Cheng Ka Yan and Others v. Grand Xi Investments Pte Ltd and Others

HCA 1607/2022

[2023] HKCFI 886

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1607 OF 2022

_____________

_____________

_______________

D E C I S I O N

_______________

Introduction

1.This is the hearing of the summons dated 6 December 2022 issued by the 4^th defendant Gold Topmont Limited (“GT”) (in receivership) for an interlocutory injunction against Cheng Ka Yan (“P1” or “Cheng”) and Hou Qin (“P2”), GT’s former directors (collectively “the Plaintiffs”).

2.GT is the borrower under a facility agreement dated 15 March 2022 (“the Facility Agreement”), the lender being the 1^st defendant (“Grand XI”), a special purpose vehicle wholly owned by Oaktree Global Opportunities Xb and XI Funds (“Oaktree”).

3.On 10 November 2022, Grand XI appointed the 2^nd and 3^rd defendants who are partners of PricewaterhouseCoopers (“PwC”) as the joint and several receivers of GT (“the Receivers”) on the basis that there had been events of default under the Facility Agreement.

4.On 9 December 2022, Harris J made an interim-interim injunction order (“the injunction order”), inter alia, restraining the Plaintiffs from holding themselves out as directors of GT. This is the substantive hearing of the summons and, at its conclusion, this Decision was reserved which I now give.

5.At the outset of the hearing, submissions were made regarding a raft of last-minute summonses taken out by the Plaintiffs (including one taken out the day previous to the hearing) for leave to file various draft affirmations exhibiting new material.

6.The Plaintiffs issued (i) a summons dated 17 February 2023 (“the 1^st summons”) for leave to file a draft affirmation of KM Wong (“Wong 2^nd”) exhibiting, inter alia, an Investment Brochure (“the Brochure”) bearing a date of 30 September 2022 issued by Oaktree; (ii) a summons dated 24 February 2023 (“the 2^nd summons”) for leave to file Ting’s 2^nd affirmation; and (iii) a summons dated 27 February 2023 (“the 3^rd summons”) for leave to file Pan’s 2^nd affirmation exhibiting a copy of the audio recording of Pan’s conversation with RC on 26 February 2023 and the corresponding transcript.

7.Following receipt of the 1^st summons, GT issued a summons on 24 February 2023 for leave to file Wardrop’s 2^nd affirmation (“Wardrop 2^nd”) in the event of the court granting leave for the filing of Wong 2^nd. Needless to say, given the dates of the 2^nd and 3^rd summonses, GT has not had an opportunity to reply to the matters raised therein.

8.The court indicated that the new material would be read on a de bene esse basis and their admissibility dealt with in this Decision.

9.In addition to the last-minute summonses, the Plaintiffs filed their amended statement of claim (“ASOC”) on 27 February 2023, the day prior to the hearing.

Factual background

10.GT is the owner and developer of a first-hand luxurious residential development project comprising 400 residential units and 280 parking spaces in Ho Man Tin (“the Development”). The sale of the units is governed by the Sales of First-hand Residential Properties Authority (“SRPA”) and the Residential Properties (First-hand Sales) Ordinance, Cap 621.

11.GT was controlled and beneficially owned by Pan Sutong (“Pan”) through various BVI companies. Pan was the chairman of the Goldin Group and was adjudicated bankrupt on 8 July 2022[1]. The Plaintiffs have been long-term employees of Pan.

12.The 5^th defendant, Billion Trend Development Limited (“BT”) also owned by Pan provided 2^nd mortgages to purchasers of pre-sale of units in the Development. It previously financed those mortgages through financing provided by Xinhua. The 3^rd plaintiff Liu Zhaolu (“Liu”) was BT’s director prior to her removal by Grand XI.

13.In May 2017, GT obtained financing of approximately $7.2 billion[2] for the land acquisition costs and construction fees of the Development from various lenders including Industrial & Commercial Bank of China (Asia) Ltd (“ICBC”) under a facility agreement (“the 2017 FA”).

14.Pre-sale of the units commenced in June 2019 but the social unrest in 2019 coupled with the outbreak of Covid-19 in early 2020 had an adverse impact and it was less successful than expected. GT ran into liquidity problems as insufficient sale proceeds were being generated to settle construction fees owed to the main contractor, Gammon Engineering & Construction Company Limited (“Gammon”).

15.In May 2020, GT entered into a loan facility agreement with Outstanding Management Consultation Limited (“OMCL”) for a loan facility of $500 million (“the OMCL loan”) to finance its operating costs and to settle outstanding construction fees.

16.However, its liquidity problem persisted and it was unable to settle construction fees owed to Gammon who suspended all construction works from about March 2021. In August 2021, the pre-sale consent was withdrawn by the Government and pre-sale of units was also suspended.

17.In January 2022, ICBC appointed receivers over GT’s shares pursuant to the 2017 FA.

18.By that stage, Gammon estimated that the Development could be completed in 6 months. Colliers’ various valuations of the Development carried out between May 2020 and December 2021 show an average value in excess of $17 billion which well exceeded GT’s indebtedness.

19.GT then sought to refinance the 2017 FA so as to regain control of the Development and settle the outstanding construction fees so that construction could be resumed and completed. In December 2021 and January 2022, Pan, P3 and Raymond Chan (“RC”) who was the managing director and co-head of Asia for Oaktree Opportunities Funds in Asia-Pacific explored the possibility of Oaktree refinancing the 2017 FA.

20.Following the 1^st formal meeting on 14 January 2022, RC sent a draft term sheet to GT on 17 January 2022, offering a facility of $7.2 billion.

21.Further negotiations ensued and on 15 March 2022, Grand XI (as the agent) entered into the Facility Agreement with, inter alia, GT (as borrower) and Serica Agency Ltd (“Serica”) (as security agent), under which a loan of $7.5 billion was advanced to GT on 30 March 2022 to refinance the indebtedness of GT and to fund the remaining construction of the Development.

22.The Facility Agreement was subject to various conditions precedent including the submission of the Plaintiffs’ “Business Plan[3]”. That included a Sales Plan which is in Schedule 13 to the Facility Agreement. It contemplated sales in August and September that would yield net revenue of almost $990 million.

23.The loan extended was secured by inter alia a debenture over the entire undertaking of GT, a charge over the entire issued share capital of GT; and a property mortgage over the Development but the latter could only be registered against the Development upon issuance of the certificate of compliance on 29 August 2022.

24.Each of the Plaintiffs signed and delivered to Serica undated letters of resignation and an authorisation letter, authorising Serica to date the resignation letters as and when the security had become enforceable.

25.The Facility Agreement was amended on 8 June 2022 following a further loan equivalent to $122 million advanced to GT for the purpose of refinancing BT’s debts. Cheng (executing the Deed of Amendment as director of certain of the Obligors) acknowledged and admitted the occurrence of the events of default referred to in the April default notice[4]. At the same time, Grand XI expressly reserved its rights in that regard[5].

26.Based on one or more events of default within clause 23 of the Facility Agreement having occurred, Grand XI enforced its security on 10 November 2022.

Default notices

27.Ground XI served two default notices. On 27 April 2022, it served a default notice (the “April default notice”) in relation to issues arising out of the OMCL loan.

28.Apart from the OMCL loan itself, they relate to OMCL’s action[6] against GT to recover from GT the OMCL loan and interest totalling some $811 million (“the OMCL indebtedness”), GT’s failure to provide certain “Original Financial Statements[7]” (which constituted a breach of a condition precedent), and the payment default by GT, all of which constituted separate, material and continuing events of default. As Grand XI considered that the OMCL action would adversely affect its interests, that also constituted an event of default within clause 23.16 (a).

29.On 3 October 2022, after GT failed to pay the interest and fees payable on 30 September 2022, Grand XI issued the default notice to GT (“the October default notice”).

30.On 10 November 2022, Grand XI issued the acceleration and demand notice. Serica appointed D2 and D3 receivers and managers over the shares of GT and the Development. They were also appointed GT’s directors in place of the Plaintiffs.

31.Notwithstanding the events of default and their removal as directors of GT, the Plaintiffs not only failed to provide the books of and records of GT to the Receivers, they blocked the Receivers’ access to GT’s bank account and issued the writ in this action seeking inter alia orders/declarations that their removal as directors of GT and the appointment of the Receivers are null and void. As a result, the Receivers had no option but to issue the present summons.

The Plaintiffs’ case

32.The Plaintiffs do not accept that any event of default has arisen. Mr Yu submitted that the indisputable background to the parties’ negotiations over this re-financing transaction comprised the following factors:

(a)  based on Gammons’ estimate, the targeted practical completion date was 3 August 2022;

(b)  the development was valued at $18.6 billion;,

(c)  RC was aware of other financiers (including Singularity Capital Group Limited (“Singularity Capital”) competing for the deal;

(d)  GT had already experienced creditors taking enforcement action on security[8];

(e)  Oaktree and Grand XI knew that GT could only rely on the sale of units to generate cash to make payment for the interest; and

(f)  Oaktree stands to earn interest of 14% per annum even if there is no default and, in the event of any default, a further 8% of interest would be payable.

33.Against that backdrop, it was submitted that in terms of commercial reality, the refinancing was a highly attractive transaction for the lender.

34.Prior to the recent summonses and draft affirmations mentioned above, the Plaintiffs’ defences were following: (i) Grand XI was verbally informed of the OMCL indebtedness prior to the Facility Agreement; (ii) RC’s Representation creating a collateral agreement; and (iii) GT’s inability to pay was caused by Oaktree/Grand XI’s delay.

35.In the ASOC, the Plaintiff’s made allegations against Grand XI that it had deliberately delayed GT’s sales of units in bad faith and for ulterior purposes. The Plaintiff’s revamped case outlines the following as a possible scenario:

(a)  Oaktree (through RC) knew that the refinancing transaction was exceedingly attractive[9] from the lender’s perspective given the factual matrix.

(b)  Oaktree knew that GT had to generate income from sales before it could be a position to pay interest. Therefore, Oaktree would have known that by delaying consent, GT would not be able to generate cash to service the interest payment and cause an event of default which would immediately yield an additional 8% interest to Oaktree, making a total interest rate of 22% from the date of default.

(c)  The effect of stifling GT’s ability to generate income, Oaktree could delay exercising its security for as long as it wanted. The arrangement could only enure to the benefit of the secured creditor who has never been at risk as it is secured up to the hilt.

(d)  The above would result in Oaktree having control over the Development. Mr Yu mentioned that there had been a case where Oaktree as a secured creditor exercised its right of security and as there were no buyers, Oaktree was able to acquire the security “on the cheap”[10].

36.The 3 lines of defence advanced are considered below.

(1)  Grand XI was verbally informed of the OMCL indebtedness prior to the Facility Agreement

37.Liu was authorised by the Plaintiffs to file affirmations opposing the injunction application. In her affirmation dated 8 December 2022 (“Liu 1^st”), Liu asserted (without any supporting evidence) that Grand XI “had been informed of the material information of the OMCL Indebtedness prior to the entering into of the Facility Agreement[11]”. Pan’s evidence is to the same effect[12].

38.In her 2^nd affirmation dated 9 January 2023 (“Liu 2^nd”), Liu stated[13] that on 10 March 2022 Pan told RC that it was expected that they would need to prepay at least $300-$500 million to other creditors before completion of the Development to avoid enforcement proceedings. At the hearing, Mr Yu confirmed that the loan was not identified as the OMCL loan as such but the disclosure made was “by reference to the amount, the 300 million”.

39.In §28 of that affirmation, Liu mentioned that she was at a meeting on 18 January 2022 when RC was informed that a total sum of $7.8-$8 billion would be required to pay, inter alia, “(iii) … other outstanding loans which were obtained for funding the construction fees (which would include the OMCL Indebtedness)”. It is now acknowledged that OMCL was never mentioned by name.

40.The 18 January meeting came about because Pan was “furious” that the term sheet provided on 17 January 2022 only offered a facility of $7.2 billion which he considered to be wholly inadequate. At the end of that meeting, RC promised to revisit the cap of the facility and allegedly said, inter alia, that Oaktree would not enforce the security for “technical default[14]”. But what that expression meant or was meant to encompass is entirely unclear.

41.The same sentiment was allegedly expressed[15] at the meeting on 10 March. Liu’s account of the 10 March 2022 meeting is considered in §§51-56 below.

42.The Plaintiffs sought to derive assistance from the transcript of a recording made by Pan of a telephone conversation he had with RC on 26 February 2023 which is exhibited to a draft 2^nd affirmation dated 27 February 2023 of Pan. There is no draft affidavit/affirmation from RC.

43.In my view, little assistance can be derived from the transcript: it has no probative value because what RC is recorded as saying was not stated on oath. Further, as one might expect, the conversation which was instigated by Pan is replete with leading questions.

44.As regards the Plaintiffs’ assertion that “material information of the OMCL indebtedness” had been disclosed prior to the Facility Agreement, it is not supported by their affirmations.

45.The OMCL loan (which offered a facility of $500 million) should not be conflated with the OMCL indebtedness which is a sum then owing which, with interest[16], was in excess of $800 million by 31 March 2022. Further, it is unclear to what the 300 million is meant to refer.

46.In any event, there is no suggestion and no evidence that the key provisions of the OMCL loan were ever brought to RC’s attention at the meetings of 18 January and/or 10 March 2022 when the OMCL indebtedness would not have been far short of $700-$800 million.

47.Relevantly, the Plaintiffs’ case is not supported by contemporaneous documents:

(a)  the OMCL indebtedness[17] is not mentioned in any of the due diligence documents provided by GT prior to the execution Facility Agreement;

(b)  when, on 8 March 2022, Hogan Lovells (for Grand XI) asked Liu by email for confirmation that (other than the loans specifically stated in section 3.2 (b) of the due diligence questionnaire,) “there are no guarantees, indemnities … or other agreements …”, Liu’s email response confirmed that “ … there are no other parties other than those disclosed are having a debt claim into [GT][18]”; and

(c)  the OMCL indebtedness was never disclosed in any of the “Original Financial Statements” that GT was obliged to provide as a condition precedent to the entry into the Facility Agreement[19].

48.Having regard to the evidence relating to the alleged disclosure of the OMCL indebtedness and the total lack of support from contemporaneous documents, I am of the view that Grand XI has shown a solid basis for serving the April notice of default.

(ii)  RC’s Representation

49.Given the factual matrix, it was submitted that in terms of commercial reality it is hardly surprising that RC was extremely anxious to clinch the deal. It is the Plaintiffs’ case that between January to March 2022, in order to induce GT to enter into the Facility Agreement, RC, on behalf of Oaktree and Grand XI

“represented to and promised GT that notwithstanding the terms of the facility agreement to be made, Oaktree and Grand XI would not enforce its strict terms, and would allow GT to sell the units in the Development and to repay the refinancing loan and interest within a reasonable time (“the Representation”)[20].

50.The material parts of Liu 1^st and 2^nd relating to that part of the Representation concerning non-enforcement for “technical default” has already been referred to above[21]. The expression “technical default” then evolved into the lender not enforcing the ‘strict terms’ of the Facility Agreement.

51.Liu’s evidence is that at the meeting on 10 March, RC informed Pan that the updated cap $7.5 billion caused Pan to protest again stating that it might not be sufficient and that GT needed to repay at least $300-$500 million to other 3^rd parties pending completion of the Development to avoid enforcement proceedings.

52.Pan then informed RC that unless Oaktree could match or exceed “the Alternative Offer[22]”, Pan would have to cease negotiations with Oaktree, emphasising that the Development was a very valuable asset and the ultimate goal of the refinancing was to make sure that GT could complete the construction of the Development and to sell its units in the open market[23].

53.Liu went on to describe RC’s response[24] in the following terms:

“In response, Raymond said that although Oaktree could not provide extra fund for GT to pay off creditors other than ICBC and Gammon, Pan and GT could try to negotiate with those creditors and/or defend any legal actions taken by them for another 6 months, and then the sale proceeds from the Development would start rolling-in and such creditors could then be repaid. Further, Raymond reiterated that they would not enforce any security for any technical default and would allow GT to sell the units in the Development for funds to repay the loans and interest.”

54.Although the Representation on which the Plaintiffs rely is said to be derived from events that transpired throughout “various meetings between January to March 2022”, the only meeting that specifically addressed the Representation as set out in §49 above in Liu 2^nd is the held on 10 March. The 18 January meeting only concerned the non-enforcement part of the Representation.

55.RC’s response was made to counterbalance the ‘Alternative Offer’ which was an offer of financing of $7.8 billion. It came from a consortium of financiers put together by Singularity Capital with whom Pan had apparently been negotiating in tandem with Oaktree in December 2021 and January 2022.

56.However, GT did not receive the Alternative Offer until 11 March 2022[25]. That means that the exchange between Pan and RC took place at a time when neither Pan nor RC knew anything about the Alternative Offer, a rum state of affairs. Apart from anything else, it must seriously undermine the reliability and credibility of the evidence of both Liu and Pan.

57.Although the Representation is said to give rise to a collateral agreement between GT, Oaktree and Grand XI[26], as will become apparent, the evidence concerning the Representation itself is plainly riddled with seemingly unsurmountable difficulties.

58.On 3 November 2022, GT (through its duly authorised representative Wong Kin Ming (“Wong”)) responded to the October default notice. After referring to having encountered some unfortunate delays which created hurdles to sales activities necessitating a revised sales plan and projection, GT requested an extension for the overdue interest payment until 31 December 2022.

59.Mr Law made the obvious point that had the parties reached a collateral agreement, there would have been no need to ask for an extension of time because they would have already been entitled to reasonable time to sell the units under the collateral agreement.

60.Then, following the issuance of the acceleration and demand notice, on 11 November 2022, GT (through Cheng) sent a letter to Grand XI disputing the events of default.

61.On the same day, Tommy Ting (“Ting”), a director of the Goldin Real Estate Agency Ltd (“GREAL”) and GH Real Estate Agency Ltd (“GHREAL”) (the joint sole sales agents of the Development), sent an email to the Receivers providing an updated[27] detailed account of sales and marketing efforts made since the grant of the certificate of compliance on 29 August 2022 and requested a time extension for the overdue interest payment until 31 December 2022.

62.Had the Plaintiffs genuinely believed there to be a collateral agreement, it is inexplicable that it was never raised by way of defence in either of the 11 November letters. For that matter, there is also no reference to any collateral agreement in the writ.

63.If indeed there was such a collateral agreement based on RC’s response rather than as framed in Liu 2^nd at §47, taken to its logical conclusion, the lender would not be able to exercise any of its rights to enforce the security so long as GT was selling units to make repayment. It stretches one’s credulity that any seasoned financier/lender would agree to such a term.

64.The Plaintiffs referred to the Bank of China (Hong Kong) Limited v Fung Kin Chiu (2002) 5 HKCFAR 515 where Litton NPJ held (at §57) as follows:

“A collateral agreement, like any other contract, must be objectively viewed, so the test must be this: On the totality of the evidence, must the parties be taken to have intended that the representation made by one of them should form part of the basis of the legal relationship between them?”

65.Based on Liu’s evidence in Liu 2^nd at §§64 to 66, it was submitted that Liu was in a position to make those factual assertions because she was present at those meetings and the fact that it was not put on the basis of collateral agreement does not matter because one does not expect a layman[28] to talk about a collateral agreement. Hence, the absence of any mention of a collateral agreement in Liu 2^nd matters not.

66.I have already remarked on the reliability and credibility of the evidence in Liu 2^nd. In the Bank of China case, crucially, the existence of a collateral agreement was supported by a contemporaneous draft undertaking. In the present case, there is no such contemporaneous documentary evidence. In my view, the present case as a far cry from the facts in the Bank of China case and is plainly distinguishable on the facts.

67.At this juncture, it should be borne in mind that Pan appears to have a propensity to raise and rely on oral agreements (unsubstantiated by credible evidence) that override or vary professionally drawn agreements. Those cases are summarised in the judgment of Linda Chan J in Re Pan Sutong[29] at §§12-20. It will be seen that in each case, the courts have rejected Pan’s contentions grounded on oral agreements.

68.In the circumstances, for my part, I do not consider that there is any credible evidence before the court to support the existence of a collateral agreement as advanced by the Plaintiffs.

(iii)  GT’s inability to pay was caused by Oaktree/Grand XI’s delay

69.In Wong’s letter of 3 November 2022[30], the Plaintiffs mentioned 3 instances of delay. The Plaintiffs’ revamped case based on Wong 2^nd and the Brochure is that not only was there delay, but that such delay was deliberate and intentional.

70.The Plaintiffs obtained a copy of the Brochure produced by Oaktree on 2 February 2023. Its cover bears the date “September 30, 2022” and the words “Oaktree Opportunities Fund XII LP”. The Project is mentioned in Appendix II and the following extract appears under ‘Material Updates’:

“We’re working with the developer to create a sales and marketing plan for the completed units. However, we’ll likely delay this plan due to the ongoing weakness and illiquidity in the Hong Kong residential market

- When we underwrote the loan, we knew the borrower would have to sell the units to service our loan. Given the delay, the borrower may take longer to make a second scheduled interest payment” (emphasis added)

71.As the Brochure is dated 30 September 2022, the sentence in the extract appearing in italics is said to be evidence of Oaktree’s secret intention in September 2022 to delay the sales and marketing plan.

72.On the significance of the 30 September date, Wardrop 2^nd explained that as Oaktree marks the value of its investment portfolios quarterly, the date appearing on its cover represented the end of the last financial quarter prior to the distribution and presentation of the Brochure.

73.GT was in default when it failed to make the interest payment due on 30 September 2022 and remained in that state when the wording of the extract was finalised in October[31]. While there was a grace period of 30 days (expiring on 30 October 2022), the expectation GT being able to meet the payment within the grace period was low[32].

74.Pausing there, it should not be overlooked that the only sales and marketing plan is Sales Arrangement No 6 circulated to Grand XI on 4 November 2022. If one were to include Ting’s initial brief on GT’s sales and marketing plan, it would bring the date forward to 1 November 2022. Nevertheless, that initial brief remained subject to internal review.

75.The extract was addressing a sensitive situation, with Oaktree acknowledging that the interest payment was overdue on 30 September 2022 and that the units were not being sold without attributing that state of affairs to GT’s breaches and broadcasting Oaktree’s intention to accelerate before the fact: Wardrop 2^nd at §§9-10.

76.Mr Yu submitted that only discovery will reveal when Oaktree actually conceived of the “plan to delay the sale”. The subtext is that Oaktree had the intention of delaying approval in September 2022 in furtherance of the scenario posited by the Plaintiffs.

77.With those matters in mind, I turn to consider the 3 heads of delay.

(aa)  MOU

78.On 26 August 2022, GT submitted drafts of a memorandum of understanding (“MOUs”) to Oaktree for approval. The MOUs would settle part of the claims of Centaline and Ricacorp (who were sub-agents for the sale of units in the Development) in proceedings brought against GT for outstanding commissions. Approval was necessary in order to enable the drawdown of about $25 million required under the MOUs.

79.After the Government withdrew its consent for presale in August 2021 following the suspension of construction works, GT did not apply for reinstatement of pre-sale consent until 4 July 2022[33]. A follow-up letter was sent on 3 August 2022 yielded no response.

80.After the certificate of compliance was issued on 29 August, the Lands Department advised[34] that GT’s application was deemed to have been withdrawn. In those circumstances, GT could not have entered into any sale documents until September 2022.

81.Ting’s affirmation dated 9 January 2023 (“Ting 1^st”) only exhibited his emails of 26 and 28 August and gave the impression that Oaktree/Grand XI did not respond to the 29 August email until 16 September 2022 “upon numerous chasers sent by GT”.

82.Ting’s evidence cannot withstand scrutiny when viewed against the full email chain relevant to the MOUs exhibited to and summarised in the table in Wardrop 1^st at §40. When analysed, there is nothing to support the Plaintiffs’ allegation of delay in approving the MOUs[35].

(bb)  Engagement documents

83.Upon the signing of the MOUs, the engagement template and fee letter template (to be signed between GHREAL and the sub-agents) were sent to Oaktree for review and comment on 28 September 2022. It was said that “despite reminders by GT”, approval was withheld for more than a month[36].

84.In fact, GT/Goldin Group did not send out any reminders until its email of 31 October 2022, more than a month after its initial request and after the due date for interest payment. The total absence of any reminders before then militates against any notion of urgency or pressing need for approval that underlies the Plaintiffs’ case.

85.Moreover, as GT’s obligation was to make payment on 30 September 2022, its inability to do so could not have been caused by events (including any delay) occurring after that date.

86.On 1 November 2022, Ting provided Oaktree with a brief that sumed up the Plaintiffs’ sales and marketing efforts (then still subject to internal review.

87.No intimation of urgency was conveyed until the email dated 2 November 2022 from Goldin by which date the grace period had already expired. Oaktree replied by return that it would revert after receiving the updated sales plan which (as will become apparent) was not provided until 11 November 2022.

88.When Oaktree was informed on 4 November 2022 that GT was intending to sign the engagement documents, it requested GT not to proceed until receipt of their “sign-off”.

(cc)  Sales Arrangement No 6

89.This was circulated to Oaktree on 4 November 2022 for review, comments and consent without which no sale could be effected.

90.On 10 November 2022, Grand XI served the acceleration and demand notice on GT. It is Oaktree’s case that no meaningful sales strategy[37] was delivered to Oaktree until after service of that notice[38].

(dd)  Assessment of the ‘delay’ allegation

91.Several matters on the issue of delay require comment.

92.As is common ground, the purpose of the refinancing was to enable construction to resume so that the Development could be completed and units sold. At the time of the Facility Agreement, the targeted date for practical completion was 3 August 2022. The certificate of compliance was not issued until some 4 weeks later on 29 August 2022.

93.The Plaintiffs would have been conscious of the need to generate income to service the 2^nd interest payment due 30 September through sales of the units. Pre-sale consent had been withdrawn in August 2021. They did not take any steps for its reinstatement until 4 July 2022, letting some 3 months elapse after obtaining the refinancing before taking any action. Nor was there any follow-up until a month later.

94.In so far as the MOUs, engagement letters and Sales Arrangement are concerned, (a) there is no evidence that these had to be dealt with sequentially rather than in tandem; and (b) the Plaintiffs should have appreciated the need to address the proceedings of the sales agents (commenced in late 2021) much earlier.

95.Looking at the matter objectively, the Plaintiffs only have themselves to blame for not having addressed those matters in a timely manner.

96.The Plaintiffs’ new allegation[39] is that Grand XI had deliberately delayed GT’s sales of the units in bad faith and for ulterior purposes in breach of the “implied term[40]”.

97.Under clause 21.5 of the Facility Agreement, although any disposal would require consent from the agent (Grand XI), sub-paragraphs (b) and (c) provide that GT can proceed with the sale of the units either with consent or by giving the agent 7 days’ prior written notice before the completion of any pre-sale or sale together with all material information.

98.In other words, GT was at liberty to sell under those provisions provided it complies with regulatory requirements such as Sales Arrangement No 6. As earlier noted, that was only sent to Grand XI on 4 November 2022.

99.The fact remains that the Plaintiffs could not identify any document where Grand XI either refused its consent or withdrew its consent to a request made pursuant to clause 21.5.

Serious issue to be tried?

100.On the totality of the evidence adduced by the parties, and for the reasons set out above, I am inclined to agree with the Receivers that there is no serious issue to be tried.

101.On that basis, balance of convenience considerations would not arise: see Manchester Corporation v Connelly [1970] 1Ch 420 at 425H-426D.

102.In the event that a different view is taken, and balance of considerations do arise, the real issue would be who should be in control of GT given the events that have happened and the evidence before the court.

Balance of convenience

103.In submitting that in the interim the subject person that the court should be looking for in terms of interest is GT, Mr Yu was proceeding on the basis that it was a choice between GT and the secured creditor. I have some difficulty with that approach as the Receivers are agents for GT. Although they were appointed to act as Receivers by the secured creditor, nevertheless, it remains the Receivers’ duty to act in the best interests of GT.

104.When Mr Yu further submitted that it is clearly in the best interest of GT to allow ‘GT’ to continue to conduct the sale of individual units provided they are done at fair market price, at arm’s length and in accordance with what is the tripartite stakeholder agreement, what he really meant was that the Plaintiffs should be given control of GT in the interim.

105.The undertakings that the Plaintiffs were prepared to give in that regard such as sales at fair market price et cetera are intended to address concerns about possible dissipation and irregular dealings.

106.The spectre of dissipation/irregular dealings arose from the following incidents:

(a)  it transpired that the proceeds of the OMCL loan were not paid to discharge Gammon’s construction costs but were deposited in the bank account of a company called Stand Ahead Holdings Ltd ultimately owned by Pan’s wife Liu Jianming;

(b)  one of the pre-sale transactions concerned Tower 2, Flat 3B (“the 3B transaction”) and on 4 December 2020, after the appointment of the Receivers, it transpired that GT had entered into a memorandum of understanding with the purchaser that, of the outstanding balance of approximately $38.4 million, the purchaser need only pay (in round terms) a sum of $7.5 million. It transpired that the substantial reduction of over $30 million was to off-set a personal debt incurred by Pan. This was never disclosed to Grand XI and its consent was never sought in breach of clause 21.11 of the Facility Agreement.

107.The Plaintiffs submitted that the 3B transaction took place at a time when Pan was the sole owner beneficial owner of the Development and so it did not matter. With respect, that is a somewhat cavalier approach to adopt when it is a breach of clause 21.11 and leaves much to be desired in terms of the integrity and disposition of management involved.

108.The Plaintiffs submitted that they have the know-how and relevant experience in handling sales of large developments and that they are best placed to successfully market the units and maximise returns. In Ting 1^st, deposed (at §52) to the fact that

“[the Plaintiffs have] already carried out substantial preparation[41] for the marketing of the Development in the past year … and [the Plaintiffs] clearly [have] competitive advantages over the Receivers in selling the Development … it is inconceivable that the Receivers (whose expertise is not in property development and who is not familiar with the Grand Homm Project) will be able to do a better job than any property developer in marketing and selling the Development, or any first-hand residential property.”

109.The Plaintiffs juxtaposed the ‘substantial preparation’ they had carried out with the steps taken by the Receivers set out in Jong 2^nd at §8. Relying on Ting 2^nd §4, they highlighted the fact as of 24 February 2023 the 4 largest estate agencies in Hong Kong were not aware of any steps taken by the Receivers to market and sell the units and inferred from that that the Receivers were seeking to dispose of the whole development - the fire sale at a depressed price that Mr Yu had earlier sought to suggest to the court, a matter upon which I have already remarked.

110.The tasks the Receivers accomplished and/or undertaken since their appointment are set out in Jong 2^nd §§16-22. Taking into account that the Receivers were only appointed on 9 December 2022, they had to master a huge amount of information and handle uncompleted presale transactions. The obstruction on the part of the former management to the Receivers’ attempts to update GT’s records filed with the Companies Registry, depriving them of access to GT’s account with its bank, and the former management’s refusal to provide login details to the SRP Internet Platform necessitated this summons. I am satisfied that the Receivers have now managed to steady the ship.

111.Given my assessment on the delay issue, I consider the management abilities and lack of overall planning of the Plaintiffs to be concerning.

112.§5 of the injunction order granted on 9 December 2022 requires GT to obtain leave of the court if it intends to dispose of any of its assets of a value in excess of $50 million. That provision was intended to prevent a substantial sale of its assets in the interim.

113.In so far as the Plaintiffs are concerned that the Receivers may dispose of the Development by a share sale, it was submitted that it is simply impossible in the light of the OMCL judgment against GT. The court was then informed by the Plaintiffs that the Receivers are appealing the OMCL judgment. Whether or not that it’s a fact, it is something that may or may not happen nor can its outcome be predicted. That is not a consideration that can be taken into account at this stage.

Conclusion

114.Taking a holistic view of the evidence and all the relevant factors canvassed above, even assuming that the balance of convenience is a relevant consideration, I have no hesitation in concluding that the Receivers be granted the relief they seek in this application.

115.Accordingly, there is to be an order in terms of the Summons. Leave is granted for the filing of the draft affirmations.

Mr Benjamin Yu SC, Mr Anthony Chan and Mr Jonathan Ng instructed by Tung, Ng, Tse & Lam, for the 1^st and 2^nd Plaintiffs

Mr Law Man-chung SC, instructed by Hogan Lovells, for the 4^th Defendant