engaged in or having invested in, iron ores, mining and resource exploitation businesses;

- publishing advertisements in The Standard and China Business Herald on 20 April 2018;

- sending letters to each of the potential buyers on the potential buyer list in May 2018;

- corresponding with 11 potential buyers who had expressed interest;

- providing a confidentiality agreement to be entered into by these potential buyers;

- providing an information memorandum to the 6 potential buyers who signed the confidentiality agreement;

- 1 potential buyer having withdrawn, following up with the remaining 5 potential buyers in July and August 2018 for an indicative offer;

- providing further information on enquiry made by 1 potential buyer in September 2018.

16.  As no offer was received, the Receivers concluded the process in October 2018.

17.  The second attempt in 2020 involved:

- making another potential buyer list of 230 entities, including 32 entities which were added to the previous list;

- publishing advertisements in The Standard and China Business Herald on 23 June 2020;

- sending letters to each of the potential buyers on the new potential buyer list in July 2020;

- correspondence with each of 3 potential buyers who had expressed interest;

- providing a confidentiality agreement to be entered into by these potential buyers;

- providing an updated information memorandum to the 1 potential buyer who signed the confidentiality agreement;

- following up with each of the potential buyers.

18.  However, as again no offer was received, the Receivers concluded the sale process in September 2020.

The action below

19.  In June 2021 the plaintiff issued the action below against Sinom and Mr Zhang for the outstanding amount of USD 284,512,378.84 (calculated up to the repayment date of 17 June 2015)  together with default interest.  The defendants responded with their Defence and Counterclaim in January 2022, and the plaintiff filed its Reply and Defence to Counterclaim in March 2022.  The Defence and Counterclaim was amended in October 2022. 

20.  In April 2023 the plaintiff applied by summons for summary judgment and for an order that the counterclaim be struck out.  In August 2023 Master Alan Kwong granted the plaintiff’s application.  The defendants appealed and obtained leave to re-amend their Defence and Counterclaim to raise a sole new defence which was to replace all the previously pleaded defences.  The new plea was quoted in full in the judgment below.[3] In short, the defence was that in breach of its duty to use its powers over the security “for the sole purpose of securing repayments of the money owed”, the plaintiff acted “for the improper purpose … of assuming full ownership of the 177.2M AIHL Shares and/or the sole, unchallenged and/or unsupervised control over AIHL”.[4]  As a consequence, it is said that, first, AIHL sustained losses and Sinom therefore suffered loss and damage by way of diminution in the value of its 40% holding in AIHL, the damages for which are to be assessed, and, secondly, Mr Zhang was discharged from his liability under the Personal Guarantee.

21.  As pleaded, the defence was that a chargee’s exercise of powers is only valid if his sole purpose is to obtain repayment of the loan.  Before the judge, counsel for the defendants advanced an alternative submission that for the exercise of a chargee’s powers to be valid, at least his predominant purpose must be to secure repayment.  In her judgment,[5] DHCJ Yuen first considered these submissions of law.  The defendants relied on Downsview Nominees Ltd v First City Corporation Ltd [1993] AC 295 at 317D where Lord Templeman, giving the judgment of the Privy Council, said: “A mortgagee owes a general duty to subsequent encumbrancers and to the mortgagor to use his powers for the sole purpose of securing repayments of the monies owing under his mortgage and a duty to act in good faith.”  DHCJ Yuen noted that previous cases that had established that a mortgagee did not need to have repayment of the debt as his sole or pure purpose when exercising his powers were not cited to or discussed by the Privy Council in Downsview.  Further, the dictum was obiter and has since been overtaken by subsequent cases such as Meretz Investment NV v ACP Ltd [2007] Ch 197, Oliver Dean Morley t/a Morley Estates v The Royal Bank of Scotland plc [2021] EWCA Civ 338, and Cukurova Finance International Ltd v Alfa Telecom Turkey Ltd (No 3) [2016] AC 923 at §78 where the Privy Council stated:

“ … the Board considers that if a chargee enforces his security for the proper purpose of satisfying the debt, the mere fact that he may have additional purposes, however significant, which are collateral to that object, cannot vitiate his enforcement of the security. If the law were otherwise, the result would be that the exercise of the right to enforce the charge for its proper purpose would be indefinitely impeded because of other aspects of the chargee’s state of mind which were by definition irrelevant.”

22.  DHCJ Yuen noted that in Coltart v Lepionka & Co Investments Ltd [2016] NZCA 102 and Fatupaito v Harris [2019] NZCA 497, the New Zealand Court of Appeal held that whilst a mortgagee need not have purity of purpose, he is not permitted to act for a predominant purpose which is collateral or exogenous to his interests as mortgagee in preserving his security and obtaining repayment.  DHCJ Yuen noted that Cukurova was not mentioned in either case, and said it was difficult to see why and how a court would calibrate different purposes of the chargee and that there was no reason for equity to impede the enforcement of a charge for a proper purpose simply because there are other aspects of the chargee’s state of mind. 

23.  Nevertheless, the judge decided to approach the present case using the approaches in both Cukurova and Fatupaito.[6]  The judge then discussed the four matters relied upon by the defendants as showing an improper purpose and bad faith on the part of the plaintiff.  The four matters are broadly: (1) the Status Report; (2) that the plaintiff registered the Charged Shares in its name and held itself out as the sole shareholder of AIHL without attempting to sell the Charged Shares; (3) the Receivers’ conduct; and (4) that the plaintiff was dilatory in bringing and prosecuting the action.  The judge concluded that under either approach, there was no triable issue shown in relation to improper purpose or bad faith.  Accordingly she dismissed the appeal, adding an order at the plaintiff’s suggestion that upon payment of the outstanding sum, accrued interest and costs in full, the plaintiff shall release the Charged Shares and effect their transfer to Sinom.

The defendants’ appeal

24.  Although both counsel had advanced arguments on whether the exercise of a mortgagee’s powers must be for the predominant purpose of the recovery of the loan (as the defendants contend),  or whether a power would only be improperly exercised if it is no part of a chargee’s purpose to recover the debt secured or protect his security (as the plaintiff contends), the question did not really arise on this appeal, for the judge, despite expressing reservations about the “predominant purpose” approach, did apply it as an alternative and found that there was no triable issue on the facts.  In these circumstances it is unnecessary for us to deal with the arguments on the correct legal test.

25.  It is right however to point out that the New Zealand Court of Appeal itself regarded the predominant purpose test as a “very high standard” and said it will be a “rare case” in which there is evidence to meet this standard, such evidence normally consisting of actions taken by the receiver appointed, in conjunction with the mortgagee, which are inconsistent with an intention to act to realise the security and repay the mortgagee: Fatupaito v Harris, supra, §54.  It has also been stated that the question is to be answered objectively, not by examining a mortgagee’s subjective motives, but by examining whether its actions are taken in good faith, bearing in mind its entitlement to prefer its own interests wherever they conflict with other interested parties: Coltart v Lepionka & Co Investments Ltd, supra, §65. 

26.  Three cases may be mentioned by way of illustration where the exercise of a mortgagee’s powers was impugned.  In Downsview Nominees Ltd v First City Corporation Ltd, supra, a company had issued two debentures.  The holder of the second debenture appointed receivers who removed the manager of the company, Pedersen.  Pedersen consulted Russell, who then caused his own company to acquire the first debenture and to appoint himself as receiver and who then reinstated Pedersen.  The second debenture holder offered to purchase the first debenture at a price equivalent to all amounts outstanding and secured under the first debenture, but Russell refused.  The judge found as a fact that Russell did all this, not to obtain repayment of the debt under the first debenture, but to disrupt the receivership under the second debenture and to reinstate Pedersen.  The Privy Council upheld the finding that the receivership had been instigated by Russell for improper purposes and conducted in bad faith.

27.  In Fatupaito v Harris, supra, A, the controller of the mortgagee, negotiated through another company (GMO)  with the liquidators of the mortgagor for the acquisition of the mortgaged properties.  The price of the sale being negotiated would have enabled the mortgagee’s debt to be fully repaid, but A insisted on acquiring in addition the accounts receivable of the mortgagor, including receivables from A’s estranged wife, as a condition for purchasing the properties.  There was nothing to suggest GMO had any genuine commercial interest in the purchase of those debts.  As the liquidators did not agree to the condition, the negotiations broke down.  Subsequently the mortgagee appointed receivers, who entered into an agreement for sale with GMO on terms which were “uncommercial” including a condition relating to the sale of the receivables.  The court found there was “good evidence that the predominant purpose, perhaps the sole purpose” for the mortgagee to appoint receivers was to enable A to gain access to those receivables for use in his personal dispute with his estranged wife. 

28.  In Coltart v Lepionka & Co Investments Ltd, supra, A had an option to purchase an undivided lot from certain land, and entities related to B had an agreement to purchase several undivided lots out of the same land.  When the vendor defaulted on the mortgage loan, B set up a company which took an assignment from the bank of the mortgage and which then, exercising its powers as mortgagee, adopted the agreements with B’s related entities but cancelled A’s option.  The mortgagee also refused an offer from A to acquire the whole property which would have yielded NZ$2 million more than the proceeds realised from the approach it actually took.  The court considered that if the mortgagee’s primary objective was repayment of its debt, it would have accepted A’s offer to purchase.  It was against all this background that the court held there was an arguable inference that the mortgagee’s actions were for the predominant purpose of securing collateral advantages for B’s related entities as purchasers.

29.  In the present case it was said that the improper purpose was assuming full ownership of the Charged Shares and the sole control of AIHL.  Since foreclosure was expressly mentioned in the Share Charge (Schedule 11, clause 6)  as an available remedy, and foreclosure, if effected, would extinguish Sinom’s equity of redemption and make the plaintiff an absolute full owner, it is not obvious that “assuming full ownership” would be an improper purpose: c.f. Cukurova, §77.  As this point had not been argued, however, we shall assume that the alleged purpose was an improper one.

30.  On this appeal Mr Anson Wong SC attacked the judge’s analysis of the particulars relied upon by the defendants for showing such improper purpose.  He submitted that there was sufficiently credible factual foundation for the improper purpose to be inferred at trial, and that in coming to the contrary conclusion, the judge had committed four errors.

31.  The first point relates to the Status Report submitted by CCMD to the Chongqing Municipal State-owned Assets Supervision and Administration Commission of the State Council on 1 April 2015.  The report was divided into two parts.  The first part explained the problems mentioned in Mr Zhang’s prior letter to the authorities in Chongqing.  As summarised by the judge, CCMD stated, inter alia, that:

-   Mr Zhang had used the funds provided to him for the 60% shares in AIHL and the loan under the facility to repay old debts, or to invest in other types of mines and the securities market;

-   the estimated completion date for the construction of the Project was later than initially thought;

-   consequently, as Mr Zhang had problems in coming up with funds for the Project, to avoid being a defaulting shareholder, he had been obstructing the progress of the Project, eg by way of disagreements over who to appoint as AIHL’s financial consultant, technical proposals provided to banks, and management personnel.

-   In the concluding paragraph in this part, CCMD said:

“ To push the Australian mining project forward, the problem of [Mr Zhang’s] shareholdings must be resolved; in 2013, [CCMD] discussed with him a proposal for his withdrawal on numerous occasions; however, because the asking price was too high, this matter was dropped. Since 2014, we have also raised the matter of his readiness to make repayments in 2015, and [Mr Zhang] clearly indicated that he had no ability to repay and when the time came for repayment he would only be able to pay his debt to us with his [AIHL] shares. Presently, [CCMD] is conducting preparatory work for debt recovery so that we can use legal means to cause him to withdraw from [AIHL] when the time comes.” [7]

32.  The second part of the report provided recommendations and opinions on problems affecting the progress of the Project and the Project’s planning arrangements.  In this part, CCMD set out various matters which needed to be implemented or solved.  In para. 6, it said:

“ With regards to a resolution proposal for the disparity of opinion between [AIHL’s] majority and minority shareholders and its impact on the normal progress of the Australian mining Project, we recommend that we wait until June, when [Sinom’s] debt to [CCMD] becomes due and, at such time, using legal methods to dissolve the shareholder relationship of Sinom and eliminate one of the management risks to the progress of the project.” [8]

33.  In her judgment, DHCJ Yuen said of the Status Report:

“ 43.1. Whilst it showed CCMD’s dissatisfaction with Mr Zhang for his failure to progress the Project as intended under the Shareholder Agreement, it is important to note that CCMD attributed Mr Zhang’s obstructive attitude to his financial situation.  There was no indication that there was any other reason for the strain in their relationship.

43.2. Unfortunately Mr Zhang’s financial situation was not going to improve.  As recorded in the Status Report, Mr Zhang admitted that he had no ability to repay the loan, and when the time came for repayment (15 June 2015), he would only be able to repay the plaintiff’s loan with the Charged Shares.  In other words, they would need to have recourse to the Charged Shares.  Whether those shares would end up with a third party buyer, or with the plaintiff, clearly they would no longer be Mr Zhang’s.

43.3. It was in the above context that in the Status Report, CCMD concluded that upon default in repayment of the loan, the debt recovery process would result in Mr Zhang’s withdrawal as a shareholder, in other words, the shareholder relationship between Sinom and the plaintiff would “dissolve”.  That was stating the inevitable legal consequence of Mr Zhang being unable to repay the loan.  His withdrawal as a shareholder would lead to an end to the obstacles placed in the way of the Project.

44.1. It is notable that the Status Report did not say that the plaintiff would not accept repayment from Mr Zhang if tendered, or would contest a third party’s acquisition of the Charged Shares irrespective of its identity or financial resources.  Nor did it say that the plaintiff’s target was to become the 100% holder of the AIHL shares, or tentatively seek the Provincial Government’s approval to do so.”

34.  Mr Wong said the focus of the relevant passages in the Status Report was to use the enforcement of the Share Charge as a means to “dissolve the shareholder relationship”, and that the inference of an improper purpose was still available even though the report did not expressly state the matters referred to in paragraph 44.1 of the judgment.

35.  We do not think the judge’s views can be faulted.  The Status Report was made in the context where Mr Zhang had been unable to meet the cash needs of the Project and unable to repay the plaintiff’s loan, and the plaintiff’s only real recourse for repayment was its security in the Charged Shares.  The passages relied upon were simply objectively a statement of the legal option open to the plaintiff as a secured creditor and its legal consequences.  There is nothing surprising or sinister for a mortgagee to take possession upon the mortgagor’s default in repaying the debt. As stated by Peter Gibson LJ in Alliance & Leicester plc v Slayford (2001)  33 HLR 66 at §20: “Mortgagees usually only go for possession initially and pursue other remedies later if they have to, and that practice is entirely sensible and to the advantage of all concerned.”  We reject the criticism that the judge misapprehended the evidence.

36.  Nor do we accept the submission that the matters referred to in paragraph 44.1 were irrelevant.  In particular, whether or not the plaintiff was seeking to obtain repayment is a highly relevant consideration.  One of the important pointers in each of the three cases discussed above is that the mortgagee there appeared to be interested not so much (or not at all)  in getting repayment for its debt as in obtaining the particular collateral advantages from the exercise of a mortgagee’s powers.  In Downsview, the relevant defendant rejected an offer to purchase the first debenture at a price equivalent to all amounts outstanding and secured under it.  In Fatupaito, the mortgagee’s controller insisted on terms that sabotaged the negotiations for sale at a price which would enable the mortgagee’s debt to be repaid in full.  In Coltart, the mortgagee refused an offer from a third party to acquire the property which would have yielded NZ$2 million more than the approach it took.  In the present case, in contrast, upon Sinom’s default the first thing the plaintiff did was to demand for repayment: see its demand letters dated 17 July 2015.  There is nothing at all to suggest that the plaintiff turned away any opportunity of receiving actual repayment either from the defendants or a third party.  There is nothing to contradict the plaintiff’s stated position that it had always been prepared to return the Charged Shares to Sinom upon receiving repayment in full.  The judgment entered, as supplemented by DHCJ Yuen, expressly provided for the release of the Charged Shares if the defendants make full payment.

37.  The second error, Mr Wong submitted, is that the judge omitted to consider that following its enforcement of the security, the plaintiff held itself out as the unqualified 100% owner of AIHL and no longer treated Sinom as a shareholder in the financial statements of AIHL from 2017 onwards.  We do not think this point assists the plaintiff.  The express terms of the Share Charge (referred to above)  entitled the plaintiff to take possession of the Charged Shares, to register them in its own name, and to exercise and do all such rights and things as it could as if it were their absolute beneficial owner including exercising any rights of enforcing any security by entry into possession or foreclosure.  As the judge pointed out, since a company only recognises registered shareholders (and does not recognise any equitable interest behind the register),[9] having the shares transferred into the chargee’s name would enable the chargee to protect the security such as by voting at general meetings.  The exercise of these rights can of itself hardly evidence any improper purpose. 

38.  Further, the judge was clearly aware that the matters relied on by the defendants included the plaintiff’s holding itself out as the sole shareholder (see paragraph 45 of her judgment).  We do not think that she had failed to take this into account.  The answer to the point was obvious: after the Charged Shares were registered in the plaintiff’s name, Sinom did in law and in fact cease to be a shareholder and the plaintiff became the registered holder of those shares with all the attendant rights and powers of a registered shareholder.  And since the plaintiff itself already owned the remaining 60% of the shareholding, the plaintiff did indeed become the sole shareholder of AIHL, with Sinom having only an equity of redemption in the 40% shareholding.  Mr Wong did not contend that it was a misrepresentation to third parties for the plaintiff to hold itself out as the sole shareholder of AIHL.  We fail to see how such holding out could indicate an improper purpose.  As between the plaintiff and the defendants, there is no suggestion that the plaintiff had ever denied that Sinom retained an equity of redemption in the shares or had ever prevented Sinom from redeeming the shares.

39.  The third point is that in the attempted sale of the Charged Shares, the Receivers excluded the plaintiff or its associated companies from the list of potential buyers.  It was submitted that since the plaintiff or its associated companies were the most likely purchaser, their exclusion supports an inference that there was no genuine intention to sell.

40.  The judge dealt with this unpleaded point by saying that the court resists attempts to prescribe particular procedures for marketing and selling charged assets (referring to Saltri III Ltd v MD Mezzanine SA Sicar  (As Mezzanine Facility Agent) [2012] EWHC 3025 (Comm)  at §137).  Further, the plaintiff did explore the possibility of acquiring the Charged Shares and obtained the requisite approval of the FIRB of Australia, but failed to obtain approval from the Chongqing provincial authorities for that purpose.

41.  Mr Wong submitted that the judge misapprehended the evidence in that the relevant affirmation only said that the plaintiff liaised with government authorities after the first sale process and that it failed to obtain approval for acquiring the shares by an associated company of the plaintiff.  In other words, the evidence did not explain why the plaintiff did not itself try to acquire the shares or why the plaintiff or its associated companies were not included among the potential buyers in the first sale process.

42.  We are not impressed by this argument.  In the first place, the fact that the plaintiff or its associated companies were not included in the potential buyers was not pleaded as a matter relied upon by the defendants for inferring an improper purpose.  It was therefore nowhere to the point for Mr Wong to try to pick holes in the plaintiff’s evidence.  There is no legal requirement for the plaintiff to include itself or its associated companies as potential buyers of the Charged Shares.  There is no duty for a mortgagee itself to bid for the property in a forced sale.  It was for the Receivers to decide the manner in which the Charged Shares should be marketed and sold.  It is not possible to infer from the fact that the plaintiff and its associated companies were not on the list of potential buyers that they had the purpose of assuming full ownership of the Charged Shares, any more than one could infer, if they were included in the list, that in exercising the power of sale they were acting predominantly for the purpose of buying the shares themselves. 

43.  Fourthly, Mr Wong submitted that the judge erred in only considering the matters raised by the defendants in isolation without assessing whether they could cumulatively support an arguable inference of improper purpose.  He submitted that taken together, the matters relied on gave rise to a triable issue on improper purpose.  With respect, this ground is no more than a bare assertion.  It is well established that circumstantial evidence can have cumulative effect, and that the whole may be greater than the sum of the individual parts.  This would not have escaped the attention of a judge as experienced as DHCJ Yuen.  Our reading of her decision is simply that each of the matters was found to be so tenuous that taken singly or in any combination, in the context of the facts that were beyond dispute, they failed to give rise to a triable issue of improper purpose.

44.  For the above reasons, we dismissed the defendants’ appeal with costs.

45.  We should record that at the hearing the court criticised those responsible for preparing the appeal bundles.  In addition to the core bundle, they comprised 10 lever arch files of papers to which hardly any reference save for the pleadings was made by anyone in this appeal.  Legal representatives must exercise their mind in producing appeal bundles having regard to Practice Direction 4.1, paragraph 38 et seq, rather than reproduce indiscriminately on appeal all the documents placed before the court below.  Mr Wong’s confirmation that the lay clients would not be charged for the preparation of those needless bundles is but a small redress for the wasted time and resources for all involved.