CHAN NAP KEE JOSEPH AND ANOTHER v. THE STOCK EXCHANGE OF HONG KONG LTD

HCAL 1271/2024

[2025] HKCFI 557

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST NO 1271 OF 2024

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REASONS FOR DECISION

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A.  Introduction

1.  By their Form 86, the Applicants sought leave to apply for judicial review against the decision dated 27 June 2024 (“LRC Decision”) of the GEM Listing Review Committee (“LRC”) of the Putative Respondent (“Exchange”), to make a Prejudice to Investors’ Interest Statement (“PII Statement”) against both Applicants for their admitted breaches of the Listing Rules.

2.  The Applicants’ breaches are said to have involved continuous failures to cause the company of which they were directors to disclose major and disclosable transactions for an extended period of time. The Applicants’ breaches of the Listing Rules were assessed by the LRC to be “serious and persistent”. As an aside, other directors were involved in the breaches, but they have not challenged the disciplinary decisions made against them.

3.  I directed a rolled-up hearing of the application for leave and the substantive application for judicial review. At that hearing, the Applicants were represented by Mr Christopher To and Ms Hannah Tang of Counsel, and the Exchange was represented by Mr Victor Dawes SC leading Mr Joshua Chan of Counsel. With the benefit of their previously filed skeleton submissions, Mr To was able to make suitably succinct oral submissions, and I did not need to call on Mr Dawes.

4.  At the end of the hearing, I dismissed the application for leave to apply for judicial review, for reasons to be handed down later. These are my Reasons for Decision.

B.  Material Background

B.1  The Regulatory Framework

5.  It is convenient first to identify in brief the relevant regulatory framework.

6.  GEM Listing Rule 19.34 provides that, as soon as possible after the terms of a “disclosable transaction” or a “major transaction” have been finalised, the listed issuer must publish an announcement. The information required to be included in the announcement is set out in GEM Rule 19.58.

7.  GEM Rule 19.40 provides that a “major transaction” must be made conditional on approval by shareholders.

8.  As is evident from their terms, the rationale behind these rules is to give investors sufficient information about, and in some cases are right for approval in relation to, transactions which may have a material impact on the business of a listed issuer, such that investors can make informed choices about their investments, or take action to prevent inappropriate transactions. Compliance with these requirements is essential to instilling confidence in the market.

9.  GEM Rule 5.01 identifies that:

(1)  directors must fulfil fiduciary duties and duties of skill, care and diligence to a standard commensurate with the standard established by Hong Kong law, and

(2)  delegation does not absolve directors from their responsibilities or from applying the required levels of skill, care and diligence.

10.  Directors are also required to undertake (“Director’s Undertaking”) to comply to the best of their ability with the GEM Listing Rules, and to use their best endeavours to procure the listed issuer to comply with the GEM Listing Rules.

11.  Further, Principle C.2 of the Corporate Governance Code at Appendix 15 of the GEM Listing Rules imposes specific requirements on directors in relation to internal controls. In gist, as at the material times for present purposes, the board of directors was required to ensure that the listed issuer maintains effective internal controls and was under an obligation to review the effectiveness of such internal control systems at least annually.

12.  GEM Rule 5.19 requires listed issuers to ensure that one of its executive directors assumes responsibility for acting as the issuer’s Compliance Officer. GEM Rule 5.20 identifies that the Compliance Officer’s responsibilities include, at a minimum, advising on and advising the issuer’s board in implementing procedures to ensure that the issuer complies with the GEM Listing Rules.

B.2  The Company and the Directors

13.  The 1^st Applicant (“Mr Chan”) and the 2^nd Applicant (“Mr Yang”) are executive directors of Kaisun Holdings Ltd (“Company”) since 19 September 2008 and 6 February 2009 respectively. The Company’s business involves coal mining, consulting and media service, and corporate/investment services.

14.  The Applicants are but two of the directors of the Company at the material times.

15.  The particular matters relevant to the disciplinary proceedings involved three sets of transactions engaged in by the Company:

(1)  The Company advanced loans to Upper Energy Development Group Ltd (“Up Energy”) – a company that has since been delisted from the Exchange.

(2)  The Company made professional fee payments on behalf of Up Energy.

(3)  The Company entered into share acquisition transactions with two other listed companies.

B.3  The UE Loan

16.  Between 29 September 2015 and 11 December 2015, the Company entered into seven loan agreements with Up Energy. Up Energy was during the material time listed on the Main Board of the Exchange. Mr Chan signed each these agreements on behalf of the Company.

17.  Under these agreements, the Company agreed to lend a total sum of HK$15 million to Up Energy, with the principal repayable after one year with a 17% rate of interest (“UE Loan”). The UE Loan was advanced on 11 December 2015.

B.4  The Professional Fee Payments

18.  On 30 June 2016, trading in the shares of Up Energy was suspended. On 7 October 2016, a Bermudan Court appointed joint provisional liquidators (“JPLs”) to Up Energy with the mandate to restructure it.

19.  On 22 August 2017, approximately 10 months after the appointments of Up Energy’s JPLs, the Company entered in a funding agreement with Up Energy (“Funding Agreement”). The Funding Agreement was approved in a board meeting attended only by the Applicants on 21 August 2017.

20.  Under the Funding Agreement, the Company agreed to procure itself and/or other investors to provide a credit facility of up to HK$50 million to Up Energy to settle the latter’s professional fees, disbursements or other costs that might, at the time, be incurred in its restructuring. In return, the Company would receive interest on the funding provided to or procured for Up Energy at 1.5% per month.

21.  Between 18 October 2016 and 31 December 2019, the Company made numerous payments that amounted to around HK$24.2 million on behalf of Up Energy towards professional fees that were payable by Up Energy (“Professional Fee Payments”). Most of these payments were made pursuant to the Funding Agreement, though some other payments pre-dated it.

22.  On 5 January 2022, Up Energy’s listing was cancelled.

23.  On 1 June 2022, the Company published its 2021 annual report, in which it disclosed the UE Loan and the Professional Fee Payments – together totalling about HK$39.3 million – but not their Listing Rules implications.

24.  At some point before 11 November 2022, the Company and its subsidiaries, as a group, entered into a deed of novation with creditors, under which they agreed to assign to the latter receivables of around HK$29,978,000 due from Up Energy. This was to set-off debts owed by the group to those creditors. The outstanding balance of the UE Loans and Professional Fee Payments (barring interest) remains at approximately HK$9.3 million.

B.5  The Securities Transactions

25.  Between 5 December 2019 and 14 January 2020, the Company carried out 18 transactions to acquire 98 million shares in EJE (Hong Kong) Holdings Limited for HK$14 million. On 9 September 2020, the Company acquired 13.2 million shares in Tesson Holdings Limited for HK$6.2 million. These transactions (“Securities Transactions”) together amounted to around HK$19.4 million.

26.  Mr Yang was involved in the approval of these transactions as a member of the Company’s investment committee. Another layer of his involvement is his duties as compliance officer in addition to being a committee member.

B.6  The 2017 Warning Letter

27.  In September 2017, a warning letter (“Warning Letter”) was issued by the Exchange against the Company in relation to a breach of Rule 19.34 arising from transactions unrelated to the three transactions mentioned above.

28.  The Warning Letter made reference to an announcement of the Company dated 11 April 2017, in which it announced that it had engaged Moore Stephens Consulting Limited to conduct an internal review of the Company’s internal controls in order to strengthen them. It may be important to note that the instructions did not include Rule compliance.

B.7  The Listing Division’s Investigation and Report

29.  On 24 November 2020, the Company published its audited results for the year ended 31 December 2019. It recorded (1) an impairment loss on trade and other receivables of HK$114 million, and (2) a significant reduction in the balance of financial assets at fair value via profit or loss from HK$134 million as at 31 December 2018 to HK$52 million as at 31 December 2019.

30.  The Listing Division (“LD”) enquired about these results and discovered that results (1) and (2) reflected the UE Loan and Professional Fee Payments and the Securities Transactions respectively. This prompted the LD to conduct an investigation.

31.  The LD published a report on 27 July 2023 (“Report”), detailing its findings, and on the same date commenced disciplinary proceedings against the Company and its Relevant Directors (including but not limited to the Applicants) after filing the Report to the LC.

B.8  Sanctions for Breach

32.  It is the LC which primarily administers the GEM Listing Rules, subject to certain powers of review by the LRC.

33.  Sanctions which may be imposed by the LC under GEM Listing Rules 3.10 and 3.11, upon finding of breaches of the GEM Listing Rules by any director of a listed issuer, include:

(1)  a private reprimand;

(2)  a public statement which involves criticism;

(3)  a public censure; and

(4)  in the case of wilful or persistent failure by a director of a listed issuer to discharge his responsibilities under the GEM Listing Rules, state publicly that in the Exchange’s opinion the retention of office by that director is prejudicial to the interests of investors (i.e. a PII Statement).

34.  The purposes of the various sanctions are to deter future breaches, educate the market, influence compliance culture and attitude, and enhance corporate governance. Therefore, the Exchange may impose sanctions even if the relevant failings do not directly lead to any other breaches or loss.

B.9  The LC Decision

35.  The disciplinary proceedings were commenced before the Listing Committee (“LC”). Four rounds of submissions were filed, including two from the LD and two from the respondents. A hearing was held on 2 March 2024.

36.  The respondents to the disciplinary proceedings (including the Applicants) admitted breaches of the GEM Listing Rules. However, they made submissions on disciplinary sanctions – in essence accepting the recommended sanctions and remedial measures, save in respect of the proposed PII Statements against each of Mr Chan and Mr Yang.

37.  The LC Decision was issued on 8 April 2024. It found that the Company was in breach of Rules 19.34 and 19.40, for the failure to announce and obtain shareholder approval for the UE Loan and Professional Fee Payments, and for the failure to announce the Securities Transactions.

38.  As regards the Applicants, the LC found that:

(1)  Mr Chan breached his duties owed as a director under GEM Listing Rule 5.01 and the Director’s Undertaking in respect of the UE Loan and Professional Fee Payments and the Company’s internal controls.

(2)  Mr Yang breached his duties owed as a director under GEM Listing Rules 5.01 and the Director’s Undertaking in respect of the UE Loan and Professional Fee Payments, the Company’s internal controls and the Securities Transactions, as well as the duties owed as a Compliance Officer under GEM Listing Rule 5.20.

(3)  Both Applicants’ breaches were persistent.

39.  On penalty, the LC decided to impose a public censure and a PII Statement on the Applicants.

C.  The LRC Decision

40.  Parties to disciplinary decisions made against them by the LC have a right of de novo review before the LRC. However, amongst those facing the disciplinary proceedings, only the Applicants applied for a review of the LC Decision.

41.  Before the LRC, the Applicants again accepted the findings on breach, and accepted the sanction of a public censure. Their arguments focused on the PII Statements only – in three rounds of submissions filed, including a post-hearing letter. The LD also filed one round of submissions.

42.  In summary, the Applicants argued that:

(1)  The LC’s conclusion that the Applicants failed to protect the Company’s assets was factually inaccurate.

(2)  The Applicants’ continuing involvement with the Company was essential to the continuing success of the Company.

(3)  There was no practical utility in imposing the PII Statements.

(4)  It was sufficient to publicly censure, and to require them to be further acquainted with the Rules.

(5)  There was no deliberate concealment, and they did not seek to evade any liability. The Company and the Applicants proactively responded to the LD’s investigation and were actively improving the Company’s internal control system. There was therefore no reason to punish the Company and the Applicants further for their well-meaning but poorly executed efforts.

(6)  The LC Decision was seemingly based upon the amended version of Rule 3.11(5), which augmented the threshold for imposing PII Statements by removing the need to establish wilful or persistent breaches.

(7)  This was their first time being subject to disciplinary proceedings, and PII Statements are backward and not forward looking.

(8)  No PII Statements were imposed in previous cases concerning similar breaches of Rules 19.34 and 5.01, and Directors’ Undertakings.

(9)  The Company took various steps to strengthen its internal controls and compliance.

(10)  The PII Statements would deter the Company’s external support and dealings between the authorities and the Company.

43.  The Listing Division, on the other hand, submitted that the LC had considered most of the Applicants’ arguments. Moreover, the LD considered them when it formed its recommendations as to the appropriate sanctions and remedial measures. Hence, these arguments were of limited relevance to deciding the appropriate sanction, and in any event, of little mitigating value.

44.  The LRC Decision was given by its letter dated 27 June 2024. As is typical for decisions of the LRC, the LRC Decision in this case sets out (without rehearsing every detail) the material factual background, the submissions made by the parties, and the key framework, from which and on which the ultimate reasoning and conclusions flow and are based. There is obviously no reason to think that the LRC did not have those various matters well in mind when it entered into its own discussion and expression of views.

45.  The core reasoning in the LRC Decision is to be found in the following paragraphs (in particular §§49-50):

Discussion and LRC’s views

43. The Listing Review Committee noted that in the present case, the breaches at issue had been acknowledged by the Applicants and their review focused on whether the imposition of a PII Statement on them was justified. Having carefully considered the submissions of the Applicants and the Listing Division, the Listing Review Committee found that the imposition of a PII Statement was appropriate in the present case.

44. The Listing Review Committee considered that the breaches in the present case which had been acknowledged by the Applicants were serious. The Applicants had failed to procure the Company’s Rule compliance for making an announcement as soon as possible pursuant to Rule 19.34 in relation to the Up Energy Loans / Payments and the Securities Transactions and to obtain shareholder approval pursuant to Rule 19.40 in relation to the Up Energy Loans / Payments. The Listing Review Committee found the Company’s failure to comply with Rule 19.34 particularly concerning as it had already been warned about the application of this Rule and its failure to comply in relation to an unrelated transaction in the Warning Letter around the time the transactions relevant to these review proceedings were entered into. Similarly, the Applicants had failed to procure that the Company had relevant internal controls in place which the Listing Review Committee found again concerning against the background of the Warning Letter and the Company’s announcement that it had engaged a consultant to conduct a review of its internal controls, which should presumably cover Rules compliance. However, it appeared that such review had not taken place. Mr Yang was also found to have breached his duty as compliance officer under former Rule 5.20.

45. While the Listing Review Committee noted the Applicants’ submissions that they entered into the relevant transactions based on their commercial judgment at the time which the Applicants say should not be judged in hindsight, the Listing Review Committee considered that regardless of whether the transactions ultimately turned out to be a bad commercial judgment, the Applicants were under a duty to properly assess and document risks of their decisions and procure that the Company complies with the Rules and makes the relevant announcements and (for the Up Energy Loans / Payments) obtains shareholder approval to allow its shareholders to consider the transaction and have a chance to veto such transaction if they disagree with the commercial judgment of the Applicants / the board. The Listing Review Committee considered that the Applicants failed to do so and noted that up to the date of the Hearing an announcement of the Up Energy Loans / Payments in compliance with the relevant requirements under the Rules remained outstanding. The Listing Review Committee considered that this persistent failure to procure the Company’s Rule compliance appeared to suggest that despite acknowledging the relevant breaches the Applicants still failed, as at the date of the Hearing, to fully understand their duty under the relevant Rules.

46. In terms of the Applicants’ contention that the decision to make the Up Energy Loans / Payments was based on careful evaluation of associated risks and potential benefits and the Applicants therefore did not breach their duties of skill, care and diligence, the Listing Review Committee noted, first, that at the time the Company made the Up Energy Loans, the Applicants submitted their decision to make such loans was motivated by the intention to support Up Energy through financial difficulties to facilitate Up Energy returning money outstanding to the Company from their existing trade relationship. The Listing Review Committee further noted that the Applicants themselves described this as a rescue project. The Listing Review Committee considered that, against this background, it appeared clear that the Applicants were aware of Up Energy’s difficulty financial situation. In such situation, the Listing Review Committee considered that the Applicants should have been alert to the inherent risks of their plans to support Up Energy and made sure that their assessment and decision to go ahead with such plans including the relevant due diligence undertaken to assess the risks was properly documented. The Listing Review Committee noted that the Applicants proceeded with the Up Energy Loans despite acknowledging at the Hearing that the Up Energy Loans were unsecured and that nearly all the assets of Up Energy had been pledged to secure other loans. The Listing Review Committee further noted that, at the Hearing, the Applicants acknowledged that the total of the Up Energy Loans (approximately HKD15 million) far outweighed the trade debt outstanding from Up Energy to the Company (approximately HKD9.6 million) at the time.

47. Second, the Listing Review Committee noted that the Applicants acknowledged the lack of comprehensive contemporaneous evidence for their contention that due diligence was conducted prior to making the Up Energy Loans and/or the Up Energy Payments. The Listing Review Committee considered that the 2015 Annual Report should have indicated to the Company that Up Energy faced serious financial difficulties, nevertheless, the Company went ahead to make the Up Energy Loans (despite also being aware that Up Energy was unable to settle trade debts with the Company). At the time the Funding Agreement was entered into and subsequently the Up Energy Payments were made, the 2015 Annual Report was no longer current, and the Listing Review Committee noted that the Applicants had been unable to point to other evidence collated at the time to substantiate the most current financial position of Up Energy. The Listing Review Committee considered that the Applicants had been unable to demonstrate on which basis they had taken the view at the time that it was reasonable to continue paying money to Up Energy when the financial situation of Up Energy appeared to have further deteriorated with the appointment of the JPLs and the progress of Up Energy’s delisting process. The Listing Review Committee therefore shared the Listing Division’s concerns that the Applicants did not comply with their duty of skill, care and diligence when considering whether to proceed with the Up Energy Loans and later with the Up Energy Payments. For the avoidance of doubt, the Listing Review Committee noted that even if the Company had indeed undertaken all relevant due diligence and kept proper documentation thereof in compliance with their duties of skill, care and diligence, the Applicants’ failure to procure the Company’s timely compliance with Rule 19.34 / 19.40 would remain a serious breach.

48. In terms of the Applicants’ failure to procure the Company’s implementation of effective internal controls, the Listing Review Committee noted that the Company had received the Warning Letter indicating its failure to comply with Chapter 19 of the Rules for an unrelated transaction around the time the Up Energy Loans / Payments and Securities Transactions were contemplated. This should have prompted the Applicants, in particular Mr Yang in his role as compliance officer, to procure the Company to assess the adequacy of its internal controls and to be alert to potential Rule implications of similar transactions. The Listing Review Committee noted the Company’s announcement at the time stating it had engaged a third-party consultant to review the internal controls but despite such promise, no evidence was submitted that any review of the internal controls ensuring Rule compliance in fact took place and the Company then subsequently failed to comply with Chapter 19 of the Rules in respect of the Up Energy Loans / Payments and Securities Transactions. The Listing Review Committee found the Applicants’ breach in terms of the internal controls particularly concerning given the Warning Letter and the Company’s own announcement that had suggested a review of the internal controls would take place.

49. The Listing Review Committee found that the Applicants’ breaches were persistent. The Up Energy Loans / Payments and the Securities Transactions took place over a long period of time and several events occurred during that time which could have prompted the Applicants to reconsider their decision to proceed with further payments to Up Energy and reevaluate the Rule implications of these transactions, including the appointment of the JPLs, the placing of Up Energy in the third stage of delisting (and the confirmation thereof on review). The Listing Review Committee also noted that the Applicants received the Warning Letter and the Applicants should therefore have been aware of and paid closer attention to the Rule implications of the Up Energy Loans / Payments and the Securities Transactions. Similarly, the internal controls of the Company did not appear to be set up in a way that Rule compliance of transactions such as the Up Energy Loans / Payments or the Securities Transactions was sufficiently monitored which was a persistent failure given the Applicants should have been aware of the internal control deficiencies since the Company’s announcement of April 2017 which had suggested the Company would engage an outside consultant to review the internal controls but such review appeared to not have taken place at the relevant time. The Listing Review Committee considered it was also a persistent breach and particularly concerning that Mr Yang occupied the role as compliance officer (and apparently still did at the time of the Hearing) despite admitting that he should not have assumed this role as he was not equipped and able to effectively do so. Finally, the failure of the Applicants to procure the Company to properly comply with the Rules in relation to the Up Energy Loans / Payments and make the relevant announcement even as of the time of the Hearing, despite having acknowledged the requisite Rule breaches, was persistent.

50. The Listing Review Committee concluded that the Applicants’ breaches in the present case were serious and persistent. The Listing Review Committee could therefore impose a PII Statement as sanction against the Applicants. In considering the appropriate sanctions, the Listing Review Committee took into account various points raised by the Applicants including the fact that they had not previously been subject to disciplinary sanctions, they had not personally benefited from the relevant transactions, they had cooperated during the disciplinary investigation, the important role they served within the Company and the reputational effect the PII Statement would have on the Applicants. Having considered these points and all the submissions made by the Applicants, the Listing Review Committee considered that the PII Statements imposed by the LC were the appropriate sanctions in the present case as the points raised by the Applicants did not mitigate the serious and persistent Rule breaches in the present case.

51. For the avoidance of doubt, the Listing Review Committee disagreed with the Applicants that there are better alternatives to the imposition of the PII Statement as they asserted that it is in the best interest of the Company and investors if they kept their positions as directors – the purpose of the PII Statement is to express in cases where there are serious breaches (such as the present case) that the Exchange views the Applicants’ occupation of the position of directors of the Company as prejudicial to the interests of investors – this is the case here where the Applicants’ persistent failure to turn their attention to the Rule implications of the relevant transactions and procure the Company’s Rule compliance and assessment of its internal controls put the Company at risk and, in the Listing Review Committee’s view, would continue to do so.

52. The Listing Review Committee also considered that the Applicants as the executive directors were more culpable than other directors in this case. The Listing Review Committee noted that the Applicants have acknowledged they were the ones most closely familiar with the Company’s and Up Energy’s business and were instrumental to the running of the Company. While the Listing Review Committee noted the Applicants’ submissions that the board had been informed of and approved relevant transactions, it agreed with the Listing Division that in a case where the Applicants proposed the plans of funding a restructuring of Up Energy which they themselves had described as a rescue project, they should be alert to risks and potential Rule implications and raise the same for the board to consider, in particular in the position of Mr Yang as compliance officer, and ensure that the Company had proper internal controls in place to assess such Rule implications and ensure compliance.

53. Finally, insofar as the Applicants submitted that at the relevant times they were focused on running the Company’s business which had encountered financial difficulties and a lack of resources, including due to the role the Company had taken on in supporting the Restructuring, the Listing Review Committee observed that such focus on the Company’s business cannot come at the expense of corporate governance and Rule compliance, similarly, the Applicants’ assertion that running a mining business that operated in Xinjiang was difficult did not absolve the Company or the Applicants from their obligations under the Rules.

46.  As is clear – and as already mentioned above – the LRC considered the breaches to be both serious and persistent, with the Applicants being particularly culpable because (1) of their admitted close involvement with the transactions, (2) they were instrumental in running the Company, (3) they should have known of the inherent risks in “rescuing” Up Energy from insolvency, and (4) they should have known of the potential Listing Rule implications arising from the transactions. Further, even if the Company and its Relevant Directors had performed all due diligence and kept proper documentation in compliance with their own duties, the Applicant’s failure to procure the Company’s timely compliance with Listing Rules 19.34 and 19.40 would remain a serious breach.

D.  Intended Grounds of Review

47.  In his submissions, Mr To summarised the three intended grounds of review as follows:

(1)  Ground 1: The LRC failed to take into account material relevant considerations when assessing the degree of culpability of the Applicants.

(2)  Ground 2: The LRC Decision to uphold the LC Decision to impose PII Statements on the Applicants was an oppressive and disproportionate sanction, and had failed to take into account relevant considerations, leading to the imposition of the PII Statements an abuse of power.

(3)  Ground 3: The LRC Decision to uphold the LC Decision to impose the PII Statements on the Applicants was irrational and/or Wednesbury unreasonable.

48.  I will address each of those intended grounds of review in turn. But it can immediately be seen that there was force in Mr Dawes’s headline submission that the intended grounds of review were all merits challenges involving re-runs of points previously considered by the LRC. This is not usually fertile ground for establishing the high threshold required for irrationality.

E.  Ground 1

49.  Since there was no dispute as to the findings of breach, Mr To submitted that the real issue boiled down to the finding of the level of culpability of the Applicants in relation to those breaches, which led to the LC Decision and the LRC Decision to impose PII Statements upon the Applicants.

50.  Mr To submitted that the correct approach would require the Court to ask: (1) what are the duties of the directors; (2) whether the Applicants breached their directors’ duties; and (3) whether, in all the circumstances the breach of duty was sufficiently serious to warrant PII Statements?

51.  However, I do not think there was any real dispute as to the relevant duties of directors, and there was also no dispute that the Applicants had breached those duties. So, the first and second questions can in effect be quickly skipped over. However, the way in which the third question was posed by Mr To seems to me to have identified the question which fell to be determined by the LRC, not the question to be determined in judicial review proceedings by this Court.

52.  In any event, Ground 1 is framed as a failure on the part of the LRC to have taken account of certain relevant considerations going to the degree of culpability of the Applicants. The alleged failures essentially boil down to the suggestion that the LRC did not consider (1) the state of mind or knowledge of the Applicants in relation to the various transactions; (2) how a reasonable and prudent Executive Director would have acted in the interests of the Company under identical factual circumstances, and (3) whether, in light of the Applicants’ relevant state of mind, they were in serious breach of their duties in relation to the alleged breaches. A number of individual matters were put forward.

53.  However, it is trite that, absent statutory specification (and there is none in this case), the considerations to be taken into account and the weight to be given to them are matters for the public authority decision-maker (here the LRC) – subject only to a challenge on irrationality grounds. Therefore, Mr To’s submissions along the lines that matters were not sufficiently addressed in the LRC Decision, or that proper deference should be given to the Applicants for their subjective commercial judgment without considering hindsight, or that there was no total abrogation of responsibility by the Applicants, will not significantly advance a judicial review challenge. Nor does it assist the Applicants to argue that some of the relevant Company decisions were approved by the board as a whole.

54.  A starting point might be to note that the LRC clearly addressed the main issue before it, namely whether the imposition of PII Statements on the Applicants was justified. The LRC ultimately considered it to be justified, where it found the breaches in the case to be both serious and persistent.

55.  I also accepted Mr Dawes’ submission that each of the alleged matters which it was said the LRC failed to take into account was misplaced. From the LRC Decision itself, it can be seen that the LRC clearly did take into account the factors of:

(1)  the Applicants’ knowledge in relation to the UE Loan and Professional Fees Payments;

(2)  what a reasonable Executive Director would have done in the circumstances;

(3)  whether the breaches were serious;

(4)  the practical reality of the mining industry;

(5)  the request by the JPLs and creditors of Up Energy to the Company to safeguard the assets of Up Energy;

(6)  the claims of the unsecured creditors of Up Energy would be subordinated to liquidation costs paid by the Company on Up Energy’s behalf – though this factor has no bearing on the seriousness and persistence of the Applicants’ breaches.

56.  There is also force in Mr Dawes’ submission that the way in which the Applicants frame their case seems to betray a failure to grasp that the perceived commercial merits of the transaction and the seriousness of their failure to cause the Company to comply with its disclosure obligations are separate and distinct issues. As Mr Dawes submitted, there is the sense that the Applicants remain of the view, an incorrect view, that (1) there is no need to make disclosure to shareholders as long as the transaction is perceived to be in the best interests of the listed issuer, and (2) executive directors can simply delegate the duty to ensure compliance with the GEM Listing Rules to lower-level staff and external consultants.

57.  But, overall, the LRC plainly considered the Applicants’ various contentions and found them either irrelevant or insufficiently relevant or weighty when gauging the seriousness of the breaches. There was no reasonably arguable impermissible application of hindsight, and there was no reasonably arguable failure on the part of the LRC in relation to the question of delegating and trusting the Company’s secretary and external consultants to ensure compliance with the GEM Listing Rules. As already noted above, directors of a listed issuer each subject to a personal and non-delegable duty to use best endeavours to cause the listed issuer to comply with the GEM Listing Rules, and Compliance Offices are subject to additional responsibilities.

58.  Nor was there the alleged failure on the part of the LRC to engage with the mitigating factors put forward by the Applicants. In essence, the Applicants are arguing that the LRC ought to have given more weight to those factors, but that submission does not give rise to any arguable public law error. Nor was there any requirement imposed by the LRC on the Applicants for them to guarantee compliance, rather than procure compliance by the Company. As Mr Dawes correctly identified, no such proposition appears anywhere in the LRC Decision, nor have the Applicants ever suggested that they were unable to cause the Company to comply even if they used their best endeavours. Indeed, they have all along accepted their breach of duty by failing to cause the Company to comply with the GEM Listing Rules.

59.  Ground 1 was not reasonably arguable with any realistic prospect of success.

F.  Ground 2

60.  In the Form 86, the Applicants put forward two separate arguments:

(1)  First, the LRC failed to take into account the implications of the PII Statements, and the material impact on investors’ interests, in circumstances of (a) the unlikelihood of repeated breaches by the Applicants, (b) the possibility that, if the Applicants are removed, there would be no comparable qualified persons who could negotiate the full resumption of the Company’s mining activities, and (c) the financial contribution of the Applicants to the Company, and the likelihood that they would call for repayment immediately once removed from the board.

(2)  Secondly, the LRC failed to reply consistent approach because, in another case, the Exchanged a PII Statement after finding that the directors’ breaches were “wilful and persistent”.

61.  However, the second strand of argument was not pursued in Mr To’s skeleton submissions or oral submissions. This was presumably because the Exchange has confirmed that the LC and LRC did not apply the amended Rule – which lowered the threshold for making a PII Statement – since the breaches in this case pre-dated the amendment. In any event, no question of inconsistency arguably arises even on the terms of the LRC Decision.

62.  As to the first strand of argument, it can be seen from the LRC Decision itself that the LRC did take into account the likelihood of repeated breaches by the Applicants, relying on that as a factor supporting the imposition of the PII Statements. The LRC also took account of the possibility of a negative impact on the Company’s ability to negotiate with the Xinjiang authorities, and I accept that it was open to the LRC to take the view that, notwithstanding the purported commercial benefits that the Applicants bring to the Company, it is still necessary to impose appropriate sanctions in response to the persistent breaches of the rules.

63.  Further, as to the possibility of the Applicants calling for repayment of loans, I accept that it may be predictable that, if removed from the Company’s board, the Applicant would be entitled immediately to recall their personal loans made to the Company. However, this was not a point raised by the Applicants when they were before the LRC, and it is not inappropriate for the LRC to base a decision on the seriousness of the breaches rather than the extent of the director’s financial contribution to the listed issuer. There is also the unattractive flavour in the Applicants’ submission of holding the Company and its other investors as economic hostages, regardless of the legal permissibility of the loan recall. As Mr Dawes correctly submits, such an approach would prevent the Exchange from sanctioning derelict directors merely because of their financial leveraged over the listed issuer. That would be utterly unacceptable.

64.  In any event, I do not see why the Applicants need to be directors of the Company in order to provide appropriate management skills and expertise, for which they could be employed by the Company, perhaps in a senior role. That may even avoid the Applicants hurting themselves as substantial shareholders of the Company by recalling loans. But, that is in any event a matter beyond the scope of the current application.

65.  Further, I note that the LRC considered this line of submissions in the LRC Decision, and apparently rejected them.

66.  As to the argument that the LRC, when invited to consider alternative sanctions, simply rejected the invitation without fully explaining how, this seems to me to be factually incorrect. The LRC Decision identifies that the LRC rejected the invitation because it was of the firm view that, given the Applicants’ serious and persistent breaches, the appropriate sanction was the imposition of the PII Statements.

67.  As to the argument that there is little utility in imposing the PII Statements, where the danger to investors’ interests is minimal, that seems to me to mistake the purpose of the PII Statements. That purpose is not limited to mitigating against pre-existing risks affecting investors’ interests posed by directors to remain in office. It includes wider purposes, such as educating the market and ensuring that investors are fully informed of matters that may affect their interest. The imposition of a PII Statement is relevant both to the circumstances of the individual company of which those receiving that sanction are directors, and as a warning to corporate directors and other companies.

68.  Ground 2 was not reasonably arguable with any realistic prospect of success.

G.  Ground 3

69.  Ground 3 is, on the Applicants’ own case, based on the same arguments as the previous two grounds. It must be rejected for the same reasons.

70.  In other words, Ground 3 was not reasonably arguable with any realistic prospect of success.

H.  Result

71.  The Applicants having failed to identify any reasonably arguable public law grounds of review with any realistic prospect of success, the application for leave to apply for judicial review fell to be dismissed.

72.  It was for the above reasons that I dismissed the application.

73.  I also ordered the Exchange’s costs to be paid by the Applicant, to be summarily assessed by me in accordance with a timetable I set. With the benefit of the relevant statement of costs and list of objections, I have in fact since already performed that summary assessment.