China Trends Holdings Ltd v. The Stock Exchange of Hong Kong Ltd

CACV 652/2020

[2021] HKCA 1673

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 652 OF 2020

(ON APPEAL FROM HCAL NO 818 OF 2020)

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J U D G M E N T

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Hon G Lam JA (giving the Judgment of the Court):

1.In the judgment dated 8 July 2021 (“Judgment”),[1] this Court dismissed the Applicant’s appeal from the judgment of Chow J dismissing the Applicant’s application for judicial review.[2] By Notice of Motion dated 26 July 2021, the Applicant seeks leave from this Court to appeal from the Judgment to the Court of Final Appeal. The relevant facts and arguments and our reasons for dismissing the appeal are set out in the Judgment and will not be repeated here.

2.Leave is sought pursuant to section 22(1)(b) of the Hong Kong Court of Final Appeal Ordinance (Cap 484) on the ground that the intended appeal involves questions which by reason of their great general or public importance, or otherwise, ought to be submitted to the Court of Final Appeal.  There are two questions specified in the Notice of Motion:

(1)     What is the proper construction of Rule 17.26 of the GEM Listing Rules?  In particular, by what criteria and/or in what manner are (i) “a sufficient level of operations” and (ii) “tangible assets of sufficient value and/or intangible assets for which a sufficient potential value [can be demonstrated]” to be assessed?

(2)     Given this Court’s acceptance that the main difference between the Applicant and the Respondent on the question of whether the Applicant had failed to maintain a sufficient level of operations or have assets of sufficient value to warrant the continued listing of its shares is as to “what is meant by the business [of the Applicant being] not ‘viable and sustainable’ as opined by the Review Committee in its conclusion at [paragraph 8 of its decision]”, what is the “single meaning” to be given to such expression in the context of Rule 17.26?

3.The Applicant submits that the proper interpretation and application of Rule 17.26 is a question of great general and public importance since it affects not only companies listed on the GEM Board, but also companies listed on the Main Board as Rule 13.24 of the Listing Rules for the Main Board is similar to Rule 17.26 of the GEM Listing Rules.  Listed companies are under an obligation to maintain a “viable and sustainable” business and many issuers have been delisted for failing to do so.

4.The Applicant submits that whether a business is “viable and sustainable” should be regarded as an objective standard relating to the actual performance of the issue in question.  The expression should not depend on the subjective views or professional judgment of the persons who happen to be the decision‑makers in the particular case.  Tying that expression to what would warrant the continued listing of the shares would result in a subjective approach and render Rule 17.26 too uncertain.

5.The Respondent opposes the application, submitting that the proposed questions are not properly framed and not reasonably arguable.

6.As to Question 1, it is convenient to set out Rule 17.26 here (omitting the Note):

“ An issuer shall carry out, directly or indirectly, a sufficient level of operations or have tangible assets of sufficient value and/or intangible assets for which a sufficient potential value can be demonstrated to the Exchange to warrant the continued listing of the issuer’s securities.”

7.The question put forward by the Applicant, regarding the interpretation of the phrases involving the word “sufficient”, begs the question: sufficient for what?  Rule 17.26 itself supplies the answer: sufficient “to warrant the continued listing of the issuer’s securities”.  We agree with the Respondent that Question 1, by leaving out that important part of the Rule, is not properly formulated. 

8.As shown by the terms of the rule which as part of the GEM Listing Rules “represent the product of extensive consultation between regulator and market” (Sanyuan Group Ltd v The Stock Exchange of Hong Kong Ltd [2009] 5 HKC 124 (CA), §28), it is intended that there is to be “a great deal of flexibility in their application” (Sanyuan Group Ltd, §16).  The Appeal Committee of the Court of Final Appeal recognised in the Sanyuan Group Ltd case that it would make no sense to require the Exchange to lay down abstract benchmarks or standards not tied to the particular resources of the company in question: see FAMV 52/2009, 3 December 2009, §9. 

9.The Applicant has not itself offered any specific answer to Question 1.  It is not in dispute that Rule 17.26 calls for a qualitative assessment (see §21 of the Judgment), so that numerical benchmarks would be inappropriate.  The terms of the Rule necessarily call for a judgment as to whether the particular issuer should continue to enjoy listing status. 

10.This Court’s Judgment in relation to the interpretation of Rule 17.26 is entirely consistent with the above approach: see §§22‑24, 42, 48-49.  It is misconceived to pose a general question in the abstract, as Question 1 does, regarding the criteria and manner for assessing the sufficiency requirement.

11.Question 2 concerns the phrase “viable and sustainable business”, which does not appear in the Rule itself but has been used in previous decisions of relevant bodies of the Respondent which have provided guidance on the application of Rule 17.26 (and its Main Board equivalent).  This Court’s approach to the phrase can be seen from the Judgment especially at §§49, 55, 57 & 59.  In this application, the Applicant submits that this phrase has a “natural meaning” which imports an “objective standard”.  It seems to us that the Applicant’s contention amounts in truth to that this phrase is to be construed in isolation ignoring the context of Rule 17.26 which is a requirement of sufficiency of operations or assets “to warrant the continued listing of the issuer’s securities”.  The Applicant’s position has in our view no reasonable prospects of success for the reasons stated in the Judgment. 

12.Further, the Applicant’s approach again begs the question: “viable and sustainable” for what?  Although the Applicant has not explicitly set out in this application what it contends to be the “single meaning” or “natural meaning” of the phrase, its previous submissions in the appeal itself (see §45 of the Judgment) suggest that it takes these words literally, with “viable” meaning capable of surviving and “sustainable” meaning able to be maintained, so that, essentially, a company or business is viable and sustainable if it is not about to collapse.  In our opinion, the contention that the test is proximity to insolvency has, again, no reasonable prospects of success, for the reasons already stated in the Judgment at §§22-24, 46, 52-54 and 58.

13.Accordingly, there are in our view no questions of great general or public importance that are reasonably arguable in the intended appeal.  Nor is there any exceptional reason for leave to be granted on the “or otherwise” limb of section 22(1)(b).

14.For these reasons the application is dismissed with costs to the Respondent, which we summarily assess in the sum of $138,000.

Written submissions by Mr Johnny Mok SC and Mr Tom Ng, instructed by Chiu & Co, for the Applicant

Written submissions by Mr Jin Pao SC and Mr Martin Ho, instructed by Hogan Lovells, for the Respondent