Huang Qingzhan v. China Ding Yi Feng Holdings Ltd
Read the full judgment text of CACV 103/2020 on BabelCite. This Court of Appeal judgment was delivered on 1 March 2023.
1. The principal issue which arises for determination in this appeal is whether China Ding Yi Feng Holdings Limited (formerly known as China Investment Fund Company Limited, “ the Company ”) committed a default in relation to the first interest payment due and payable on 31 March 2016 to Huang Qingzhan (“ Mr Huang ”), a subscriber of 10 fixed interest rate notes (“ the Notes ”) in the aggregate principal amount of HK$10,000,000 issued by the Company to him on 30 April 2015, and such default cont
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CACV 103/2020 [2023] HKCA 237 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CIVIL APPEAL NO 103 OF 2020 (ON APPEAL FROM HCMP NO 1102 OF 2019) _________________
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_________________ J U D G M E N T _________________ Hon Chow JA (giving the Judgment of the Court): INTRODUCTION 1.The principal issue which arises for determination in this appeal is whether China Ding Yi Feng Holdings Limited (formerly known as China Investment Fund Company Limited, “the Company”) committed a default in relation to the first interest payment due and payable on 31 March 2016 to Huang Qingzhan (“Mr Huang”), a subscriber of 10 fixed interest rate notes (“the Notes”) in the aggregate principal amount of HK$10,000,000 issued by the Company to him on 30 April 2015, and such default continued for a period of 5 days. BACKGROUND (i) The Notes 2.The Company, incorporated in the Cayman Islands, is listed as an investment company on The Stock Exchange of Hong Kong Limited (“HKEx”). 3.Mr Huang was a Mainland resident. 4.On 26 March 2015, the Company entered into a Placing Agreement with China Rich Securities Limited (“China Rich”), whereby the latter agreed to procure, as agent of the Company, subscribers for the Notes of up to HK$70,000,000 to be issued by the Company. The Notes carried a fixed interest rate at 5% per annum, and were redeemable on the 8th anniversary of the date of issue of the Notes. The Notes were a form of “qualifying investment” under the Capital Investment Entrant Scheme of Hong Kong. 5.Guoco Capital Limited (國浩資本有限公司) (“Guoco”) was a broker of China Rich, and procured Mr Huang to be a subscriber of the Notes. Apparently, Mr Huang subscribed for the Notes in support of his application for settlement in Hong Kong under the aforesaid scheme. 6.On 29 April 2015, the Company and Mr Huang entered into a subscription agreement (“the Subscription Agreement”), whereby Mr Huang agreed to subscribe for the aggregate principal amount of HK$10,000,000 of the Notes. The name and details of Mr Huang are set out in Schedule 5 to the Subscription Agreement, including the following:
7.On 30 April 2015, the Subscription Agreement was completed, and the Company issued 10 certificates with number 0021-0030 (“the Certificates”) in respect of the Notes in the aggregate principal amount of HK$10,000,000 to Mr Huang. 8.Each Certificate states, inter alia, the following:
9.The terms and conditions of the Notes (“Conditions”) are set out at the back of Certificates. The following Conditions are relevant for the present purpose:
10.As mentioned in the Conditions, the Notes Instrument was executed by the Company by way of a deed poll. In the Notes Instrument:
11.Clause 8.4 of the Notes Instrument states as follows:
12.According to the Company, the details of the Account appearing in Schedule 5 to the Subscription Agreement were duly noted as the “registered account” of Mr Huang, and Guoco was duly noted as the Approved Investment Bank selected by Mr Huang. (ii) The Company’s attempt to make the first Interest Payment on 31 March 2016 13.Under Condition 4, the first interest payment (“Interest Payment”) under the Notes fell due on 31 March 2016. On that date, the Company delivered a cheque in the amount of HK$459,726 (being the amount of the first Interest Payment) drawn on its own DBS account and made payable to Guoco, to DBS for payment into the Account. However, the Company was informed by DBS that it was unable to accept the Cheque and process the payment into the Account as “the bank account details provided were insufficient”. The Cheque was thus returned to the Company. 14.Pausing here, it may be noted that the Company delivered the Cheque together with 3 other cheques relating to some other subscribers to DBS on 31 March 2016, but apparently they were all returned by DBS on that date. 15.Not being able to effect the first Interest Payment into the Account, Ms Hong (the Company Secretary of the Company) then contacted China Rich to find out how to contact the Approved Investment Bank, and was directed to one Mr Lok of Guoco. Ms Hong informed Mr Lok that the Company was unable to pay in the Cheque to the Account because of insufficient details. Mr Lok told her that he could deal with the Cheque and asked her to deliver it to him at the HK Address (being also the office address of Guoco). Ms Hong sent the Cheque (together with the other 3 returned cheques mentioned above) to Guoco (for the attention of Mr Lok) under cover of a letter dated 31 March 2016. Mr Lok acknowledged receipt of the 4 cheques by his signature together with a company chop of “Mason Securities Limited” (“Mason”), the new name of Guoco. 16.However, on 24 May 2016, Mr Lok returned the 4 cheques to the Company, stating that Mason had no agreement with the Company and could not receive the 4 cheques. (iii) The first Interest Payment eventually made on 23 August 2016 17.Troutman Sanders (the Company’s former solicitors) sent a letter dated 25 May 2016 to Mr Huang by email (to the Email Address) and by post (to the HK Address and the Mainland Address). In that letter, Troutman Sanders informed Mr Huang about what had happened in respect of the first Interest Payment (including the fact that DBS had informed the Company there was insufficient information for DBS to accept the Cheque). There was no reply to Troutman Sanders’ letter of 25 May 2016. The email had apparently not been read by Mr Huang, and the letter sent to the HK Address (being the correspondence address of Mr Huang as stated in Schedule 5 to the Subscription Agreement) was returned through the post marked “address incomplete”. 18.Troutman Sanders sent a further letter dated 20 June 2016 to Mr Huang by email (to the Email Address) and by post (to the Mainland Address). In that letter, Troutman Sanders stated that the Company had not been able to effect the first Interest Payment through no fault of its own, and informed Mr Huang that the Company was holding the sum of HK$459,726 on trust for Mr Huang unless and until he provided complete and accurate details of a bank account to receive the money. Again, Mr Huang did not reply to this letter, although there was a “read” report received by Troutman Sanders in respect of the email. 19.On 22 July 2016, Patrick Mak & Tse (Mr Huang’s former solicitors) wrote to the Company, stating that they were instructed by a Madam Lin who had been authorized by (inter alia) Mr Huang to receive the interest payment and to discuss matters relating to the redemption of the Notes. Patrick Mak & Tse further asked the Company to provide information regarding the amount of interest payable by the Company and the date of payment of the interest. Troutman Sanders responded to Patrick Mak & Tse’s letter on 29 July 2016. For the purpose this judgment, it is not necessary to set out the contents of Troutman Sanders’ letter of 29 July 2016. 20.Subsequently, Patrick Mak & Tse sent another letter to Troutman Sanders dated 16 August 2016, alleging that Mr Huang was entitled to redeem the Notes by reason of the Company’s default in making the first Interest Payment contrary to (inter alia) Condition 8(i). Patrick Mak & Tse further requested, on behalf of Mr Huang, that the Notes be redeemed, and that the redemption amount together with the outstanding interest be paid to an account of Mr Huang at China Construction (Bank) Asia Corporation Limited. On 23 August 2016, the Company, through Troutman Sanders, sent a cheque drawn in favour of Mr Huang in the amount of HK$459,726 to Patrick Mak & Tse in satisfaction of the first Interest Payment. 21.Thereafter, the parties engaged in further correspondence on the issue of the Company’s alleged failure to make the first Interest Payment on the due date. In the meantime, the Company continued to make Interest Payments by cheques made payable to Mr Huang’s authorised representative (Madam Lin), and those payments were accepted by Madam Lin without prejudice to Mr Huang’s rights under the Notes (including the right to seek early redemption of the Notes by reason of the Company’s default in relation to the first Interest Payment). The last Interest Payment was made by the Company on or about 29 March 2019 in respect of the seventh Interest Payment due on 31 March 2019. 22.By a letter to the Company dated 13 March 2019, Tso Au Tim & Yeung on behalf of Mr Huang demanded for early redemption of the Notes on the grounds of (i) the Company’s default in relation to the first Interest Payment, and (ii) the suspension of trading of the Company’s shares on the HKEx on 8 March 2019 (“the Suspension”) upon the direction of the Securities and Futures Commission, which it was alleged constituted a breach of warranty (“Warranty 2.2”) contained in the Subscription Agreement and a further event of default by the Company under Condition 8(iii) of the Notes. 23.On 2 May 2019, Tso Au Tim & Yeung served a statutory demand on the Company, requiring it to pay to Mr Huang the sum of HK$10,041,666.67, being the principal amount of the Notes and interest thereon from 1 April 2019 to 30 April 2019 at the rate of 5% per annum. THE ACTIONS 24.On 17 May 2019, the Company issued an originating summons in HCMP 719/2019 to seek the court’s determination of the following 2 questions:
25.On 29 July 2019, Mr Huang issued an originating summons in HCMP 1102/2019 to seek the court’s determination of (inter alia) the question of whether he was entitled to seek early redemption of the Notes by reason of the Company’s late payment of the first Interest Payment due on 31 March 2016. 26.With the consent of the parties, the 2 actions were determined together by the Honourable Madam Justice Linda Chan on paper without an oral hearing. THE DECISION 27.On 19 March 2020, the Judge gave a written decision (“the Decision”) in the 2 actions ([2020] HKCFI 484). 28.In respect of HCMP 719/2019, the Judge found in favour of the Company, holding that it was not in breach of Warranty 2.2 by reason of the Suspension, and thus Mr Huang was not entitled to seek early redemption of the Notes on that ground. It is not necessary to say anything further about this matter because there is no appeal against the Judge’s decision in HCMP 719/2019 (save in relation to the issue of costs). 29.In respect of HCMP 1102/2019, Mr Huang contended that he was entitled to seek early redemption of the Notes by reason of the Company’s default in making the first Interest Payment due on 31 March 2016. His arguments were summarized by the Judge at §48 of the Decision:
30.On the other hand, the Company argued that:
31.The Judge found against the Company, holding that (i) it had failed to make the first Interest Payment on 31 March 2016, which constituted a breach of Conditions 4 and 5 of the Notes, and (ii) as the breach continued for more than 5 days, there was a “Payment Default” under Condition 8(i), thereby entitling Mr Huang to seek early redemption of the Notes, which he did through Patrick Mak & Tse’s letter of 16 August 2016. 32.The Judge’s reasoning for her decision can be found at §§50-56 of the Decision, as follows:
33.The Judge accordingly ordered the Company to forthwith return to Mr Huang the principal sum of HK$10,000,000 together with interest thereon at 5% per annum from 1 October 2019 to the date of judgment (19 March 2020) and thereafter at judgment rate from 20 March 2020 to the date of payment (“the Order”). THE PRESENT APPEAL 34.The Company appealed against the Order by a Notice of Appeal dated 4 April 2020. The Notice of Appeal contains 8 paragraphs, raising the following 5 substantive grounds of appeal:
GROUND (1): THE “REGISTERED ACCOUNT” 35.This ground raises the question of whether the Account as particularised in Schedule 5 to the Subscription Agreement should be regarded as beingis the “registered account” for the purpose of Condition 5 of the Notes. In our view, it is clear that the answer is in the affirmative, for the following reasons:
36.The Judge held otherwise, for 3 main reasons:
37.In all, we consider that the Judge erred in her view that the Account was not the registered account of Mr Huang for the purpose of Condition 5. GROUNDS (2) AND (4): TRANSFER OF IMMEDIATELY AVAILABLE FUNDS IN HONG KONG DOLLARS TO THE REGISTERED ACCOUNT 38.These 2 grounds of appeal can be considered together. 39.Two alternative methods of payment are prescribed under Condition 5(A), namely:
40.Condition 5(C) further provides (inter alia) that where payment is to be made by transfer to a registered account, the “payment instructions will be given on the due date for payment”. 41.Reading these 2 provisions together, where the first method of payment is used, the following requirements must be satisfied:
42.In the present case, the Company attempted to make the first Interest Payment to Mr Huang by delivering the Cheque to DBS for payment into the Account on 31 March 2016. The question is whether what the Company did sufficiently complied with the 4 requirements mentioned in §41 above. 43.We shall first consider the 2nd requirement, ie “transfer”. Mr Benjamin Yu, SC submits that “transfer” is a word of wide import, and there is nothing in Condition 5 to restrict the meaning of that word to any particular form or mode of transfer. We agree with this submission. The relevant context here is the transfer of a sum of money to a bank account. Generally speaking, a transfer of money to a bank account may be effected in a variety of ways, eg by depositing cash into the bank account, inter-bank transfer/CHATS, intra-bank transfer, telegraphic transfer, or some other more modern methods such as FPS, PayMe etc. So long as the account is ultimately credited with the money, there would be an effective transfer. In so far as payment by cheque is concerned, a cheque is, by definition, an unconditional order in writing given by the drawer of the cheque to his banker to pay on demand a sum of money to, or to the order of, the payee in the case of an order cheque (or to bearer in the case of a bearer cheque)[8]. In our view, the requirement of “transfer” under Condition 5 does not preclude the use of a cheque for making the relevant payment where the cheque is presented by the Company to the payee's bank for deposit into the payee's account and not simply given to the payee. 44.By delivering the Cheque to DBS for payment into the Account, the Company in substance gave a payment instruction to DBS to transfer the amount of the Cheque into the Account. Had the Cheque been accepted by DBS and cleared, there could not have been any doubt that the 2nd requirement (ie “transfer” of funds) was satisfied. We shall further consider the reason why the transfer could not be effected later in this Judgment. 45.The 3rd and 4th requirements are easily satisfied on the facts of the present case:
46.This leaves the 1st requirement (“immediately available funds”). There was no evidence before the Judge as to the time that it would normally take for a cheque drawn on a bank account and paid into an another account with the same bank to be cleared. We are prepared to assume in favour of Mr Huang that the Company’s attempted payment by delivering the Cheque to DBS for payment into the Account on 31 March 2016 could not be regarded as payment in “immediately available funds”. This having been said, but for the fact that the Cheque was not accepted by DBS due to “insufficient details”, we believe that the Cheque, in the normal course of events, would have been cleared within 5 days. In other words, even if there was a default by the Company in relation to the first Interest Payment, the default would not have continued for a period of 5 days, and thus the right to early redemption of the Notes under Condition 6(B) would not have been triggered. 47.As we see it, the root problem in the present case lies in the fact that the Cheque was not accepted by DBS for payment into the Account because “the bank account details provided were insufficient”. Neither party has sought to find out why DBS considered the bank account details provided to be “insufficient”. There is evidence that Guoco changed its name to Mason Securities Limited (民信證券有限公司) on 25 February 2016[9], and it is possible that DBS rejected the Cheque because it was made out in favour of 國浩資本有限公司 (the old name of Guoco). On the other hand, in Mr Lok’s letter to the Company dated 24 May 2016, it was stated the change of name only took place in April 2016 (ie after the date on which the Company delivered the Cheque to DBS for payment into the Account). We consider that the Court should not speculate into the reason(s) why the Cheque was not accepted by DBS, but should proceed on the unchallenged evidence of Ms Hong that the Cheque was not accepted because the bank account details provided were insufficient. 48.We accept Mr Yu’s submission that it was an implied term of the agreement between the parties, being an obvious inference therefrom and to give business efficacy to the same, that insofar as Mr Huang provided to the Company details of an account for receiving payment of interest under the Notes, he was under an obligation to provide accurate and adequate information of that account. Further, we consider that this implied obligation on the part of Mr Huang extended to the provision of updated information if there was any material change in the information previously provided. The materials before the Court suggest that the details of the Account provided by Mr Huang were either not accurate or adequate (or were no longer accurate or adequate by 31 March 2016), and thus the Account could not be used for effecting transfer of payment to him. Mr Huang claims that he does not know why the information relating to the Account of Guoco appeared in Schedule 5. This alleged lack of knowledge cannot assist Mr Huang, because the information must have been provided by him or by Guoco on his behalf, and he signed the Subscription Agreement and was therefore bound by the contents of the Subscription Agreement. 49.The above state of affairs brings into play the “prevention principle” relied upon by Mr Yu. As explained by Ribeiro PJ (with whom the other members of the Court of Final Appeal agreed) in Kensland Realty Ltd v Whale View Investment Ltd (2001) 4 HKCFAR 381, the prevention principle is, at its heart, the long-established legal principle that a person is not permitted to take advantage of his own wrong (§91), and the principle may be given effect in different ways, including implementation “as a substantive principle of law that precludes the wrongdoer from taking advantage of his own wrong, whatever the contract may say and however clearly the contract may appear to confer on the wrongdoer an unqualified right to enjoy such advantages” (§97), or “as one of construction, holding that the contractual terms with which they are concerned must be construed by applying the principle as a canon or presumption of construction” (§98), or “by deeming the condition to have been met” (§99). In the contractual context, there are two conditions to the principle’s operation: (i) the need to show a relevant breach of contract by a party, and (ii) the need to show that the contractual rights or benefits which the party in question is seeking to assert or claim arise as a direct consequence of that party's prior breach (§§94 & 96). 50.Both conditions are satisfied on the facts of the present case. In respect of (i), Mr Huang was in breach of his obligation to provide accurate and adequate, up-to-date, details of an account to receive payments from the Company under the Note, which led to the Company being unable to make the first Interest Payment to the Account by the first method as prescribed in Condition 5(A). In respect of (ii), Mr Huang’s claimed entitlement to redeem the Notes early by reason of a “Payment Default” committed by the Company under Condition 8(i), ie a failure to make the first Interest Payment on the due date and such failure continued for 5 days, was the direct consequence of his breach of the said obligation. 51.The Judge rejected the Company’s reliance on the prevention principle for 2 reasons. She considered that: (i) it had never been made clear, let alone proved, why the information on the Account was incorrect or incomplete, and (ii) once the Company became aware that the information on the “registered account” was incorrect, it could resort to the second method prescribed in Condition 5(A)[10]. Neither reason seems to us to be valid or sufficient to deny the application of the prevention principle in the present case. As for (i), we consider that the precise reason why the information on the Account was regarded by DBS to be incorrect or incomplete is not determinative, so long as the evidence points to Mr Huang being in breach of his obligation to provide accurate and adequate, up-to-date, details of an account to receive payments from the Company under the Note. As for (ii), we consider that the second method of payment under Condition 5(A) was not applicable (see the discussion under Ground (3) below), and the Company was under no obligation to resort to that method to make the first Interest Payment. 52.For the foregoing reasons, we are of the view that Mr Huang was not entitled to demand for early redemption of the Notes under Condition 6(B). GROUND (3): WHETHER THE COMPANY SHOULD HAVE MAILED THE CHEQUE TO THE MAINLAND ADDRESS 53.As earlier mentioned, Condition 5(A) provides two alternative methods for the Company to make payment to Noteholders. However, the second method (ie mailing a HKD cheque to the registered address of a Noteholder) can only be resorted to if the Noteholder “does not have a registered account”. 54.We have concluded that Mr Huang did have a “registered account”. It follows that the Company was not entitled, and in any event not obliged, to utilize the second method prescribed by Condition 5(A) to make the first Interest Payment to Mr Huang. To the extent that the Judge held that the Company was under an obligation to do so[11], we disagree. GROUND (5): WAIVER 55.Having reached the above conclusions, it is unnecessary for us to consider the issue of waiver raised under this ground of appeal. DISPOSITION 56.The Company’s appeal is allowed, the Order is set aside, and Mr Huang’s action against the Company in HCMP 1102/2019 is dismissed. We do not have information on whether the Company has returned the principal amount of the Notes and interest thereon to Mr Huang pursuant to the Order, and (if yes) the date on which the Company made payment to Mr Huang. We give liberty to the parties to apply (if so advised) for such further or other relief as may be necessary to give effect to this judgment. 57.The Company shall have the costs of the appeal, to be taxed if not agreed, with certificate for 2 counsel. As for the costs of the action below, the Judge made no order as to costs in the two actions (which were determined together but not formally consolidated) in view of the fact that the Company was successful in HCMP 719/2019 but Mr Huang was successful in HCMP 1102/2019. Since we have now allowed the appeal in HCMP 1102/2019, the Company is successful in both actions. Prima facie, the Company should have the costs of both actions. In the Notice of Appeal dated 2 April 2020, the Company has sought an order that it should have the costs of the action in HCMP 719/2019 as well. The Company has not lodged any separate notice of appeal against the Judge’s order as to costs in HCMP 719/2019, although it obtained leave to appeal from the Judge on 14 May 2020. It may be that, strictly speaking, a separate notice of appeal should have been served, or the existing Notice of Appeal (including its title) ought to have been amended to make it clear that the appeal is against 2 separate orders made by the Judge in two actions. As a matter of fact, in Lau, Horton & Wise LLP (the Company’s solicitors)’s letter dated 30 October 2020 to the Registrar of Civil Appeals (copied to Mr Huang), they proposed to amend the Notice of Appeal by adding HCMP 719/2019 to the heading and also making reference to the Judge’s order granting leave to appeal. However, on 23 December 2020, the Registrar of Civil Appeals directed that -
In all the circumstances, we are prepared to deal with the costs of the action in HCMP 719/2019 as well, granting leave to the Company to make such amendments to the Notice of Appeal as may be necessary for this matter to be dealt with by the Court. We further make an order that the Company shall have the costs of both actions, to be taxed if not agreed. 58.The above order as to costs is an order nisi, which shall become absolute unless an application is made to vary the same within 14 days from the date of the order. 59.Lastly, we record that at the hearing on 16 December 2022, the Court made an order that the Company’s appeal in CACV 134/2020 be dismissed with costs to Mr Huang, to be taxed if not agreed.
Mr Kwok Kam Kwan & Mr Au Pak Ching, instructed by Siu and Company, for the Plaintiff Mr Benjamin Yu SC and Ms Andrea Yu, instructed by Lau, Horton & Wise LLP, for the Defendant [1] See §51 of the Decision. [2] See §52 of the Decision. [3] See §10 of the Affirmation of Hong Lai Ping (the Company Secretary of the Company) filed on 20 September 2019. [4] See §10(a) of the 1st Affirmation of Mr Huang filed on 29 July 2019. [5] See §55(1) and (2) of the Decision. [6] See §55(3) of the Decision. [7] See §55(3) of the Decision. [8] See ss 3(1) and 73(1) of the Bills of Exchange Ordinance, Cap 19. [9] See the Company Name Search produced by Ms Hong as “HLP-3” to her Affirmation filed on 20 September 2019. [10] See §53 of the Decision. [11] See §§53, 54 and 56 of the Decision. | |||||||||||||||||||||||
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