Sino Energy International Group Holdings Ltd v. The Stock Exchange of Hong Kong Ltd

HCAL 686/2022

[2022] HKCFI 3409

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST NO 686 OF 2022

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BETWEEN

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Before:  Hon Coleman J in Court

Date of Hearing:  11 November 2022

Date of Decision:  11 November 2022

Date of Reasons for Decision:  15 November 2022

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REASONS FOR DECISION

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A.  Introduction

1.I think it fair to say that the applicant in this case, Sino Energy International Group Holdings Ltd (“Company”), has identified its best possible battleground, but it was bound to lose the battle as it really had no ammunition to fire as might have hit the target.

2.By its Form 86 dated 29 July 2022, the Company seeks leave to apply for judicial review to challenge the decision dated 28 June 2022 (“LRC Decision”)  of the Listing Review Committee (“LRC”)  of the Stock Exchange of Hong Kong Ltd (“Exchange”).

3.The LRC Decision upheld the decision dated 11 March 2022 (“LC Decision”)  of the Listing Committee (“LC”)  which cancelled the listing of the Company under Rule 6.01A of the Rules Governing the Listing of Securities on the Exchange (“Listing Rules”).

4.As has been emphasised on behalf of the Company, the application is not a systemic challenge to the delisting regime.  Rather, the proposed grounds of review are narrowly confined to suggested errors in the LRC Decision.  The question raised by the Company is whether, as it contends, the LRC Decision was unsustainable, such that the Court should order that decision to be quashed.

5.I gave directions to bring the matter to a rolled-up hearing fixed for 11 November 2022.  At that hearing, the Company was represented by Mr Keith Cheung of Counsel, and the Exchange was represented by Mr Victor Dawes SC leading Mr Joshua Chan of Counsel.  With the benefit of both sides’ thorough yet succinct written skeleton submissions, the oral hearing was able to be conducted with model efficiency.

6.At the end of the hearing, I dismissed the Company’s application for leave to apply for judicial review, for reasons which I said I would hand down later.

7.These are my Reasons for Decision, including matters dealing with the question of costs.

B.  Background

8.The Company is a Cayman Islands incorporated company, listed on the Main Board of the Exchange since September 2011. The Company has principally engaged in two lines of business: (1) developing gas station operations in the PRC; and (2) manufacturing and sale of casual footwear apparel and related accessories in the PRC (“Footwear Business”).  However, the Applicant has now lost the Footwear Business operation (see, further, below).

9.On 31 March 2020, the Company announced that publication of its audited financial statements for the year ended 31 December 2019 (“FY 2019”)  would be delayed, by reason of the Covid-19 outbreak in the curbing and quarantine policies adopted and/or implemented in the PRC, causing the auditor to encounter significant practical difficulties in completing its audit work and compiling its report.  On the same day, the Company published its unaudited FY 2019 annual results.

10.Meanwhile, events had unfolded in the PRC which had an adverse impact on the Company and the corporate group, including that:

(1)  On 25 May 2018, the Intermediate People’s Court of Xuzhou City, Jiangsu Province ordered to seal up the assets and arranged a public auction for the land of a wholly-owned subsidiary of the Company (“Jiangsu Active”), for the purpose of repaying debts owed.

(2)  Between January and May 2020, but unbeknownst to the Company at the time, Mr Zhang Wenbin (“Mr Zhang”), Executive Director of the Company, procured a Mainland subsidiary to make unlawful payments totalling approximately RMB325.6 million (“Unauthorised Payments”).

(3)  On 27 May 2020, a PRC court accepted the bankruptcy petition against another one of the Company’s wholly-owned subsidiaries (“Fujian Jinmaiwang”).  As a result, all books and accounting records of that subsidiary and its sub- subsidiaries were passed to the bankruptcy manager, and the Company could no longer access them.

(4)  In August 2020, the auditors of the Company received and inspected certain documents relating to a further wholly-owned subsidiary, but took the view that further supporting documents were required.

11.On 31 August 2020, the Company announced that the publication of its audited results for FY 2019 continued to be delayed, as its auditors had yet to receive certain documents relating to the Company’s subsidiaries in the PRC.  The Company also failed to publish its interim results for the 6-month period ending on 30 June 2020 by the deadline of 31 August 2020.

12.In the same announcement, the Company stated that it would ask the Exchange to suspend trading of shares until these matters could be resolved.  Therefore, on 1 September 2020, the Exchange suspended trading of shares in the Company.  Pursuant to Rule 6.01A of the Listing Rules, the prescribed 18-month period for the Company to resume trading would end on 28 February 2022 (“Prescribed Remedial Period”).

13.The Exchange, via the Listing Division, subsequently imposed the following Resumption Guidance for the Company:

(1)  publish all outstanding financial results required under the Listing Rules and address any audit modifications (“RG1”);

(2)  demonstrate compliance with Rule 13.24 (“RG2”); and

(3)  announce all material information for the Company’s shareholders and investors to appraise its position (“RG3”).

14.There is no dispute that the Company failed to meet the Resumption Guidance before the end of the Prescribed Remedial Period in February 2022.

15.In the meantime, on 1 April 2021, the Company announced that publication of its audited financial results for the financial year ended 31 December 2020 (“FY 2020”)  would be delayed.

16.On 17 June 2021, the Company’s then auditor, Zhonghui ANDA CPA Ltd, resigned as the Company’s auditor.  On 21 July 2021, the Applicant appointed Asian Alliance (HK)  CPA Ltd (“Asian Alliance”)  as its new auditor.

17.On 21 February 2022, the Company announced that it had lost control over, amongst other things, its PRC subsidiaries Jiangsu Active and Fujian Jinmaiwang (and its sub-subsidiaries), as were engaged in the Footwear Business and had decided to de-consolidate them from the Group’s financial statements effective from 1 January 2019 (“Deconsolidation”).

18.On 23 and 25 February 2022, the Company sent the Listing Division draft financial statements for FY 2019 and FY 2020, which indicated that:

(1)  The Company had ceased the Footwear Business in 2020, following the Deconsolidation.

(2)  The Company had recorded net losses of RMB847 million and RMB214 million for FY 2019 and FY 2020 respectively.

(3)  As at 31 December 2020, the Company had net current liabilities of RMB756 million and net liabilities of RMB1.5 billion, of which the borrowings, debentures and convertible bonds which had been overdue and should be repaid in the next 12 months amounted to RMB715 million, whereas the Company only had cash of RMB47 million.

(4)  The financial results would be disclaimed by the auditors:

(a)  for FY 2019, the auditors would express a disclaimer of opinion on the majority of the Group’s financial items; and

(b)  for FY 2020, the auditors would apparently express a disclaimer of opinion due to a going concern uncertainty only (and not any other issues), however the draft results were still subject to the auditor’s further comments and the audit opinion had not been agreed with the auditors.

19.The Company did not inform the Listing Division when the draft FY 2019 or FY 2020 results would be finalised or published.  Nor was any update provided on the progress of publishing the outstanding interim results for the 6-month periods ended 30 June 2020 (“HY 2020”)  and 30 June 2021 (“HY 2021”).

20.On 4 March 2022, and as a result of the failure to meet the Resumption Guidance by the end of the Prescribed Remedial Period, the Listing Division recommended that the Company be delisted.  By way of decision letter dated 11 March 2022, i.e. the LC Decision, the LC informed the Company that it had decided to cancel the Company’s listing under Rule 6.01A, on the basis that the Company had not met any of the Resumption Guidance.

21.The Company then applied on 28 March 2022 for a review of the LC Decision.  The hearing before the LRC took place on 21 June 2022.

22.Between those dates:

(1)  On 8 April 2022, the Company announced that two of its executive directors, namely Mr Zhang and his spouse Ms Cai Xiuman (“Ms Cai”)  had resigned due to other business commitments.

(2)  On 12 April 2022, the Company announced that:

(a)  it had formed an Investigation Committee to investigate the Deconsolidation, and had engaged an independent internal control consultant as part of the investigation;

(b)  the investigation revealed the Unauthorised Payments, and that they lacked documentary support and business justification; and

(c)  the Company had commenced legal action against Mr Zhang for recovery of the Unauthorised Payments.

23.The Company also subsequently provided to the Listing Division a memo dated 11 April 2022 prepared by the Investigation Committee, which indicated when and why the investigation was triggered, the breakdown of the Unauthorised Payments lacking documentary support and/or business justification, and that the Company did not have books and records for certain of its PRC subsidiaries, and was so far unable to obtain them.

24.Because the Prescribed Remedial Period had already ended, and the LC had already decided to delist the Company, it was unnecessary for the Listing Division to formulate any further Resumption Guidance in respect of the Unauthorised Payments, and it did not do so.

25.On 6 May 2022, the Company announced that its auditors Asian Alliance had resigned because (amongst other things)  there were key audit and financial reporting issues discovered during the course of the audit of the Group’s financial results for FY 2019 which remained unresolved, including but not limited to the Deconsolidation.  In the same announcement, the Company announced that it had appointed Elite Partners CPA Ltd (“Elite CPA”)  as its new auditors.

26.Also on 6 May 2022, the Company engaged Elite Partners Risk Advisory Services Ltd (“Elite RA”)  as an independent internal control consultant to conduct a further review of the Company’s internal control systems, policies and procedures.  The consequent report (“Elite ICR Report”)  was provided to the Company on or around 20 June 2022, the day before the LRC hearing.

27.On 26 May 2022, the Company engaged Mazars Certified Public Accountants LLP (“Mazars”)  to conduct an investigation into the Unauthorised Payments.  The consequent report (“Mazars Report”)  was also provided to the Company on or around 20 June 2022.

28.As stated, the hearing before the LRC took place on 21 June 2022, and the LRC Decision is dated 28 June 2022. Nevertheless, for the sake of completeness, the following matters can be mentioned – though it is common ground that neither the Company nor the Exchange can rely on matters which occurred ‘after the event’ in support of or in opposition to the proposed challenge made by way of these proceedings:

(1)  On 22 June 2022, the Company announced the key findings set out in the Elite ICR Report and the Mazars Report.

(2)  On 30 June 2022, the Company announced its audited results for FY 2019 (with a number of disclaimers), and its unaudited interim results for HY 2020.

(3)  On 3 July 2022, the Company announced its audited results for FY 2020 (with a number of disclaimers), and its unaudited interim results for HY 2021.

C.  The Hearing before the LRC

29.The written submissions presented to the LRC as part of the review process included: (1) the Listing Division’s Report to the LC dated 4 March 2022; (2) the Company’s submissions dated 22 April 2022; (3) the Listing Division’s submissions dated 29 April 2022; and (4) the Company’s reply submissions dated 12 May 2022 (which was also the deadline for filing of submissions and materials before the LRC).

30.Neither the Elite ICR Report nor the Mazars Report formed part of the evidence or materials placed before the LRC, and no application was made by the Company to adduce those Reports after the deadline.

31.The transcript of the hearing before the LRC identifies that the Company’s representative, Mr Chong Cha Hwa, an INED, stated that the Company expected its audited financial reports for FY 2019 and FY 2020 to be subject to the same qualifications previously given by Asian Alliance in the draft audited annual results for those two financial years.  Mr Chong also stated that the Company was planning a restructuring for the purpose of putting the Company in a “healthy financial position” and complying with the “financial requirements” under the Listing Rules.

32.Also at the LRC hearing, Mr Chong indicated that the Company had received the “internal control review report” the day before the hearing, and it was being reviewed, an AC Committee meeting would be conducted, and then the submission of other views and opinions on that report would be made to the Board of the Company.

33.When asked by a member of the LRC about the progress of the report on the investigation of the Unauthorised Payments, he replied that the report had been published the day before the hearing, that a meeting had been conducted with Mazars and the report had been reviewed, and that in the hearing the Company would like to present certain key points from the report, which were (in my summary of them):

(1)  Mr Zhang, who was in charge of the subsidiary, had made the payments in January to May 2020.

(2)  The payments are not supported by any documents, so that the Company could only list the payments, and could not identify that the payments complied with the payment policy and procedures.  But the Company was of the view that Mr Zhang had made the payments without complying with the Company’s policy and procedures.

(3)  As a result, the Company would take legal action against Mr Zhang to recover the money, and further investigate whether those payments involved any fraud.  If found to involve fraud, the Company would make a report and take further action.

(4)  The investigator confirmed that the payments were made by Mr Zhang, and did not involve any other directors. Therefore, the Company was of the view that no other existing directors were involved and that their integrity was not a problem.

(5)  The Company was also the view that the incident was a one-off incident occurring in one of the subsidiaries in Fujian, and not a “scheme of scam” that involves the whole Company.

(6)  The Company was preparing the information for announcement during the following week.

34.Following that response from Mr Chong to the question, no representatives from the Listing Division said anything further on the point, or to undermine it, and the LRC members asked no follow-up question and did not give any further indication (including whether it had any doubts).

D.  The LRC Decision

35.Following its deliberation, the LRC decided to uphold the LC Decision to cancel the Company’s listing.

36.Its reasons were given in a letter issued on 28 June 2022, which attached the LRC Decision.

37.The LRC Decision is in what might be described as a usual form.  It first identifies the decision that the Company’s listing should be cancelled under Rule 6.01A.  It then sets out the reasons for that decision, but expressly noting that the document necessarily represents only a summary of the LRC’s analysis, and does not purport to set out exhaustively the facts or address all of the arguments presented.

38.The LRC Decision sets out the background matters, the applicable Listing Rules and Guidance Letters, the LC Decision, the submissions made to the LRC by the Company and by the Listing Division, before setting out the LRC’s views.

39.The material part of the LRC Decision setting out the LRC’s views and decision are to be found in §§45-57, as follows:

Listing Review Committee’s views

45.  The Listing Review Committee noted that trading in the Company’s shares had not resumed by the resumption deadline of 28 February 2022 or indeed by the date of the Hearing.  The Company’s listing could therefore be cancelled under Rule 6.01A(1).  The Listing Review Committee had to consider whether sufficient grounds existed to grant the Company’s application for an extension of time to fulfil the Resumption Guidance.

46.  The Listing Review Committee noted that the following regarding the Company’s status in fulfilling the Resumption Guidance, and intended plans with respect to the same.

RG1: Publication of outstanding audit results

47.  The Company had failed to publish any of the outstanding results at the time of the Hearing and acknowledged at the Hearing that the audited results for FY2019 and FY2020 would only be finalized at the end of June 2022.  Further, the Company acknowledged that the audited results for FY2019 and FY2020 would likely be subject to unresolved audit modifications or disclaimer opinions.  At the Hearing, the Company was unable to offer any assurances that it would be able to resolve any of the audit modifications within a short period of time.  The Listing Review Committee therefore found that the Company had failed to comply with RG1.  It also appeared that the Company was unlikely to comply with RG1 in the near future.

RG2: Compliance with Rule 13.24

48.  The Listing Review Committee noted that under Rule 13.24(1), an issuer must “carry out a business with a sufficient level of operations and assets of sufficient value to support its operations to warrant the continued listing of the issuer’s securities”.  The notes to Rule 13.24(1)  elaborate that this is a qualitative test and that the Exchange will make an assessment of specific facts and circumstances of individual issuers.  In its assessment of the Company’s compliance with Rule 13.24, the Listing Review Committee considered the following points.

49.  First, an assessment of whether the Company did in fact have a sufficient level of operations was impossible as the Company had consistently failed to publish its audited results.  Secondly, the Company acknowledged at the Hearing, that after the deconsolidation of the relevant PRC subsidiaries, it was no longer conducting one of its main businesses, the manufacturing and sale of footwear apparel, and was only continuing its operations of gas stations in China.  Thirdly, the Company acknowledged at the Hearing that as of 31 December 2021, it had net liabilities and net current liabilities of RMB1,526 million and RMB807 million, respectively.  The Company also submitted at the Hearing that it may require a restructuring to improve its financial health but did not provide information on any concrete plans for such restructuring.

50.  The Listing Review Committee therefore concluded that the Company had failed to comply with RG2.  There also appeared to be no certainty that the Company would comply with RG2 in the near future.

RG3: Announce all material information

51.  As the Company had been unable to publish any audited financial results from FY2019 onwards, the Listing Review Committee found that the Company had failed to fulfil RG3.

Position regarding Unauthorised Payments

52.  The Listing Review Committee noted that the Company’s recent announcement concerning the Unauthorised Payments and the Listing Division’s concerns as to the Company’s management integrity and the adequacy of the Company’s internal controls.  As the relevant reports from the independent investigation and internal control consultants had not been published, it remained unclear whether the Company had sufficiently investigated the conduct that led to the occurrence of the Unauthorised Payments and remediated any deficiencies in the internal controls.  The Company had, however, acknowledged at the Hearing that the Unauthorised Payments had been irregular payments that did not comply with the Company’s internal policies and procedures.  On this basis, the Listing Review Committee shared the Listing Division’s concerns arising from the Unauthorised Payments in relation to the Company’s suitability for continued listing under Rule 6.01(4).

Company’s application for extension of time and lack of exceptional circumstances

53.  Overall, the Listing Review Committee noted that pursuant to GL95-18 paragraph 19 in order to ensure the credibility of the delisting framework and prevent undue delay of the delisting process, remedial periods may only be extended in exceptional circumstances, for example, where an issuer has substantially implemented steps that it has shown with sufficient certainty will lead to a resumption of trading, but that due to factors outside its control (usually procedural in nature)  require a short extension of time to finalize matters.

54.  The Listing Review Committee found that the Company had failed to demonstrate that it had substantially implemented steps that would lead to a resumption of trading as for each condition of the Resumption Guidance substantive issues remained without any assurance that they could be resolved quickly and/or were merely procedural in nature.  As an example, the Listing Review Committee noted that the Company had to date failed to publish the outstanding results and acknowledged that once published, the outstanding results would likely be subject to audit modifications.  It was unclear if or when the relevant audit modifications could be resolved.

55.  Finally, the Listing Review Committee considered the Company’s arguments regarding the impact of COVID-19 but noted that the Company’s failure to comply with the Resumption Guidance was caused by a range of factors many of which were unrelated to COVID-19 and within the Company’s control.  This included for example the Company’s argument as to a one-month quarantine period for one of its staff – as the staff had long since returned from quarantine but the audited results remained outstanding, the Listing Review Committee did not regard the quarantine period as a sufficient reason for the continuing delay in the publication of the audited results that would merit any extension of time.

56.  In summary, after considering the submissions of the review parties carefully and also being conscious that it was not bound by the Listing Committee Decision and was reviewing the matter afresh, the Listing Review Committee considered that the circumstances outlined by the Company regarding its failure to meet the Resumption Guidance to date and its intended plans to meet the Resumption Guidance did not fall within exceptional circumstances as contemplated by GL95-18 and an extension of time was not warranted.

Decision

57.  The Listing Review Committee therefore decided to uphold the Listing Committee’s decision to cancel the Company’s listing Rule 6.01A(1).

40.As can be seen from the above:

(1)  The LRC found that the Company had failed to comply with RG1 – publication of outstanding audit results and address any audit modifications – and was unlikely to comply with RG1 in the near future, because (a) the Company had failed to publish any of the outstanding financial results at the time of the hearing, and (b) the Company acknowledged that the audited results for FY 2019 and FY 2020 would likely be subject to modifications or disclaimers, and it was unable to offer any assurances that it would be able to resolve the audit modifications within a short period of time.

(2)  The LRC found that the Company had failed to comply with RG2 – compliance with Rule 13.24 – and there was no certainty that the Company would comply with RG2 in the near future, because (a) it was impossible to assess whether the Company had a sufficient level of operations when the Company had consistently failed to publish its audited financial results, (b) after the Deconsolidation, the Company was no longer conducting one of its main businesses, namely the Footwear Business, (c) the Company acknowledged the large net liability and net current liability figures; and (d) the Company also submitted at the hearing that it may require a restructuring to improve its financial health, though it did not provide any concrete information as to the plan for restructuring.

(3)  The LRC found that the Company failed to comply with RG3 – announcing all material information – as it had failed to publish any audited results from FY 2019 onwards.

(4)  The LRC also found an extension of the deadline for resumption of trading was not warranted, as the circumstances outlined by the Company regarding its failure to meet the Resumption Guidance and its intended plans to meet the Resumption Guidance did not fall within exceptional circumstances as contemplated by the Guidance Letter.

(5)  Though the failure to have met the Resumption Guidance and refusal of extension of deadline was determinative, the LRC also indicated that it shared the Listing Division’s concerns arising from the Unauthorised Payments in relation to the Company’s suitability for continued listing.

E.  The Regulatory Framework

41.I do not think I need to set out in this Decision any lengthy recitation of the regulatory framework.

42.As both Mr Cheung and Mr Dawes have pointed out, the framework and its underpinning policy objectives relating to the delisting regime in Hong Kong have been traversed in a number of recent decisions, including Brightoil Petroleum (Holdings)  Ltd v The Stock Exchange of Hong Kong Ltd [2020] HKCFI 1601 at §§46-55, 66-71 and 76-80; Bolina Holding company Ltd (in liquidation)  v Stock Exchange of Hong Kong [2021] HKCFI 460 at §§16-42; Cai Zhenrong v The Stock Exchange of Hong Kong Ltd [2021] HKCFI 1899 at §§23-65; and Longrun Tea Group Company Ltd v The Stock Exchange of Hong Kong Ltd [2021] HKCFI 1883 at §§44-85.

43.In so far as may be necessary, I can refer to further particular matters below.  But, Mr Cheung fairly identifies that it is not in dispute that the delisting regime in Hong Kong is intended to protect the public by removing issuers which are no longer suitable for listing.  Further:

(1)  The new delisting framework is not intended to promote resumption of trading, but instead to be an effective delisting framework which enables 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, incentivising suspended issuers to act promptly towards resumption, and deterring issuers from committing material Rule breaches.

(2)  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.

(3)  Rather, the 18-month remedial period is intended to be strict, and the period would be extended only in exceptional circumstances.  What amounts to being “exceptional” is primarily a matter for the Exchange, and not for the Court to decide.

44.Of course, Mr Cheung is also correct to remind that the LC and the LRC are not infallible, and that if the LRC were to make a decision in breach of administrative law requirements for fairness and procedural propriety, that decision might be amenable to judicial review.

F.  The Intended Grounds of Review

45.As emphasized by Mr Cheung, the Company does not make a systemic challenge, and its challenge is confined to very narrow grounds relating to the integrity of the decision-making process, on conventional public law grounds.

46.In the Form 86, the Company contended that the LRC Decision is unsustainable for the following reasons:

(1)  Ground 1: The LRC erred in fact and law in finding that the relevant reports from the independent investigation and independent control consultants were not available. Alternatively, the said conclusion was procedural unfair and/or lacked adequate reasons and/or was irrational.  In the premises, the LRC’s finding that the Company might be unsuitable for continued listing under rule 6.01(4)  of the Listing Rules is flawed.

(2)  Ground 2: In finding that the Company was “unlikely to” publish outstanding audited financial results and therefore comply with the RGs in the “near future”, the LRC made a mistake of fact and/or as failed to take into account relevant considerations and/or was irrational.

47.In his oral submissions, Mr Cheung acknowledged that the LRC did not say that the reports were “not available”, and he invited me instead to read the reference in Ground 1 to those reports being “not public”.

G.  Ground 1

48.In his written submissions, Mr Cheung cast this ground as an “error in respect of assessing the suitability for listing”. He submitted that the finding that the Company is no longer suitable for listing was predicated on a material error of fact (thereby constituting an error of law), so that it should be quashed.

49.He submitted that it was an integral part of the LRC Decision that the LRC found – in what he defined as the “Finding” – that the Elite ICR Report and the Mazars Report respectively had not been published, so that it remained unclear whether the Company had sufficiently investigated the conduct that led to the occurrence of the Unauthorised Payments and remediated any deficiencies in the internal controls: see the LRC Decision §52.

50.Mr Cheung submitted that the reasoning underpinning the Finding is premised on an error of material fact and unfair to the Company, contrary to the settled principles of fairness, and provides a legal basis for a ground of challenge when a decision is based upon a mistake of fact.  He submitted that:

(1)  the Finding is wrong and contradicted by the evidence before the LRC, that the Unauthorised Payment should not cause doubt or concern over the suitability for listing, not least when no response or comment was given by the Listing Division or the LRC members to the explanation given by Mr Chong;

(2)  therefore, (a) there was a mistake as to existing fact, (b) the truth was capable of being “established” in the sense that it was uncontentious and objectively verifiable, (c) the Company was not responsible for the mistaken Finding, having submitted evidence to the contrary, and (d) the mistake must have played a material part in the LRC’s reasoning;

(3)  the Finding, based on the lack of reports, was used to support the expression of doubt as to whether matters had been sufficiently investigated, but that conclusion was procedurally unfair when the Company did not know the case against it after Mr Chong had given his oral replies to the question;

(4)  the Finding was also Wednesbury unreasonable in that the LRC unreasonably and unnecessarily elevated the findings of the investigation report as an essential factor in the assessment of suitability, when the results of the investigations were not part of the resumption conditions.

51.However, I agree with Mr Dawes that this Ground 1 is actually based on a fundamental misunderstanding as to the basis of the LRC Decision.

52.The LRC Decision was actually based on the Company’s failure to fulfil the existing Resumption Guidance, and the lack of any exceptional circumstances justifying the grant of an extension of time in order to do so.  Whilst the LRC did indicate that it shared the Listing Division’s concerns arising from the Unauthorised Payments, no actual finding was made on that point and the decision to uphold the delisting was simply not made on the basis of any issue arising out of the Unauthorised Payments.

53.I also agree with Mr Dawes’ submission that the LRC’s concerns were not based on a finding that Elite RA or Mazars “had yet to complete their investigations and/or that the investigation reports were not ready” as is suggested in the Form 86.  Indeed, as I have pointed out above, Mr Cheung properly clarified in his oral submissions that his case could only be on the basis that the reports had not been “published”.  However, once that is accepted, it also identifies that there was no mistaken finding, as it was factually correct that the Elite ICR Report and the Mazars Report had not been published, which is what led to the comment by the LRC that it remained unclear whether the Company had sufficiently investigated the conduct that led to the occurrence of the Unauthorised Payments and remediated any deficiencies in its internal controls.

54.Nor was there any procedural unfairness.  It is to be remembered that the onus lies on the listed issuer – here the Company – to adduce all such evidence that it wishes to rely upon for the purposes of any review application.  Therefore, if any listed issuer takes the view that the LRC should consider certain documents or information, it is that listed issuer which must assume responsibility to ensure that such materials are placed before the LRC, and in a timely manner.  There is no obligation on the LRC to make further general enquiries, or to ask for potential documents not already provided by the listed issuer, so as to see whether there is some other basis upon which the listed issuer might rely in the review application.  Not to make such enquiries does not amount to any procedural unfairness.

55.It can also be added that it was clearly not procedurally unfair for the LRC not to follow up on what Mr Chong said about the Unauthorised Payments, when the question being addressed in the review was whether the Company had or had not met the Resumption Guidelines, and (if not)  whether it should be given any extended deadline for so doing.

56.Ground 1 is not reasonably arguable with any reasonable prospect of success.

H.  Ground 2

57.In his written submissions, Mr Cheung cast this ground as an “error in assessing the likelihood of publishing audited results”, and placed reliance on the settled principle that a failure to take into account a non-mandatory consideration might still be challenged on the grounds that the failure was Wednesbury unreasonable.

58.Mr Cheung submitted that the LRC erred in this case, in a way which was Wednesbury unreasonable, because:

(1)  the Company submitted in writing that its audit issues would be resolved by the time the audited financial results were published, and the outstanding audited financial statements were, as a matter of fact, published two days after the LRC Decision on 30 June 2022;

(2)  the Company also explained that, based on discussions with Elite CPA, the outstanding results (audited results for FY 2019, interim results for HY 2020, and audited results for FY 2020)  would be published by mid-June 2022 as it previously expected “and the 2019 Annual Report and 2020 Annual Report will be dispatched accordingly”;

(3)  yet, despite these assurances from the Company, the LRC Decision did not take them into account when assessing the likelihood of publishing the relevant statements.

59.This Ground 2 is targeted at the finding in the LRC Decision that the Company had failed to comply with RG1, which required the Company to publish all outstanding financial results and address any audit modifications before the end of the Prescribed Remedial Period.  As is immediately apparent, there is a mismatch between (a) the targeted finding that the Company had failed to comply with RG1 and (b) the argument that the Company was likely to publish the relevant statements at some point in the future, which likelihood was allegedly improperly assessed.

60.As Mr Dawes submitted, the Company was in clear and indisputable breach of the requirement in RG1, and remained in clear and indisputable breach at the time of the hearing before the LRC:

(1)  the Company did not publish any of its outstanding audited financial results – for FY 2019, HY 2020, FY 2020 and HY 2021 – by the Prescribed Remedial Period deadline;

(2)  the failure to publish those audited financial results continued up to the date of the LRC hearing on 21 June 2022, and the LRC Decision on 28 June 2022.

61.Mr Dawes submitted that even when subsequently published, the audited financial results for FY 2019 and FY 2020 were subject to a series of disclaimers, and lacked the underlying audit reports.  However, the ‘after the event’ matters are essentially irrelevant in any event.  The Company’s reliance on the assurances it gave in its submissions to the LRC that it would be able to resolve its audit issues within some short period of time – and even a suggestion that it had done so – does not answer the failure to have met RG1 either (a) by the expiry of the Prescribed Remedial Period, or (b) even by the further time up to the LRC hearing and LRC Decision.

62.Though strictly unnecessary to do so, I also agree with Mr Dawes that the “assurances” provided by the Company were little more than bare assertions that the audit issues as clearly remained would be addressed in some manner at some point in time.  In any event, the LRC did not commit any error of fact or act in any Wednesbury unreasonable manner.

63.Ground 1 is not reasonably arguable with any realistic prospect of success.

I.  Futility

64.Mr Dawes also argued that the Company’s application is, in any event, futile.  Even taking the Company’s case at its highest and assuming that both grounds of judicial review might be established, the Company has not challenged the LRC’s finding that the Company failed to comply with RG2 and RG3.  Nor is there any legal basis to challenge those findings.

65.There is considerable force in that submission. The Company was required to meet all of – and not merely some of – the Resumption Guidance, and to do so before the expiry of the Prescribed Remedial Period (or any properly extended period).  Pointing out that the Company either had, or might be about to, comply with only part of that Resumption Guidance will not remove the LRC’s entitlement to have upheld the LC Decision.

66.But, in any event, as there is no merit in either Ground 1 or Ground 2, it is unnecessary to rely on the futility point as well.

J.  Result

67.The reasons set out above identify why I decided that the Company’s application for leave to apply for judicial review should be dismissed.

68.I see no reason why costs should not follow the event.  In any event, Mr Cheung did not suggest to the contrary.  Instead, he submitted that there ought to be no certificate for two Counsel.

69.Mr Dawes sought a certificate for two Counsel on the basis that the decision in this case might be of importance and have impact on other cases “in the pipeline”, such that the Exchange properly thought it important to protect the appropriate interests and to provide full assistance to the Court.

70.However, ultimately, I agree with Mr Cheung that Mr Dawes’ own submission that this was such a clear case, of an obviously unmeritorious application for leave to apply for judicial review, rather counts against the application for the certificate for two Counsel.

71.In the exercise of my discretion, I refuse that certificate (such that the Exchange will be limited to seeking the costs of Mr Dawes alone, rather than both Mr Dawes and Mr Chan).

72.As a result, the costs order is that the Company shall forthwith pay the Exchange’s costs, to be taxed if not agreed.

Mr Keith Cheung, instructed by Winston & Strawn, for the applicant

Mr Victor Dawes, SC and Mr Joshua Chan, instructed by MinterEllison LLP, for the putative respondent