Cai Zhenrong v. The Stock Exchange of Hong Kong Ltd
Read the full judgment text of HCAL 2337/2020 on BabelCite. This High Court CFI judgment was delivered on 9 July 2021.
1. This is another case in which a judicial review challenge is sought to be brought against a decision of the Listing Review Committee (“LRC”) of the putative respondent, The Stock Exchange of Hong Kong (“Exchange”).
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HCAL 2337/2020 [2021] HKCFI 1899 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST NO 2337 OF 2020 ________________________
________________ Before: Hon Coleman J in Court Date of Hearing: 30 June 2021 Date of Decision: 9 July 2021 ______________ D E C I S I O N ______________ A. Introduction 1.This is another case in which a judicial review challenge is sought to be brought against a decision of the Listing Review Committee (“LRC”) of the putative respondent, The Stock Exchange of Hong Kong (“Exchange”). 2.The particular decision the subject of the intended challenge in this case is the LRC’s decision dated 16 November 2020 (“LRC Decision”), in which the LRC upheld the decision (“LC Decision”) of the Listing Committee to cancel the listing of Blockchain Group Company Limited (in liquidation) (“Company”) under Rule 6.01A of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (“Listing Rules”). 3.The Applicant is a shareholder holding (directly and indirectly) an aggregate of 25.13% of the Company’s shares. The Applicant’s Notice of Application for Leave to Apply for Judicial Review (“Form 86”) was filed by the Applicant on 30 November 2020. 4.On the same day, Chow J (as Chow JA then was) granted an ex parte interim injunction prohibiting the Exchange from acting upon and/or taking any steps to carry out the LRC Decision, until a fixed return date on 4 December 2020. The return date hearing was vacated, because the Exchange gave an undertaking not to take any steps to cancel the listing of the Company until the latter of the determination of the Applicant’s application for leave to apply for judicial review, or the determination of the substantive application if leave were granted. 5.Along with various directions in relation to the filing of evidence, Chow J ordered an inter partes oral hearing of the application for leave to apply for judicial review. That hearing was fixed to be heard by me on 30 June 2021. 6.At the hearing, the Applicant was represented by Mr Tony Ko of Counsel. The Exchange was represented by Mr Victor Dawes SC leading Mr Joshua Chan of Counsel. 7.At the beginning of the hearing, Mr Ko advanced an adjournment application, though argument on it was addressed as part of the overall submissions. I dismissed the adjournment application, for reasons which I said I would hand down later, within my reserved decision on the actual application for leave to apply for judicial review. 8.This is my Decision. For the reasons which follow, I refuse the Applicant’s application for leave to apply for judicial review. 9.This Decision is being handed down at the same time as my decision on a ‘rolled-up’ hearing in HCAL 3809/2019, [2021] HKCFI 1883. This is because of some degree of overlap or inter-relationship in the matters raised by and falling for consideration in the two sets of proceedings. B. Essential Background 10.The Company has been listed on the Main Board of the Exchange since 30 August 2002. 11.By order of Anthony Chan J made on 19 November 2018, the Company was wound up on the ground of insolvency. Liquidators were appointed on 21 November 2018, although they were subsequently replaced by different Liquidators seven months later, on 4 June 2019, following the discharge of the original Regulating Order. 12.Also on 19 November 2018, the Company’s shares were suspended from trading. Hence, in accordance with the regulatory framework – as to which, see below – the Company was required to resume trading within 18 months, namely by 19 May 2020 (“Resumption Deadline”). 13.On 22 November 2018 and 3 April 2019, the Exchange set certain resumption guidance (“Resumption Guidance”) for the Company being:
14.On 18 May 2020, namely only one day before the 18-month Resumption Deadline, the Company’s legal representatives submitted what has understandably been described as a ‘last-minute’ resumption proposal. That proposal involved:
15.The Company said that it would be able to fulfil the Resumption Guidance upon completion of the Restructuring. Amongst other things, it submitted in particular that:
16.Necessarily, given the undisputed failure to comply with the Resumption Guidance before the Resumption Deadline, the Company sought an extension of the remedial period to 31 December 2020. The reason given for the requested extension was the outbreak of Covid-19 in Hong Kong and the PRC. 17.On 12 June 2020, the Listing Committee made the LC Decision to cancel the Company’s listing under Rule 6.01A, on grounds including that (a) the Company had failed to fulfil the Resumption Guidance and resume trading in its securities by the Resumption Deadline, and (b) its situation did not fall within the exceptional circumstances in which an extension of time may be given, as it had not demonstrated that it had substantially implemented the steps leading to resumption of trading so as to provide sufficient certainty that it would resolve the substantive issues. 18.As to each of part of the Resumption Guidance, the Listing Committee pointed out:
19.Following a review hearing on 28 October 2020, the LRC made the LRC Decision on 16 November 2020, upholding the LC Decision to cancel the Company’s listing under Rule 6.01A. Though I shall return to more of the detail of the LRC Decision below, the LRC’s broad grounds were that (a) the Company had failed to fulfil all the resumption conditions even by the date of the LRC hearing, and it was unclear how and when those conditions would be fulfilled, and (b) the Company’s situation did not fall within exceptional circumstances justifying an extension of the remedial period in light of the range of issues that remained to be addressed and resolved as well as the length of the further extension sought to June 2021. 20.By letter from the Exchange dated 17 November 2020, the Company was informed that its listing status would be cancelled with effect from 27 November 2020. 21.As already pointed out, these proceedings were then commenced by the Applicant. The Company itself has taken no steps to challenge the LRC Decision. 22.Prior to the ex parte application on 30 November 2020, the Liquidators wrote to the Applicant’s solicitors informing them that, with the view of saving time and costs, the Liquidators did not intend to participate in the proceedings relating to the application for the interim injunction and the subsequent application for leave to apply for judicial review taken out by the Applicant. The Liquidators did not say that they supported the application. Further, though there was a reference to saving time and costs, the Liquidators did not say that they had no or insufficient funds, nor did they say that they would themselves have brought the application had they been in possession of more funds. Yet further, and in line with the previous notification, the Liquidators have not sought to take part in the oral leave hearing, despite being served with all relevant materials. C. Regulatory Framework C.1 Overview of the Exchange’s Role 23.In light of the nature of the intended challenge to the LRC Decision in this case, it may be helpful to set out in some detail the key provisions of the Listing Rules, and the policy objectives underpinning the delisting framework. 24.These relevant statutory provisions and regulatory rules, within which the delisting framework itself is to be found, have been considered in the recent decisions of Chow J (as he then was) in Bolina Holding Co Ltd (in liquidation) v Stock Exchange of Hong Kong [2021] HKCFI 460 at §§16-42, and by me in Brightoil Petroleum (Holdings) Ltd v The Stock Exchange of Hong Kong Ltd [2020] HKCFI 1601 at §§46-55, 66-71 and 76-80. For present purposes, the relevant context and detailed principles can be identified as follows. 25.The Exchange operates the stock market in Hong Kong pursuant to the Securities and Futures Ordinance Cap 571 (“SFO”), and acts as the frontline regulator of listed companies and their directors. 26.Section 21 of the SFO imposes a duty on the Exchange to ensure, so far as reasonably practicable, an “orderly, informed and fair market”. In discharging its duty, the Exchange is further required to act in the interest of the public, having particular regard to the interest of the investing public, and to ensure that the interest of the public prevails where it conflicts with the interest of the Exchange. 27.Section 23 of the SFO empowers the Exchange to make rules for such matters as are necessary or desirable for the proper regulation and efficient operation of the stock market. The Exchange is specifically authorised to make rules for, amongst other things, the cancellation and withdrawal of the listing of, and the suspension and resumption of dealings in, securities listed on the recognized stock market operated by the Exchange. 28.The Listing Rules are made by the Exchange pursuant to section 23 of the SFO. The Listing Rules impose requirements on listed companies and their directors to ensure that investors have and can maintain confidence in the market. Each company listed on the Main Board of the Exchange must undertake to comply with the Listing Rules when the company submits its application for listing. C.2 Suitability for Listing 29.The Listing Rules provides that, in order to be listed on the Main Board of the Exchange, issuers must be suitable for listing (Rules 2.03 and 8.04). The Listing Rules set out certain specific requirements which must be met in order for a new applicant to be qualified for listing. 30.Suitability for listing is not, however, simply a matter of compliance with quantitative requirements; it also involves a qualitative assessment of the new applicant by the Exchange. Thus, Rule 2.06 states:
31.Once a new applicant is listed and becomes a listed issuer, it must continue to be suitable for listing in order to maintain its listing status, including by the operation of a substantial business. In particular, Rule 13.24(1) provides:
32.According to Ms Bonnie Yiting Chan (“Ms Chan”), Head of Listing of the Exchange, who has filed evidence in these proceedings, if an issuer is insolvent and has been placed into liquidation by the court, the intention is that the issuer will be delisted. This, amongst other things, would preserve the quality and reputation of the Main Board, which is essential to maintaining Hong Kong’s role as a leading financial centre. C.3 Suspension of Trading under the Listing Rules 33.Where the Exchange considers it necessary for the protection of investors or the maintenance of an orderly market, the Exchange is empowered by the Listing Rules to suspend trading in, and cancel the listing of, a listed issuer’s securities in such circumstances and subject to such conditions as the Exchange thinks fit. The Exchange may also suspend trading in, and cancel the listing of, a listed issuer’s securities where the Exchange considers that the issuer does not carry on a business as required under Rule 13.24, or the issuer or its business is no longer suitable for listing. 34.Rule 6.01 states as follows:
35.Rules 6.04 and 6.05 further provide that the procedure for lifting suspension will depend on the circumstances and the Exchange reserves the right to impose such conditions as it considers appropriate. It is also stated as follows:
C.4 Delisting of Long-Suspended Issuers 36.In the period leading up to September 2017, prolonged suspensions of trading became a significant issue for the Exchange. The then delisting procedures did not facilitate prompt action to delist long-suspended issuers, with the consequence that there had built up a very large number of issuers whose shares had been suspended for more than a year, with no certainty as to when the suspension would be lifted or the issuer delisted (because, for example, the issuer’s financial position remained uncertain and the Exchange did not have a clear basis for delisting under Rule 6.01). This was thought to prevent proper functioning of the market, and to undermine the quality of the market and its reputation, as well as undermining the objective of maintaining a fair, orderly and informed market. 37.In September 2017, the Exchange commenced a market consultation exercise on the introduction of a prescribed period for issuers to resolve issues which had led to a suspension and to satisfy any resumption conditions imposed by the Exchange, failing which the issuers would be delisted. The purpose of the proposed rule amendments and the objectives of the consultation were set out in the “Consultation Paper – Delisting and Other Rule Amendments” published by the Exchange in September 2017:
38.After the consultation, the Exchange decided to implement the proposal (with minor modifications in response to market comments). In particular, the Exchange resolved (a) to add a separate delisting criterion to allow the Exchange to delist an issuer after its continuous suspension for a prescribed period; and (b) to allow the Exchange to publish a delisting notice and give the issuer a period of time to remedy the issues or be delisted. For issuers whose securities are listed on the Main Board, the prescribed period is 18 months. 39.The Exchange’s rationale for the 18-month period (called the prescribed remedial period) for an issuer whose securities are listed on the Main Board to comply with the resumption conditions imposed by the Exchange, and the intention that the period would only be extended in exceptional circumstances, are explained in §§23-25 of the Exchange’s “Consultation Conclusions: Delisting and Other Rule Amendments” (“DORA ConsultationConclusions”) published on 25 May 2018:
40.It was also considered appropriate that there may be cases where an issuer may be delisted, even though the listed issuer is taking steps to facilitate resumption (§28). 41.In the DORA Consultation Conclusions, the Exchange also considered a proposal that special arrangements should be made for an issuer in financial distress where a liquidator or provisional liquidator had been appointed by the court and was working on a resumption plan for the issuer, having regard to the fact that the liquidator was an officer of the court and could not fully control the time required for a restructuring process which was often complex and would likely involve local and/or foreign court proceedings. The prescribed remedial period, it was argued, might not be sufficient to allow the successful completion of a scheme of arrangement (§18). That proposal was, however, not adopted by the Exchange. 42.The Exchange also made it clear that the new delisting framework was not intended to promote resumption of trading. Instead, it was intended to be an effective delisting framework to enable the Exchange to meet its statutory obligation to maintain a fair, orderly and informed market for the trading of securities, by delisting issuers that no longer meet the continuing listing criteria in a timely manner, incentivizing suspended issuers to act promptly towards resumption and deterring issuers from committing material Rule breaches (see §28 of the DORA Consultation Conclusions). 43.On 1 August 2018, the Exchange introduced Rule 6.01A(1). It states as follows:
44.The Exchange also published a Guidance Letter (HKEX-GL95-18) in May 2018, which has since been updated in September 2019, on the subject of ‘Guidance on long suspension and delisting’ (“Guidance Letter”). That document provides guidance to long suspended issuers on the operation of the amended delisting Rules, their general obligations and the Exchange’s regulatory actions during the resumption process. The Guidance Letter makes clear that the Exchange’s powers under Rule 6.01A(1) may be exercised without prejudice to the rights under Rules 6.01 and 6.10. The following provisions are of particular relevance (bold in original):
45.It seems to me that the approach to delisting in cases of long suspended issuers as set out in the Guidance Letter can be summarised as follows:
46.Further, whether the circumstances are “exceptional” for the purpose of extending the remedial period is primarily a matter for the Exchange, not the court, to decide. C.5 The Exchange’s Decision-Making Process 47.Rule 2A.01 provides that the Board of the Exchange has arranged for all of its powers and functions in respect of all listing matters to be discharged by the Listing Committee and/or its delegates, subject to the review procedure set out in the Listing Rules. 48.Rule 2A.17 provides that the Listing Committee shall consist of 28 members or such greater number as the Board of the Exchange may from time to time agree, comprising at least 8 individuals who represent the interests of investors, 19 individuals who will be a suitable balance of representatives of listed issuers and market practitioners including lawyers, accountants, corporate finance advisers and Exchange Participants or officers of Exchange Participants, with the Chief Executive of the Hong Kong Exchanges and Clearing Limited acting as ex officio non-voting member. The composition of the Listing Committee is intended to ensure that it is made up of persons who are independent and have specialist expertise in relation to listing-related matters including business, accounting, finance and legal/regulatory aspects, and are well placed to determine currently acceptable standards in the marketplace. 49.The Listing Committee, whose members serve on a part-time basis and only meet to make decisions periodically, delegates the day-to-day administration of the Listing Rules to the Listing Division, which is made up of full-time employees of the Exchange. Subject to certain specific exceptions (eg the power to cancel the listing of a listed issuer), the Listing Committee has arranged for most of its powers under the Listing Rules to be discharged by the Listing Division in the first instance (Rule 2A.02). The Listing Division will also interpret, administer and enforce the Listing Rules subject to the review procedures set out in Chapters 2A and 2B of the Listing Rules. 50.Under Rule 2A.08, the Listing Committee has reserved to itself the power to cancel the listing of a listed issuer. It is the first instance decision-maker in respect of all cancellation decisions. Rule 2A.08 provides as follows:
51.Rule 2A.27 of the Listing Rules provides for the functions and powers of the Listing Committee as follows:
52.Rule 2A.28 of the Listing Rules provides for the conduct of meetings of the Listing Committee as follows:
53.The Listing Rules, however, provide for a process of review. Rule 2B.06 of the Listing Rules provides:
C.6 Composition of the LRC 54.In August 2018, the Exchange published a consultation paper on proposals to enhance governance within the Exchange’s structure for reviewing Listing Committee decisions and to promote transparency, accountability and consistency in decision-making. Following the conclusion of the consultation period, and its consideration of market feedback, the Exchange published its ‘Consultation Conclusions: Review Structure in Relation to Listing Committee Decisions’ (“RS Consultation Conclusions”). 55.The major changes proposed to be adopted included revision of the then extant review structure so that decisions of “material significance” made by the Listing Committee would be subject to only one level of review. That review would be by an independent review committee – the LRC – consisting entirely of outside market participants with no current Listing Committee members or representatives of the SFC or the Exchange. The RS Consultation Conclusions included that:
56.As regards the response and conclusions on the size and composition of the new LRC, the RS Consultation Conclusions stated as follows (italics in original):
57.Also relevant to the systemic challenge made in this case is another paragraph of the RS Consultation Conclusions, which stated that:
58.The relevant parts of the Listing Rules were amended accordingly in July 2019. 59.Under Rule 2A.37A, the LRC shall consist of 20 members or such greater number of members as the Board may from time to time agree. Under Rule 2A.37B, the LRC shall comprise: (1) at least six individuals who represent the interest of investors; and (2) the remaining members who represent a suitable balance of representatives of listed issuers and market practitioners, including lawyers, accountants, corporate finance advisers and Exchange Participants (or their officers), and who have experience and expertise in Listing Rule matters, or are familiar with the work of the Listing Committee. No current Listing Committee members or representatives of the SFC or Hong Kong Exchanges and Clearing Limited shall be members of the Listing Review Committee. 60.Rule 2A.37K of the Listing Rules provides for the function and powers of the LRC as being the review body in respect of any decision of the Listing Committee. 61.Rule 2A.37L provides for the conduct of meetings of the LRC as follows:
C.7 Overview of Regime 62.Hence, the Listing Rules are intended to be administered primarily by the Listing Committee, which is made up of investors and representatives of listed companies and market practitioners, who are well-placed with their relevant knowledge and experience to determine currently acceptable standards in the marketplace. Those members act on a part-time basis and meet only periodically to make decisions. The day-to-day administration is delegated to the Listing Division, which is made up of full-time employees of the Exchange. But in certain cases of significant decision, such as possible cancellation of listing status, the Listing Committee has reserved to itself the relevant power. 63.In exercising that power, the Listing Committee considers and decides matters administratively, without conducting an adversarial hearing. This assists in promoting an effective and expeditious determination of whether a listing should be cancelled. But, the non-adversarial and administrative nature of the Listing Committee’s process is subject to the safeguard of a de novo adversarial hearing on the merits by the LRC. Should the listed issuer require such a form of hearing, it may request one. 64.That request will be met by the review process. There will be an oral hearing, and the listed issuer is entitled to attend the hearing and to make written and oral submissions. Whatever decision is made by the LRC will supersede the previous decision by the Listing Committee. 65.As I held in the Brightoil case, this two-tier approach (with one level of review) strikes a fair balance between administrative efficiency and fairness. However, if the LRC were to make a decision in breach of administrative law requirements for fairness and procedural propriety, such decision might be amenable to judicial review. Whilst the Court is not tasked with the merits of delisting decisions, it remains open to act in a supervisory role to ensure the integrity of the decision-making process. D. The LRC Decision 66.In accordance with the procedure identified above, the review of the LC Decision in this case took place before the LRC on 28 October 2020, with the benefit of prior written submissions as well as the oral submissions made at the review hearing. The Company filed written submissions dated 31 August 2020, together with supplementary written submissions dated 25 September 2020. The Listing Division’s submissions were contained in its report dated 25 September 2020. All the submissions, and the relevant appendices, were contained in the hearing bundle for the review hearing. 67.The transcript of the hearing shows that it commenced by each of the members of the LRC introducing themselves, and confirming that he or she had no conflict of interest on the matter. After the introduction of other persons present, the chairman of the LRC sought confirmation from the parties whether they had any objection to the presence of any members of the LRC, and no objection was raised. 68.The representative of the Company then made oral submissions to supplement the written submissions already filed and read, using a PowerPoint presentation. Similarly, oral submissions were made on behalf of the Listing Division. Then followed some questions by members of the LRC, after which the parties were given an opportunity to make a final short oral submission. Only the representative of the Company took that opportunity, and a short submission was made to highlight a few points. Of passing interest – in light of one of the submissions made by Mr Ko on this application – is that the Company suggested to the LRC that its case was very similar to another case in which the LRC had overturned a decision of the Listing Committee, so that the LRC should do so again. 69.The LRC Decision is dated 12 November 2020. After setting out the background and a summary of the submissions, the LRC expressed its views and decision as follows:
70.One point to note is that between the date of the Company’s supplemental submissions dated 25 September 2020 and the hearing just one month or so later on 28 October 2020, the Company changed its request for an extension of the remedial period from an extension until 31 December 2020 to an extension until June 2021. E. Adjournment Application 71.By summons dated 28 June 2021, namely just one clear day before the oral leave hearing on 30 June 2021, the Applicant sought an order that the application for leave to appeal for judicial review be adjourned to a date to be fixed. 72.The application was supported by a solicitor’s affidavit exhibiting a finalised and signed, but not formally affirmed, affirmation of the Applicant dated 25 June 2021. In the affirmation, the Applicant produces email correspondence between the Liquidators and a potential tea leaf buyer together with a draft contract. The Applicant refers to (a) an email on 11 June 2021, in which the potential buyer’s representative sent an email showing the purchase price offered by the potential buyer as HK$140 million, and (b) an email of 23 June 2021 sent by the Liquidators to the potential buyer’s representative, showing the Liquidators urging the potential buyer to review the purchase agreement and to consider the possibility of increasing the purchase price. 73.On the basis of those documents, the Applicant suggests it can be seen that negotiation for the Company’s sales process of the tea leaf is near the completion stage, and the expected minimum income would be HK$140 million. Then the Applicant says that after completion of such a sale, the Liquidators could further organise the restructuring scheme, and to continue negotiation with all creditors. However, I am afraid I do not think that a near complete sale with a ‘minimum income’ is the necessary inference to be drawn from the correspondence. At best, it merely shows negotiation, and there does not even seem to have been an agreed price. Indeed, as the Applicant himself goes on to state, negotiation and business takes time to communicate, and deadlines cannot be set unilaterally to compel the other side to complete. 74.Further, what the Liquidators might do with any sales income is a matter of speculation, absent clear evidence from the Liquidators themselves as to what they might intend. The Liquidators have not filed evidence, and I note there is no suggestion that the Liquidators in any way support the application for the adjournment. 75.The Applicant also states in his affirmation his expectation that the auditor could commence the audit work of the Company for the financial year 2020 by mid-July this year and complete it at the earliest by the end of September this year, as well as commencing audit work for the interim report for the six months to 30 June 2021 by the end of August 2021. Against the previous chronology, those assumptions (the real basis for which is not clearly stated) are not convincing. 76.But, in any event, I entirely agree with Mr Dawes’ submission that it is in principle wrong to be inviting the Court in the context of the current application for leave to apply for judicial review now to look at and weigh what is said to be the Company’s progress on various potential trading and/or restructuring matters. Further, as Mr Dawes points out, the application is for an adjournment to “a date to be fixed”, but neither the summons nor the Applicant’s affirmation suggest what date might be fixed, nor any period after (or only after) which that new date might be fixed. That is also telling. 77.In my view, the adjournment application was in fact abusive. It is wholly inappropriate for there to be any attempt to derail or delay these proceedings by an application such as the adjournment application made by the Applicant here. This is an application for leave to apply for judicial review, seeking to challenge the LRC Decision made in November 2020. The relevant question is whether there is any basis upon which to impugn the LRC Decision, which necessarily considered matters by reference to events up to the date of the hearing before the LRC. Further, the challenge is to a decision, upholding the prior LC Decision, that the Company should be delisted for failing to have complied with the Resumption Guidance before the expiry of the remedial period. That period expired in May 2020. The LC Decision was in June 2020. The LRC Decision was in November 2020. Even at that point, there had been a failure of compliance with the Resumption Guidance, a yet further extension was being sought, and the LRC took the view there was no sufficient certainty as to when compliance might ever occur. Even now, on the last day of June 2021, no specific dates as to when possible compliance were even offered. 78.Granting an adjournment of the sort pursued by the Applicant would be to give licence to companies (or, if relevant, related applicants) in future to seek to delay further a delisting decision already made, in the hope of arguing the merits of the delisting decision in proceedings actually looking at the decision-making process, on evidence not available to and irrelevant to the original decision, and on a basis entirely contrary to the underlying policy objective in the revised delisting regime which I have set out in detail above. 79.For these various reasons, I had no hesitation in dismissing the adjournment application. F. Intended Grounds for Review 80.The intended Grounds for Review identified in the Form 86 might be split into two parts: (1) alleged inadequate reasons and failure to take into account relevant matters; and (2) a challenge to the fairness of the delisting procedure. 81.In the hearing, Mr Ko focused his oral submissions on the second point, essentially based upon Article 10 of the Hong Kong Bill of Rights Ordinance Cap 383 (“BORO”). However, the oral submissions were a substantial expansion upon – possibly, a departure from – the way the point was ‘trailed’ in the Form 86, where there was only one paragraph which simply stated:
82.In my view, that paragraph would not ordinarily be regarded as sufficient to raise a constitutional and systemic challenge to the whole process of delisting decisions. On its face it appears more to be an allegation of procedural unfairness based upon the other factual criticisms, namely the alleged inadequate reasons and failure to take into account relevant matters. Nevertheless, I shall accept for present purposes that the point which Mr Ko wishes to submit on Article 10 is somehow encompassed by that paragraph. Therefore, I shall deal with the systemic challenge, and then with the factual challenges. G. Standing 83.But, before dealing with the intended grounds for review, it is first necessary to address the question of standing. This is because – unlike in the numerous other cases of challenge to delisting decisions made by the LRC – the Applicant is not the affected company itself, but is a shareholder (and not even a member of the Board). 84.In support of his submission that the Applicant has the necessary standard to make the proposed challenge in this case, Mr Ko relied on a passage from ‘De Smith’s Judicial Review’ 8th Ed at §2-032:
85.Mr Ko also referred to in Kwok Cheuk Kin v Commissioner of Police [2017] 6 HKC 93 at §34, where Chow J (as he then was) set out what he considered the applicable principles in determining the question of standing in judicial review. At §34(1), it was stated:
86.So, Mr Ko submitted, the Applicant’s position clearly meets these tests, since the decision concerns cancelling the Company’s listing, and this denies shareholders an effective channel to sell their shares and brings about adverse financial consequences to the Applicant specifically, over and above that of the general public. Mr Ko also referred to The Association of Expatriate Civil Servants of Hong Kong v The Secretary for the Civil Service (CACV 260/1995, 22 November 1996), where at §§177-178 it was stated that it was an accurate statement of the law that a court ought not to decline jurisdiction to hear an application for judicial review on the ground of lack of standing to any responsible person or group seeking, on reasonable grounds, to challenge the validity of governmental action. 87.In response, Mr Dawes submitted that the fact that an applicant has some financial or other interest in the challenged decision is necessary but not sufficient for him to have standing for the purposes of judicial review. That is because an applicant may lack standing if a better placed challenger who is directly affected by the decision chooses to accept it. Reference was made to Durayappah v Fernando [1967] 2 AC 337 at 352G-353C, where the Privy Council raised and addressed the question of some general importance about the then appellant’s entitlement to maintain the action and appeal. The case involved a decision by a Minister to dissolve a municipal council, which the Privy Council considered was avoidable and not a nullity, stating:
88.Mr Dawes also referred to R (on the application of Grierson) v OFCOM [2005] EMLR 37 at §§16-25, which he said supports the proposition that the fact that the company decides not to institute judicial review proceedings is a factor which is of substantial importance when determining whether individual shareholders have standing to apply for judicial review against the same decision. In the particular case, the company had decided not to challenge Ofcom’s decision. The court (Stanley Burnton J) recognised that Mr Grierson could not be castigated as a busybody, as he clearly had a real interest in Ofcom’s decision, and stood to gain financially from a different decision. But, nevertheless it remained the fact that neither the company nor any unsuccessful applicant for the relevant licence had sought to challenge the decision. It was also felt to be of substantial importance in the decision whether he had sufficient standing that Mr Grierson had only a derivative interest. Further, it was not right to divorce standing at the permission (leave) stage from standing for the grant of the relief claimed. 89.Stanley Burnton J also said at §23, referring to the two preliminary issues of standing and delay:
90.I accept, as Mr Dawes submitted, that what was said in Grierson broadly accords with the well-established principle – most recently authoritatively stated in Marex Financial Ltd v Sevilleja [2021] AC 39 at §§35-37 – that management of the company is entrusted to its Board of Directors (and for companies subject to a winding up order, to its liquidators) so that, where the company management decides not to institute legal proceedings against the third party, individual shareholders cannot institute proceedings either on the company’s behalf or in respect of the same loss. As Marex and earlier authorities identify, the principles have developed not as a matter of merely theoretical concern, but at least in part as to recognition of the unity of economic interests which bind a shareholder and his company. 91.But, depending on the case, it may not help to take the analogy too far, and the court should adopt an appropriate degree of flexibility for each case. Nevertheless, whatever flexibility is brought to bear will be with the recognition that individual shareholders should unlikely be able to challenge regulatory decisions on behalf of the company even if the company management, acting in the best interests of the company, has decided to accept the regulatory decision. As Mr Dawes submitted, ordinarily it would not be right to allow individual shareholders to subvert the allocation of powers under the company’s articles of association. 92.In this case, the Company has not sought to challenge the LRC Decision. Nor has it sought to intervene in these proceedings brought by the Applicant. There is no suggestion that the decision neither to challenge nor join in another challenge was not a decision made in good faith, or that there was any fraud on the shareholders. As I have pointed out in the introduction, the Liquidators have not stated that they support the application. Nor have they stated that, but for lack of funds, they would themselves have made the application. Indeed, it might be thought that if the Liquidators lacked funding, but were of the view that the application had merit and should be pursued, they would simply have asked for funding and Mr Ko would have acted on the instructions of the Company (albeit funded by someone else, perhaps the Applicant himself) – or they would at least have clearly aligned themselves with the Applicant. They have done none of these things. 93.I note Mr Ko’s submission that greater flexibility should be applied in particular where a systemic challenge is intended and there may be many potential applicants lining up to pursue similar changes by way of judicial review. Thus, he says it would not be appropriate to refuse leave simply on standing. Nevertheless, in the particular circumstances of this case, and even adopting some possible flexibility in approach, I do not think that the Applicant has standing to bring this application. I would also add that I have factored into the flexibility my view on the merits of the intended grounds for review, to which I now turn. H. Systemic Challenge 94.Article 10 of BORO materially provides as follows:
95.As Mr Ko submitted, Article 10 of BORO is identical to Article 14.1 of the International Covenant on Civil and Political Rights, and resembles Article 6(1) of the European Convention on Human Rights. 96.Mr Ko submitted – not least by reference to the Exchange’s own apparent views, to be found in §23 of the RS Consultation Conclusions (see above), where there is an echo of the wording of Article 10 in the reference to “a right to a fair hearing properly conducted before a competent, independent and impartial committee” – that the LRC is a “tribunal” for the purposes of Article 10, and that proceedings before the LRC clearly fall under Article 10. 97.Further, amongst the various authorities relied on by him, Mr Ko placed significant weight on the Court of Appeal’s decision in New World Development Co Ltd v The Stock Exchange of Hong Kong Ltd [2005] 2 HKLRD 612 at §§41-48 and 58-60, as well as on my own decision in the Brightoil case at §80. 98.Whilst I firmly tend to the view that the LRC is a tribunal falling within the terms of Article 10, I have not heard full argument on the point, and I do not need to decide that matter for present purposes. This is because, although reserving the Exchange’s position as to whether the LRC review process involves a determination of the Company’s rights and obligations in a suit at law, Mr Dawes was prepared to argue the point on the merits because, he said, there can be no doubt about the independence and impartiality of the LRC itself. 99.Mr Ko’s focus in submission was on whether hearings before the LRC can be said to be before a competent, independent and impartial tribunal. He submitted that they cannot, because:
100.But, Mr Ko submitted that the LRC does not fulfil these requirements because:
101.Whilst Mr Ko accepted that the fact that LRC members are appointed by the Exchange, of itself, may be cured by the availability of judicial review proceedings, he submitted that the unfairness in the present case stems cumulatively from the facts that:
102.Whatever the gaps of logic in this reasoning, Mr Ko really focused on the last point, which is capable of standing alone. His submission was that the Exchange’s policy is that the LRC is expected to decide issues “consistently” with the Listing Committee (which is achieved by the expectation that LRC members would be former Listing Committee members), and the Listing Committee has in turn delegated the day-to-day administration to the Listing Division made up of full-time employees of the Exchange. 103.Therefore, on the question as to whether the regime complies with the requirements of Article 10 of BORO, Mr Ko submitted that the point is at least an issue that merits further and more mature consideration. He also referred to the significant number of similar cases that is expected to come before the courts, so that it is desirable for the position to be clarified as soon as possible, and for any deficiency (if found) to be cured. 104.I agree with the last point. It is desirable for the position to be clarified as soon as possible. But I do not agree that it is reasonably arguable that there is a systemic deficiency. That statement provides now the necessary or requested clarification. 105.First, I agree with Mr Dawes that, although framed in different terms, the requirement of independence and impartiality under Article 10 of BORO are the same as the test against bias at common law, namely whether the tribunal would be considered by a fair-minded and informed member of the public to be independent and impartial: see Wong Tak Wai at §37. Secondly, the mere fact that the members of a tribunal are appointed by the executive or public authority in question does not, by itself, infringe the requirement of independence and impartiality, not least if the appointment mechanism is justified in light of the functions of the tribunal under the relevant statutory scheme: see Campbell and Fell v United Kingdom (1985) 7 EHRR 165 at §79-80; Building Authority v Business Rights Ltd [1994] 2 HKLR 341 at 344-5; and R v Town Planning Board, ex parte Real Estate Developers Association of Hong Kong [1996] 2 HKLR 267 at 273A-275C. 106.Further, in Stock Exchange of Hong Kong v Onshine Securities [1994] 1 HKC 319 at 328D-E, the Court of Appeal had “no hesitation in rejecting” a submission similar to that offered in this case. That was a case challenging the independence of the Exchange’s Disciplinary Committee, which consisted of members of the Council of the Exchange. The Court pointed out that a professional body such as the Exchange must act through its appointed committees, and that self-regulation is best and necessarily done by its own members. The fact that the members of particular committees were also elected members of the Council was said to fall “far short of any appearance of bias”. 107.It seems to me that the challenge in this case is even weaker than in the Onshine case. 108.Under the LRC review regime which I have detailed above, neither the Listing Committee nor the LRC consists of any representatives of the SFC or the Exchange. Both committees are comprised of various individuals representing the various interests of investors, representatives of listed issuers and market practitioners such as lawyers, accountants, corporate finance advisers and exchange participants. All of them are appointed because of their experience in the market. Therefore, Mr Dawes is correct when he said that given the diversity, expertise and professional experience of these individuals, it is highly unlikely that the tribunal acting collectively would be biased (or be perceived to be biased) towards one side or the other. 109.It is also of some importance that the current rules were put in place following a public consultation, where the proposals received support from the majority of respondents representing all aspects of market participation. I do not think it can be reasonably argued that the members of the LRC are subordinate to one of the interested parties. 110.As shown by the transcript of the review hearing in this case, there is also the safeguard in the individual members of the relevant LRC identifying themselves (names and positions held) at the start of the hearing, declaring a lack of any conflict, and inviting the parties to confirm whether they have any objection to any individual member or not. I take Mr Ko’s point that the fact that there was no objection to the individual members comprising the LRC who gave the LRC Decision in this case, and that there is still no suggestion that any of them were biased (apparently or otherwise), may not of itself be an answer if there is a valid systemic concern. But the process adopted must reduce both the risk of bias and any potential appearance of bias. 111.I also think Mr Ko’s attempt to use the reference to “consistency” in decision-making is untenable. If the submission was intended to suggest that the encouragement to “consistency” somehow amounted to encouragement to the LRC simply to uphold decisions of the Listing Committee, it is a suggestion without any proper basis. Indeed, as I have indicated, at the review hearing in this case the Company specifically referred to and relied upon a previous decision in which the LRC had overturned the Listing Committee. In any event, as that submission implicitly recognised, the relevant “consistency” to which reference is made in the consultation documents is to a consistent application of similar principles to similar sets of facts. There is not only nothing inherently wrong with such an approach, it is an approach – dare I say it – consistently promoted by courts as a facet of the proper and fair administration of justice. Consistency is a badge of fairness, not unfairness. 112.There is also nothing in the complaint that a number of the members appointed to the LRC are expected to have acted previously as members of the Listing Committee. Rather, that simply reflects the understandable desire to have LRC members, amongst whom are those with specific knowledge and experience of the sort which qualifies a person to act, and which is also gained from acting, as a member of the Listing Committee. The two-year gap, or ‘cooling off’ period, before a former member of the Listing Committee can be appointed as a member of the LRC is another procedural safeguard. 113.Further, in light of the structure of the regime, which I have detailed above, there is also nothing in the reference to, and complaint about, the delegation by the Listing Committee to the Listing Division of day-to-day matters in the administration of the Listing Rules. That cannot possibly give rise to any actual or perceived risk of bias, where the Listing Committee has specifically reserved to itself all decisions on potential delisting of an issuer. Whilst the Listing Committee may consider that question on the recommendation of the Listing Division, plainly the Listing Committee is not bound by the recommendation and may disregard it. Further, any dissatisfaction with a decision to delist an issuer can be reviewed, at the issuer’s request, by the LRC. The LRC is also expressly bound to conduct the review hearing de novo, that is to consider the Listing Committee’s decision and its reasoning, to look at all materials placed before the LRC (whether or not they were before the Listing Committee), to read written and hear oral submissions, and the LRC is free to decide whether or not to uphold the Listing Committee’s decision. 114.The LRC must also provide reasons for its own decision, though its written decision will not be in the nature of a legal judgment exhaustively setting out the facts and addressing all of the arguments presented. The express purpose of publishing decisions of the LRC so as to promote consistency in decision-making and a better understanding of the interpretation and application of the relevant rules seems to me to be a further manifestation of the fairness flowing from consistency, that I have canvassed above. For the sake of completeness, I do not think there is any force in Mr Ko’s, admittedly fairly gentle, musing whether relatively short reasoning in written decisions, in part necessitated by the part-time nature of membership of the LRC, raises the question whether the LRC is a competent tribunal at all despite their experience and expertise. 115.The intended constitutional/systemic challenge – based on the suggested lack of independence and impartiality – has no merit and is not reasonably arguable. I. Challenge on Adequacy of Reasons / Matters Taken into Account 116.In his written and oral submissions, Mr Ko essentially relied only on the argument set out in the Form 86 to traverse this area of the intended challenge to the LRC Decision. 117.By way of overview, it is suggested in the Form 86 that the analysis in the LRC Decision is limited to §§33-37, but the analysis and reasons given are wholly inadequate in the face of the voluminous documents and the arguments raised by the Company that ought to have been considered on a review by way of a hearing de novo. 118.Of course, I accept the trite proposition that procedural fairness will often require the decision-maker to give reasons for decision, but reasoning is required for the LRC in any event, if requested. I also accept that reasons provided must be intelligible and adequate, and where no reasons are given or the reasons given are plainly inadequate or unintelligible, it is open to the court to infer that the decision is unlawful. Part of the requirement for reasoning in a decision is to identify that the tribunal has relevantly engaged with the issues and the arguments presented to it. 119.On the other hand, it is also trite that in the absence of statutory prescription, the factors to be taken into account and the scope of the investigation required are matters for the regulator to decide, subject only to the challenge on Wednesbury grounds. Further, I do not think it is fair to suggest the analysis is limited only to the words in §§33-37, when there are references to the various submissions and other documents, and the context of the arguments was well-known to the parties. In my view the LRC clearly focused on the correct question for the review, and had given adequate reasons from a public law point of view based on the relevant test (to be found in, for example, Ng Shek Wai v Hong Kong Institute of Certified Public Accountants [2019] HKCFI 2439 at §41). 120.In this case, the Form 86 raises seven points of criticism of the LRC in failing to take into account relevant matters, or failing to take steps to equip itself with the necessary relevant information to enable itself to make an informed decision. 121.The first point is that it is unclear how the LRC took into consideration and assessed the “harm to the persons the Rules are intended to protect, i.e. the investors” when looking at the failure to meet the Resumption Deadline, particularly in the midst of the unprecedented Covid-19 pandemic. But I think Mr Dawes is correct when he says that the weighing and balancing exercise based on factors such as potential harm to investors has been taken into account in the process of amendment to the Listing Rules, following industry-wide consultation. Part of the consideration necessarily takes into account the position of investors in any particular company as well as investors in the wider market. In any event, the effect of delisting is so obvious to everyone involved in the process (including that of review), I doubt it is something that would need to be expressly mentioned. The LRC was also subject to the public law duty to follow the Listing Rules as well as the Guidance Letter. 122.The second point in the Form 86 is that although submissions were made both by the Company and the Listing Division as to the impact of Covid-19, the LRC has not addressed them in its reasoning. In my view, that is simply not correct. For example, in §36 of the LRC Decision, specific reference was made to the Company’s submission dated 25 September 2020 (which itself included references to its written submissions dated 31 August 2020) and the request for the extension of the remedial period. The request for extension was based on two reasons which were said to fall within the “exceptional circumstances” justifying the extension; one was the seven-month period between the appointment of original liquidators and their replacement, and the other was the suggested impact of Covid-19. In §36, the LRC found that the Company had however not demonstrated that its situation fell within the “exceptional circumstances” justifying an extension of the remedial period, and expanded on why it held that view. Further, the Company was not seeking a short extension, and even at the LRC hearing was seeking a further six months beyond that which it had requested just one month beforehand. 123.There was also little more than a bare assertion as to the impact of Covid-19 on the resumption timetable. In this respect, I might also echo what Chow J said in the Bolina case at §48, which seems equally apposite here:
124.The third point made in the Form 86 is the suggestion that the LRC failed to take into account at all the complications created by the Regulating Order, which was discharged only some seven months after the suspension of trading of the Company’s shares and the notification of the Resumption Guidance. That criticism does not seem to be fair in the light of the LRC Decision, not least at § 36, where the LRC expressed its view that the Company had not made substantial progress towards addressing the Resumption Guidance, notwithstanding that the current Liquidators had been appointed for almost 17 months. This implicitly recognised the relevant period is that since the appointment of the current Liquidators. Further it was pointed out that the extension of time being sought was not a short extension (and though the LRC Decision referred to a period of “over 8 months”, in fact by the time of the LRC Decision the new request was for an extension of over 12 months to June 2021 as the same paragraph noted). 125.The fourth point made in the Form 86 is the suggestion that the LRC completely ignored §43 of the Guidance Letter. But I agree with Mr Dawes that that paragraph applies to issuers suspended under Listing Rules 13.50A, which was not the case here. That rule relates to where trading has been suspended because an issuer publishes preliminary results announcements for financial year and the auditor has issued, or has indicated that it will issue, a disclaimer of opinion or an adverse opinion on the issuer’s financial statements. The suspension will normally remain in force until the issuer has addressed the issues giving rise to the disclaimer or adverse opinion. The Guidance Letter at §43 specifically references that, where an issuer is suspended under Rule 13.50A, but the issuer has satisfied the Exchange that it is made all reasonable efforts to resolve the issues but, due to reasons outside its controls, such underlying issues remain unresolved upon expiry of the 18-month period, the Exchange would consider allowing a longer remedial period, with the duration of the period to be determined case by case. The paragraph emphasises that the issuer must demonstrate to the exchange’s satisfaction that it reasonably expects to resolve all underlying audit issues within the proposed extended remedial period. Therefore, in my view the paragraph is irrelevant on the basis that this Company was not suspended under Rule 13.50A, but in any event the LRC Decision shows that the LRC was not satisfied as to how the Company might resolve the various audit issues faced by it. 126.The fifth and sixth points raised by the Form 86 – which can be taken together – are that the LRC had not considered the fact that more than half of the Company’s creditors had already indicated support for the Restructuring scheme, nor mentioned the numerous letters written by the Company’s creditor is expressing their support of the restructuring, so that the shareholders are likely to approve the scheme, so as to save the listing status of the Company. The quick answer to these points is that the LRC expressly noted at §36 that the Restructuring, which appeared to be central to any possibility of fulfilling the Resumption Guidance, remained subject to significant uncertainties including amongst other things, the signing of an underwriting agreement, approval by shareholders, creditors and the courts in Cayman Islands and Hong Kong and a whitewash waiver to be sought from the SFC and the discharge of certain liabilities in the PRC (to which it had made reference at §35), so that the LRC did not consider that the Company had made substantial progress to addressing the Resumption Guidance and it was still requesting extension of time, and not a short one. 127.Mr Dawes is also correct when he says as regards these two points that it should be remembered that the objective of the current regime under the Listing Rules is not to facilitate resumption of trading. So a listed issuer is not entitled to an extension of time merely if it is able to demonstrate that it is likely to fulfil the resumption guidance at some point in time after the deadline. 128.The seventh point raised in the Form 86 is that the LRC did not take into account the fact that the group generated substantial revenue and profit for the financial year ended 31 December 2018 (when the former liquidators were in charge) and 31 December 2019 (when the current Liquidators were in charge). But I agree with Mr Dawes that this fact is plainly irrelevant, as it has no connection with either whether the Company has fulfilled the Resumption Conditions, or whether there were exceptional circumstances as envisaged in the Guidance Letter. 129.None of the proposed aspects of criticism or challenge to the LRC Decision regarding inadequacy of reasons or a failure to take into account relevant matters is reasonably arguable. J. Result 130.The result is that the application for leave to apply for judicial review stands to be dismissed. 131.I so order. K. Costs 132.As to an award of costs in an unsuccessful application for leave to apply for judicial review, the governing principles are well-settled: see Leung Kwok Hung v President of the Legislative Council (No 2) (2014) 17 HKCFAR 841, at §17. In this case, I consider that the Company should pay the costs of the Exchange, because (a) the Exchange attended the oral hearing upon the court’s direction, (b) the Exchange filed evidence, and provided substantial and helpful assistance to the court; (c) the Company has effectively had a hearing on the merits of its intended application for judicial review; and (d) those merits have included consideration of a systemic criticism which was only lightly trailed in the Form 86, but sought to be significantly expanded in oral argument and the skeleton submissions filed for that purpose. 133.Mr Dawes has fairly not made any application for the Exchange’s costs to be taxed on the indemnity basis. Therefore, I make an order that the Company shall pay the Exchange’s costs of this application, including the costs of the hearing on 30 June 2021, to be taxed if not agreed, with certificate for two Counsel. 134.But, to the extent that the adjournment application caused the Exchange any additional costs (though that may be unlikely), and in light of the fact that I view that application as having been utterly without merit and an abuse, I would order those costs to be paid by the Applicant on the indemnity basis.
Mr Tony Ko, instructed by Patrick Mak & Tse, for the applicant Mr Victor Dawes SC and Mr Joshua Chan, instructed by Minterellison LLP, for the putative respondent | ||||||||||||||
Cases cited in this judgment
Further hearings and rulings under HCAL 2337/2020