CMF GLOBAL QUANTITATIVE MULTI-ASSET SPC-CMF CHAOS CHINA GROWTH SP v. BLOSSOM INTERNATIONAL INVESTMENT HOLDINGS LTD

HCA 1532/2023

[2024] HKCFI 3293

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1532 OF 2023

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D E C I S I O N

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1.  Introduction[1]

1.1  By a decision dated 7 June 2024 (“Decision”), I dismissed paragraph 1 of D’s summons dated 26 January 2024, which is an application for a declaration that the Writ of Summons indorsed with the Statement of Claim filed on 22 September 2023 has not been duly served on D, and made consequential directions for the filing and service of the Defence (“Order”).

1.2  This is my decision on D’s following applications:

(1)  By a summons dated 21 June 2024, D applies for leave to appeal against the Order (“Leave Application”) and for a stay of proceedings pending appeal (“Stay Application”);

(2)  By a summons dated 15 July 2024, D applies for leave to adduce the 3^rd Affirmation of Yang (“Yang 3^rd”) in support of the proposed appeal (“New Evidence Application”).

1.3  Insofar as the New Evidence Application seeks leave from the Court of First Instance for leave to adduce Yang 3^rd, it is procedurally incorrect. As pointed out in Man Lin Heung (the Administratrix of the Estate of Man Kwai Yin aka Man Kwai Yin) v 梁根林 & Anor [2019] HKCA 846[2]:

“Procedurally, application for leave to adduce new evidence could not be entertained until after leave to appeal has been granted and it is a matter for the Court of Appeal in deciding whether the new evidence should be admitted. However, an applicant in an application for leave to appeal can support such application by reference to new evidence if he can demonstrate that it is reasonably arguable that the Court of Appeal would grant leave by reference to the criteria in Ladd v Marshall. Thus, a judge (including a first instance judge) processing the application for leave would have to examine if the new evidence could arguably satisfy these criteria. If these criteria are not satisfied, such evidence should be disregarded for the purpose of the application for leave to appeal.”

1.4  I proceed on the above basis.

1.5  I have considered the written submissions lodged by Mr Jason Ko for D and Mr Vincent Lung (with Mr Calvin Ng) for P, the same counsel teams which appeared at the hearing on 8 March 2024 (“Hearing”).

2.  The Leave Application

2.1  Three broad grounds are advanced in the Draft Notice of Appeal (“Draft NOA”):

(1)  Ground 1: I had erred in finding that the SCB Address is D’s place of business and that business operations were centrally carried out, authorized and/or executed at the SCB Address: Decision §§4.11 and 4.13;

(2)  Ground 2: I had erred in finding that each of the 3 requirements identified in English Sewing (HK) Ltd v Eastern Shipping Lines Inc [1984] HKLR 5 was satisfied: Decision §§4.10-4.11;

(3)  Ground 3: I had failed to properly consider the issue of burden of proof: Decision §§3.3, 4.2 and 4.13).

2.2  Ground 1 complains that I had erred in relying on the findings that (collectively “5 Factors”):

(1)  D had “assumed contractual obligations and acquired rights”: Decision §§4.4 and 4.11 (“1^st Factor”);

(2)  D had appointed a Chief Executive Officer who worked at the SCB Address: Decision §§4.5 and 4.11 (“2^nd Factor”);

(3)  D had maintained at least one bank account in Hong Kong for the purpose of substantial transactions: Decision §§4.6 and 4.11 (“3^rd Factor”);

(4)  D had its own telephone number: Decision §§4.7, 4.8 and 4.11 (“4^th Factor”);

(5)  D had handled a substantial litigation from the SCB Address: Decision §§4.9 and 4.11 (“5^th Factor”).

(i)  D’s preliminary and contextual point

2.3  Before I deal with the 3 proposed grounds, I should first address an important context which Mr Ko has identified. Although not stated as a ground in the Draft NOA, in his written submissions, Mr Ko makes a scathing complaint that D was deprived of a fair hearing, in that (he alleges) that “most of the [5 Factors] were not relied upon by P in its skeleton submissions, not raised at the Court hearing on 8 March 2024 (either by P or by the Court) and only appeared for the first time in the Decision” (emphasis added): D’s Skeleton Submissions §§8-9. This is plainly untrue and a contention which, in my view, has regrettably been made.

2.4  Where a serious allegation is advanced that I had misconducted the Hearing such that D was treated unfairly, as pointed out by Mr Lung, D has surprisingly not sought to obtain the transcripts of the Hearing. It is Mr Lung’s recollection that, except the 4^th Factor, Mr Ko was given the opportunity to address the other 4 of the 5 Factors.

2.5  My recollection aligns with that of Mr Lung’s. I have revisited my notes and taken the opportunity to listen to the recording of the Hearing. I accept that the 4^th Factor was not raised at the Hearing but I can categorically say that the other 4 of the 5 Factors were raised, in fact right at the outset of the Hearing. Indeed, in Mr Ko’s Reply Submissions (by way of Footnote 5), he longer maintains that the 1^st and 3^rd Factors were not raised at the Hearing and, in respect of the 2^nd and 5^th Factors, Mr Ko says that he was only not given the opportunity to “properly address” them. For the reasons set out below, I do not accept that he was not given the opportunity to properly address them.

2.6  The important context is this. As pointed out at Decision §3.6, the factual case advanced by D at the Hearing was that it was an offshore investment company without any business operations. It was on the foregoing basis that D presented a factual case that D used the letterhead of Blossom HK for the purpose issuing correspondence only.

2.7  It cannot be disputed that the underlying factual evidence supporting the 5 Factors were all premised on evidence adduced by P. The evidence was plainly inconsistent with D’s case that it did not have any business operations. It was in that context that at the outset of the Hearing I raised 4 of the 5 Factors for Mr Ko to address. I do not believe it is now seriously maintained that D has no business operations. There is no appeal against the finding made at Decision §4.2, namely that “D’s evidence that it has no business operations is entirely inconsistent with the documentary evidence.”  The contention now advanced is that even if the court rejects D’s case that it is merely a holding company with no business operation in Hong Kong, it does not ipso facto mean that P has discharged its burden to establish the SCB Address is D’s place of business: Draft NOA §3(c).

2.8  Where, as here, D had (and was found to have) presented a questionable factual case, I do not accept that the court at the Hearing should ignore the evidence before it, even if P did not make a specific challenge. As stated at Labrouche v Frey & Ors [2012] 1 WLR 3160:

“[23] …Particularly where the judge has had the benefit of time to read all the papers, and to consider a full written argument on behalf of the applicant (and the respondent), he may quite properly be able to dispose of the hearing of the application far more quickly than the parties and their advisers may have expected. For instance, while again it often may be unwise to do so, the judge could (i) begin by saying that, having read the papers, his provisional view was that the application should be rejected on one of the many grounds raised by the respondent, (ii) then give the applicant a fair opportunity to disabuse him of this view through oral argument, and (iii) if the judge was unpersuaded by that argument, end the hearing by giving judgment for the respondent on the ground in question.

[24] But what a judge cannot properly do, however much he believes that he has fully read and fully understood all the documents and arguments before coming into court, is to dismiss the application without giving the applicant a fair opportunity to make out his case orally. It is vital that justice is seen to be done, but that is by no means the only, or even the main, reason for this. It is also because it is vital that justice is done. Any experienced judge worthy of his office will have had the experience of coming into court with a view, sometimes a strongly held view, as to the likely outcome of the hearing, only to find himself of a very different view once he has heard oral argument.

[41] This decision should not have the effect of deterring first instance judges from being properly robust. For instance, if, before coming into court, a judge has formed a preliminary view on some or all the points at issue, there is nothing wrong with his expressing that view to the parties, provided that he makes it clear that it is only a provisional view and that he will give, and then does give, them (or at least the party he is provisionally against) the opportunity to try and dissuade him from his view. Equally, if he is satisfied that a particular issue can be disposed of on the basis of one of several points which have been raised, there is no reason why he cannot tell the parties that he provisionally considers that he need not hear argument on the other points, provided again that the parties are given the opportunity to persuade him that he should decide one or more of those other points.”[3](emphasis added)

2.9  The cases relied on at D’s Skeleton Submissions §9 make a similar point as that made at Labrouche §24, namely that it would be unfair to deprive parties an opportunity to address the issues which have a material bearing on the judge’s decision-making process. I do not accept that I conducted the Hearing in the manner described at Labrouche §24. Having read D’s submissions and Yang 3^rd and revisited the recording, it seems to me that the arguments now advanced by D were canvassed at the Hearing (except for the 4^th Factor) and Mr Ko had the opportunity to make submissions in relation to those factors. Indeed, for the reasons set out below, in my view, Yang 3^rd does not have an important influence on the result of the case (Ladd v Marshall 2^nd criterion) and in some respects is even apparently incredible in the sense that it is internally inconsistent (Ladd v Marshall 3^rd criterion).

2.10  Having dealt with the context identified by Mr Ko, I now proceed to deal with the grounds advanced in the Draft NOA.

(ii)  The applicable principles

2.11  There is no real dispute between counsel on the applicable principles.

2.12  Leave to appeal is not lightly granted. The court has to be satisfied that (1) the proposed appeal has a reasonable prospect of success or (2) there is some other reason in the interests of justice why the appeal should be heard before granting leave. Mr Ko does not rely on the latter ground.

2.13  The minimum requirement for a stay application is an arguable appeal. Where the court is faced with simply the existence of an arguable appeal (as opposed to one which has a strong likelihood of success), it is necessary for the applicant to provide additional reasons as to why a stay is justified, usually by demonstrating that without a stay the appeal would be rendered nugatory.

2.14  Where a decision involves the assessment and balancing of different factors, the appellate court will only interfere if the judge’s decision is plainly wrong: Stuart v Goldberg [2008] 1 WLR 823 at §§76 and 81. Equally, the appellate court would only interfere on the question of weight if one identifies a mistake in the judge’s evaluation of the evidence that is sufficiently material to undermine his conclusions or where the decision is one that no reasonable judge could have reached: Wong Myra Repizo v Ling Fung Coach and School Service Co Ltd, CACV 64 of 2015, 7 December 2015 at §§20-24.

2.15  Even for factual findings that are based on affidavit evidence, the appellate court should not intervene unless there are palpable errors: Ling Wai Hoi v Jetland Global Investments Ltd [2022] HKCA 1457 §29.

2.16  Insofar as Mr Ko suggests that the “plainly wrong” threshold is only applicable to findings of primary fact, I do not accept his submission. As stated at Ho Kwok Wing v Chan Mei Mui [2020] HKCA 522:

“[8.10] Ms Eu then argued that if the finding of the common intention is based on inference then this appeal does not involve overturning primary fact findings. She referred to Singh Harjit v Determination Business Ltd (unrep., CACV 68/2015) and submitted that where inference is drawn entirely or almost entirely from undisputed primary facts, the appeal court is in just as good as position as the trial judge to make the decision. In Pang Ketian Sally v Tam Yuk Hung Annie (unrep., CACV 147/2013, Cheung CJHC (as he then was)) stated:

‘31. This “plainly wrong” test, in other words, is applicable unless the finding of fact is based purely on inferences, or otherwise has nothing to do with the witnesses’ demeanour or the trial judge’s having received the evidence at first hand.’

[8.11] The findings in the present case is not based solely on inference. As Cheung CJHC explained:

‘28. ...... In fact, unless the contrary is expressly said, one proceeds on the basis that demeanour or credibility did play some part in the finding of fact made by a trial judge, irrespective of whether the judge made any observation with regard to credibility or not Ting Kwok Keung, para 39.’

[8.12] Likewise, in the present case the drawing of inference from surrounding circumstances does not preclude in the first place an assessment of the credibility of the parties. The findings of fact by the Judge in this case involves both an assessment of credibility and drawing of inference from the primary facts. Therefore the plainly wrong test in Ting Kwok Keung applies.” (emphasis added)

(iii)  Grounds 1 and 2

2.17  I agree with Mr Lung’s characterization that D’s attack seems to be premised on the fact that each of the 5 Factors alone is not sufficient to justify that the SCB Address was D’s place of business, namely each individual factor does not show a degree of regularity or that it does not show the implementation of the activities at the SCB Address. As submitted by Mr Lung, D’s approach misses the point. The recording plainly shows that Mr Ko towards the latter part of the Hearing accepted that I was entitled to look at all the evidence cumulatively in making the necessary findings and drawing from them the appropriate inferences.

2.18  That was the exercise carried out in the Decision. As set out at Decision §4.3, I dealt with the evidence chronologically and found that during the timeframe identified, by reasons of the 5 Factors, the SCB Address was D’s place of business: Decision §§4.11 and 4.13. It must be borne in mind that the Writ was left at the SCB Address on 22 September 2023 and the timeframe identified covers the period from December 2022 (execution of the Supplemental Agreement) to 20 November 2023 (Ding’s affirmation in the BVI Proceedings).

2.19   In relation to the 1^st Factor, I have already stated at Decision §4.12 that there was no direct evidence that the assumed contractual obligations and acquired rights under the Supplemental Agreement necessarily had to be performed from the SCB Address. But I do not accept Mr Ko’s submissions that those rights and obligations were ad hoc. Even Yang 3^rd does not make that assertion (§22(a)). According to the Supplemental Agreement, as stated at Decision §4.4, the Fund was to embark upon (at least) trading in shares of listed companies in Hong Kong. Whether Supplemental Agreement Clauses 4(1), (2) and (3) would be triggered would depend on the performance of the investments, and in particular Clause 4(3) conferred a right upon D to R&H to repurchase investments which were underperforming or to itself dispose of them.

2.20  I am unable to accept Mr Ko’s characterization that they were “ad hoc” in nature or that there is no evidence that they were activities connected with the company’s paramount or subsidiary objects: Re Yung Kee Holdings Ltd [2014] 2 HKLRD 313 at §85. Insofar as Mr Ko submits that Clause 4.3 would only be triggered in case of P’s defaults, that is simply wrong. The Supplemental Agreement was an agreement between R&H and D. Importantly, the implementation of Clause 4.3 entails decision-making. Were D to dispose of the underperforming shares, a decision had to be made as to when and how those shares would be disposed of. Someone must make that decision. There is specifically no appeal against the finding at Decision §4.4 that “it cannot be said that D is simply a holding company of the Fund and all operations are carried out by the Fund.”

2.21  In relation to the 2^nd Factor, Yang 3^rd exhibits a BVI Opinion (“Expert Report”) which makes reference to Rule 30.2 of Part 30 of the BVI Civil Procedure Rules (“CPR”). Rule 30.2(c) provides that each affidavit must “be in the first person and state and name, address and occupation of the deponent”. The Expert Report opines that there are no specific/express requirements for the address to be the residential address of the deponent, the service address, the place of business of the company which the deponent works for, the address of the company for which the deponent in making the affidavit/affirmation on behalf.

2.22  It must be pointed out that even without the Expert Report, the same argument had already been made by Mr Ko at the Hearing. But the CPR does not inform why Ding decided to state the SCB Address as his[4] address in his affirmation filed in the BVI Proceedings. Yang 3^rd now advances an internally inconsistent story. On the one hand, the Expert Report states that the expert was instructed that the SCB Address was used in Ding’s affirmation because it was Ding’s correspondence address. On the other hand, Yang 3^rd §§22(b)(i) states that Yang was informed by Ding and verily believe that D had adopted D’s correspondence address for the purpose of Ding’s affirmation. The distinction, in my view, is not a sterile one. On the one hand, were Yang 3^rd accepted, it is a prima facie a non-compliance with Rule 30.2(c) as D’s correspondence address may not be Ding’s address, as required under the rule. The effect of Yang 3^rd seems to suggest that as Ding only used D’s correspondence address, D may not even be ordinarily here in Hong Kong. On the other hand, if the Expert Report is accepted, then adopting the SCB Address as Ding’s correspondence address would presumably mean that D is ordinarily here in Hong Kong: Decision §4.10.

2.23  Whether it is appropriate to draw the inference that Ding worked at the SCB address must be considered in the light of all the other factors.

2.24  In relation to the 3^rd Factor, Mr Ko submits that there is no evidence that the remittances were related to the commercial dealings between P and D under the SPA but this is not even the position set out at Yang 3^rd. Yang 3^rd §21(c) acknowledges that Decision §4.6 is based on Exhibit SY-6 adduced by P. I had already stated at Decision §§2.5 and 4.6 that a total sum exceeding HK$20 million was remitted by D’s bank account in Hong Kong to P’s bank account in Hong Kong in 4 tranches between 26 June and 10 August 2023 as Partial Payments under the SPA. I had recorded at Decision §4.6 that Mr Ko had told me at the Hearing that D was disputing the nature of the remittances which, in the event, Yang 3^rd §22 (c) does not.

2.25  The more pertinent point is that Yang 3^rd states, without explanation, that its account at Bank of Communications (Hong Kong) Ltd was closed in “early September 2023”. Bearing in mind that the Writ was left at the SCB Address on 22 September 2023, the closure of the bank account is factually even more unflattering for D, especially when the dispute between the parties had arisen before early September 2023.

2.26  In relation to the 4^th Factor, Yang 3^rd adduces evidence that the SCB Address is also the registered office of Sigma Management Limited (“Sigma”) and Sigma is the registered user of the 2 telephone numbers referred to at Decision §4.7. Indeed, Sigma is the subscriber of 100 landline numbers including the 2 telephone numbers.

2.27  In my view, this evidence does not address the analysis in the Decision. The reference to the 2 telephone numbers was in the context of assessing whether the October Letter was issued, as D contends, using Blossom HK’s letterhead. It was noted that the letterhead provides a telephone number which was different from that stated in the SPA. The point made in the Decision was that D maintained and was designated a separate Hong Kong telephone number. Whether Sigma paid for the telephone service does not alter the fact that D was designated its own phone number, which was used in the SPA.

2.28  In relation to the 5^th Factor, Mr Ko submits that there is no evidence that the BVI Proceedings should be regarded as a substantial litigation. This is not even consistent with D’s own evidence. At Yang 1^st §47, D’s evidence is that “As the Plaintiff’s statutory demand presented a winding up risk to the Defendant, the Defendant took the matter seriously and incurred time and costs to instruct BVI lawyers to respond to the Plaintiff and make an application in the BVI Court to set aside the statutory demand” (emphasis added).

2.29  I do not see why I am not entitled to take into account the SCB Address given by Ding in the affirmation and the fact that the affirmation was affirmed at the offices of Messrs Deacons, which was in proximity to the SCB Address.

2.30  Whether it was appropriate to draw the inference that Ding worked at the SCB address must be considered in the light of all these factors cumulatively as a whole. Under the Supplemental Agreement, someone on behalf of D must make or authorize the decision on when and how to dispose of the shares if the situation arose (1^st Factor). Someone on behalf of D must have authorized the remittance of the significant sum of HK$20 million (3^rd Factor), the last tranche having been remitted shortly before the Writ was left at the SCB Address. In the BVI Proceedings which was a substantial litigation of D (5^th Factor), Ding as D’s Chief Executive Officer, as he was obligated under BVI law, chose to give the SCB Address as his address (2^nd Factor). D was designated a unique Hong Kong telephone number (4^th Factor). I do not accept Mr Ko’s criticism that I had in that exercise impermissibly indulge in speculation.

2.31  I do not regard D as having demonstrated reasonable prospect of success under Ground 1 and Ground 2 of the proposed appeal against factual findings based on primary facts and inferences drawn therefrom in the light of all the evidence before the court. The approach taken is similar to those taken in the authorities, such as Ho Tai Kwan v Global Innovative Systems Inc [2008] 1 HKLRD 399, in which the defendant in that case, a Nevada company, also asserted that it had no business activities and maintained no place of business in Hong Kong. Sakhrani J, in finding for the plaintiff, took into account (1) the defendant’s assertion was incredible in the light of the evidence before him (§17 and 23) and (2) the defendant’s CEO was at all material times operating in Hong Kong and payments were made by the defendant’s bank account in Hong Kong to the plaintiff (amongst other factors) (§24). The learned Judge also took into account the representation made by the defendant that the Mongkok address was a place of business in Hong Kong, I had observed that D’s evidence that the October Letter (which contained the SCB Address) was issued under Blossom HK’s letterhead was a bare assertion and the letterhead was capable of being D’s own letterhead (Decision 4.8). It is pertinent to repeat that D’s evidence that it has no business activities (which allegation was put forward as the reason that the October Letter was issued under Blossom HK’s letterhead) was rejected.

(iv)  Ground 3

2.32  Whilst I agree with Mr Ko that the rejection of D’s factual case that it has no operations in Hong Kong does not ipso facto mean that P has discharged its burden of proof, if it is suggested that that is the effect of the Decision, I am unable to agree. In addition to rejecting D’s factual case that it has no operations in Hong Kong, I then made the factual findings and drew inferences therefrom to come to the conclusion that the SCB Address is D’s place of business. Except for the 4^th Factor (which on any view is less significant than the other 4 Factors), D was given the opportunity to deal with the other 4 Factors and the new evidence and the submissions based on that new evidence not only would not have changed the outcome but have the converse effect of fortifying the Decision.

3.  Stay Application

3.1  Quite apart from the merits of the proposed appeal, there is no explanation why without a stay the appeal would be rendered nugatory.

3.2  D asks for stay of proceedings, presumably on the basis that D should not file a defence pending the appeal. If it is suggested that the filing of a defence would lead to the conclusion that D has submitted to jurisdiction, that suggestion is misplaced. Hong Kong Civil Procedure 2024 Note 12/8/2 states that service of a defence will not be construed as a submission to the jurisdiction as long as it is made clear that the filing of a defence is without prejudice to D’s right to challenge jurisdiction.

3.3  No doubt, the matter may be revisited if, for example, further applications are taken out by P prior to the resolution of the proposed appeal which may be said to enjoin D to engage in the merits of the case.

4.  New Evidence Application

4.1  The New Evidence Application is procedurally incorrect and should be dismissed on that basis alone. In any event, I have set out in my analysis above that Yang 3^rd does not satisfy Ladd v Marshall 2^nd and 3^rd criteria.

5.  Conclusion

5.1  For the above reasons, I dismiss the Leave Application, the Stay Application and the New Evidence Application.

5.2  I also make a costs order nisi that D is to pay P’s costs to be summarily assessed. D is to lodge and serve its Statement of Objections to P’s Statement of Costs dated 12 August 2024 within 3 days hereof. I will thereafter conduct summary assessment on the papers.