Apex Horizon

On 13 May 2013, Cheung Kong (Holdings) Limited, Cheung Kong Property Development Limited, Pearl Wisdom Limited (PWL) and Horizon Hotels & Suites Limited (collectively the Cheung Kong parties) entered into an agreement with SFC to unwind the sale of hotel room units at Apex Horizon.

Apex Horizon (雍澄軒) is a development in Kwai Chung comprising 360 hotel room units. On 18 Feby 2013, Cheung Kong announced at a press conference that its subsidiary PWL was offering 65 of the 360 hotel room units in the development at an average selling price of $5,200 per sq. ft. On offer were 660 sq. ft. 2-bedroom hotel room units and 909 sq. ft. 3-bedroom hotel room units. All 65 units were sold on the same day with the rest of the units sold shortly afterwards.

SFC has been investigating whether the offer to purchase hotel room units at The Apex Horizon development constituted an offer to acquire an interest in or to participate in a Collective Investment Scheme (CIS) under the SFO. A total of 360 hotel room units were individually sold to purchasers by the vendor, PWL, in Feb 2013.

PWL will issue a letter to all purchasers informing them that it wishes to cancel each contract and, in return, it will:

• reimburse every purchaser the deposit and any part payments together with interest at the rate of 2% p.a. above the prime rate specified by HSBC for the period from the date each amount was paid respectively until 30 May 2013; and
• offer an amount of $10,000 as reimbursement of any reasonable legal and other expenses.

SFC formed the view that the offer to purchase hotel room units at Apex Horizon appeared to be an invitation to acquire an interest in or to participate in a CIS as defined in the SFO.

A CIS has 4 relevant elements:

• it must involve an arrangement in respect of property;
• participants do not have day-to-day control over the management of the property even if they have the right to be consulted or to give directions about the management of the property;
• the property is managed as a whole by or on behalf of the person operating the arrangements; and
• the purpose of the arrangement is for participants to participate in or receive profits, income or other returns from the acquisition or management of the property.

In this case, SFC considered the fact that day-to-day management of the hotel was to be in the hands of a separate operator appointed to operate the hotel on behalf of the purchasers and the hotel operator would control key functions necessary to manage and supervise the hotel including allocation of guests to rooms.

The Cheung Kong parties do not agree with SFC’s view and contend that the purchasers have effective day-to-day control of their rooms and that it is an investment in real estate. However, SFC informed the Cheung Kong parties that it intended to commence proceedings under S.213 of the SFO in the Court of First Instance to seek orders unwinding the sale and returning all deposit moneys and part payments to purchasers. The agreement avoids these proceedings being commenced at this stage.

This is an important case illustrating the very wide scope of CIS under the SFO.