Cheung Kong and the Apex Horizon Hotel

Early in 2013, the deal of the Apex Horizon All-Suite Hotel in Hong Kong gained attention and controversy because of its suspected adoption of a collective investment scheme. Ethical

issues range from the design of publication materials to the closure of the deals. Amidst the criticism, Cheung Kong (Holdings) Limited called off the deal after about three months of

investigation and discussion with the Securities and Futures Commission of Hong Kong. The company gave compensation packages to investors, most accepted. Nonetheless, there also

are lawsuits against Cheung Kong demanding more comprehensive compensation, as well as forced deals. These are the details of the case of Cheung Kong and the Apex Horizon Hotel.

As the largest conglomerate in Hong Kong, Cheung Kong (Holdings) Limited launched a sale on all hotel units in the Apex Horizon All-Suite Hotel to the general public of Hong

Kong in mid February 2013. Despite being very successful, a controversy on the ethics of the sale followed. Lawsuits and other filings have been recorded by the Securities and Futures

Commission.

Four ethical issues may be observed in the case:

1. Denial of running a collective investment scheme, despite all essential elements of the scheme being present

As a vendor, Cheung Kong has a responsibility to conduct its business ethically without exploiting loopholes by generalizations to remain exempt from regulations. Because it exploited

this loophole, investors were not provided with all the information they were entitled to, thus resulting in an unfair deal in which not all necessary information was disclosed.

2. Providing false, unfair and incomplete information to investors that hinder an informed judgment and decision

With its denial of running a CIS, Cheung Kong provided very limited information to investors, who were mostly from the general public. These investors were not professional investors

and lacked specific knowledge of the CIS and the product. Cheung Kong merely provided them with floor plans, the area of the units and the pricing in prominent areas of the

publication materials. The risks were printed in small fonts on the bottom of the back cover. Besides, contradicting statements on using the hotel units for residential purposes and

the right to manage daily operations were misleading to investors. This might have caused investors to make uninformed judgments and decisions.

3. Exerting pressure on investors by shortening the cooling-off period and available time for studying the contracts

Apex Horizon was a very high-risk investment, with high ambiguity in legal and ownership issues. In light of this, Cheung Kong requested investors sign unfair disclaimers and

agreements. It was declared that Cheung Kong would not bear any responsibility for the failure to obtain a hotel operation license. Second, it would not guarantee the right of investors

to lease the hotel units as personal property. Third, the operator would have the exclusive right to permit and determine the priority on the use of the units. Besides, investors would

need to pay the management and utilities fees in advance, with taxes payable solely contributed by the investors. Lastly, the contract with the operator could not be cancelled within

15 years.

4. Transferring almost all risks to the investor, so Cheung Kong (Holdings) Limited bears fewer risks

In contrast to the convention of a 14-day cooling-off period between the provisional and formal sales and purchase agreements, Cheung Kong called for a six-day interval between

the two. Also, investors were not given enough time to study the provisional agreement before signing. This was very unfair to the investors, as they might not have fully understood

the risks they were bearing. The lack of time also deprived them of the opportunity to seek disambiguation and hence contributed to an uninformed decision.

These actions are intrinsically wrong compared to what a vendor is obligated to do. Cheung Kong should have admitted to running a collective investment scheme and complied with all

legal requirements. The company also ought to provide true, fair and complete information to investors to allow an informed judgment, with a conventional cooling-off period and sufficient

time and space to study the contracts. Lastly, the company is obligated to bear a fair amount of risks.

Source: http://sevenpillarsinstitute.org/case-studies/cheung-kong-and-the-apex-horizon-hotel#_edn27