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Quaestus Capital Pte Ltd v Everton Associates Ltd And Another

Judgment Cited authorities 9 Cited in Precedent Map Related
Vincent
Judgment Date13 May 2021
Neutral Citation[2021] HKCFI 1367
Year2021
Judgement NumberHCA1027/2020
Subject MatterCivil Action
CourtCourt of First Instance (Hong Kong)
HCA1027/2020 QUAESTUS CAPITAL PTE LTD v. EVERTON ASSOCIATES LTD AND ANOTHER

HCA 1027/2020

[2021] HKCFI 1367

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1027 OF 2020

________________________

BETWEEN
QUAESTUS CAPITAL PTE LTD Plaintiff

and
EVERTON ASSOCIATES LIMITED 1st Defendant
AXIS CAPITAL MARKETS LIMITED 2nd Defendant

________________________

Before: Hon G Lam J in Chambers
Date of Hearing: 26 April 2021
Date of Decision: 13 May 2021

________________________

D E C I S I O N

________________________

Introduction

1. These proceedings have arisen out of the arrangements for a “non-recourse loan” to be advanced on the security of certain shares listed in Hong Kong. The plaintiff is the borrower and owner of the shares in question. The loan had not been advanced, but the shares pledged had been sold on the market without the plaintiff’s knowledge. The plaintiff has since brought this action against the lender and the custodian of the shares as the 1st and 2nd defendants herein respectively. The principal application now before the court is the 2nd defendant’s summons challenging the jurisdiction of the Hong Kong courts on the basis, in particular, of an exclusive jurisdiction clause in favour of the courts in London.

Background

The parties

2. The plaintiff is a private equity firm incorporated in Singapore which carries on the business of trading in crude oil petroleum products. Among other assets, the plaintiff holds shares in China Metal Resources Utilization Ltd (“China Metal”), a company listed on the Stock Exchange of Hong Kong (Stock Code: 1636).

3. The 1st defendant, Everton Associates Ltd (“Everton”), is a company incorporated in the Cayman Islands which carries on the business of making loans.

4. The 2nd defendant, Axis Capital Markets Ltd (“Axis”), is a company incorporated in the United Kingdom, with the business of, among other things, providing brokerage services to customers.

The documentation and custodian arrangements

5. In about April 2020, the plaintiff wished to obtain finance in the sum of around HK$500 million for its business operations and, through the recommendation of a friend of Mr Steven Kwek (the sole director and shareholder of the plaintiff), engaged China GH Ltd as consultant to source such loan capital. China GH Ltd recommended Everton as a potential lender, and negotiated the terms of the loan with Everton on behalf of the plaintiff. Eventually, a term sheet was issued by Everton which the plaintiff accepted on 13 April 2020 (“Term Sheet”). It stated that the loan would be an “equity collateralised non‑recourse non‑title transfer term loan” based on China Metal shares as collateral at 52% of their market value. It was stated that except upon the occurrence of an event of default, there would be no change in beneficial ownership of the stock, and the lender would not have the right to liquidate the collateral or short the pledged securities.

6. On 21 April 2020, the following written agreements or instruments were executed:

(1) a Loan Agreement, pursuant to which Everton was to advance a non‑recourse loan of up to a maximum of HK$450 million to the plaintiff, secured by a pledge of the plaintiff’s 280 million shares in China Metal. The Loan Agreement contains, among others, the following terms:

“3. Collateral

(a) Pledge. As collateral security for all of the Obligations, the Borrower hereby grants, transfers, assigns and conveys to the Lender a continuing security interest in, and pledges and grants a charge on, all currently existing and hereafter acquired or arising Collateral to secure prompt repayment of any and all Obligations…

(b) Brokerage Account. At least three (3) days prior to the first Funding Date, the Borrower shall transfer to and/or maintain in the Account all the Pledged Shares. … Borrower shall remain the beneficial owner of the Account, provided that following an Event of Default the Lender may sell or otherwise dispose of the securities and assets therein in accordance with the terms herein …

(c) Non-Recourse Loan. The Lender agrees that, except as otherwise expressly provided in this Agreement, the responsibility to make payments hereunder is a non-recourse obligation of the Borrower, such that, for repayment of the Notes, the Lender shall only look to the Collateral and/or the other instruments of security that secure the Notes, and may not subsequently make any claim or institute any action or proceeding against the Borrower or any successors or assigns of the Borrower for any deficiency remaining after collection upon the Collateral.

(d) NTT Loan. The Lender shall not Transfer any Pledged Shares prior to an Event of Default, after which time the Lender may Transfer the Pledged Shares. …

…

(g) No Short Sales, Return of Collateral. Lender shall not have the right to liquidate the Collateral, or to make short sales of same, during the term of the Loan, except upon occurrence of an Event of Default. At such time as all of the Borrower’s Obligations have been paid in full, the Pledged Shares shall be returned to the Borrower to the extent and in the manner set forth herein. The Lender acknowledges and agrees that all shares of Common Stock, including the Pledged Shares, are fungible, such that the Lender’s obligation to return the Pledged Shares herein is understood to mean the delivery to the Borrower of such number of shares of Common Stock as is equal to the total number of Pledged Shares required to be delivered to the Lender hereunder.

…

6. Event of Default.

(a) Events of Default. Each of the following events shall constitute an “Event of Default”:

…

(12) If the Market Price for any Trading day is less than 50% of the Market Price for the Trading Day immediately preceding any Funding Date, or if the Market Price for any Trading Day within 90 Trading Days following a given Funding Date is less than 50% of the Market Price for the Trading Day immediately preceding such Funding Date;

…

(b) Remedies. Following the occurrence of any Event of Default, the Lender shall have the right to exercise all of the remedies conferred hereunder …:

…

(2) The Lender shall have the right (but not the obligation) to exercise all rights with respect to the Collateral as if it were the sole and absolute owner thereof.

…

16. Governing Law and Venue. This Agreement and any dispute, disagreement, or issue of construction or interpretation arising hereunder whether relating to its execution, its validity, or the obligations provided herein or performance shall be construed under and governed by the internal laws of Hong Kong. The Borrower hereby consents to the exclusive jurisdiction of all the courts located in Hong Kong for the purpose of any suit, action or other proceeding arising out of any of the Borrower’s obligations under or with respect to this Agreement or the other Loan Documents, and expressly waives any and all objections the Borrower may have as to venue in any of such courts. …”

Under clause 1 (Definitions), “Transfer” means:

“ to sell, trade, transfer, assign, convey or otherwise dispose of title to securities (for clarification, Transfer does not include Portfolio Protection Arrangements which may be effective)”,

and “Portfolio Protection Arrangements” mean:

“ any arrangements or transactions effectuated to mitigate the risk of loss of principal, assets or securities values, including without limitation effecting a pledge, encumbrance, repurchase arrangements, hypothecation and/or loan of or on securities”;

(2) a Pledge Agreement whereby the plaintiff agreed to pledge 280 million shares in China Metal to secure the loan under the Loan Agreement; and

(3) the plaintiff issued a Secured Promissory Note to Everton for the sum of HK$450 million.

7. These agreements required the plaintiff to transfer the collateral into a brokerage account. The securities broker specified in the Loan Agreement was Look’s Securities Ltd (“Look’s Securities”), a brokerage firm in Hong Kong nominated by Everton. On about 21 April 2020, the plaintiff, Everton and Look’s Securities entered into a Collateral Management Agreement regulating the custodian arrangements. On about 1 June 2020, pursuant to the Loan Agreement and the Pledge Agreement, the plaintiff deposited 94 million China Metal shares (“Shares”) with Look’s Securities.

8. A few days later, on 5 June 2020, Mr Vladamir Blagojevic, director of Everton, emailed Mr Kwek of the plaintiff, stating that there would be delay of the funding because of bank compliance matters in Austria, but that Everton had spoken with Axis where Everton “ha[d] the funds already immediately”, and requested the plaintiff to open an account with Axis. He further wrote: “Once the shares are in Axis, Everton is committed to have Axis wire out the 1st tranche loan within one to two working days”. The plaintiff agreed and, on the same day, it signed an Amendment Agreement with Everton to amend the Loan Agreement to change the specified broker from Look’s Securities to Axis.

9. On 9 June 2020, the plaintiff, after opening an account with Axis (“Account”), entered into a Brokerage Account Control Agreement (“Brokerage Agreement”) with Everton and Axis in relation to the custodian arrangements. Clause 3.1 of that agreement provides that Axis represents and warrants to Everton that Axis maintains the Account for the plaintiff at Axis. Clause 6 provides that Axis will send copies of all statements and confirmations for the Account simultaneously to the plaintiff and Everton, and that Axis shall use reasonable efforts to promptly notify Everton and the plaintiff if any other person claims that it has an interest in property in the Account. In addition, clause 10.1 is an English choice of law clause...

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