江小佩 v. CENTRAL CHINA REAL ESTATE LTD

HCA 866/2023

[2025] HKCFI 1795

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 866 OF 2023

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D E C I S I O N

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I.  INTRODUCTION

1.  Before me are two Summonses both filed on 25 March 2025 by the Plaintiff:-

(1)  A Summons to appeal against the Order of Master Maurice Lam of 6 February 2025 dismissing the Plaintiff’s Order 14 application (the “Appeal Summons”); and

(2)  A Summons to stay the consequential directions of 6 February 2025 made by Master Maurice Lam upon the dismissal of the Plaintiff’s Order 14 application (the “Stay Summons”).

2.  I should consider the Appeal Summons first.

II.  APPEAL SUMMONS OUT OF TIME

3.  The learned Master’s Order was made on 6 February 2025. The time for appeal expired on 20 February 2025. The Appeal Summons was issued out of time. During the hearing, the Plaintiff explained that she adopted a wrong procedure for appeal. She in fact filed a Notice of Appeal on 10 February 2025 with the Court of Appeal under Order 59. Her Notice of Appeal was dismissed on 21 March 2025, and knowing the right procedure thereafter, she shortly filed the current Summonses.

4.  It is trite that even a litigant-in-person is expected to observe the rules and procedures, and failure to do so, without more, cannot be a good reason for delay.

5.  However, absence of good explanation for delay is one consideration only. The most important consideration is the substantive merits of the intended appeal. Therefore, I proceed to consider the substantive merits of the Appeal Summons.

III.  BACKGROUND

6.  The present action is concerned with US$300,000,000 7.25% senior notes issued by the Defendant on 24 April 2019 with a maturity date of 24 April 2023 (the “Notes”). The Notes were constituted under an indenture dated 24 April 2019 (the “Indenture”), to which the Defendant, some of the Defendant’s subsidiaries as subsidiary guarantors and DB Trustees (Hong Kong) Limited as trustee (the “Trustee”) are the only parties. The Plaintiff, however, has never been a party to the Indenture.

7.  The Notes were executed and delivered under a global note (together with any other global notes for the Notes issued thereafter, collectively, the “Global Note”), registered in the name of Deutsche Bank AG, London Branch (“DBAG London”) as the “Common Depository” (as defined in §2.04(c) of the Indenture). DBAG London held the Global Notes in the accounts of Euroclear Bank SA/NV (“Euroclear”) and Clearstream Banking S.A. (“Clearstream”), as the first-tier intermediaries. The Bank of New York Mellon (“BNYM”), being the second-tier intermediary, holds and deals in interests in the Notes as an accountholder. In turn, such an accountholder holds interests for itself as principal and to the order of customers as the third-tier intermediaries. In the present case, such a customer includes Standard Chartered Bank (“SCB”), who in turn holds and deals in interest in the Notes for itself and/or its customers.

8.  Through this structure, it would not be the actual bearer note, but the interests therein, that would be traded, and the settlement of transfers would be conducted electronically with sales and purchases of securities recorded by book entries in the accounts: see Re Leading Holdings Group Ltd [2023] 4 HKLRD 71 at §§53 and 59.

9.  I should also set out a few provisions of the Indenture. Section 2.04 of the Indenture provides that:-

“(e) If (i) the Common Depositary or any successor to the Common Depositary is at any time unwilling or unable to continue as a depositary and a successor depositary is not appointed by the Company within 90 days after the Company receives such notice or becomes aware of such ineligibility, or (ii) either Euroclear or Clearstream, or a successor clearing system is closed for business for a continuous period of 14 days (other than by reason of holidays, statutory or otherwise) or announces an intention to permanently cease business or does in fact do so, or (iii) any of the Notes has become immediately due and payable in accordance with Section 6.01 and Section 6.02 and the Company has received a written request from a Holder, the Company will execute, and the Trustee or an Authenticating Agent, upon receipt by the Trustee or an Authenticating Agent of an Officers’ Certificate of the Company directing the authentication and delivery thereof, will authenticate and deliver, Certificated Notes in any authorized denominations in an aggregate principal amount equal to the principal amount of such Global Notes in exchange for such Global Notes.”

10.  Section 2.06 of the Indenture provides that:-

“(b) Except as provided in Section 2.06, transfers of a Global Note shall be limited to transfers of such Global Note in whole, but not in part, to the Common Depositary, its successors or their respective nominees. Interests of beneficial owners in a Global Note may be transferred, and transfers increasing or decreasing the aggregate principal amount of Global Notes may be conducted only in accordance with the rules and procedures of the Common Depositary and, to the extent relevant, the provisions of Section 2.06. In addition, Certificated Notes shall be transferred to all beneficial owners in exchange for their beneficial interests in any Global Note, only under the circumstances set forth in Section 2.04(e).

…

(d) In connection with the transfer of an entire Global Note to beneficial owners pursuant to paragraph (b) above, the Global Note shall be deemed to be surrendered to the Trustee for cancellation, and the Company shall execute, and the Trustee or an Authenticating Agent shall authenticate and deliver, to each beneficial owner identified by the Common Depositary in exchange for its beneficial interest in such Global Note, an equal aggregate principal amount of Certificated Notes of authorized denominations.

(e) The registered holder of a Global Note may grant proxies and otherwise authorize any Person, including Agent Members and Persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Notes.”

11.  Section 6.07 of the Indenture provides that:-

“Section 6.07 Rights of Holders to Receive Payment.

Notwithstanding anything to the contrary, the right of any Holder to receive payment of the principal of, premium, if any, or interest on, such Note or to bring suit for the enforcement of any such payment, on or after the due date expressed in the Notes, […] shall not be impaired or affected without the consent of the Holder.”

12.  Section 1.01 of the Indenture defined “Holder” as “a Person in whose name a Note is registered in the Register”. Thus, DBAG London who was the Holder.

13.  The governing law of the Indenture was stated in Section 12.07 to be “the laws of the State of New York”.

IV.  PLAINTIFF’S CASE

14.  From the Statement of Claim prepared without legal representative, I summarise the Plaintiff’s case as follows:-

(1)  On a certain date not identified by the Plaintiff, she purchased the Notes through her broker SCB.

(2)  The Defendant defaulted on the Notes.

(3)  The Plaintiff obtained authorisation from Euroclear for her to claim in her own name against the Defendant on the Notes.

(4)  Such claim she now makes for the repayment of the principal and interest on the Notes, a penalty for delay in payment, an apology and costs.

V.  DEFENDANT’S DEFENCE

15.  In essence, the Defendant raises the following defence:-

(1)  The Plaintiff has no legal standing to commence the present claim.

(2)  The Plaintiff is put to strict proof of her purchase of the Notes.

VI.  PLAINTIFF’S LEGAL STANDING

16.  As to the first defence, there is no contract between the Plaintiff and the Defendant. As mentioned above, the Plaintiff has never been a party to the Indenture. From the legal opinion on the laws of the State of New York adduced by the Defendant, which is essentially the same as the Hong Kong law in this regard, the Plaintiff has no contractual rights against the Defendant in such circumstances.

17.  The Plaintiff is aware of her difficulty as a result of this contractual relationship. Therefore, she reiterated that she obtained authorisation letters dated 10 May 2024 and 31 October 2024 issued by Euroclear.

18.  The former letter seem to be actually dated 9 May 2024, which states:-

“TO: THE BANK OF NEW YORK MELLON SA/NV

…

STATEMENT OF ACCOUNT FOR THE PURPOSE OF PROOF OF HOLDING¹

Dear Sir, Madam,

We hereby certify that on 29 April 2024, THE BANK OF NEW YORK MELLON SA/NV had a holding of USD 800,000 of the captioned securities in Euroclear Securities Clearance Account 97816 with us.

We also note that you have informed us that the above holding is allocated on your books to [the Plaintiff]. In accordance with normal procedures, such information is not reflected in our books and therefore is not reviewed independently by us. Accordingly we cannot be held liable as to the accuracy of such information.

We authorize, in accordance with our Operating Procedures of the Euroclear System, the underlying Beneficial Owner of the above mentioned security to maintain proceedings against issuers, guarantors and any other parties. This is to the extent that we, our nominee, a Depository or their nominee acts as registered owner of any security held in the Euroclear System, or in any other relevant situation.”

19.  The letter dated 31 October 2024, similarly, states:-

“TO: THE BANK OF NEW YORK MELLON SA/NV

…

STATEMENT OF ACCOUNT FOR THE PURPOSE OF PROOF OF HOLDING¹

Dear Sir, Madam,

We hereby certify that on 29 April 2024, THE BANK OF NEW YORK MELLON SA/NV had a holding of USD 800,000 principal amount of the captioned securities in Euroclear Securities Clearance Account 97816 with us.

We also note that you have informed us that the above holding is allocated on your books to [the Plaintiff]. In accordance with normal procedures, such information is not reflected in our books and therefore is not reviewed independently by us. Accordingly we cannot be held liable as to the accuracy of such information.

We authorize, in accordance with our Operating Procedures of the Euroclear System, the underlying Beneficial Owner of the above mentioned security to maintain proceedings against issuers, guarantors and any other parties. This is to the extent that we, our nominee, Common Depository, [DBAG London] or their nominee acts as registered owner of any security held in the Euroclear system, or in any other relevant situation.”

20.  However, according to the legal opinion on the laws of the State of New York, under Section 6.07 of the Indenture, only the Holder, that is, DBAG London, has the right against the Defendant. Therefore, there is at least a triable issue as to how these letters issued by Euroclear to BNYM would constitute any authorisation by DBAG London to the Plaintiff to maintain her claim against the Defendant.

21.  The Plaintiff further contends that by virtue of section 2.06(a) of the Indenture, Euroclear is also a “Common Depository” and thus a “Holder”. She seems to suggest that Euroclear could therefore authorise the Plaintiff to claim against the Defendant. In my view, the Plaintiff clearly misreads section 2.06(a), which provides:-

“(a) Each Global Note initially shall be registered in the name of the Common Depositary. Interests in the Global Notes may be held by any member of, or participants in, the Common Depositary, including Euroclear and Clearstream…

22.  It is reasonably clear from this clause that Euroclear and Clearstream are participants in the Common Depositary, but not themselves the Common Depository. Section 2.04(c) clearly defines DBAG London, but no others, as the “Common Depositary”.

23.  The Plaintiff also contends that the authorisation letters were in fact Certificated Notes whereby the Notes were legally transferred to her in her own name. However, such Certificated Notes and such transfer are not pleaded in the Statement of Claim, and it is trite that summary judgment can only be entered upon the Statement of Claim as it is.

24.  In any event, Section 2.06(b) of the Indenture, as provided above, provides that only in situations specified in Section 2.04(e) (quoted above), could such Certificated Notes be issued for such transfer of the Notes. There is no evidence, let alone plea, to explain how any such situations have realised. Therefore, the Plaintiff’s reliance on China Ping An Insurance Overseas (Holdings) Ltd v Luck Gain Ltd & Ors [2023] HKCFI 3315, where the specified situations had realised for requesting for a certificated note, does not take the Plaintiff’s case any further.

25.  Lastly, the Plaintiff seems to suggest that an Offering Memorandum dated 15 April 2019 provided by the Defendant also governs the relationship between the Plaintiff and the Defendant. However, it is clear to me that there is at least a triable issue as to whether this Memorandum was an invitation to treat rather than a unilateral offer the acceptance of which would immediately constitute a binding contract. In any event, I do not see how the Offering Memorandum would assist the Plaintiff’s claim, and in fact in §6 of the Plaintiff’s Reply dated 6 March 2025 (filed after the learned Master dismissed the Plaintiff’s application for Order 14 judgment), the Plaintiff herself accepts that the material terms of the Indenture and the Offering Memorandum are consistent. Thus, whether the Offering Memorandum governs the relationship is irrelevant for the present purpose.

26.  For the above reasons, I find that the Defendant has raised a triable issue and reasonably arguable defence that the Plaintiff has no legal standing to commence the present action. I also find that in view of the analysis above, it should have been clear to the Plaintiff that the Defendant would be able to raise a triable issue and reasonably arguable defence to resist an Order 14 application. Therefore, I also find that the learned Master was right to dismiss the Plaintiff’s Order 14 application.

27.  This conclusion would be sufficient for me to dismiss the Appeal Summons, even if I would allow the Plaintiff to appeal out of time. I shall therefore refrain from expressing my view on the other defence and other issues raised by the Defendant.

VII.  MERITS ON INTENDED APPEAL ON COSTS

28.  Insofar as the Plaintiff would still like to appeal on costs, my view is that there was nothing unreasonable or legally erroneous (see Hong Kong Civil Procedure 2025 Vol 1 §58/1/6) for the learned Master to order the Plaintiff to pay the costs upon the dismissal of the Plaintiff’s application, and the amount assessed was not unreasonable. Therefore, there are no merits in the intended appeal on costs.

VIII.  CONCLUSION

29.  Given that the intended appeal is unmeritorious, I refuse to grant time extension for the Plaintiff to appeal against the learned Master’s Order, and dismiss the Appeal Summons. I therefore also dismiss the Stay Summons.

30.  Costs should follow the event. I order that the Plaintiff shall pay the Defendant costs of the two Summonses summarily assessed at HK$80,000 forthwith.