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Wang Pengying v Ng Wing Fai And Others

Judgment Cited authorities 18 Cited in Precedent Map Related
Vincent
Judgment Date28 January 2021
Neutral Citation[2021] HKCA 100
Judgement NumberCACV17/2020
Citation[2021] 1 HKLRD 997
Year2021
Subject MatterCivil Appeal
CourtCourt of Appeal (Hong Kong)
CACV16/2020 WANG PENGYING v. NG WING FAI AND OTHERS

CACV 16 & 17/2020
(Heard together)
[2021] HKCA 100

CACV 16/2020

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 16 OF 2020

(ON APPEAL FROM HCA NO 1479 OF 2018)

________________________

BETWEEN
WANG PENGYING (王鵬英)
(suing on behalf of herself and all other shareholders
in Convoy Global Holdings Limited
and Forthwise International Limited) 		Plaintiff
and
NG WING FAI 1st Defendant
CONVOY GLOBAL HOLDINGS LIMITED 2nd Defendant
FORTHWISE INTERNATIONAL LIMITED 3rd Defendant

________________________

AND

CACV 17/2020

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 17 OF 2020

(ON APPEAL FROM HCA NO 1619 OF 2018)

________________________

BETWEEN
WANG PENGYING (王鵬英)
(suing on behalf of herself and all other shareholders
in Convoy Global Holdings Limited
and Convoy Finance Limited) 		Plaintiff
and
NG WING FAI 1st Defendant
YAP E HOCK 2nd Defendant
CONVOY GLOBAL HOLDINGS LIMITED 3rd Defendant
CONVOY FINANCE LIMITED 4th Defendant

________________________

(Heard together)

Before: Hon Kwan VP, Cheung JA and Yuen JA in Court

Date of Hearing: 9 September 2020 (remote hearing)

Date of Judgment: 28 January 2021

____________________

J U D G M E N T

____________________

Hon Kwan VP:

1. These two appeals are against the orders of Coleman J in two common law derivative actions commenced by Madam Wang Pengying (“the plaintiff”), a shareholder of Convoy Global Holdings Limited (“Convoy Global”). By his judgment on 17 December 2019 (“the Judgment”), the judge ordered that the amended statement of claim in each action to be struck out and the two actions be dismissed, as the plaintiff has not established on the evidence a prima facie case either that the directors who are sued in these actions, Ng Wing Fai (“Ng”) and Yap E Hock (“Yap”), are wrongdoers in control, or that there has been a fraud practised by them against the companies concerned, being Convoy Global and two of its wholly owned subsidiaries, Forthwise International Limited (“Forthwise International”) and Convoy Finance Limited (“Convoy Finance”).

Background

2. Unless otherwise stated, the background matters are taken largely from the Judgment and the amended statement of claim in HCA 2922/2017[1], which was brought by Convoy Global and two of its subsidiaries against 39 defendants including a number of its directors and shareholders. For present purpose, the matters related below do not appear to be in controversy between the parties to these proceedings.

(1) General background

3. Convoy Global was incorporated in the Cayman Islands and is listed on the Main Board of Stock Exchange of Hong Kong. It is part of a corporate group engaged in the business of financial planning, insurance brokerage, asset management and moneylending in Hong Kong, Macau and China.

4. Since 2013, Cho Kwai Chee Roy (“Roy Cho”) gradually acquired ownership and control over Convoy Global by appointing his associates, nominees and/or agents to occupy various key positions in the company.

5. In or around 2014, Roy Cho and/or his associates induced potential investors to invest in Convoy Global, including as a major investor the family of Tsai Ming Hsing (“the Tsai Family”) of Fubon Financial Holdings Limited in Taiwan through their corporate vehicles. Following a series of negotiations between Roy Cho, his associates and the Tsai Family, a capital-raising exercise for Convoy Global took place in around October 2015 in which, inter alia, alleged independent placees would participate.

6. The alleged independent placees, who were allotted around 48% of the shares in Convoy Global, were each (1)persons or companies held by, associated with, and/or connected to listed companies in the ‘Enigma Network’, a network of 50 listed companies with overlapping ownership as exposed by the stock market activist David Webb in his report “The Enigma Network — 50 Stocks Not to Own” dated 15 May 2017, which were subject to the control, influence and/or interest of Roy Cho; and/or (2)persons or companies closely associated with Roy Cho, subject to the control, influence and/or interest of him personally.

7. Unbeknownst to all public investors at the time, the October 2015 placing was the key step of a sophisticated scheme whereby the Tsai Family was induced to pay proper consideration to invest in Convoy Global and acquire the single largest shareholding in it (29.98%) and meanwhile Roy Cho would secretly retain full control over Convoy Global, through a hidden controlling shareholding in the company nominally held by the network of the alleged independent placees, evading all shareholder and regulatory supervision and oversight.

8. Following the publication of the Webb report, the Securities and Futures Commission (“SFC”) raided several of the offices of Convoy Global in June 2017. Within about six months of the Webb report, the SFC suspended trading on five companies in the Enigma Network. On 7 and 8 December 2017, the Independent Commission Against Corruption (“ICAC”) arrested several officers of Convoy Global including three executive directors Quincy Wong Lee Man (also chairman of the company), Rosetta Fong Sut Sam (also the vice chairman) and Christie Chan Lai Yee (also its chief financial officer). The ICAC also attempted to arrest Roy Cho, but he had left Hong Kong. Roy Cho was arrested when he returned subsequently.

9. Notwithstanding the exposure in the Webb report, the actions taken by the SFC and the uncertainties and turmoil surrounding Convoy Global, there were substantial acquisitions of its shares in the open market in the latter part of 2017, but with relatively little fluctuations in the price of the company’s shares.

10. In July and August 2017, Kwok Hiu Kwan bought shares amounting to 29.91% of the issued share capital of Convoy Global. He ceased to acquire shares in the company as he approached the 30% threshold for a mandatory general offer under the Takeover Code. From mid-August to October 2017, Chen Pei Xiong purchased shares amounting to 7.47% of the issued share capital. From early to mid‑October 2017, the plaintiff purchased shares which amounted to 2.3% of the issued share capital.

11. The father of Kwok Hiu Kwan controls a listed company Kaisa Group Holdings Ltd. Kwok Hiu Kwan, who was in his twenties, worked in the securities industry since he left university three years ago and ran a company which had the “Kaisa” name. Chen Pei Xiong was a former member of the senior management of the Kaisa Group. The total price for Kwok Hiu Kwan’s acquisition of the shares in Convoy Global, which came up to $889 million odd, was fully funded by an unsecured loan provided by Francis Choi Chee Ming, purportedly repayable only on demand with no fixed repayment date. Francis Choi is the long-time business partner and funder of Roy Cho, and Kwok Hiu Kwan’s father has significant business and personal connections with Roy Cho and Francis Choi.

12. HCA 2922/2017 was commenced by Convoy Global and two subsidiaries on 18 December 2017 under the reconstituted board of directors. It was alleged in that action that Kwok Hiu Kwan and Chen Pei Xiong had posed as bona fide purchasers and the shares they acquired were a large part of the shares allotted to the alleged independent placees who transferred those shares to Kwok and Chen, directly or indirectly, in order to mask and white-wash the wrongful nature of the initial allotment and subscription, and that this was a scheme to facilitate Roy Cho cashing out part of his interest and passing control of the company to Francis Choi. Convoy Global sought inter alia a declaration that the wrongfully allotted shares to the alleged independent placees are void.

13. As for the shares acquired by the plaintiff, there is no evidence of the source of funding for her acquisition. She acquired her shares through the same securities firm as Chen Pei Xiong. She is a legal representative of a company in the PRC. She has denied that she is associated with Kwok Hiu Kwan, Chen Pei Xiong or the Kaisa Group.

14. On 30 October 2017, Kwok Hiu Kwan requisitioned an EGM to change the constitution of the board of directors of Convoy Global except for Quincy Wong, Rosetta Fong and an independent non-executive director (“INED”) Peter Ma Yiu Ho. Two days before the EGM was scheduled to be held on 29 December 2017, a petition was issued by a shareholder of Convoy Global, one Madam Zhu Xiao Yan, in HCMP 2773/2017 against 33 defendants including Kwok and Chen Pei Xiong. Madam Zhu held a small number of shares in the company and she had the same residential address in Hong Kong as Ng. Her complaints in the petition substantially overlapped with those in HCA 2922/2017. She sought as against Kwok and Chen that they be restrained from exercising their voting rights and dealing in the shares they held in Convoy Global.

15. The chairman of Convoy Global, Johnny Chen, presided at the EGM on 29 December 2017. He decided to disqualify the shares of Kwok Hiu Kwan from voting. Kwok issued proceedings in HCMP 41/2018 in January 2018 against Johnny Chen and Convoy Global seeking a declaration that Johnny Chen’s decision to disqualify his shares from voting was void. After a trial in March 2019, Kwok’s action was dismissed by Harris J and reasons were handed down on 4 March 2020 ([2020] 3 HKC 403)[2]. Harris J did not have to decide whether or not Kwok is the beneficial owner of the shares he held or whether he acquired those shares as part of an improper conspiracy as alleged by Convoy Global in HCA 2922/2017. The issue before him was...

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