Re Superb Summit International Group Ltd

HCAL 336/2020

[2020] HKCFI 892

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST NO 336 OF 2020

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REASONS FOR DECISION

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The Application

1.On 14 May 2020, I heard Superb Summit International Group Limited’s (“Company”) application for leave to apply for a judicial review of the decision of the Listing Committee of The Stock Exchange of Hong Kong Limited (“Exchange”) dated 8 November 2019 cancelling the listing of the Company’s shares on the Main Board pursuant to Rule 6.01A of the Main Board Listing Rules (“Decision 1”) and the decision of the Listing Review Committee dated 24 January 2020 upholding the Listing Committee’s decision (“Decision 2”).  I was not prepared to grant leave on the papers.  Having heard Mr Newton Mak on behalf of the Company I dismissed the application. These are my reasons.

Background

2.On 20 November 2014, Muddy Waters produced a report detailing concerns about the Company’s business and identifying particular problematic transactions.  In summary the report suggested   the following.  First, that the Company’s reported revenue of approximately HK$777 million was likely close to zero.  The revenue appeared to be attributed to Tianjin Libao Coal Trading Company in which the Company did not have a genuine interest.  Secondly, in May 2014, the Company had purchased a 40.8% (indirect) interest in Beijing Jinfeite Energy Technology Company Ltd (“JFT”) for HK$600 million. JFT barely had a business and certainly not one worth HK$1.5 billion, the valuation on which the acquisition cost of the 40.8% interest was calculated. The acquisition was probably a sham.  Third, during the course of the last seven years, the Company had announced numerous new business lines none of which were successful and, the report suggests, were driven more by stock promotion than real business considerations.  As a consequence, the Company was required by the Exchange to publish an announcement addressing Muddy Waters’ complaints.

3.On 6 December 2014 Proton Capital Limited, on behalf of the Company, sent to the Exchange a draft announcement.  There then followed a lengthy exchange of correspondence between Proton Capital and the Exchange culminating in the production of a lengthy announcement sent to the Exchange for comments on 16 September 2015.

4.On 12 November 2015 the Securities and Futures Commission (“SFC”) wrote to the Company posing various questions and notifying the Company that it had directed the Exchange to suspend trading in the Company’s shares on 18 November 2015.  There then followed an exchange of correspondence between the SFC and the Company concerning the suspension. On 13 December 2016 Proton Capital wrote to the SFC requesting that the suspension be lifted and enclosing a 59-page resumption proposal.  The SFC replied on 9 January 2017 declining to lift the suspension on the grounds that the Company did not appear to have done anything to address the SFC’s concerns.

5.On 7 August 2017 the Exchange wrote to the Company. In paragraphs 12 and 13 of the letter the Exchange set out its concerns: Trading in the Company’s shares had been suspended for more than two years and eight months.  The Exchange was concerned about how long the trading suspension would last and when trading would resume.  Further, the Company has not published its financial results since the publication of the interim results for the six months ended 30 June 2015 on 28 August 2015, and had not provided any update for the Company’s plans and timetable to resume its share trading, including an update on the matters leading to its trading suspension.  The Exchange expressed concern as to whether the Company has complied with Rule 13.24A. The Exchange requested that certain conditions specified at the end of the letter should be met by 21 August 2017.

6.On 22 September 2017 the Company wrote to the Exchange addressing it’s concerns.  The Exchange replied on 11 October 2017.  The Company wrote again on 19 October 2017 replying to the matters raised by the Exchange in its letter of 11 October 2017.  On 24 October 2017, the Exchange wrote chasing the Company to provide the information which it had said it would provide in paragraphs numbered 3 and 5 of its 19 October letter, which concerned restrictions on providing information imposed by the secrecy provisions of the SFC and an announcement pursuant to Rule 13.24A.  The correspondence continued.  In a letter dated 14 November 2017, the Exchange pointed out that the Company had not published any announcements to update shareholders on its suspension since 21 August 2015.  Presumably as a result the Company published an announcement on 30 November 2017.  I note that in section 2 of the announcement it refers to the fact that the Company was still in the process of preparing its audited financial statements for the year ending 31 December 2015.

The Decisions

7.On 26 July 2018 the Exchange wrote to the Company. The letter starts by noting that trading had been suspended since 20 November 2014.  The letter then recites briefly the history since the publication of the Muddy Waters’ report.  In paragraph 9 the letter states that the Exchange imposes resumption conditions.  I quote:

“9.  Given the above, we have decided to impose on the Company the following resumption conditions:

(a)  address all the allegations made against the Company in the Report;

(b)  publish all outstanding financial results and address any audit modifications;

(c)  demonstrate that the Company has in place adequate internal controls and procedures to comply with the Listing Rules; and

(d)  announce all material information for the Company’s shareholders and other investors to appraise the Group’s position.

We may modify the above conditions and/or impose further conditions as the Company’s circumstances change.”

8.The letter continues in paragraph 12 to point out that if the Company fails to fulfil all the resumption conditions to the Exchange’s satisfaction and resume trading in its shares by 31 July 2019, the Listing Department will recommend the Listing Committee to proceed with the cancellation of the Company’s listing.  On 29 July 2019 the Company sent a resumption proposal.  The Exchange replied in two letters both dated 28 August 2019.  In one it states that the Exchange will withhold its right to cancel the listing until 31 October 2019.  In the other letter the Exchange points out that the resumption proposal did not set out any concrete plan or timetable for the Company’s fulfilment of the resumption conditions.  Nor did it, in the view of the Exchange, demonstrate a prospect that the Company would be able to fulfil those conditions.  The Exchange states that unless trading in the Company’s shares resumed by 31 October 2019, the Listing Department would recommend to the Listing Committee that the Company’s listing be cancelled.

9.On 28 October 2019, solicitors on behalf of the Company wrote to the Exchange seeking a six-month extension of the deadline for resumption.  On 4 November 2019 the Exchange replied stating that the 31 October 2019 deadline had not been met and that on 7 November 2019 the Listing Division would recommend to the Listing Committee that the listing should be cancelled.  On 8 November 2019 the Listing Committee accepted the recommendation and made Decision 1.  The decision and reasons are sufficiently short I shall quote them:

“1.  Trading in the Company’s securities has been suspended since 20 November 2014. Under Rule 6.01A, the Exchange might delist the Company if trading did not resume by 31 July 2019. After consultation with the SFC, the Exchange agreed to withhold delisting the Company until 31 October 2019. However, as acknowledged by the Company, it has still failed to fulfill any of the resumption conditions and resume trading in its securities. In these circumstances, the Exchange is entitled to delist the Company under Rule 6.01A.

2.  In the Company’s applications dated 28 and 31 October 2019 for an extension of the resumption deadline to 30 April 2020, the Company did not demonstrate that it has substantially implemented the steps that, it has shown sufficient certainty, will lead to resumption of trading but due to factors outside its control, it becomes unable to meet its planned timeframe and requires a short extension of time to finalize the matters.  Therefore, the Company’s situation does not fall within the exceptional circumstances in which an extension of time may be given as stated in Guidance Letter (GL95-18).”

10.The Company sought a review of Decision 1.  On 13 November 2019, the Head of Listing wrote to the Company informing it of the procedure and that the hearing would take place at 4:30pm on 22 January 2020.  In respect of the hearing bundles the letter states: Within 14 days of exchange of final written submissions the Company is required to prepare and submit to the Acting Secretary 18 printed copies of the hearing bundle comprising all reports and/or written submissions of the review parties to the Listing committee and/or Listing Review Committee.  On 4 December 2019, the Acting Secretary to the Listing Review Committee wrote notifying the Company that the hearing date had been changed to 1:30pm on 23 January 2020.  The Company wrote, what appears to be an undated letter, in reply stating that the directors were not available on 23 January and asking that the hearing be put off to May in order that the Company could deal with various matters referred to in the letter.  The request was rejected and the hearing went ahead on 23 January.  The Listing Review Committee issued its decision the next day.  It commences with a history of the matter. The Listing Review Committee’s reasons and decision are contained in paragraphs 20 to 23 of the report it produced, which are sufficiently brief I shall also quote them:

“Listing Review Committee’s views

20.  Trading had not resumed by 31 July 2019 or by the date of the hearing, so the Company’s listing could be cancelled under Rule 6.01A.

21.  The Company appeared to have made very little, if any, substantive progress in relation to the resumption conditions. Amongst other things, the Company had not addressed the issues arising from the Muddy Waters report since it was issued over five years ago. The Company had also not completed any audits for over five years. There did not appear to be a prospect of the Company satisfying these resumption conditions within a short timeframe.

22.  The Company’s situation accordingly did not fall within the exceptional circumstances in paragraph 19 of GL95-18, and did not warrant the grant of an extension of the remedial period.

Decision

23.  The Listing Review Committee therefore decided to uphold the Listing Committee’s decision that the Company’s listing should be cancelled under Rule 6.01A.”

Grounds for Judicial Review

11.In summary the grounds for judicial review are as follows:

(1)  The Listing Review Committee failed to take into account the responses which the Company had provided to the Exchange in respect of the allegations in the Muddy Waters’ report since December 2014.

(a)  The Listing Review Committee had not complied with Rule 2B.11(1) of the Listing Rules, which obliged it to take into account all relevant arguments and evidence submitted at earlier hearings.

(b)  As the Listing Committee had not invited the Company to attend a hearing on 8 November 2019 the Listing Review Committee had a duty to inquire about all relevant matters considered by the Listing Committee.

(c)  The Listing Committee ought to have considered the responses the Company had provided to the Exchange in the past years.

(d)  The Listing Review Committee failed to take into account the Applicant’s submissions and its July 2019 resumption proposal.

(e)  The finding that the Company had not addressed the issues arising from the Muddy Waters report since December 2014 was Wednesbury unreasonable.

(f)  Insofar as the Listing Review Committee impliedly regarded the Company as not satisfactorily addressing the issues arising from the Muddy Waters report, the Listing Review Committee failed to give advance notice to the Company of what were the particular matters outstanding that concerned it.

(g)  The Listing Review Committee failed to take into account the fact that the Company’s previous auditor had resigned in early 2019 and the new auditor only appointed on 6 May 2019. Listing Review Committee further failed to give due or any consideration to the exceptional circumstances in Hong Kong since around June 2019 which hampered the progress of completing audits of the Company’s outstanding accounts and the Listing Review Committee erred in finding that the Company could not comply with the resumption conditions within a short time frame having failed to give due or any regard to the above matters and what made such compliance impossible.

(2)  In relation to the Listing Review Committee’s findings that the Company situation did not fall within the exceptional circumstances in which an extension might be granted, the Listing Review Committee failed to take into account the matters mentioned in the above two sub-paragraphs (f) and (g) and was Wednesbury unreasonable.

(3)  Both the Listing Committee and the Listing Review Committee had a duty to provide adequate reasons for their respective decisions and failed to do so.  In particular the decision’s contained insufficient explanations of the Listing Committee and the Listing Review Committees understanding and appreciation of the Company’s responses in respect of the matters raised in the Muddy Waters reports, which make the decision’s unsafe.

Discussion

12.In order to obtain leave the Company needs to satisfy the Court that it has grounds that are reasonably arguable.  A reasonably arguable case is one which enjoys a realistic prospect of success.  The granting of leave is a matter for the court’s discretion to be exercised judicially: Po Fun Chan v Winnie Cheung [1]. In my view the application does not satisfy these criteria.

13.The grounds for judicial review are an exercise in obfuscation.  This can be most readily demonstrated by considering the audited financial statements.  The last audited financial statements the Company has produced are for the year ending 31 December 2014.  Responsibility for their production lies with the Company’s board.  I asked Mr Mak where in the documents sent to the SFC and the Exchange we find any explanation for the failure to produce audited financial statements.  He told me there is none.  The closest we find to an explanation is in the following answer to a question posed by a member of the Listing Review Committee to the director who attended the hearing on 23 January 2020.

“SC:  Can I ask why there has been no audit in the last five years either? What is holding that up?

WXS:  Are you referring to the valuation of the technology?

SC:  No, I am referring to your audits.

WXS:  Okay I got it. Cause we are met with this allegation from Muddy Waters and so our accountant also had some doubts and questions about the valuation of this project. And so our accountant required us to prove the value of this project before our accountant was willing to make a report.”

14.At the time this answer was given five years had elapsed since audited financial statements had last been produced and Muddy Waters produced its report.  The production of audited financial statements was one of the conditions for resumption imposed by the Exchange in its letter of 26 July 2018.  There is no suggestion by the Company that this condition was unreasonable and neither could there be.  A listed company’s shares cannot trade if it is not able to produce to its shareholders and the investing public reliable financial statements soon after its financial year ends.  At the time the Listing Committee and the Listing Review Committee reached their decisions there was no indication at all from the Company of when it would be able to produce audited financial statements. It seems to me that in these circumstances, it is difficult to see how their conclusion that the Company’s listing status should be terminated can sensibly be criticised.

15.The Company’s argument, as I understood it having explored it with Mr Mak, amounts to this.  Both the Listing Committee and the Listing Review Committee were making administrative not judicial decisions and it was incumbent on each Committee not to limit its deliberations to the matters expressly relied in submissions or evidence put before the Committees for the purpose of reaching the decisions.  It was incumbent on them to have regard to the policies behind the Listing Rules and those persons whose interests would be effected by the decisions: Anderson Asphalt Ltd & Ors v Town Planning Board & Anor [2]. Further, the Committees were required as a consequence of the administrative nature of the decisions to be made to inquire into those matters that required consideration in order for the decision to be reached and not limit themselves to the matters put before them by the Company.  Mr Mak argued that certain statements in the Decision suggested that the Listing Review Committee had not read all the correspondence exchanged between the Company and the Exchange, which had not been included in the bundle produced by the Company for the hearing on 23 January 2020; and I note in passing that it was the Company’s responsibility to put in the bundles all the documents, which it relied on.  In particular Mr Mak referred me to paragraph 21 of a 24 January 2020 letter.  I shall assume in the Company’s favour that neither the Listing Committee nor the Listing Review Committee received all the documents exchanged between the Company and the Exchange, and, therefore, they would not have taken into account every explanation that the Company or Proton Capital had produced by way of answer to the Exchange’s questions over the years.  It does not seem to me that this alone is sufficient to render either decision unsafe or in some relevant way procedurally impeachable.

16.What the Company needs to demonstrate is that there is at this stage some reason to think that a matter, which was capable of effecting the decision the Listing Committee and the Listing Review Committee were required to make, was not addressed by them.  The Company’s argument is that their answers, such as they were, to Muddy Waters’ report needed to be taken into account because they informed the decision to delist.  I disagree.  The Exchange had set a number of conditions for resumption.  It is correct that one of them was that the Muddy Waters’ report be adequately addressed.  The failure to do so might be a reason either of itself or in combination with the failure to satisfy one or more of the conditions, to delist, but that is not relevant.  The Company is arguing that the decisions are unsafe.  It follows that in order for any omission to consider the Company’s responses to be relevant there would have to be some reason to think that if those responses had been considered they would have been material, in a way helpful to the Company, to the deliberations of the Listing Committee and of the Listing Review Committee.  The Company has not suggested any reason for thinking that they are.  The short point is that the Company had manifestly failed to satisfy at least one of the conditions for resumption.  I note that the Company does not argue that there is anything unreasonable in any of the conditions or the view that a failure to meet any one of them by late 2019 justified delisting the Company.  The Company’s arguments are artificial and devoid of merit.

17.The alternative grounds are unsustainable.  The suggestion that the Decision not to extend time because of the civil unrest in Hong Kong in the second half of 2019 is Wednesbury unreasonable is manifestly bad.  There is nothing to suggest that it made any material difference to the Company’s ability to address the resumption conditions.  The subsidiary point that the refusal to adjourn the 23 January 2020 hearing because the Mainland based directors were concerned for their safety in coming to Hong Kong seems to be disingenuous, particularly as it was only raised when the Listing Review Committee informed the Company that it wished to adjourn the hearing for one day.  The same in my view is true of the complaint that the reasons for the Decisions were inadequate.  It is self-evident that the Company had not complied with the resumption conditions.  I see no justification for either the Listing Committee or the Listing Review Committee having to produce comprehensive reasons dealing with each of the four resumption conditions.  The Company can be under no misapprehension about the reasons for the decisions.

Mr Newton Mak, instructed by C T Chan & Co, for the applicant