ACHIEVE GOAL HOLDINGS LTD v. ZHONG XIN ORE-MATERIAL HOLDING CO LTD

HCA 1987/2005

[2024] HKCFI 124

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1987 OF 2005

________________________

BETWEEN

AND
BETWEEN

(By Counterclaim)

___________________________________________________

TAXATION REVIEW DETERMINATION AND CERTIFICATE

___________________________________________________

1.  This is the application of the 1^st and 2^nd defendants (by counterclaim) (the “Paying Parties”) to review my rulings made in the taxation of the costs of the plaintiffs (by counterclaim) (the “Receiving Parties”) in respect of the bill of costs filed herein on 29 September 2022 (the “Bill”).

2.  As the Receiving Parties had instructed different firms of solicitors at different stages of these proceedings, the Bill was divided into six parts. This review only concerns section B of Part F of the Bill. References to item numbers in this determination and certificate are references to items in section B of Part F of the Bill unless otherwise stated.

Brief Summary of Proceedings

3.  The original action in this case had been discontinued by order dated 22 July 2009. The counterclaim proceeded to trial (the “Trial”). Only the Paying Parties of the defendants (by counterclaim) took part in the Trial.

4.  The disputes between the parties concerned ultimate ownership of 35% interest in a coal mine in Yulin City, Shaanxi Province, PRC. The issues in dispute included: the proper construction of a joint venture agreement (the “JV Agreement”) entered between the 2^nd plaintiff (by counterclaim) and the 2^nd defendant (by counterclaim); who breached the JV Agreement and when; consequences of the breach and termination of the JV Agreement; and whether the disputes between the parties had already been settled by a written agreement purportedly made between the 2^nd plaintiff (by counterclaim) and the 2^nd defendant (by counterclaim).

5.  After the Trial which lasted for 11 days in March 2018, Au-Yeung J handed down a judgment on 15 December 2018 (the “Judgment”) ordering the 2^nd defendant (by counterclaim) to pay RMB 1 million to the 2^nd plaintiff (by counterclaim) with interest. The learned Judge further ordered the Paying Parties to pay 30% of the costs of the whole action of the Receiving Parties on an indemnity basis.

6.  The Receiving Parties appealed to the Court of Appeal. Again, only the Paying Parties of the defendants (by counterclaim) took part in the appeal. After hearing the appeal, the Court of Appeal allowed the appeal and set aside the lower court judgment (including the aforesaid costs order) and made certain orders in lieu.

7.  In respect of costs incurred in the lower court proceedings, the Court of Appeal ordered the Paying Parties to pay the Receiving Parties costs of the whole action. For costs incurred prior to 3 July 2009, the Court of Appeal ordered such costs to be paid on party and party basis, whereas for costs incurred after 3 July 2009, on indemnity basis, with certificate for two counsel (the “Costs Order”).

8.  The Receiving Parties commenced this taxation on 29 September 2022 and filed the Bill.

9.  The Paying Parties filed their list of objections on 14 February 2023 and amended the same on 12 May 2023 (the “Amended LOO”).

10.  The Bill was taxed by me at the hearing held on 24 August 2023 (the “Taxation Hearing”).

11.  On 7 September 2023, the Paying Parties applied for review of taxation. In the list of objections for review filed on 20 September 2023 (the “Review Objection”), the Paying Parties identified 22 objections, all related to fees of counsel.

12.  Mr Barry Leung, law costs draftsman for the Receiving Parties, confirmed to the court at the review hearing of 24 October 2023 (the “Review Hearing”) that the Receiving Parties would not file answers to the Review Objection.

13.  I heard the parties’ submissions at the Review Hearing. As the Paying Parties in the Review Objection requested me to state in my review certificate the reasons for my decisions on the review items, I issue this determination and certificate setting out my decisions on the review items and the reasons for my decisions.

The Review Items

14.  The plaintiff sought review on my taxation rulings on items 9.2 to 9.12 and items 10.10 to 10.20 (the “Review Items”).

15.  Items 9.2 to 9.12 were fees of Mr Edward Chan SC for attending the Trial. Items 10.10 to 10.20 were fees of Mr Clark Wang of counsel also for attending the Trial as the junior of Mr Chan SC.

16.  Item 9.2 was for the brief fee (inclusive of consultation on 27 February 2018 which was 2 days before the commencement of the Trial on 1 March 2018) of Mr Chan SC for the Trial. Mr Chan SC charged $2,000,000 for his brief fee.

17.  Items 9.3 to 9.12 were for the daily refresher of Mr Chan SC for other days of the Trial. Mr Chan SC charged $220,000 for each day of the refresher.

18.  In the Amended LOO, the Paying Parties submitted that: “Mr Edward Chan SC was assisted by 1 junior counsel Mr Clark Wang of Counsel throughout the proceedings, including but not limited to preparing court documents. SC’s fee is totally excessive. Suggest allowing $1,800,000 [for items 9.1 to 9.12].”

19.  At the Taxation Hearing, I taxed off item 9.1 and allowed the brief fee and refresher of Mr Chan SC (ie items 9.2 to 9.12) in full. As such, I allowed $4,200,000 in total for items 9.1 to 9.12 at the Taxation Hearing.

20.  Item 10.10 was for the brief fee (also inclusive of consultation on 27 February 2018) of Mr Wang for the Trial. Mr Wang charged $600,000 for his brief fee.

21.  Items 10.11 to 10.20 were for Mr Wang’s refresher for the remaining period of the Trial. Mr Wang charged $50,000 for each day of the refresher.

22.  In the Amended LOO, the Paying Parties submitted that: “Mr Clark Wang was supervised by Mr Edward Chan SC throughout the proceedings. Counsel’s fee is totally excessive. Suggest allowing $900,000 [for items 10.1 to 10.20].”

23.  At the Taxation Hearing, I taxed off $47,000 from items 10.2 to 10.8 and another $100,000 from Mr Wang’s brief fee in item 10.10. I allowed items 10.1 and 10.9 as well as the refresher of Mr Wang in full. As such, I allowed $1,211,000 in total for Items 10.1 to 10.20 at the Taxation Hearing.

Discussion

24.  In the Review Objection, the Paying Parties only sought to review items 9.2 to 9.12 and items 10.10 to 10.20. The grounds of objection stated in the Review Objection were as follows:

“The Master erred in making the amount of deduction as made or not making any deduction, and failing to take or take proper account of the fact that:-

(a) 1^st and 2^nd Defendants (by counterclaim) have previously at different stage of these proceedings instructed 2 other senior counsel and 6 other junior counsel

(b) A total sum of HK$2,174,100 for counsel fees have separately been allowed

(c) The said total sum of HK$2,174,100 is for service rendered during the period from 2006 to 2015

(d) By then, discovery and preparation for trial (including list of documents, witness statements and expert reports) have already been completed

(e) Change of counsel team in 2016 to Mr Edward Chan SC and Mr Clark Wang necessarily means duplication of work and/or wasted costs”

25.  There was no dispute that according to the Costs Order, the fees of Mr Chan SC and Mr Wang, being costs incurred after 3 July 2009, were to be taxed on indemnity basis. Order 62 rule 28(4A) of the Rules of the High Court (the “RHC”) provides that:

“On a taxation on the indemnity basis all costs shall be allowed except insofar as they are of an unreasonable amount or have been unreasonably incurred and any doubts which the taxing master may have as to whether the costs were reasonably incurred or were reasonable in amount shall be resolved in favour of the receiving party; and in these rules the term “indemnity basis” (彌償基準) in relation to the taxation of costs shall be construed accordingly.”

26.  The Paying Parties did not seek to argue that the engagement of Mr Chan SC and Mr Wang for the Trial was unreasonable. In fact, the Costs Order had provided for certificate for two counsel. The only issue was quantum.

27.  Mr J Chan for the Paying Parties confirmed at the Review Hearing that the main ground of objection was duplication of costs caused by change of counsel. Mr Chan submitted that the Paying Parties should not be liable for such costs caused by duplication even in taxation on indemnity basis. Mr Chan pointed out that the Paying Parties had not specifically raised this change of counsel point at the Taxation Hearing and the court’s attention had not been drawn to possible duplication of counsel fee caused by such change of counsel.

28.  In the Bill, the Receiving Parties had claimed fees of other counsel (including senior counsel) prior to the engagement of Mr Chan SC in early 2017 and Mr Wang in late 2016. The fees of the other counsel had been agreed between the parties in the total sum of $2,174,100 (the “Agreed Counsel Fee”) as stated in the Review Objection.

29.  This Action was commenced in 2005 and the Trial only took place in March 2018. According to the Bill, the Agreed Counsel Fee was for works done by various counsel from 2006 to June 2015. In other words, the Agreed Counsel Fee was for works done more than 2.5 years before the Trial.

30.  In item 9.1, the Receiving Parties claimed $50,000 for the fee of Mr Chan SC for perusal of papers and consultation on 19 January 2017. I was of the view that such fee had been unreasonably incurred as this case had already been set down for trial. I taxed off this item at the Taxation Hearing.

31.  Although the issue of change of counsel had not been specifically raised at the Taxation Hearing, the fee charged by Mr Chan SC in item 9.1 was his fee for reading into this case after change of counsel. If change of counsel had caused any duplication of counsel fee charged by Mr Chan SC, it was the fee charged by him in item 9.1. As I had taxed off item 9.1, albeit for different reason, I had in effect disallowed duplication of counsel fee caused by change of counsel by the Receiving Parties.

32.  The brief fee charged by Mr Chan SC was for attending and conducting the Trial, the trial preparation and the pre-trial conference. Mr Chan SC did not charge again for reading into this case.

33.  I had allowed the brief fee and daily refresher of Mr Chan SC at $2,000,000 and $220,000 respectively at the Taxation Hearing.

34.  As pointed out in §23 above, I had at the Taxation Hearing, taxed off $47,000 of the fees charged by Mr Wang prior to the Trial and claimed in items 10.2 to 10.8. The Paying Parties do not seek to review my rulings for items 10.1 to item 10.9. These were fees charged by Mr Wang for works done from October 2016 until the Trial in March 2018.

35.  At the Taxation Hearing, the parties had not drawn the court’s attention to change of counsel of the Receiving Parties. I taxed down the fees of Mr Wang for his pre-trial works on the basis that he had knowledge of the background of this case. Thus, the amounts of his fee claimed in the Bill for his pre-trial works were unreasonable.

36.  Mr Wang did not separately charge fee for reading into this case. If the Receiving Parties’ change of counsel had caused any duplication in the fees of Mr Wang, the duplicated fees would have been reflected in items 10.1 to 10.9 instead of in the brief fee or refresher charged by Mr Wang for the Trial. Such duplicated costs, if any, had already been taxed off when I taxed down Mr Wang’s fees claimed in items 10.1 to 10.9.

37.  As such, there was no duplication or wasted costs incurred in respect of the brief fee or refresher of Mr Chan SC and Mr Wang as contended in the Review Objection.

Applicable legal principles for taxation on indemnity basis

38.  In Poon Shu Fan v Wong Tin Yan [2012] 5 HKLRD 512, the Court of Appeal pointed out in §31 of the judgment that after the Civil Justice Reform, in determining the amounts of fee allowed for counsel in party and party taxation, the court should have regard to all the relevant circumstances and in particular to the following matters:

(a) the complexity of the matter and the difficulty or novelty of the questions involved;

(b) the skill, specialized knowledge and responsibility required of, and the time and labour expended by, counsel;

(c) the number and importance of the documents prepared or perused;

(d) the place and circumstances in which the business involved is transacted;

(e) the importance of the matter to the client;

(f) where money or property is involved, its amount or value; and

(g) any other fees and allowances payable to counsel in respect of other items in the same cause or matter, but only where work done in relation to those items has reduced the work which would otherwise have been necessary in relation to the item in question.

39.  The matters referred to in Poon Shu Fan v Wong Tin Yan are matters set out in §1(2) in Part II of the First Schedule of order 62 of the RHC. The Court of Final Appeal noted in §46 of Re Wing Fai Construction Co Ltd (Costs: Taxation) (2012) 15 HKCFAR 657 that in practice such approach also applied to indemnity taxation.

40.  In EMI Records Ltd v Ian Cameron Wallace Ltd [1982] 2 All ER 980, Sir Robert Megarry V-C stated at 989f that in taxation on indemnity basis: “Everything is included unless it is driven out by the words of exclusion, namely, “except in so far as they are of an unreasonable amount or have been unreasonably incurred”.”

41.  Lord Woolf MR further stated in Petrotrade Inc v Texaco Ltd [2001] 4 All ER 853 at §62 that: “… where the costs are assessed on an indemnity basis, the issue of proportionality does not have to be considered. The court only considers whether the costs were unreasonably incurred or for an unreasonable amount. The court will then resolve any doubt in favour of the receiving party.”

42.  In Re Wing Fai Construction Co Ltd (supra), Chan PJ stated that:

“26. I should also add that in assessing what is unreasonable (as opposed to assessing what is reasonable), the court should bear in mind the practical reality that there are litigants who, being understandably more anxious than others to pursue or defend their rights, are willing to pay more than the normal average fees of counsel and solicitors. How much more such a litigant is prepared to pay over and above the normal average fees depends on a variety of factors including in particular, the complexity of the case and the importance of the case to him. In my view, it is not uncommon and certainly cannot be considered as unreasonable for a concerned litigant to adopt such an attitude. On a party and party taxation, it is likely that anything over and above the normal average fees would not be regarded by the court as reasonable and will be taxed off and the receiving party will have to shoulder the shortfall. But if the court, for good reasons, saw fit to award him his costs on a more generous basis (ie on an indemnity basis), I do not think it should be regarded as unreasonable to allow him to recover more than normal average fees so long as they are not clearly excessive or, to use Megarry V-C’s words, absurd or extravagant.”

43.  Bearing the above legal principles in mind, I shall look into the complexity of this case and the other circumstances to determine whether the various amounts of counsel fee charged by counsel and claimed by the Receiving Parties were unreasonable, ie absurd or extravagant.

The disputes for the Trial

44.  The disputes for trial in this case were not simple matters. They involved more than 10 companies and their shareholders. The parties had to prepare a chart setting out the relationship among the parties to assist the trial judge. The chart agreed by the parties was annexed to the Judgment as Annex A. The chart showed the complex corporate structure engaged by the parties to carry out their business venture and the disputes for the Trial arose out of such complex corporate structure.

45.  The disputes related to a joint-venture for a coal mine. The registered share capital of the joint-venture company was said to be RMB 71 million. Mr Leung, the law costs draftsman for the Receiving Parties, informed me at the Taxation Hearing that the assets of the join-venture company worth more than $2 billion.

46.  The plaintiffs (by counterclaim) claimed that the 2^nd defendant (by counterclaim) was contractually liable to inject substantial fund of RMB 57 million into the joint-venture business. The dispute was whether the 2^nd defendant (by counterclaim) had fully discharged its contractual obligations in respect of RMB 25 million. The nature of the contractual obligation of the 2^nd defendant (by counterclaim) as well as consequences for breach of such contractual obligations were also in dispute. The amounts involved were substantial.

47.  The learned Judge had identified the issues for the Trial in the Judgment as follows:

“112. The issues in Stage 1 covered the period of 2005 to 2007. They can be summarized as follows:

The Construction Issue

(1) On the true construction of the JV Agreement, whether the obligation of Angola [ie the 2^nd defendant by counterclaim] was to arrange finance for Zhong Xin [ie the 5^th defendant by counterclaim] or to provide direct capital injection;

(2) Whether by arranging the Loan Agreement [dated 14 February 2005], Angola has duly performed its obligations to inject capital of RMB 20 million as required by the JV Agreement;

The Termination Issue

(3) Whether Angola was in breach of its obligation to transfer US$ equivalent to RMB 20 million to Zhong Xin under Clause 2.2 [of the JV Agreement];

(4) Whether Angola was in breach of its obligation to pay the 2^nd RMB 2 million and RMB 3 million to Bai Jun [ie the 2^nd plaintiff by counterclaim] under Clauses 2.4 and 2.5. Conversely, whether Bai Jun was in breach [of] its obligation to cause the mining, exploration and land usage permits to be issued to CLB [ie the sino-foreign joint venture company for the coal mine project] within time under Clauses 2.5 and 2.6 and the implied terms in connection thereto; these affected the date of termination and the party in breach;

The Consequence Issue

(5) What are the consequences of the breaches or termination and, in particular, how much of the shareholding in Zhong Xin should remain with Angola – 50%, 20% or 0%?

113. As for Stage 3, the Angola Camp [ie the Paying Parties] claims that the Settlement Agreement [dated 20 May 2009] had the effect of preventing the Bai Jun Camp [ie the Receiving Parties] from pursuing its counterclaim in the present case. The issues are:

(6) Whether the Settlement Agreement was backdated;

(7) Whether the Settlement Agreement was unenforceable for lack of actual or ostensible authority of Wang Li who purported to enter into the same on behalf of Bai Jun; and

(8) Whether the Settlement Agreement was unenforceable for being a breach of trust, dishonestly assisted by Angola and/or breach of contract procured by Angola.

114. The issues relating to the Purported Capital Injection and Bai Jun’s claim under Clause 4.3 of the JV Agreement in Stage 2, and the issue of sham in Stage 3, no longer require adjudication. The PRC Court Sanctioned Settlement [dated 29 June 2009] also becomes irrelevant (except on credibility) since Angola only relies on it to contend that Bai Jun has waived its claim under Clause 4.3.” (Original emphasis)

Other circumstances

48.  The Trial was originally set down for nine days with one extra day reserved. The credibility of the witnesses was in issue. Although altogether only three witnesses testified at the Trial, the Trial lasted for 11 days. One can easily envisage the intensity of the examination and cross-examination of the witnesses at the Trial.

49.  There were 11 trial bundles consisted of more than 5,600 pages of documents with a core bundle of important documents consisting 462 pages.

50.  Both parties were represented by senior counsel and junior counsel at the Trial. The opening submissions of the Receiving Parties consisted of 68 pages referring to 24 authorities whereas the opening submissions of the Paying Parties consisted of 52 pages referring to 19 authorities. Closing submissions of the Receiving Parties and the Paying Parties went to 193 pages with 12 additional authorities and 98 pages with 30 authorities respectively. The Paying Parties lodged further reply submissions of 27 pages referring to another 10 authorities. Together, the parties referred to 95 authorities in their submissions.

51.  The learned Judge wrote a 158-page judgment with 530 paragraphs.

52.  In the Costs Order, the Court of Appeal specifically granted certificate for two counsel for the proceedings in the lower court.

53.  From the above, it will not be difficult for one to see the complexity of this case.

Review determination

54.  There is no dispute that Mr Chan SC is a very experienced senior counsel having been called to the bar in 1975 and to the inner bar in 1989. I am of the view that for him to charge brief fee in the sum of $2,000,000 and daily refresher in the sum of $220,000 for this case is not unreasonable bearing in mind the complexity of the case and the large number of documents involved.

55.  I am of the view that even if there were no change of counsel, the time which counsel had to spend in preparing and conducting the Trial would be the same bearing in mind that all previous involvement of counsel in this case was back in more than 2.5 years before the Trial.

56.  As I am of the view that the brief fee and refresher charged by Mr Chan SC did not include duplication caused by change of counsel and the amounts were not unreasonable, I maintain my rulings made in the Taxation Hearing allowing them in full.

57.  Mr Wang of counsel was called to bar in 2007. He had about 11 years’ experience when the Trial commenced in March 2018. He had been involved in this case in as early as October 2016 when he was instructed to attend the case management conference for this case. He had previously charged fees for settling Points of Reply, joint memorandum and advice for expert directions, and supplemental witness statement for the only witness of the Receiving Parties. He should be acquainted with the background of this case.

58.  Bearing in mind that Mr Wang was led by Mr Chan SC in the Trial, I was of the view that the brief fee charged by Mr Wang for the Trial in the sum of $600,000 was unreasonable in the circumstances of this case. I taxed down his brief fee to $500,000 at the Taxation Hearing.

59.  I was of the view that the daily refresher of Mr Wang in the sum of $50,000 was not unreasonable. I allowed his daily refresher in full at the Taxation Hearing.

60.  Having reconsidered the allowed brief fee and the refresher of Mr Wang at the Review Hearing and taking into account the complexity of the case and the volume of documents involved as discussed above, I maintain my rulings made at the Taxation Hearing.

Conclusion and costs

61.  For reasons set out above, I maintain my rulings made on the Review Items at the Taxation Hearing and dismiss this review application of the Paying Parties.

62.  Costs shall follow events. The Paying Parties shall bear the costs for this review application. I shall assess such costs by summary assessment.

63.  As the review of the Bill was dealt with together with review of another bill of the Receiving Parties filed in CACV 6/2019, I direct that the costs incurred by the parties for the aforesaid review applications shall be split equally between the two actions.

64.  To conclude, I dismiss the Paying Parties’ review application in respect of the Bill and make a costs order nisi ordering the Paying Parties to pay 50% of the Receiving Parties’ costs for this review application to be assessed by summary assessment.

65.  This costs order nisi shall become absolute after 14 days from the date of this determination and certificate unless application to vary the same shall be received from either party within this 14-day period.

66.  I direct the Receiving Parties to submit to the court their statement of costs for this review application within 7 days after the aforesaid costs order nisi shall become absolute with copy to the Paying Parties. The Paying Parties shall submit to the court their comments (if any) to the Receiving Parties’ aforesaid statement of costs within 7 days thereafter with copy to the Receiving Parties.

67.  The summary assessment will be conducted by the court by way of paper disposal.

Certificate

68.  I certify that review of all the Review Items failed for the reasons set out above.

Mr B Leung, law costs draftsman, instructed by Kwok, Ng & Chan, for the plaintiffs (by counterclaim) (the Receiving Parties).

Mr J Chan of So, Lung & Associates, solicitors for the 1^st and 2^nd defendants (by counterclaim) (the Paying Parties)

HCA 1987/2005

[2023] HKCFI 1824

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1987 OF 2005

________________________

________________________

(By original action)

________________________

(By counterclaim)

________________________

D E C I S I O N

________________________

1.  This is the hearing of the Summons dated 22 May 2023 (“Summons”)  issued by Mr Zeng Wei (“Mr Zeng”)  for extension of time and for leave to appeal against the decision of this court dated 4 May 2023 that Mr Zeng be joined as a party to these proceedings for the purpose of costs only, pursuant to the Amended Summons dated 13 September 2022 (“Costs Summons”)  issued by the 1^st and 2^nd plaintiffs (by counterclaim)  (“Bai Jun Camp”).

2.  Given that the Summons was only late for a relatively short period of 4 days, the Bai Jun Camp does not raise any issue on such delay.

3.  However, I agree with Bai Jun Camp’s submission that Mr Zeng’s application under the Summons lacks substantive merits and should be dismissed since the intended appeal has no “reasonable prospect of success”.  In particular, Mr Zeng has not explained how this court has committed an error of law or was plainly wrong in exercising its discretion.

Ground 1: Jurisdiction

4.  First, Mr Zeng had never challenged, but instead expressly submitted to the jurisdiction of this court at the hearing on 4 May 2023.  At that hearing, Mr Zeng personally attended the court to voice his opposition to the Costs Summons on substantive grounds, without ever raising the issue of jurisdiction.

5.  Further, in the circumstances of the present case, the Costs Summons has been properly served on Mr Zeng.  Mr Zeng had clearly acquired knowledge of the existence of the Costs Summons, and with that knowledge, he admittedly came within the jurisdiction of this court by attending the hearing before Ng J on 17 January 2023 and before me on 4 May 2023. (see: Du Huizhen v Chen Mei Huan, HCA 1176/2012 (unrep, 15/07/2014), §§26-33)

Ground 2: Language

6.  This intended ground of appeal is plainly unarguable as the decision of this court to use either or both of the official languages in any proceedings is final (see: section 5(1)  and (2)  of the Official Languages Ordinance, Cap 5).

7.  Further, as to language of the written documents served on Mr Zeng, Mr Zeng never made any application under rule 5(4)  of the High Court Civil Procedure (Use of Language)  Rules, Cap 5C, neither had he made any valid official request to the Bai Jun Camp under rule 5(1)  and (2)  in the first place.

Ground 3: Impecuniosity and Retirement from the relevant companies

8.  The claim by Mr Zeng that he has no financial resources to pay any costs ordered against him is hollow when he has not provided any evidence as to his personal wealth, income and assets.

9.  As to whether Mr Zeng has truly retired from the relevant companies is a matter to be investigated further during the second stage.  Furthermore, Mr Zeng only purported to retire in 2021, after most of the relevant legal costs have already been incurred.

Ground 4: Conduct of the Bai Jun Camp

10.  This is a repeat of the complaints in Grounds 1 and 2, which have been dealt with above.

Ground 5: Delay

11.  Mr Zeng has not identified the period of delay that he is complaining against the Bai Jun Camp.  It can be noted that the anti-suit injunction was granted on 26 August 2022.

12.  Furthermore, as submitted by the Bai Jun Camp, Bai Jun Camp’s intention to seek a costs order against Mr Zeng was already raised during the hearing on 14 June 2022 when the anti-suit injunction was sought.  This has been duly recorded at paragraphs 72 and 73 of the Judgment of this court dated 26 August 2022.

Conclusion

13.  For all the reasons set out above, the Summons is dismissed.  I further order that the costs of the Summons be paid by Mr Zeng to the Bai Jun Camp, such costs are to be summarily assessed on paper with the directions that the Bai Jun Camp do lodge and serve its Statement of Costs on Mr Zeng at the Shenzhen address within 14 days, and Mr Zeng do lodge and serve his Grounds of Objection within 14 days thereafter.

Mr Clark Wang, instructed by Messrs Kwok, Ng & Chan, for the 1^st and 2^nd plaintiffs (by Counterclaim)

Messrs So, Lung & Associates, for the 1^st and 2^nd defendants (by Counterclaim)  were excused

Mr Zeng Wei appeared in person

HCA 1987/2005

[2023] HKCFI 1316

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1987 OF 2005

________________________

(By original action)

AND BETWEEN

________________________

(By counterclaim)

________________________

________________________

DECISION ON COSTS

________________________

1.  In this Decision on Costs I shall adopt the abbreviations used in my Judgment dated 26 August 2022 (the “Judgment”).

2.  By the Judgment, I granted an order restraining Angola from holding out as a shareholder of Zhong Xin, and from continuing with or prosecuting the Xi’an Proceedings (as defined in the Summons)  against Bai Jun.

3.  In paragraphs 70 and 71 of the Judgment, I made a costs order nisi that Angola do pay Bai Jun the costs of and occasioned by the Summons, such costs are to be taxed on the indemnity basis if not agreed.

4.  On 9 September 2022, Bai Jun issued a summons for, inter alia, a variation of the costs order nisi by adding that there be a certificate for 2 counsel.

5.  In Power Securities Co Ltd v Sin Kwok Lam and Others[2020] HKCFI 344 at §17, Coleman J put the relevant test succinctly as follows:

“… The first question is whether it was necessary or proper to instruct a leading counsel, having regard to various factors including (but not limited to)  the nature, difficulty, complexity or novelty of the case, specialised knowledge required, importance to the client and generally, and whether the other side has instructed a leader. The second question is whether it was necessary or proper for a junior counsel also to be instructed, for reasons which might include assisting in the proper preparation of the case, with court proceedings, and with carrying out legal research on difficult or novel questions of law.”

6.  Having considered all the circumstances of this case, I am satisfied that such circumstances make it appropriate in the exercise of my discretion to award a certificate for 2 counsel.

7.  In arriving at my decision, I have taken into account, in particular, the following:

(1)  This case involves complicated factual background dating back to 2004 involving many decisions at different levels of the courts both in Hong Kong and the Mainland (see: paragraphs 4 to 41 of the Judgment).

(2)  The nature of the application under the Summons: namely, for an anti-suit injunction to restrain proceedings in the Xi’an court.

(3)  Shares in Zhong Xin are effectively the only asset of Bai Jun.  Angola cannot deny the significant objective value at stake: the Relevant Shares are 50% of the shares in Zhong Xin which held a 70% interest in CLB which was said to be worth over RMB 1.7 Billion in 2008.

(4)  As regard the junior counsel, Mr Clark Wang, he has been deeply involved in these proceedings at both the first instance and the appeal stages.  It is reasonable for Bai Jun to engage him for the proper preparation of the case.

8.  For all the above reasons, I make the following costs order, in variation from my own original nisi order:

(1)  The 2^nd defendant (by Counterclaim)  do pay the 2^nd plaintiff (by Counterclaim)  the costs of and occasioned by the Summons dated 15 February 2022, such costs are to be taxed on the indemnity basis if not agreed; and

(2)  There be a certificate for 2 counsel for the 2^nd plaintiff (by Counterclaim).

9.  In the light of my conclusions, the 2^nd defendant (by Counterclaim)  shall also pay the costs of the costs variation application on a party-and-party basis, such costs are to be taxed if not agreed.

Written submissions by Mr Clark Wang, instructed by Messrs Kwok, Ng & Chan, for the 2^nd plaintiff (by Counterclaim)

Written submissions by Messrs So, Lung and Associates, for the 2^nd defendant (by Counterclaim)

HCA 1987/2005

[2023] HKCFI 1407

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1987 OF 2005

________________________

________________________

(By counterclaim)

________________________

________________________

(By counterclaim)

________________________

D E C I S I O N

________________________

1.  This is the first stage hearing of the summons (“Summons”)  filed on 13 September 2022 by the 1^st and 2^nd plaintiffs (by counterclaim)  (“Bai Jun Camp”)  for costs order against Mr Zeng Wei (“Mr Zeng”)  personally.

2.  Order 62, rule 6A of the Rules of the High Court provides that:

“(1)  Where the court is considering whether to exercise its power under section 52A or 52B of the Ordinance to make a costs order in favour of or against a person who is not a party to the relevant proceedings -

(a)  that person must be joined as a party to the proceedings for the purposes of costs only; and

(b)   that person must be given a reasonable opportunity to attend the hearing at which the court shall consider the matter further.”

3.  The procedure for an application for costs order against a third party has been laid down in Sun Focus Investment Limited v Tang Shing Bor [2012] 5 HKLRD 853 at §§12-20:

(1)  The application is a summary procedure.

(2)  It is a two-stage process.  The court first considers whether the party should be joined for the purpose of costs, and then, give that party a reasonable opportunity to attend a hearing for the court to “consider the matter further”.

(3)  At the first stage, the court will only refuse joinder if it is clear that the application is an abuse of process, whether on the ground of delay or other misconduct on the part of the applicant, or because the application is manifestly so fundamentally misconceived or doomed to fail as to amount to an abuse of process.  It will not conduct a preliminary assessment of the merits at the joinder stage as this is contrary to the philosophy of a summary process underlying the jurisdiction.

4.  The case authorities refer to two situations where it would be appropriate to make a non-party costs order.  The first is where the third party is considered to be the real party interested in the outcome of the suit.  The second is where the third party has been responsible for bringing the proceedings and they have been brought in bad faith or for an ulterior purpose or there is some other conduct on his part which makes it just and reasonable to make the order against him.

5.  In the present case, the Bai Jun Camp relies on both limbs in support of the Summons.

6.  No delay or misconduct on the part of the Bai Jun Camp has been raised by Mr Zeng.  Having carefully considered the submissions of Mr Zeng, who is acting in person, I am of the view that he has failed to show that Bai Jun Camp’s application for costs against him is “fundamentally misconceived” or “doomed to fail” at this preliminary stage.

7.  By his affirmation filed on 22 December 2022, Mr Zeng essentially raised two points, namely:

(1)  the decisions by the Hong Kong courts were wrong; and

(2)  the beneficial interest of the Angola Camp did not actually belong to him because:

(a)  there was a trust arrangement in November 2009 so that he was holding the shares on trusts for a Wang Zitian （王子田）and Li Saichun（李賽春）(“Trust Arrangement”)  as evidenced by a deed and two declarations of trust all dated 24 November 2009; and

(b)  Mr Zeng had already sold his interest to one Gao Liangyu, purportedly supported by a sale and purchase agreement dated 15 April 2021.

8.  As to paragraph 7 (1)  above, the decisions by the Hong Kong courts are clearly binding on Mr Zeng.

9.  As to paragraph 7 (2)  above, the allegations regarding the Trust Arrangement raised by Mr Zeng should only be considered at the second stage.  They are not knock-out points that would prevent the joinder of Mr Zeng as a party to these proceedings for the purposes of costs.

10.  For the reasons set out above, I make an order in terms of paragraph 1 of the Summons, namely, Zeng Wei be joined as a party to these proceedings for the purpose of costs only under Order 62, rule 6A(1)  of the Rules of the High Court.

11.  I further order that the 1^st and 2^nd plaintiffs (by counterclaim)  do issue a summons for directions for the disposal of paragraphs 2, 3 and 4 of the Summons within 14 days from the date hereof.

12.  I order that costs be reserved.

Mr Clark Wang, instructed by Messrs Kwok, Ng & Chan, for the 1^st and 2^nd plaintiffs (by Counterclaim)

Messrs So, Lung & Associates, for the 1^st and 2^nd defendants (by Counterclaim)  were excused

Mr Zeng Wei appeared in person

HCA 1987/2005

[2022] HKCFI 2638

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1987 OF 2005

________________________

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(By original action)

________________________

(By counterclaim)

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J U D G M E N T

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A. INTRODUCTION

1.  This is the hearing of a summons filed by the 2^nd plaintiff (by Counterclaim) (“Bai Jun”) dated 15 February 2022 (“Summons”) for further enforcement of the judgment order of the Court of First Instance dated 15 December 2018 ([2018] HKCFI 2718) as partially amended on appeal by the Court of Appeal in these proceedings dated 17 January 2020 ([2020] HKCA 51) (“CA Order”) including:

(1)  An injunction to prevent the 2^nd defendant (by Counterclaim) (“Angola”) from holding out as a shareholder of the 5^th defendant (by Counterclaim) (“Zhong Xin”) contrary to the CA Order.

(2)  An injunction to prevent Angola from continuing with or prosecuting the Xi’an Proceedings (as defined in the Summons).

2.  On 19 October 2021, Angola instituted a new proceeding in the Xi’an Intermediate People’s Court (“Xi’an Court”) (2021) 陝01民初1708號 (“Xi’an Proceedings”) trying to challenge and reverse the CA Order (for details of the claims in the Xi’an Proceedings - see paragraph 36 below).  Bai Jun submits that such conduct is vexatious, oppressive and was done in bad faith in order to undermine the 16-year litigation process in Hong Kong and when the result of the courts’ decisions is against the Angola camp.  For the purpose of the present application, the most pertinent is the CA Order which had finally decided against Angola on the 2 issues sought to be raised by Angola in the Xi’an Proceedings.

3.  As the successful party, Bai Jun submits it is entitled to the quiet enjoyment of the fruit of the litigation which has been finally settled by the Court of Final Appeal dismissing any leave to appeal against the CA Order.  It is only just to make the necessary orders prayed for to effect and enforce the CA Order here and now.

B.     BACKGROUND

4.  The background of the case has been set out in §§1 to 111 of the Judgment of Au-Yeung J dated 15 December 2018 (“CFI Judgment”) and §7 of the Judgment of the Court of Appeal dated 17 January 2020 (“CA Judgment”).  A brief summary of the salient points has been set out in Bai Jun’s Skeleton Submissions as follows.

5.  In December 2004, Bai Jun and Angola entered into a joint venture agreement (the “JV Agreement”) under which Bai Jun was to transfer 50% of the shares in Zhong Xin to Angola (“Relevant Shares”) upon the performance of various obligations by Angola, chief among which was the capital injection of RMB 50 million “以相當於人民幣5000萬元的等值美元融資投入”.  The amount was to be injected in 3 stages the first of which was for the amount of RMB 20 million.

6.  Around the same time, on 12 December 2004, Zhong Xin and a PRC entity known as Yulin City Yu Yang District Changle Industrial and Trading Limited (“Changle I&T”) signed an agreement for the establishment of a Sino-foreign joint venture company called Yulin Changlebao Mining Corporation Limited (“CLB”) to operate a coal mine in Yulin City, Shaanxi (the “SJV Agreement”).  By this SJV Agreement, Zhong Xin was to inject RMB 49.5 million by three instalments in return for a 70% shareholding of CLB.

7.  Between 7 February 2005 and 15 February 2005, with the involvement of Angola, a loan agreement was signed on 14 February 2005 between Zhong Xin as the borrower and the plaintiff (by Original Action) (“Achieve Goal”) as the lender for HK$20 million.  The terms of this loan agreement were very harsh and bizarre.  Angola never injected any funds by itself.

8.  On 22 June 2005, Bai Jun by letter accepted the repudiation by Angola of the JV Agreement on the basis that Angola had failed to inject the first instalment in the amount of RMB 20 million and commenced action entitled HCA 1284/2005 on 6 July 2005 for return of the Relevant Shares which claim was subsequently dropped on 9 July 2008.

9.  In response, on 10 October 2005, Achieve Goal commenced the original action herein (ie HCA 1987/2005) against Zhong Xin for the repayment of the loan under the Loan Agreement.  By counterclaim, the Bai Jun camp claimed against Achieve Goal and Angola for, inter alia, breach and termination of the JV Agreement and return of the Relevant Shares.

10.  Zhong Xin had duly injected the first instalment of the capital into CLB.  As to the 2^nd instalment, on 1 and 2 February 2008, the Bai Jun camp injected a total of US$4,172,590 into CLB’s account purportedly under the SJV Agreement as outstanding capital contribution made by Zhong Xin (ie the Disputed Capital Injection by Bai Jun). This injection was subsequently ratified by Zhong Xin through the Old Interim Receivers on 6 March 2009.

11.  On 17 July 2008, Changle I&T commenced the PRC Proceedings in the Shannxi Intermediate Court against Zhong Xin and Bai Jun (with Angola and CLB being joined as third parties), contending that the Disputed Capital Injection was invalid and there was breach of the SJV Agreement by Zhong Xin, and Changle I&T had the pre-emptive right under the SJV Agreement to acquire 42% of the shareholding in CLB.

12.  On 15 July 2008 and 27 August 2008, the Keeneye Agreements were entered into whereby Xie/Gao agreed to transfer the entire shareholding of Bai Jun to companies controlled by Liu but retained interest in the 50% shares of Zhong Xin that Bai Jun might recover from Angola.

13.  On 7 November 2008, for the purpose of defending the PRC Proceedings, receivers (ie the Old Interim Receivers) were appointed in respect of Zhong Xin by the Hong Kong Court of Appeal.

14.  On 21 May 2009, Xie/Gao issued the Stop Notice on the basis of various grounds that vitiated the Keeneye Agreements.  On 2 June 2009, Xie/Gao commenced proceedings entitled HCA 1315/2009 to set aside the Keeneye Agreements to retrieve the shareholding of Bai Jun.

15.  On 25 June 2009, the Court appointed receivers for Bai Jun (the “Bai Jun’s IR”).  The receivers were subsequently discharged on 20 July 2009.

16.  On 28 November 2008, the Shannxi Intermediate Court dismissed the claim by Changle I&T and upheld the Disputed Capital Injection.  Changle I&T as well as the third parties appealed.  On 29 June 2009, the PRC Court Sanctioned Settlement Agreement was signed in respect of the PRC Proceedings under appeal and this agreement was sanctioned by the Shaanxi Higher People’s Court (“Shaanxi HPC”).  The court sanctioned order is hereinafter referred to as the “PRC Court Sanctioned Settlement” which contained the following terms:

(1)  CLB shall return the outstanding capital contribution made by Bai Jun via the account of the 1^st plaintiff (by counterclaim) (“Clarigain”), and after further discussion between the shareholders of Zhong Xin, Zhong Xin shall on its own make a fresh capital contribution to CLB.

(2)  After the making of the fresh capital contribution, Changle I&T shall withdraw all its claims against Zhong Xin in respect of any alleged failure to make capital contribution.

(3)  Changle I&T and Angola shall withdraw all their claims for pre-emption rights and other relief.

17.  The Original Trial of this action HCA 1987/2005 was fixed for 22 July to 4 August 2009, however, on the first day of the trial on 22 July 2009, the Angola camp for the first time produced a document, the “Settlement Agreement” and wanted to terminate the present action by virtue of the Settlement Agreement.  The Original Trial was thereafter adjourned pending resolution of dispute over the ownership of Bai Jun.

18.  In relation to the dispute over the ownership, Keeneye & New Purple commenced arbitration proceedings against Xie/Gao.  The dispute was resolved in arbitration in favour of Xie/Gao whereby the Keeneye Agreements were set aside pursuant to the Xi’an Award dated 3 June 2010 which was enforced in Hong Kong under HCA 1315/2009 heard together with HCA 466/2012 by To J’s Judgment dated 11 August 2016.

19.  Despite various challenges by both the Old Interim Receivers and the Bai Jun camp, the PRC court refused to set aside the PRC Court Sanctioned Settlement or to revive the PRC Proceedings.  These judgments are dated 17 August 2010, 28 March 2013 and 10 May 2019 (“SPC Decisions”).

20.  The Bai Jun Camp does recognize and respect the legal effect of the SPC Decisions affirming that the PRC Court Sanctioned Settlement could not be set aside even though it wants to reserve its right to seek further challenge of the decision should such avenue exist.

21.  On the other hand, the PRC Court Sanctioned Settlement has never been performed and has been agreed not to be performed between Zhong Xin and Changle I&T on 26 May 2012 after the expiration of the limitation period of its enforcement.  Changle I&T and Zhong Xin affirmed that they held respectively 30% and 70% of the shares in CLB.

C.     CONCLUSIVE FINDINGS AND ORDERS BY THE HONG KONG COURTS

22.  The trial of the present proceedings was finally held in March 2018 with the CFI Judgment delivered on 15 December 2018 ruling that the Settlement Agreement was deliberately backdated, fraudulently presented to the Court and was invalid by reason of lack of authority on the part of those purporting to represent Bai Jun in signing the agreement, so that the present action was not settled.  However, the CFI Judgment refused to order return of the Relevant Shares as the CFI Judge, Au-Yeung J took the view that under the JV Agreement, Angola’s obligation was merely to make arrangement for Zhong Xin to get RMB 50 million for its capital and having arranged the loan from Achieve Goal, Angola was not in breach in failing to arrange for the capital.

23.  Upon appeal, the Court of Appeal partially reversed the ruling of the CFI Judgment and held that on true construction of the JV Agreement, Angola’s obligation was to make monetary contribution for the capital in the amount of RMB 50 million and had failed to do so. Accordingly, Bai Jun was entitled to and had validly terminated the JV Agreement on 22 June 2005 and further Bai Jun was entitled to recover the 50% shareholding of Zhong Xin from Angola who has been holding these shares on trust for Bai Jun at all material times.  On the issue of the validity of the Settlement Agreement, the Court of Appeal affirmed the CFI Judgment.

24.  The Angola camp sought to appeal against the CA Judgment, but its leave application was rejected both by the Court of Appeal on 10 July 2020 and by the Appeal Committee of the Court of Final Appeal (by way of order under Rule 7 of the Hong Kong Court of Final Appeal Rules, Cap 484A) on 31 May 2021 (“CFA Order”). The CFI Judgment, the CA Judgment and the CFA Order are hereinafter collectively called the “Hong Kong Decisions”.

25.  From the Hong Kong Decisions, it is the express finding of the CFI Judgment as partly amended by the CA Judgment that:

(1)  At the CFI Judgment:

“510. The Settlement Agreement was signed sometime between 21 June and 6 July 2009. It was deliberately backdated to 20 May 2009. The application to adjourn the Original Trial on the ground of there being a Settlement Agreement was plainly misleading to Chung J.

511.  The Settlement Agreement was signed by Wang Li without authority to settle.  It was dishonest and irrational for Zeng/Li/Zhang to rely on any apparent authority of Wang Li to uphold the validity of the Settlement Agreement.  This action has not been settled.”

(2)  Pursuant to the CA Order §2(c) that there be:

“(c) A declaration that Angola Group Holdings Limited, the 2^nd Defendant by counterclaim, is not entitled to the 50% shareholding in Zhong Xin Ore-Material Holding Company Limited, the 5^th Defendant by counterclaim, now registered in its name and that it is holding the same on trust for Bai Jun Tian Cheng Limited, the 2^nd Plaintiff by counterclaim, since 22 June 2005;

(d) an order that Angola Group Holdings Limited, the 2^nd Defendant by counterclaim, do forthwith have the 50% shareholding in Zhong Xin Ore-Material Holding Company Limited, the 5^th Defendant by counterclaim, now registered under its name, transferred to Bai Jun Tian Cheng Limited, the 2^nd Plaintiff by counterclaim.”

26.  In addition, it is important to highlight that as found by the CFI Judgment and the CA Judgment, the Angola camp is a fraudulent party who had employed various deceptive and underhand tactics against the Bai Jun camp in order to take away and keep the Relevant Shares.

(1)  In clear breach of “the single most important duty of Angola” under the JV Agreement: ie to make direct capital injection, Angola fraudulently misrepresented to Bai Jun that it did not have the necessary funds to inject and Angola further concealed its common ownership in Achieve Goal; conspired with the rest of the Angola camp to exploit the imminent deadline for Zhong Xin to inject capital under the SJV Agreement; and coerced and defrauded Bai Jun to agree to have Zhong Xin to enter into the Loan Agreement which was of very harsh terms.

(2)  The Angola camp further attempted to capitalize such conspiracy by instituting the present proceedings to demand repayment under the Loan Agreement so as to get hold of the entire Zhong Xin’s shareholding in CLB by relying on the very harsh terms of the Loan Agreement (clause 6A.04 in particular).

(3)  It was only after the fierce resistance and the subsequent discovery of the 1^st Misrepresentation and the 2^nd Misrepresentation by the Bai Jun camp in these proceedings that Angola camp’s conspiracy was uncovered.

(4)  Seeing that the original conspiracy was exposed, Angola camp then concocted another conspiracy shortly before the trial date which was originally scheduled to start in 2009, to generate the Settlement Agreement and the PRC Court Sanctioned Agreement which were designed and presented to defraud the Hong Kong Court, the PRC court and the relevant parties including the Bai Jun camp to defeat the Bai Jun camp’s rightful counterclaim in these proceedings.  Such conspiracy resulted in further delay of Bai Jun’s recovery of the shares in Zhong Xin for around 10 years before trial was finally held in 2018.

(5)  As part and parcel of the second conspiracy, the Angola camp discontinued Achieve Goal’s original claim under the Loan Agreement on the first day of the Original Trial, at the same time when it fraudulently presented the Settlement Agreement and the PRC Court Sanctioned Agreement to the Hong Kong Court.

(6)  The misconduct, especially those related to the Settlement Agreement is so prominent that Au-Yeung J ordered the Angola camp to pay costs related to the Settlement Agreement (ie Stage 3) on the indemnity basis:

“527. ...Stage 3 came about because of gross litigation misconduct on the part of Angola Camp in misleading the Hong Kong and PRC Courts. This trial could have ended 9 years ago but for such misconduct. I am of the view that Angola Camp should bear costs of Bai Jun on indemnity basis from and including 3 July 2009, the date when Angola Camp issued the summons to stay the action and to amend the pleadings to introduce the Settlement Agreement.”

27.  Finally, on 20 August 2021, after over 17 years of litigation, Bai Jun regained control and ownership of the Relevant Shares.

28.  By reason of these fraudulent conspiracies, misrepresentations and breaches, Angola had usurped and unlawfully controlled the 50% shareholding of Zhong Xin for over 17 years since the end of 2004.

D.  ANTI-SUIT INJUNCTION

29.  Yet, despite the conclusion of the proceedings with binding judgments and orders, Angola is trying further tactics to assert ownership of the Relevant Shares and to reopen and relitigate the very issues that have been decided by the Hong Kong Decisions which triggered the present Summons.  As submitted by Bai Jun, Angola’s apparent attempt to obstruct and frustrate the binding effect of the present proceedings and the Hong Kong Decisions in bad faith should definitely be stopped.

D1.  Legal Principles

30.  The court’s jurisdiction to grant an anti-suit injunction is trite.  Such injunction would be granted as a matter of general principle where the suit sought to be enjoined is vexatious and an abuse of process even in the absence of some special circumstances such as in breach of an exclusive jurisdiction clause (see: Liaoyang Shunfeng Iron and Steel Co Ltd v Yeung Tsz Wang, CACV 234/2011 (unrep, 14/06/2012), §88).

31.  The commencement of a set of foreign proceedings in bad faith to obstruct or frustrate Hong Kong proceedings is a well-established situation where an anti-suit injunction would be granted (see: Liaoyang Shunfeng Iron (ibid) at§§88-89).

32.  A fortiori, an anti-suit injunction is even more justified when the foreign proceedings are seeking to reopen and frustrate the findings and rulings already made in the Hong Kong proceedings.  For that reason, in the case of Michael Wilson & Partners Ltd v Emmott [2018] 1 CLC 77 at §§53-63, an anti-suit injunction was granted to restrain foreign proceedings that sought to reopen issues and challenge findings that had been decided or ought to have been decided in a previous arbitration proceeding.  If the foreign proceeding is aimed at reopening a decision of the Hong Kong Court, the anti-suit injunction is certainly available (see: Hong Kong Civil Procedure 2022, Practice Note 11/1/252).

D2.  Angola’s Defiance

33.  The Angola camp’s determination to defy and to frustrate the Hong Kong Decisions is plain and obvious as it commenced the Xi’an Proceedings in October 2021 after it lost its appeal in the Court of Appeal and its hope for any further challenge to the CA Order vanished with the decision of the Court of Final Appeal refusing any leave to appeal on 31 May 2021.

34.  Moreover, even before that, after the CA Order of 17 January 2020, it refused to transfer the shares of Zhong Xin and still held out to various parties that it was the shareholder of Zhong Xin despite the clear CA Order by letters and declarations dated respectively 19 May 2020, 20 May 2020 and 29 May 2020.  As a result, the Bai Jun camp had to issue two summonses dated 29 June 2020 and 24 June 2020 to prevent such defiance which summonses were stayed on 1 September 2020 upon the undertakings provided by the Angola camp that inter alia,

(1)  it shall deposit signed instrument of transfer of the 50% shares of Zhong Xin to court; and

(2)  “Angola Camp shall not hold Angola out as a shareholder of Zhong Xin and act as a shareholder of Zhong Xin (whether within or outside Hong Kong) pending the determination of the CFA Stay Application.”

35.  After the delivery of the CFA Order, when all appeal avenues have been exhausted, instead of complying with the Hong Kong Decisions, Angola, in bad faith and in a most defiant manner, deployed further tactics in trying to assert ownership over the Relevant Shares, to represent and act as an owner of Zhong Xin, and to challenge and frustrate the Hong Kong Decisions.

36.  On 19 October 2021, Angola instituted the Xi’an Proceedings in the Xi’an Court to assert the validity of the Settlement Agreement and to claim for the Relevant Shares.

(1)  The cause of action and reliefs prayed for are as follows:

“案由：確認合同有效糾紛

訴訟請求：

1. 確認《和解協議書》有效；

2. 判令被告返還原告在中信礦業集團有限公司持有的50%股權”

(2)  Moreover, the body of the statement of claim, after detailed description of the litigation in Hong Kong, expressly stated that:

“但是，被告還是利用内地與香港法律制度的差異，誤導香港法院作出將原告在中信礦業股權無償轉讓給被告的錯誤判決，使原告在中信礦業的股權以及在常樂堡的投資權益喪失殆盡，合法權益遭受非法侵害。

……要求法院確認《和解協議書》的效力，並判令被告返還原告在中信礦業持有的50%股權。如不能返還，則被告應賠償原告因被告的上述行爲造成的損失。”

37.  The reliefs sought in the Xi’an Proceedings are plainly a direct challenge to the Hong Kong Decisions and in particular to the CA Order.  Likewise, the allegations that the Hong Kong Courts had been misled is plainly scandalous as Angola had full participation in the trial of this action and on appeal and was represented by leading counsel who would no doubt not be slow to point out any misleading matter to the Courts.

38.  Moreover, on 17 December 2021, Angola wrote letters to Changle I&T, the minority shareholder of CLB, claiming to be entitled as a shareholder of Zhong Xin, attempting to enforce the Settlement Agreement to interrupt and disturb the normal operation of CLB and Zhong Xin.

39.  The Xi’an Proceedings instituted by the Angola camp asking for orders to directly challenge the binding and final orders and findings in the Hong Kong Decisions cannot be allowed as the issues are plainly res judicata, and Angola is bound also by issue estoppel and the commencement of the Xi’an Proceedings is an act of abuse of process.  (see Re GW Electronics Co Ltd[2021] HKCFI 1869 at §§22-25, 35 and China North Industries Investment Ltd v Chum [2010] 5 HKLRD 1 at Held Note (5)).

40.  The bad faith in commencing the Xi’an Proceedings to frustrate the Hong Kong Decisions is plain and obvious from the statement of claim of the Xi’an Proceedings itself.

41.  Further, there should be little dispute that the main purpose of the Xi’an Proceedings is to obtain the Relevant Shares which is the subject matter of the JV Agreement, which is subject to the exclusive jurisdiction of Hong Kong Courts^[1].

D3.  Angola’s Excuses

42.  In this regard, the Angola camp does not and cannot deny that the purpose of the Xi’an Proceedings is to challenge the Hong Kong Decisions, but instead put forward some justification to claim that it was entitled to shares in Zhong Xin despite the Hong Kong Decisions.  It tried to explain the reason being that “there were conflicting findings”between the Hong Kong Decisions and the SPC Decisions “in relation to the authority of Wang Li to settle on behalf of Bai Jun at the material time”and “this could lead to the parties having conflicting obligations under Hong Kong law and PRC law”.

43.  Bai Jun submits that, if anything, this only reconfirms the Angola camp’s determination to have a second bite at the cherry to challenge the final, binding and conclusive effect of the Hong Kong Decisions.

(1)  First, there is no such conflict, either conflict of findings or conflict of obligations;

(2)  Second, even if there is some partial conflict, this does not entitle Angola to subvert the Hong Kong Decisions.

D3.1 No Conflict

44.  Regarding conflicting findings, the Angola camp alleged that because the SPC Decisions found that Wang Li and Lu Ying had authority of Bai Jun when signing the PRC Court Sanctioned Settlement, this was in conflict with the findings in the Hong Kong Decisions that Wang Li had no authority to act for Bai Jun in signing the Settlement Agreement, thus the Settlement Agreement was invalid and was not binding on Bai Jun.  This allegation is incorrect:

(1)  The Settlement Agreement and the PRC Court Sanctioned Settlement are two totally different documents entered into at different times, at different places, by different parties, for different purposes and under different circumstances:

(a)  The Settlement Agreement was fraudulently stated to be signed on 20 May 2009, but actually signed between 21 June 2009 and 6 July 2009, whereas the PRC Court Sanctioned Settlement was clearly signed on 29 June 2009.

(b)  The Settlement Agreement was not signed in the Mainland, contrary to the wording fraudulently stated on the face of the agreement, whereas the PRC Court Sanctioned Settlement was signed in Shaanxi.  The significance of the place of signing was that Angola relied on the place of signing of the instrument as the basis of the claim that the agreement was governed by the law and the court of the place where the agreement was signed.

(c)  The Settlement Agreement was purported to be between two of the parties to the present proceedings, ie Bai Jun and Angola only, whereas the PRC Court Sanctioned Settlement was entered into amongst all the parties to the PRC Proceedings including Changle I&T, Angola, Zhong Xin, Bai Jun and CLB.

(d)  The Settlement Agreement focuses on the settlement of the present proceedings in Hong Kong, with only an indication of intent that efforts would be made to settle the PRC Proceeding, whereas the PRC Court Sanctioned Settlement was dealing exclusively with the PRC Proceedings with no reference to or effect upon the present proceedings in Hong Kong whatsoever.

(e)  The Settlement Agreement was signed behind the back of relevant parties to the present proceedings, especially Clarigain and Zhong Xin and with the purported effect of prejudicing their interest, whereas the PRC Court Sanctioned Settlement (at least on the face of it) involved all the parties to the PRC Proceedings and was signed in front of the Shaanxi HPC.

(2)  The underlying subject matter of the two documents, ie the present action and the PRC Proceedings are fundamentally different, amongst different parties, in respect of different disputes, which arose out of different contractual arrangements:

(a)  Parties to the present action such as Clarigain, Achieve Goal, Zhao Bing and Ng Chi Kong are not parties to the PRC Proceedings, whereas key parties to the PRC proceedings such as Changle I&T and CLB are not parties to the present action;

(b)  This is only natural since the subject matters of the two proceedings are totally different.  The present action is concerned with the effect of the JV Agreement, the shareholding in Zhong Xin, whereas the PRC Proceedings were concerned with the effect of the SJV Agreement and the shareholding in CLB.

(c)  The present action arose out of the performance and breach of the JV Agreement whereas the PRC Proceedings arose out of the performance and breach of the SJV Agreement, two distinct contracts with different parties, different purposes, different liabilities and duties, different governing laws and governing jurisdictions.  The JV Agreement was governed by Hong Kong Law (clause 7).  The SJV Agreement was a joint venture agreement in the PRC and should be governed by PRC law.  Logically, an agreement to settle a Hong Kong Court proceeding involving the JV Agreement must be governed by Hong Kong law while a settlement of a court proceeding in the Mainland should be governed by the PRC law.

(d)  The Shaanxi HPC was never informed of the Settlement Agreement (which probably did not even exist) when the PRC Court Sanctioned Agreement was entered into.

(3)  Most importantly, it may be readily seen that even assuming the SPC Decisions to be correct, the basis of the SPC Decisions on the authority of Bai Jun is very different from the circumstances relating to the Settlement Agreement:

(a)  The basis of the SPC Decisions on the authority of those purported to act for Bai Jun in entering into the PRC Court Sanctioned Settlement is recorded at page 11 of the 2010 SPC Decision.  The SPC confirmed the authority because there was proper company search; both registered directors Wang Li and Lu Ying on record were present; and there was a notarized board meeting confirming their authority in respect of the PRC Proceedings with Lu Ying as the authorized representative.^[2] Whether this would be sufficient to found authority is a matter of PRC law for the PRC court.

(b)  In the same breath, page 8 of the 2019 SPC Decision discussed about the validity of the relevant board resolution (董事的決議) and focused on the only issue as to whether there was due authorisation at the time of signing of the PRC Court Sanctioned Settlement (簽訂案涉調解協議時意思表示).

(c)  This is fundamentally different from the Settlement Agreement whereby only one of the directors Wang Li purportedly signed the Settlement Agreement; no board resolution on Wang Li’s authorization could be produced; and it was expressly found by the CFI that Wang Li was never duly authorized by any board resolution of Bai Jun, but was instructed by Zhang personally only to the full and dishonest knowledge of Angola.  The CFI made the finding after full examination of the relevant evidence including that produced by the Angola camp.  Even if one were to adopt the same approach of the PRC court to examine the document said to be conferring the authority there was still the conspicuous absence of proper board resolution and due authorization in respect of the Settlement Agreement.

(d)  It is not open for the Angola camp to try to make any inference that the supposed authorization which authorized Lu Ying in respect of the PRC Proceedings only, could be evidence of due authorization of Wang Li about a totally different set of proceedings in Hong Kong.

(4)  It is important to see that the Hong Kong proceedings were not mentioned in the PRC Court Sanctioned Settlement or any of the SPC Decisions at all.  It is clear that the SPC Decisions never touched upon any issue decided under the Hong Kong Decisions but are limited to the PRC Proceedings and the underlying dispute about the injection of capital into CLB.

(5)  In short, I agree the SPC Decisions are limited to the PRC Proceedings on the dispute which arose out of the injection of capital under the SJV Agreement only and does not touch upon the breaches of the JV Agreement and its consequences, or any issue decided by the Hong Kong Decisions.  There is simply no conflict.

45.  The Angola camp has failed to particularize what the “conflicting obligation” is, apparently because there is none.  None of the obligations of Angola under the Hong Kong Decisions, whether to pay damages, to transfer the Relevant Shares back to Bai Jun, or not to deal with the Relevant Shares or hold out as shareholder of Zhong Xin would in any way conflict with any obligation under the PRC Court Sanctioned Settlement.  In particular, it is specifically stated in the PRC Court Sanctioned Settlement §1 that the re-injection may be done after consultation between shareholders of Zhong Xin (經由中信礦業集團公司股東協商后), without any indication who the shareholders are, specifically avoiding any conflict with the issue as to who the shareholders really are.

46.  If there is any accidental overlap of factual findings between the Hong Kong Decisions and the SPC Decisions they only concern the obligations or issues under the SPC Decisions, and do not concern any obligations or issues under the Hong Kong Decisions.

47.  Such alleged conflict is particularly illusive when the PRC Court Sanctioned Settlement is, as a matter of fact, no longer enforceable after the further settlement agreement signed between Change I&T and Zhong Xin upon expiry of the limitation period for enforcement on 26 May 2012. It is not disputed that this agreement has never been enforced up to now, 13 years after its signing.

D3.2 Close and Exclusive Connection with Hong Kong

48.  Further or alternatively, the limited overlap of factual background has been duly considered by the Hong Kong Courts which were fully aware of the PRC Proceedings and the SPC Decisions (except for the 2019 SPC Decision which does not make any difference) before delivering the Hong Kong Decisions and concluded that they are of little assistance to the issue of the effect of the Settlement Agreement.  Such overlap certainly cannot be an excuse to defy the final and conclusive effect of the Hong Kong Decisions.

49.  This is particularly so when those issues decided in the present proceedings, especially on the authority of Wang Li, have been properly decided in Hong Kong, being matters either subject to the exclusive jurisdiction of Hong Kong Court or governed by Hong Kong law, or both:

(1)  The underlying dispute is over the breaches of the JV Agreement, an agreement that is governed by Hong Kong law and subject to the exclusive jurisdiction of Hong Kong Court.  Clause 7 expressly stated:

“本協議應受香港法律管轄，並根據香港法律加以詮釋，如發生異議將於香港法庭訴訟。”

(2)  The signing parties and the JV company itself Zhong Xin are either incorporated in Hong Kong (for Bai Jun), or BVI companies that operated in Hong Kong (for Angola and Zhong Xin).

(3)  The Settlement Agreement is:

(a)  Governed by Hong Kong law (including its validity and enforceability against Bai Jun) which is a consensus that has never been disputed amongst the parties in the present proceedings.

(b)  For the purpose of settling a set of Hong Kong proceedings.

(c)  Subject to the exclusive jurisdiction and governing law clause of the JV Agreement attempting to deal with the operation of the JV Agreement.

(4)  The key issue about the authority of Bai Jun (a Hong Kong company) and hence binding effect of the Settlement Agreement on Bai Jun is another Hong Kong law issue.

50.  In view of the fact that the JV Agreement and the Settlement Agreement must be governed by Hong Kong Law and the Hong Kong Courts had been seized with the matters in dispute, even if (which is not the case) the Hong Kong Courts had not reached any decisions on the construction of the JV Agreement, whether the same had been terminated and whether Angola still had any shares in Zhong Xin and whether the Settlement Agreement was valid, the commencement of the Xi’an Proceedings in clearly an abuse and was a transparent attempt for forum shopping.  This itself is a sufficient ground for the grant of the anti-suit injunction.

D3.3  Angola’s Counter-arguments are not valid

51.  In paragraph 44 of Angola’s Skeleton Submissions, the Angola camp tries to argue that the purpose of the Xi’an Proceedings “is not to re-litigate any matter under Hong Kong law, but to clarify Angola’s obligations under PRC law in light of the SPC’s decisions”.  However, from the reliefs claimed in the Xi’an Proceedings (see: paragraph 36 above), plainly, the Angola camp is saying that it is not satisfied with the Hong Kong Decisions on the issues of validity of the Settlement Agreement and the ownership of the Relevant Shares in Zhong Xin, but instead wants to overturn such findings praying aid of the Xi’an Court under PRC law that in fact governs neither the Settlement Agreement, nor the JV Agreement under which the Relevant Shares were transferred, still less the Hong Kong proceedings that the Settlement Agreement intended to settle.

52.  As submitted by Bai Jun, the excuses put forward by Angola simply cannot stand:

(1)  Up to now, no particulars could be offered as to what the alleged “conflicting legal obligations”really are.

(2)  The Angola camp conspicuously failed to explain how the authority to effect the PRC Court Sanctioned Settlement could be equated with authority to enter into the Settlement Agreement to settle the Hong Kong proceedings and to uphold the legal validity of the Settlement Agreement, a totally different document signed at a different time, at a different place, amongst different parties, for different purposes, under different circumstances, in respect of different subject matters and disputes arising out of different contracts and litigated before different courts in different jurisdictions.

(3)  It is abusive and issue-estoppel if not res judicata, for the Angola camp even to raise this alleged “logic” that since there was authority from Bai Jun to sign the PRC Court Sanctioned Settlement in the eyes of the PRC court, there was sufficient authority from Bai Jun to sign the Settlement Agreement, when the same issue of the binding effect of the Settlement Agreement has already been conclusively decided under the Hong Kong Decisions.

(4)  Angola further sought to rely on the fact that in seeking to challenge the validity of the PRC Court Sanctioned Settlement, the Bai Jun camp had sought to argue that Wang Li in fact did not have the authority to settle on behalf of Bai Jun at all and the argument was not accepted by the PRC court.  This is totally irrelevant.  It must be noted that the authority of Wang Li to enter into the PRC Court Sanctioned Agreement and the validity of the PRC Court Sanctioned Agreement were being considered by the PRC court who had no doubt applied the PRC law which was obviously the governing law of the PRC Court Sanctioned Settlement.  On the other hand, the validity of the Settlement Agreement was plainly governed by Hong Kong law and the Angola camp had never contended before the Hong Kong Courts to the contrary.  The fact that the PRC courts took the view that the persons purporting to act for Bai Jun had the authority from Bai Jun in entering into the PRC Court Sanctioned Settlement was a point available for Angola to rely on and was in fact fully and exhaustively litigated and brought to the attention of the Hong Kong Courts in the Hong Kong Proceedings.  Despite that the Hong Kong Courts held against Angola.

53.  There are two further arguments raised by the Angola camp, both of which are rejected by this Court.  First, it says that the present application should be adjourned waiting for the decision of the Xi’an Court because the case has been “accepted” by the Xi’an Court and a jurisdiction challenge has already been mounted in Xi’an, following the approach of The Sumitomo Bank Ltd v Xin Hua Estate Ltd & Ors, HCCL 256/1998 (unrep, 5/02/1999).  Secondly, it is argued that jurisprudence on contractual anti-suit injunction is not applicable as the Settlement Agreement does not contain any jurisdiction clause.

Sumitomo Approach

54.  Contrary to Angola’s submission, the Sumitomo case did not adopt the wait and see approach in Amchem Products Inc v British Columbia (Workers’ Compensation Board) (1993) 102 DLR (4^th) 96 as a matter of general principle, but was decided “with the very particular factual situation” of its own:

(1)  In that case, the jurisdiction challenge had already been mounted in the PRC court, fully argued both orally and in writing and the PRC court was already “deliberating upon the jurisdiction issue” before the anti-suit injunction was issued (pp 2, 6).

(2)  The Hong Kong action issued was at its most embryonic stage started together with the anti-suit injunction and long after the PRC proceedings had been started and the jurisdiction challenge had been raised and argued in PRC for the deliberation of the PRC court (p 2).

55.  In contrast, that is totally distinguishable from the present case whereby:

(1)  The jurisdiction challenge in the Xi’an Proceedings is only at the very initial stage:

(a)  with the challenge application only being issued and served by the Bai Jun camp on 14 February 2022 shortly before the Summons was issued;

(b)  without any response from the Angola camp;

(c)  with no submissions being exchanged by the parties;

(d)  with no oral hearing either held, or scheduled; and

(e)  ordered to be suspended according to the Interim Injunction.

Other than the mere fact that the action was commenced, and the application was made to challenge jurisdiction which has not been considered or heard, there is no step taken in the Xi’an Proceedings.

(2)  On the other hand, the present Hong Kong action has progressed to the concluded stage, where the relevant issues have been finally decided with all appeal avenues exhausted and the key order, ie the transfer of the Relevant Shares, already executed.

56.  In Choi Sai-yiu and Ors v Widepower Ltd and Ors [1995] 1 HKLR 186 at 190, Deputy High Court Judge Cheung (as he then was), expressly refused to follow the Amchem approach as a matter of general rule, being an additional step that is not enunciated in the binding Privy Council decision of Societe Nationale Industrielle Aerospatiale v Lee Kui-jak and Anor [1987] 1 AC 871.

57.  In The “Angelic Grace”[1995] 1 Lloyd’s Rep 87 at 95, Leggatt LJ most forcefully pointed out the irony that such proposed general approach may lead to a greater affront to comity:

“I can think of nothing more patronising than for the English Court to adopt the attitude that if the Italian Court declines jurisdiction, that would meet with the approval of the English Court, whereas if the Italian Court assumed jurisdiction, the English Court would then consider whether at that stage to intervene by injunction. That would be not only invidious but the reverse of comity. …”

58.  This is further supported by Dicey, Morris & Collins, The Conflict of Laws (15^th ed 2012) §12-090 commenting that such practice is particularly inapt “if the court has already ascertained that England is clearly the natural forum for the resolution of the dispute.”

59.  The case of Charterers Mutual Assurance Association Limited v British & Foreign[1998] I L Pr 838 cited by Angola was decided under various special EU treaties that do not apply to Hong Kong at all.

60.  If whenever an action has commenced in a foreign court on an issue which should be decided in Hong Kong, or worse still which has already been decided in Hong Kong, the Hong Kong Court must wait for the result of a challenge to the jurisdiction in the foreign court before considering any anti-suit injunction, that would make the whole anti-suit injunction jurisdiction pointless.

Jurisdiction Clause

61.  Moreover, the Angola camp accepts that in any event, the Amchem approach does not apply to anti-suit injunction based on exclusive jurisdiction clause.  Angola argues that the Settlement Agreement itself does not have an exclusive jurisdiction clause.  However, that is missing the point.  The governing jurisdiction clause is found in the JV Agreement (clause 7).  It applies to disputes arising out of the interpretation and performance of the JV Agreement.  That is exactly how the dispute over the ownership of the Relevant Shares arose, the very dispute that the Settlement Agreement intended to settle.

62.  By virtue of Ever Judger Holding Co Ltd v Kroman Celik Sanayii Anonim Sirketi [2015] 2 HKLRD 866§45, it is clear that when there is an exclusive jurisdiction clause, the Hong Kong Court should ordinarily grant an anti-suit injunction to restrain the pursuit of foreign proceedings brought in breach of such jurisdiction clause “at any rate where the injunction has been sought without delay and the foreign proceedings are not too far advanced, unless the defendant can demonstrate strong reason to the contrary.”  The reason being that “It seeks simply to uphold the parties’ contract to resolve any dispute within the scope of the clause by arbitration.”(§79).

63.  With the exclusive jurisdiction clause ie clause 7 of the JV Agreement being operative, this principle is squarely applicable to the present situation.

64.  The present case is even stronger than the usual jurisdiction clause cases.  As not only is there a jurisdiction clause, the Angola camp has specifically and voluntarily submitted to the exclusive jurisdiction of Hong Kong Court by contending that it owned the shares in pursuance of the JV Agreement in 2005, and raising the Settlement Agreement in Hong Kong and strenuously arguing its effect, without ever raising any issue that its right should be considered by the PRC court.

The Present Case

65.  It is thus clear that both by virtue of Ever Judger (Supra) and Choi Sai-yiu (Supra), the Amchem approach is only applicable in special circumstances and not as a matter of general rule or starting point.

66.  In any event, considering all the circumstances, including (1) that the points sought to be raised in the Xi’an Proceedings had been litigated and conclusively decided in the Hong Kong proceedings; (2) the indisputable closest connection with Hong Kong; (3) the oppressive and abusive conduct of re-litigating the same issues already conclusively decided in Hong Kong; (4) the undeniable bad faith and repeated defiance of the Hong Kong Decisions already exhibited by the Angola camp; (5) the embryonic stage of the belated Xi’an Proceedings; (6) the exclusive jurisdiction and governing law clause in favour of Hong Kong in the JV Agreement; and (7) the express submission to the exclusive jurisdiction of the Hong Kong Court by the Angola camp, the necessity in the interest of justice to stop the Angola camp from any further oppressive and vexatious conduct here and now is most evident, whether or not the Amchem approach is to be adopted as a starting point.

E.     CONCLUSION

67.  Despite the fact that this dispute over the operation of the JV Agreement had been litigated in the jurisdiction that the Angola camp chose by expressly choosing Hong Kong as the exclusive jurisdiction under the JV Agreement; and despite initiating the present proceedings in the way that the Angola camp designed by causing Achieve Goal to issue the present proceedings; and despite producing the Settlement Agreement and amending the pleadings accordingly on 22 July 2009, when the litigation is finally concluded after a marathon lasting over 15 years, the Angola camp is making all kinds of attempts to deny its effect, to further claim to be the owner of the Relevant Shares and to prevent the Bai Jun camp from properly exercising its rights as the rightful owner of the Relevant Shares and hence the 70% majority shareholder of CLB, in defiance of the CA Order.

68.  It is plainly in the interest of justice that the Angola camp be restrained from further vexing the Bai Jun camp or interfering with its entitlement to the Relevant Shares and ownership of Zhong Xin.

69.  Accordingly, I make an order in terms of paragraph 1 of the Summons.

70.  I further order that Angola do pay Bai Jun the costs of and occasioned by the Summons, such costs are to be taxed on the indemnity basis if not agreed.

71.  The above direction regarding the basis of taxation of the costs to be on the “indemnity” basis is nisi and shall become absolute in the absence of any application within 21 days to vary the same.

72.  At the hearing, Bai Jun indicated that if it is successful on the Summons, it will apply for the costs awarded in its favour to be paid personally by Zeng Wei, the sole owner of Angola since October or November 2009, pursuant to Order 62, rule 6A of the Rules of the High Court.

73.  For that purpose, I direct that Bai Jun be entitled to serve a summons on Zeng Wei (i) at his address in Hong Kong at 401-402 Chung Ying Mansion, 20 Connaught Road West, Hong Kong; and (ii) by serving the same on the solicitors acting for Angola, on the question of whether Zeng Wei should be joined as a party to these proceedings for the purposes of costs only.

74.  Lastly, I express my gratitude to counsel on both sides for their helpful assistance in this matter.

HCA 1987/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1987 OF 2005

____________

____________

(By original action)

____________

(By counterclaim)

_____________

D E C I S I O N

_____________

1.  In terms of the discovery summons, I am going to refuse it.

2.  First and foremost, it is six months out of the time imposed by my previous order at a CMC.  The delay itself is sufficient to bar the relief.  I have indicated in this case, the time was important for a case of this scale and complexity.

3.  This case is about whether Clarigain should have interest in the rest of the 50 per cent in the joint venture company, and whether Clarigain is barred by a settlement agreement from pursuing this claim. 

4.  Achieve Goal and Angola seeks discovery of an agreement between Ma Maogen and one Mr Zhang Xintien, dated 17 May 2011.  The relevance is said to be this.  Clarigain’s witness, Madam Gao, referred to Zhang’s affirmation.  Clarigain does not intend to call Zhang as a witness, but intends to adduce his affirmation by way of hearsay.  Under Section 49(2) of the Evidence Ordinance (Cap. 8), the court has to consider a number of factors before deciding whether to give weight to the hearsay evidence. 

5.  Angola and Achieve Goal submits that the documents sought would be relevant to Section 49(2)(d) of the Evidence Ordinance, ie for challenging whether Zhang had any motive to conceal or misrepresent matters. 

6.  This discovery is, in my view, for a collateral purpose of attacking credibility, and, as submitted by Mr Wang, even this credibility issue will not touch on the core issue of the case as to interest in the shares between Zhong Xin and Angola.  The agreement sought to be discovered was in 2011, and there is no apparent purpose to be served by adducing such evidence at this stage.  Details of the sale of the shares between Zhang and another simply is not relevant to any part of the case at all.  I therefore dismiss the summons for discovery.

HCA 1987/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1987 OF 2005

____________

____________

(By original action)

____________

(By counterclaim)

_____________

D E C I S I O N

_____________

Background

1.  I adopt the usual abbreviations for entities in previous decisions of this case.

2.  CLB is a Chinese joint venture that owns a mine in the Shaanxi Province.  Xie has been its legal representative.

3.  Zhong Xin holds over 70% of the shares of CLB and thus have control over CLB.  Interim receivers have been appointed for Zhong Xin.

4.  Zhong Xin is owned, as to 50% by Clarigain/Bai Jun, and as to 50% by Achieve Gold/Angola.  The shareholders’ dispute in this case will be tried on 1 March 2018, scheduled for 9 days.

5.  Clarigain wholly owns Bai Jun.  Bai Jun is wholly owned by Xie and Gao.  Xie and Gao are thus ultimate beneficial owners of 50% of Zhong Xin.

6.  The former interim receivers, FTI, gave a power of attorney for Xie to be legal representative of Zhong Xin.

7.  By an order dated 19 May 2015 (“the order”), FTI was replaced by the current interim receivers (“the IRs”).

8.  On 21 September 2015, the then directors of CLB passed a resolution to, amongst others, replace Xie with Mr Wardell of the IRs as Chairman of the board and CLB’s legal representative.

9.  The IRs have tried to register the change of legal representative with the Shaanxi Administration for Industry and Commerce (“SAIC”), but to no avail.  If Xie continues to remain as legal representative, he will retain apparent authority to act on behalf of CLB against any third parties.

10.  This is an application by the IRs for directions as to whether they may be at liberty to commence proceedings against (a) Xie; (b) Gao; (c) Clarigain; and/or (d) Bai Jun, for breach of the order, in obstructing the IRs from collecting, getting in, or receiving the assets and property of Zhong Xin and from managing the businesses of Zhong Xin and for directions on the form of proceedings that shall be commenced.

The parties’ respective case

11.  It is the IRs’ case that Xie has obstructed the IRs by actively lobbying the SAIC not to register the change in legal representative.  The IRs have requested Xie to execute an undertaking to renounce his position and to support Mr Wardell’s appointment but Xie refused.

12.  At this call-over hearing, the IRs seek directions for filing an affirmation in reply and to set down the matter for argument for one day.  The application is supported by Achieve Gold/Angola.

13.  However, Clarigain/Bai Jun oppose the application on the following grounds:

(1)  That no leave is required;

(2)  If leave is required, Xie is the only potential defendant; the court has no jurisdiction to grant leave because Xie is not a party;

(3)  Leave should be refused because the intended proceedings are not for the benefit of Zhong Xin;

(4)  One day’s hearing is not sufficient because of dispute of facts and legal experts’ opinion.

14.  I shall deal with each ground in turn.

Ground 1 – that no leave is required

15.  The application is taken out under Order 30 of the Rules of the High Court (presumably under rule 8) and the inherent jurisdiction of the court.  Order 30, rule 8 enables a receiver to request the court to give him directions.  It is not clear how the inherent jurisdiction is to be applied.

16.  I am unable to understand why leave of the kind sought is required.  If the IRs consider that anyone has committed a breach of the order, they can simply seek leave to commit for contempt.  There is no need to precede that leave application with another leave application like the present one.  If it is intended to be the application for leave to commit for contempt, the procedure in Order 52 has not been complied with.

17.  This is sufficient to dispose of the application.

Ground 2 – that the court has no jurisdiction to grant leave because Xie is not a party

18.  The court does not have jurisdiction under Order 30 to give directions affecting non-parties to the proceedings: Bank of China (Hong Kong) Ltd v New Nongkai Global Investments Ltd, HCA 2062/2003, 31 July 2003, §28, Deputy Judge Poon (as he then was); Hong Kong Civil Procedure 2017, Vol 1, §30/8/2.

19.  Xie is not a party and the court has no jurisdiction to make an order against him.

20.  There are no allegations against Gao, Clarigain or Bai Jun.  Ms Cheung, counsel for the IRs, submits that the joinder of them is to bind all relevant parties. 

21.  With respect, the reason for joinder has not been stated in the IRs’ supporting affirmation.  In any case, a shareholder (legal or beneficial) cannot be liable for Xie’s breach unless the court order said to be breached was directed against her/it.

22.  Ms Cheung submits that the court has jurisdiction because Clarigain/Bai Jun have submitted to jurisdiction.  With respect, I disagree for 2 reasons:

(a) If the court has no jurisdiction, the fact that one party submits to jurisdiction does not create jurisdiction;

(b) An argument similar to that of Ms Cheung’s was doubted by the court in Bank of China v New Nongkai, at §26.  I share the view of Deputy Judge Poon.

In any case, Xie and Gao have not “submitted to jurisdiction” under Order 30.

23.  The lack of jurisdiction is sufficient to dispose of the application.

Ground 3 – that leave should be refused because the intended proceedings are not for the benefit of Zhong Xin

24.  I say little on the merits except to make one observation.  I am concerned about whether this application is satellite litigation and what real benefits it can bring to Zhong Xin when the supporting affirmation did not rely on any misconduct of Xie.

25.  Ms Cheung gives evidence at the bar table that Xie has caused CLB to lose RMB 600 million whilst he was a legal representative.  The IRs want to file yet another affirmation to include such misconduct. 

26.  I doubt if the IRs can put in new evidence in what should be an affirmation in reply.  That aside, this means another round of affirmations which would take about 2½ months. 

27.  The hearing for arguments may just be 5-6 months before the trial commences on 1 March 2018.  The benefit of any order under this application (which is not even leave to commence committal proceedings) will be limited to those 5-6 months plus, say, another few months after trial for final judgment.  In my view, the parties should be concentrating on preparation for the trial rather than on satellite litigation. 

Ground 4 – that one day’s hearing is not sufficient because of dispute of facts and legal experts’ opinion

28.  Xie disputes the need to hand over power.  The IRs and Xie have respective legal opinions to support or deny the position that Xie would not be in breach of the relevant PRC laws if he handed over power.  Mr Ng submits that the court may have to listen to the evidence of Xie and the legal experts.

29.  I am not troubled by the hearing time.  The court needs only be concerned about whether it is a suitable case for giving directions to the IRs, instead of the merits of the substantive application or defence to it.  The hearing should not take long and there should not be oral evidence.

Conclusion

30.  I dismiss this application on the jurisdiction ground, ie grounds 1 and 2 only. 

31.  I make an order nisi that Zhong Xin should bear the costs of Clarigain and Bai Jun; and no order as to costs as regards Angola/Achieve Gold who supports the application. 

32.  There shall be summary assessment of costs on the papers on 25 May 2017.  Clarigain and Bai Jun do file and serve their statement of costs by 19 May 2017, and the IRs do file and serve their grounds of objection by 24 May 2017.

33.  I thank counsel for their assistance.

HCA 1987/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1987 OF 2005

____________

_____________

D E C I S I O N

_____________

1. This is an application by D2 and D3 by counterclaim (“the Angola Applicants”) for the discharge of the interim receivers (“the IRs”) of the defendant by original action (“Zhong Xin”).

Background

2. D2 by counterclaim (“Angola”) and P1 by counterclaim (“Clarigain”) each holds 50% of the shares in Zhong Xin.  The persons behind Angola are D3 and D4 by counterclaim, and those behind Clarigain are Xie He Ping (“Xie”) and his wife Madam Gao Hai Yan (“Gao”).

3. Zhong Xin is a 70% joint venture partner in Changlebao Mining Corporation (“CLB”).  The other 30% partner is Yulin Changle Commerce and Industry Co. Ltd. (“Yulin”).  CLB owns a coal mine in Shaanxi.

4. Xie and Gao held the entire shareholdings in Zhong Xin on trust for P2 by counterclaim (“Bai Jun”), who appointed them to act as directors of Zhong Xin.

5. The agreement between Angola and Clarigain (“the JV Agreement”)was that in return for 50% interest in Zhong Xin, Angola agreed to provide the equivalent in USD of RMB 50 million to Zhong Xin. The dispute between Clarigain and Angola is whether that amount was capital (on Clarigain’s case) or that they were only obliged to provide finance to the extent of RMB 50 million (on Angola’s case).

6. The rights between Yulin and Zhong Xin were governed by a joint venture agreement dated 12 December 2004 (“the CLB JV contract”). Under the CLB JV contract, the parties agreed to invest a total of RMB 71 million into CLB, of which Yulin was to contribute RMB 21.3 million for 30% of the capital, and Zhong Xin RMB 49.7 million (by 3 instalments) for a 70% share.

7. Under clause 2.2 of the JV Agreement, Angola was to provide the equivalent of RMB 20 million to Zhong Xin for the 1^st instalment payment under the CLB JV contract. Angola did provide the 1^st instalment to Zhong Xin, but by way of a loan.

8. Angola was said to have failed to provide funds for Zhong Xin to inject as 2^nd and 3^rd instalments into CLB.  According to clause 4.3 of the JV agreement:

「若甲方（Angola）未能按期支付合资公司注册资本金余额，将由乙方（Bai Jun）出资补上，甲方在中信矿业公司（Zhong Xin）的股份则按比例相应降低。」

So Bai Jun stepped in and injected US$3.56 million (“Bai Jun’s capital injection”) into CLB.

9. In this action in Hong Kong, Bai Jun counterclaims that Angola was holding 59.49% of its 50% shareholding in Zhong Xin on behalf of Bai Jun.  Angola’s case is that under the JV Agreement, its obligation was to look for but not necessarily provide capital.

10. In July 2008, Yulin sued Zhong Xin and Bai Jun in the陝西省榆林巿中級人民法院 (“the Shaanxi Court”).  Angola and CLB were made third parties.  Yulin challenged Bai Jun’s capital injection as false and invalid, as Angola had never given up its right to provide capital nor authorized Bai Jun to provide capital on behalf of Zhong Xin.  Yulin and Angola claimed a right of pre-emption over 42% of the shares in CLB such that Zhong Xin’s stake would be reduced from 28% to 20%.

11. In July 2008, Xie and Gao purportedly transferred their shares in Zhong Xin to someone else.  The dispute as to ownership has been ongoing.

12. There was deadlock in Zhong Xin’s management. Clarigain, Zhong Xin and Bai Jun alleged that Angola had sided with Yulin in trying to obtain control of CLB.   The Court of Appeal of Hong Kong appointed the IRs of Zhong Xin on 7 November 2008.

13. On 28 November 2008, the Shaanxi Court upheld the validity of Bai Jun’s capital injection in CLB.  Yulin and Angola appealed.

14. About 3 months after the appeal was lodged, on 6 March 2009, the IRs ratified Bai Jun’s capital injection on behalf of Zhong Xin (“the Ratification Decision”).

15. Angola applied for an injunction in this action restraining the IRs from ratifying the capital injection.  The application was dismissed by Chung J on 26 June 2009.   Chung J expressly pointed out that the IRs had taken care to make the ratification without prejudice to the rights of the parties to this action (§10 of his Reasons for Decision).  At that hearing, Angola’s (1^st) application to discharge the IRs was not pursued.

16. What followed were keen efforts on the part of Angola to reach “settlement” and have the IRs removed.  Equally resolute were the IRs in refusing to comply with “settlement” terms.

17. On 20 May 2009, Angola and Bai Jun (under new ownership and management) purportedly reached a global settlement of all their disputes in both the Mainland and Hong Kong courts and to discharge the IRs and Zhong Xin (“the Global Settlement”).

18. After the Global Settlement, there had been purported change in ownership this time of Angola.

19. Unknown to the IRs, on 29 June 2009, Yulin, Angola, Bai Jun, Zhong Xin and CLB reached an alleged settlement sanctioned by the Shaanxi Court (“the PRC Settlement Order”), whereby Yulin and Angola’s appeals in the Mainland would be given up on the following terms:

(1) CLB should return the sum injected by Bai Jun through the account of Clarigain (“the 1^st limb”);

(2) after the negotiation between its shareholders, Zhong Xin should re-inject US$3.56 million into CLB (“the 2^nd limb”).

Clarigain was not a party to the PRC Settlement Order.

20. Four months later, on 29 October 2009, the Angola Applicants applied for dismissal of the counterclaim and (for a 2^nd time) the discharge of the IRs on the ground that this action and the appeals in the Mainland had been settled by agreement.  The application was initially supported by Bai Jun.

21. Clarigain opposed the dismissal application.  Amongst others, it questioned the validity and enforceability of the Global Settlement.  The IRs, whilst maintaining a neutral stance, took the view that the PRC Settlement Order was invalid (as being entered into without Zhong Xin’s knowledge and by its lawyers without instructions) and not in the best interests of Zhong Xin.

22. On 27 November 2009, the IRs applied to the Shaanxi Court to overturn the PRC Settlement Order, but was dismissed on 14 April 2010. On 19 April 2010, they appealed to the Supreme People’s Court in Beijing (“the SPC”), but was dismissed on 17 August 2010.

23. Pursuant to the 2^nd limb of the PRC Settlement Order, 2 shareholders (Angola and Bai Jun) had agreed on 5 November 2010 that Angola should inject US$3.56m in the name of Zhong Xin.  The IRs were informed on 2 February 2011 and their consent and cooperation were sought.

24. The IRs then filed the affidavit of Fok on 10 June 2011 (which was in relation to the 29 October 2009 application) setting out the reasons for the refusal.

25. On 13 July 2011, the SPC issued a Notice of Direction (“the SPC Notice”) reiterating the validity of the PRC Settlement Order and clarified the manner of capital re-injection, namely, that Zhong Xin was to first inject a sum of US$3.56m into CLB and thereafter CLB would return the same sum to Clarigain.  By then, it had been over 2 years since the PRC Settlement Order was made and 11 months since the SPC upheld its validity.

26. On 24 August 2011, Angola informed the IRs that the funds of US$3.56m were ready for re-injection.

27. Once again, the IRs refused to comply with the PRC Settlement Order, one reason being that they had not been informed of or invited to make representations to the application for the SPC Notice.

28. On 1 December 2011, upon the Angola Applicants’ application (by summons dated 6 October 2011), Chung J ordered the IRs to forthwith comply with the PRC Settlement Order and the SPC Notice unless the IRs applied within 21 days to the PRC Court for directions.

29. The IRs did apply on 15 December 2011 to the SPC for reconsideration of its decision of 17 August 2010 made some 16 months ago. 

30. On 12 January 2012, whilst the IRs’ application to the SPC was still pending, the Angola Applicants applied to compel the IRs to comply with the PRC Settlement Order.  It was opposed by the IRs.

31. The applications of 29 October 2009 and 12 January 2012 were heard by Chung J on 6 March 2012.  Chung J ordered the former application to be adjourned sine die.  The latter application was adjourned to a date to be fixed and is still pending disposal.

32. On 29 May 2012, the IRs/Zhong Xin, Yulin and CLB entered into a settlement (“the 2012 Settlement”) whereby Zhong Xin and Yulin recognized each other’s 70% and 30% interest in CLB and all agreed that they would not comply with the PRC Settlement Order.

33. On 28 March 2013, the SPC dismissed the IRs application and, once again, upheld the validity of the PRC Settlement Order and the SPC Notice.

The application to remove and replace the IRs

34. The Angola Applicants took out the present application on 9 July 2013 for removal and replacement of the IRs.  The grounds are that:

A. The IRs have failed to act in the best interest of Zhong Xin; and

B. The IRs have been conducting themselves in a way which is, or reasonably perceived to be, in close collaboration with another camp of shareholders, ie Xie and Gao, which compromised their neutral position.

35. Clarigain opposed the application.  Bai Jun took a neutral position.  The IRs, purportedly taking a neutral stance, took issue on the grounds related to their conduct.

The principles for discharge or removal of receivers

36. The principles, which I have set out in the case of Macau First Universal International Ltd v Ding Xiaohong (No.2) [2012] HKLRD 494, at §§ 47-56 are not in dispute:

“47. A receiver appointed by the court is an officer of the court who has to observe high standards of conduct:

‘A receiver appointed by the court is an officer of the court, and his powers and authority are derived from the court’s order. A receiver, as an officer of the court, is subject to the general supervisory jurisdiction of the court. He is not in any sense an agent or trustee of the party at whose instance the appointment is made. An exacting standard of fair conduct and high-mindedness is to be expected from a receiver as an officer of the court under the rule in IRs James. They are obliged not only to act lawfully but fairly and honourably. The court is sensitive about the conduct of its officers and requires of them strict standards of conduct. It requires any receiver appointed by the court to observe a high degree of equitable conduct.’

Kwan: Company Law in Hong Kong (Insolvency), 2007, para 11.008.

48. A receiver must act in accordance with principles of justice. …

49. A receiver has a fiduciary duty to protect and get in assets of the company. …

50. Where he is appointed to manage the business, he should enable the business of the companies to be carried on in a way that enabled both parties to the dispute to be reasonably confident that neither was benefiting at the other’s expense, and that payments and receipts were in order and properly monitored. …

52. The court may discharge a receiver if it is just to do so, e.g. if the original appointment should not have been made or if default, misconduct or other ground for unfitness is shown: Lightman and Moss on the Law of Administrators and Receivers of Companies, 4^th ed, para 29-016. For instance, a receiver may be discharged if his conduct has been such as to impede the impartial course of justice as to amount to a gross dereliction of duty. He may also be discharged for any default or misconduct of such a degree as will forfeit the confidence of the court or which is liable to prejudice the interests of the parties. …

53.Assessment of default has to be justified and reasonable … Where the receiver has honestly done his best but failed to discharge his duties by reason of their onerous and irksome nature, the court will be slow to condemn or discharge him.  …

…

55.The court does not lightly remove its own officer and will, amongst other considerations, pay due regard to the impact of a removal on his professional standing and reputation. ...

56. The onus of proof on an applicant will not be easy to discharge where the liquidator has become well acquainted with the business and affairs of the company. Even if grounds for removal are made out, it is also necessary to take into account the disadvantages that would arise from the removal of the liquidator in terms of costs and delay. ...”

(underlined words are the emphases of the Angola Applicants)

37. The Angola Applicants do not need to make out a case of actual bias.  Apparent bias or conduct that was reasonably perceived to be unfair and biased against one party would be sufficient.  Close collaboration with one camp of the dispute instead of maintaining a neutral position is capable of establishing such bias (§§60, 90 of the Macau Firstcase).

38. Whenever the situation so demands, it is always open to a receiver to apply for directions from the court, especially where his action or inaction would have the appearance of placing one party in a more advantageous position than the other: Re Gold Pleasure Industrial Co. Ltd., HCCW 49-52/2006, 7 January 2009, Barma J (as he then was), §§64-65.

Ground (A): IRs failure to act in the best interest of Zhong Xin

A1.  Interest of different entities and the IRs’ role

39. Zhong Xin’s interest is to ensure that the capital injected into CLB remained there so as to secure 70% interest in CLB.  Yulin’s interest was to defeat that so as to claim a pre-emptive right (“the Yulin pre-emptive right”) and obtain more interest in CLB.  Clarigain’s interest was consistent with Zhong Xin’s.  Angola’s interest was to defeat Bai Jun’s capital injection so as to claim more interest in Zhong Xin (“the Angola pre-emptive right”). Angola’s interest was diametrically opposite to that of Zhong Xin.  There was ongoing, conflicting interest between Angola and Clarigain.

40. Under the Court of Appeal’s order, the IRs were to preserve and protect Zhong Xin’s interests under the CLB JV contract, and defend and conduct any appeal in the Shaanxi proceedings.  Mr Ho SC accepts that the only interest that the IRs should take into account was that of Zhong Xin and not the conflicting interests of the 2 camps of shareholders.

A2.  “Failure” to comply with the PRC Settlement Order

41. Instead of complying with letter of the PRC Settlement Order, the IRs tried 3 times to seek redress in the Mainland Courts but failed. Even after the IRs’ 3^rd application failed, they had not followed Chung J’s order dated 1 December 2011 to comply with the PRC Settlement Order. The protracted proceedings in the Mainland have caused the PRC Settlement Order to become unenforceable 2 years after its making.

42. One therefore needs to examine the reasons for the IRs’ non-compliance with the PRC Settlement Order.  I place little reliance on their assertion that their lawyer had acted without instructions, but I  take into account the following factors.

43. Firstly, there were circumstances showing that the Global Settlement was invalid.  According to Clarigain (who was not a party but disputed the validity of the Global Settlement), the Global Settlement was made in June 2009, but backdated to 20 May 2009 at Angola’s request to frustrate a stop notice preventing transfer of shares of Bai Jun filed with the Companies Registry by Xie/Gao the day before.  Clarigain was purportedly corroborated by Bai Jun.

44. Secondly and most importantly, the IRs considered that the PRC Settlement Order was not in the interests of Zhong Xin.  With the Shaanxi judgment in its favour and the Ratification Decision, Zhong Xin’s 70% interest in CLB was secure, subject, of course, to the appeal at that time.  The PRC Settlement Order, however, left Zhong Xin in a precarious position.  There was no provision as to the status of Zhong Xin’s interest in CLB in between performance of the 2 limbs.  The return of capital under the 1^st limb might be taken as an admission by Zhong Xin that the capital injection made by it was invalid.  If the shareholders could not come to any agreement as to re-injection of capital, Zhong Xin’s 70% interest in CLB would be jeopardized.

45. The IRs queried whether the shareholders could have agreed on capital reinjection and dispensed with the entirely circular and meaningless flow of funds under the PRC Settlement Order.

46. Thirdly, in the IRs’ views, the PRC Settlement Order gave rise to all sorts of difficulties.  For example, it might expose Zhong Xin to administrative penalties.  There might be violation of Article 36 of the Company Law of the Mainland which prohibited shareholders from withdrawing their capital contributions, foreign exchange difficulties in repatriating the capital.

47. Fourthly, even if the IRs had wanted to comply with the PRC Settlement Order, the 1^st limb was beyond the control of the IRs as CLB was to return the capital.  According to Angola (see 7^th affirmation of Zeng), CLB was to return the capital to Clarigain.  According to the SPC (judgment dated 28/3/2013) it was to be returned to Bai Jun.

48. Under the 2^nd limb, the shareholders (Angola and Bai Jun) purportedly reached an agreement only on 5 November 2010 for Angola to inject capital in the name of Zhong Xin.  However, the IRs regarded the shareholders to be Angola and Clarigain but not Bai Jun.  There was ongoing dispute as to who was acting for Bai Jun as Xie and Gao had purportedly sold the shares in Bai Jun to one New Purple and Keeneye but the sale and purchase agreement was subsequently set aside through arbitration.

49. Fifthy, notwithstanding the alleged agreement with Angola on 5 November 2010, Bai Jun had resiled from it.

(a) Bai Jun’s basis for its written consensus with Angola was that shares of Angola would be sold to the then shareholder of Bai Jun (one Zhang) such that Zhang would effectively own all the shares in Zhong Xin and avoid further litigation.  Zhang was then also the legal representative of Yulin.  The written consensus was in turn based on the continued validity of the Global Settlement.  However, the shareholders of Angola subsequently refused to transfer the Angola shares to Zhang.  Bai Jun thus considered the Global Settlement and written consensus to be no longer binding.  At the hearing on 1 December 2011 before Chung J, Bai Jun had expressly opposed the application for leave for Angola to re-inject US$3.56m into Zhong Xin or CLB. 

(b) Bai Jun points out that there is still dispute between Bai Jun (under its current owners) and Clarigain as to beneficial ownership over Bai Jun’s capital injection (then under the control of Xie/Gao).

50. Sixthly, the SPC Notice was strange.  It was not a judgment.  It was not addressed to anybody. It was not clear who had been heard (at least not Zhong Xin) before it was issued.  It was not clear why the SPC could have varied the parties’ agreement.  Importantly, even the SPC recognized the difficulty that might arise from performance of the 2 limbs to the PRC Settlement Order:

“本院認為，上述內容雖然不違反法律規定，但是在實際履行過程中，有可能存在原出資款項退回後，不能重新注資的情形，從而違反了《中華人民共和國公司法》第三十六條的規定。本院已經於2010年8月17日函告陝西高院, 在對上述調解書的執行過程中應要要求中信礦業集團有限公司先向榆林巿常樂堡礦業有限公司滙入356萬美元後, 再將原出資款項退回。”

51. Seventhly, further complications have arisen since the IRs’ 3^rd application to the Mainland Courts.  Nobody saw fit to enforce the PRC Settlement Order in the Mainland during the 2 years before limitation period for enforcement expired on 28/6/2011.  Yulin did not enforce it but entered into the 2012 Agreement.

52. With these circumstances, the IRs could not be blamed for failing to follow the letter of the PRC Settlement Order and having gone to the Mainland Courts 3 times.  The fact that the IRs’ concerns were all dismissed by the Mainland Courts could not, without more, throw in doubt good faith of the IRs.

A3.  Compliance with the spirit of the PRC Settlement Order

53. The IRs secured the agreement of Yulin not to exercise its pre-emptive rights, which meant firmly securing 70% of Zhong Xin’s interests in CLB. There is no dispute at the hearing before me that that was the best result that the IRs could ever achieve even if the PRC Settlement Order was complied with.

54. The 2012 Settlement Order had not given Zhong Xin anything further from what the Shaanxi Court had already declared it to have but the chance of reversing the Shaanxi judgment on appeal was eliminated.  On the other hand, the contentions between shareholders of the JV Agreement, or between Angola and Bai Jun as to whether the latter would be entitled to 42% interest in Zhong Xin, were preserved.  Angola’s right to litigate in Hong Kong was not affected either.

55. I have asked Mr Ho SC who was made worse off by the IRs’ non-compliance with the PRC Settlement Order.  He submits that: (a) there was risk of Yulin or Angola reopening their claims against Zhong Xin for its 42% shareholding in CLB; and (b) Angola’s position in the defence to counterclaim will be prejudiced.

56. With regard to (a), Yulin has expressly agreed that the PRC Settlement Order need not be complied with. It has even acknowledged the weakness of its appeal in correspondence before entering into the 2012 Settlement.  Without disrespect to Mr Ho SC, it is fanciful to suggest that Yulin would reopen its claim, or that it would succeed in the appeal if it is ever reopened.

57. As for Angola, despite being a party to the PRC Settlement Order, Angola has never tried to enforce it in the Mainland or restored the application dated 12 January 2012 for hearing.  Angola was found by the Shaanxi Court not to fulfill the legal criteria of being a third party under Mainland law.  There is no indication that Angola would reopen the appeal and if it does, what impact the re-opening will have on Zhong Xin’s interest.

58. With regard to (b), the truth is that under the PRC Settlement Order, if there was no agreement as to who should pay back the capital, the position would have favoured Yulin who could claim more interest in CLB.  On the other hand, if there was agreement between shareholders that Angola would provide the capital for the re-injection, Angola’s position as against Xie and Gao in the underlying dispute will be improved.  Therefore, the IRs’ non-compliance with the PRC Settlement Order prejudiced Angola’s defence in the counterclaim.  

59. With respect, how the subsequent PRC Settlement Order could have affected the prior accrued rights of Angola as pleaded is, of course, yet to be explained.  However, the IRs’ role was to act in the best interests of Zhong Xin, not any of the shareholders.   

A4.  Failure to seek directions from the court

60. Angola queried why the IRs, having learnt of Angola and Bai Jun’s agreement of 5 November 2010 on 2 February 2011, did not seek the court’s directions.  According to Angola, IRs obviously took irrelevant matters into account, namely, the conflicting interests between shareholders of Zhong Xin.  For example the IRs expressly stated in their affidavit that the capital re-injection would prejudice Clarigain/Xie/Gao’s interest in HCA 1987 of 2005 and “in the premises … the IRs would continue to take all reasonable steps to pre-empt anyone from seeking to disturb the Status Quo.”  Angola claims that in pursuing the status quo, the IRs put the interest of Zhong Xin at risk without justification.  Such being an act in total disregard of Chung J’s decision, it could readily be inferred that the IRs’ decision was motivated by the interest of Xie/Gao. It also had the appearance of placing one shareholder in a more advantageous position than the other after all avenues of judicial appeal have been exhausted.

61. With respect to Mr Ho SC, the issue of compliance with the PRC Settlement Order has been before the court since 2009 and is still pending.  It lies ill in the mouth of the Angola Applicants to complain against the IRs when the Angola Applicants have chosen not to restore the 12 January 2012 summons for argument.

62. Moreover, the circumstances have been evolving.  Whilst the Angola Applicants’ summonses to compel the IRs’ performance have been adjourned for arguments, the IRs achieved the best result for Zhong Xin.  It is questionable whether the IRs should still apply for directions for compliance with the PRC Settlement Order and unwind the 2012 Agreement.

63. It would have been best if the IRs have avoided references to Clarigain/ Xie/ Gao’s interests in their affidavits.  But viewing all circumstances, it has not been demonstrated that what the IRs did was against Zhong Xin’s interest. Ground A is not substantiated.

(B)  IRs’ conduct reasonably perceived to be in close collaboration with the Xie/Gao camp which compromised IRs’ neutral position

64. The Angola Applicants contend that the IRs have been acting in favour of the Clarigain and Bai Jun camps.

65. As a starting point, there were conflicting interests between shareholders. The fact the best result happened to coincide with the interests of one camp of shareholders but prejudiced another’s was not, in itself, evidence of the IRs’ bias, or compromise of their neutrality.

66. Angola complaints against the IRs and the IRs’ responses are dealt with as follows:

67. Firstly, the IRs have failed to take control over CLB and continued to allow Xie to hold himself out and rely on his status as legal representative of CLB.  Consequently Xie was able to (a) make a declaration which was used by the IRs in support of the IRs’ case before the Supreme People's Court; (b) call a board meeting of CLB; (c) sign the application for retrial at the Supreme People's Court; and (d) sign on behalf of CLB the agreement dated 29 May 2012 among the IRs, Yulin and CLB.

68. The IRs’ response was that Xie only remained as a director, chairman and legal representative of CLB on company record because Zhang Xin Tien of Yulin has withheld relevant corporate instruments.  In fact, Xie was removed and had no independent management powers.  The IRs would only authorize him to represent CLB in his formal capacity insofar as it was necessary to protect the interest of Zhong Xin, eg  to represent CLB in renewing mining exploration rights of CLB and this was known to Angola.  The same applied to the 2012 Settlement where Yulin insisted that Xie should sign the settlement agreement on behalf of CLB as legal representative on record to prevent Xie from reneging in future.

69. Angola pointed out that Zhang Xin Tien was arrested in September 2010.  The IRs did nothing towards demanding for return of the company chops and documents.  In fact, the company chop appeared in the application for retrial by Xie dated 12 February 2012.

70. I accept the IRs’ explanation’s as to Xie’s formal capacity and acts done.  The IRs could, of course, have done better towards retrieving the company instruments but their failure was not such as to show their collaboration with the Xie and Gao camp.

71. Secondly, the Angola Applicants complain that the IRs have acted upon the instructions of Xie, eg in being advised by Xie that the mining rights of CLB would expire in 2 months’ time and that immediate steps must be taken for renewal.  There was no similar reporting or communication between the IRs and Angola other than through litigation.  The IRs had never given any work report to the Angola Applicants.

72. The IRs were certainly at liberty to receive information from any person, including Xie.  However, there was nothing to suggest that Xie had influence in or dictated the IRs’ decisions.  Nor is there evidence to show that Xie and Gao’s camp received work reports of the IRs that the Angola Applicants did not have.

73. Thirdly, the Angola Applicants complains that there was consistent hostility towards Angola.  By way of example, the IRs alleged that Angola had misappropriated RMB 20 million from CLB despite Angola’s explanation to the contrary.  On the other hand, when Angola complained against Xie/Gao of misappropriation of assets, the IRs were indifferent.

74. The IRs have explained that Gao has filed a criminal complaint against Zhang Xin Tian for misappropriation of funds of CLB which Angola believed was a way to remove Zhang from being general manager of CLB. The IRs explained that their investigation of misappropriation of funds from CLB was in response to that issue raised by Angola itself. There was nothing to show that the complaint was made by the IRs out of hostility to Angola.  I accept the explanation.

75. Fourthly, it is said that the IRs have actively advanced the interest of Xie/Gao instead of maintaining a neutral position.  For example, the IRs were able to obtain the arbitral award in favour of Xie/Gao and made submission on it to the SPC only 2 days after the date of the award.  Likewise when they produced the various 民事訴訟證據登記表dated June 2010 and made submission through their Mainland lawyer dated 19 July 2010, the IRs submitted that Angola or the PRC Settlement Order was aimed at harming the interests of Xie/Gao.

76. The arbitral award affects the issue of who the real shareholders of Bai Jun were.  According to the IRs, as soon as the award was given, Xie and Gao informed them.  As stated before, the IRs were at liberty to obtain information.

77. Mr Chan SC explains that the submission of the IRs’ Mainland lawyer and evidence produced was to establish the point that any civil act which was a conspiracy to injure the interests of a third party would be void under《民法通則》第三條.  The argument was to advance Zhong Xin and not Xie/Gao’s case.

78. In my view, the Mainland lawyers instructed by the IRs must equally not act in a way that gives rise to apparent bias against a shareholder of Zhong Xin.  Their frequent references to Xie/Gao did give rise to concerns as to collaboration with the Xie/Gao camp.  However, having read the submission of the Mainland lawyers, the IRs also mentioned that Zhong Xin’s interest was harmed by the PRC Settlement Order.  Mr Chan SC’s explanation is a fair one.

The overall circumstances

79. This case involved hostile litigation with a chequered history dating back to early 2005.  The parties were in a deadlock.  After the IRs were appointed, the Mainland proceedings came to judgment.  Even after judgment, arguments arose as to whether or not a sanctioned settlement was valid and whether it could be performed.  Things developed further when a settlement which obtained the best results for Zhong Xin was achieved in 2012.  The IRs have had an irksome task.

80. The complexity in the matter can be seen from the various interlocutory applications to the court since 2009 concerning the Angola Applicants’ summonses for dismissal of the counterclaim and compelling the IRs to comply with the PRC Settlement Order, 2 of which are still pending.

81. This is not an occasion for the court to keep a score sheet and decide if the IRs have done well in each step.  It is for the Angola Applicants to show that the IRs have acted in such a way as to cause the court to lose confidence in them.  Although the IRs have steadfastly refused to comply with the PRC Settlement Order, and have in the submission of their Mainland Lawyers appeared to have advanced the interest of Xie/ Gao, overall, they have been acting in the interests of Zhong Xin.  Though their conduct was not perfect, the evidence falls short of showing that the IRs are not fit for appointment on either ground (A) or (B).  This is not a case where the court’s confidence in the IRs is forfeited.  Given the complex background, replacement of the interim receivers would not be in Zhong Xin’s interest, both in terms of understanding the nicety in issues and costs.  Its Mainland lawyers are, of course, well advised to refrain from using language that can give rise to concerns of compromising the IRs’ neutrality in future. 

Conclusion

82. I dismiss the application.

83. I make an order nisi that costs of this application be borne by the Angola Applicants, with certificates for 2 counsel.  The IRs have rightly appeared to explain their conduct and they should be given costs.

84. In respect of the costs of the IRs,

(i) The refreshers of counsel were grossly excessive having regard to their brief fees.  I only allow a total of $500,000 for counsel’s fees. 

(ii) There was no justification for several fee earners on the side of solicitors and the IRs.

(iii) There was no justification for 2 fee earners on the side of solicitors to attend the hearings.

(iv) There was no justification for IRs to attend hearings through a senior consultant.

(v) Costs of solicitors and the IRs assessed are at $460,000.

(vi) On a nisi basis, the total costs of IRs payable by the Angola Applicants are $960,000.

85. In respect of costs of Clarigain,

(i) There was no justification for more than 1 fee earner in conferences.

(ii) The reading refresher charged by counsel is not recoverable in principle.

(iii) The refreshers were grossly excessive where there was no updated written submissions.

(iv) Fees of the 3rd counsel are disallowed altogether.

(v) On a nisi basis, costs are summarily assessed and allowed at $1,000,000.

86. In respect of costs of Bai Jun,

(i) The quantum of refresher is the same as the brief fee and should be reduced as a matter of principle.

(ii) The fees for perusal and consideration of application and one conference are included in brief.

(iii) The quantum of costs should reflect Bai Jun’s neutral position and limited participation at the hearing.

(iv) On a nisi basis, costs are summarily assessed and allowed at $180,000.

87. I thank counsel for their assistance.

HCA 1987/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1987 OF 2005

____________

_____________

D E C I S I O N

_____________

1.  There are 2 summonses, both taken out by the 2^nd and 3^rd defendants by counterclaim (collectively “the applicants” and respectively “Angola” and “Zhao”):-

(a) an application to dismiss the counterclaim of the plaintiffs by counterclaim (collectively “the respondents” and individually “Clarigain” and “Bai Jun”), and to discharge the interim receivers (“IR”) of Zhong Xin Ore-Material Holding Co Ltd (“Zhong Xin”);

(b)  an application to compel the IR to comply with the sanctioned settlement order of the Shaanxi Higher People’s Court (and upheld by the Supreme People’s Court).

For convenience, the first limb of the summons referred to in sub-para (a) above will be called “the dismissal application” below.  This decision is only concerned with the dismissal application.

2.  The parties’ dispute in relation to the dismissal application arises as follows.

3.  The applicants claim that a settlement agreement was entered into on 20 May 2009 whereby the parties agreed to cease various legal proceedings in Hong Kong (“the settlement agreement”).  The respondents deny the claim (see also paras  6 and 7 below).

4.  The marginal notes of the dismissal application summons refer to RHC Ord 30 (Receivers) and the court’s inherent jurisdiction (the reference to Ord 30 is irrelevant for present purpose).  Indeed, the applicants confirmed during the hearing they are invoking the court’s inherent jurisdiction to bring the dismissal application.

5.  The applicants and the respondents differ as to whether the dismissal application should proceed:-

(1)  on the basis of the court’s summary powers to dismiss actions in plain and obvious cases.  Such powers are akin those referred to in Ord 18 r 19 and the court’s related inherent jurisdiction; or

(2)  as a trial of some of the issues in an action, namely, the validity of the settlement agreement.

6.  On the part of Bai Jun (the individual behind it being one Mr Zhang (“Zhang”)), it is contended that the settlement agreement was subject to an agreement for the sale and purchase of the shares of Angola (Zhang being the purchaser thereof). Bai Jun asserts that the sale and purchase has fallen through.  Consequently, the settlement agreement was no longer binding.

7.  On the part of Clarigain (the individuals behind it being Mr Xie (“Xie”) and Ms Gao (“Gao”)), it is contended the settlement agreement was (i) reached behind their back and (ii) nothing more than a device to defeat its claim and to frustrate this action.  Clarigain also claims that the settlement agreement was in fact reached in June 2009 and backdated for the said unlawful purpose (to defeat a stop notice against the transfer of the shares of Bai Jun).

8.  Apart from the above contentions, other procedural objections have also been raised by the respondents.  These include: the parties having consented to a stay of this action, there is no proper ground for proceeding with the dismissal application; there has been an on-going dispute regarding who should be in control of Bai Jun.  The applicants are said to be aware of the dispute when the settlement agreement was reached.

9.  The last-mentioned dispute resulted in an arbitration decision and a judgment of the Hong Kong court of appeal, both of which were in effect in favour of Xie/Gao.  There is a pending application for leave to appeal to the Court of Final Appeal.

10.  Further, the respondents also contend that preparatory steps, especially adequate discovery of documents, have not been made.  One consequence of the stay of proceeding order was said to be that no preparatory step has been undertaken since then.

11.  For the above reasons, the respondents argue that it is improper to allow the dismissal application to proceed as if it were a trial of some of the issues of the action.

12.  The manner of proceeding with the dismissal application referred to in para 5(2) above is the same as, or at least similar to, a trial directed pursuant to Ord 33 r 3 and/or r 4(2).  I do not accept the applicants’ contention that the court somehow has inherent jurisdiction to do so.  But even if there were such inherent jurisdiction, I consider that the jurisdiction should be exercised in the same manner as that conferred by Ord 33 r 3 and/or r 4(2).

13.  The principles relevant to the exercise of the said discretionary power to direct a trial of issues have been summarized in Lee Yiu Kwan v Ting Yin Wah and Another [2004] HKEC 1222 (referred to in Hong Kong Civil Procedure 2012, Vol 1, para 33/4/9A). They include:-

(a)  where the issues of fact are interwoven with the legal issues raised, it will be undesirable for the court to split the legal and factual determination, for to do so would in effect be to give legal rulings in vacuo or on a hypothetical ruling, which the court will not do;

(b)  an order for the separate trial of separate issues is a departure from the general rule that all disputes should be tried together, and therefore generally speaking, such an order should only be made in exceptional circumstances or on special grounds.

14.  In brief, I am persuaded by the respondents’ argument that it is inappropriate (or at least inappropriate at this stage) to permit the dismissal application to proceed as if it were a trial of issues. The matters I have taken into account in so concluding include their submissions concerning the need for discovery and the potential uncertainty arising from the dispute regarding the control of Bai Jun.  The final resolution of the last-mentioned matter would mean a more confined, and hence cost-effective, challenge to the validity of the settlement agreement.

15.  Accordingly, the dismissal application will therefore only proceed as a summary process to dismiss an action in plain and obvious cases.

Mr Edward Chan, SC leading Mr Laurence Li and Mr Eric Chow, instructed by C L Chow & Macksion Chan, for the 1^st plaintiff (By counterclaim)

Mr Patrick Fung, SC leading Mr Calvin Cheuk, instructed by Li & Partners, for the 2^nd plaintiff (By counterclaim)

Mr Rimsky Yuen, SC leading Mr Dennis W H Kwok, instructed by Wong & Chan, for the 1^st, 2^nd & 3^rd defendants (By counterclaim)

The 4^th defendant (By counterclaim) acts in person and absent

Mr Jeffrey Chau, instructed by J Chan Yip, So & Partners, for the Interim Receivers of the 5^th defendant (By counterclaim)

HCA 1987/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1987 OF 2005

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REASONS  FOR  DECISION

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Introduction

1.  The 2nd and 3rd defendants (by counterclaim) (“the Angoladefendants”) took out an application seeking:-

(a)     the discharge of the interim receivers of the 1^st plaintiff (by counterclaim), Zhong Xin Ore-Material Holding Co. Ltd. (“Zhong Xin”), appointed pursuant to the order of the court of appeal dated 7 November 2008;

(b)    alternatively, an injunction restraining the interim receivers from ratifying the capital injection by the 2^nd plaintiff (by counterclaim) (“Bai Jun”) into Yulin Changlebao Mining Co. Ltd. (“the Yulin company”) in February 2008 for the 5^th defendant (by counterclaim) (“the ratification decision”);

(c)     further or alternatively, the interim receivers do withdraw and/or terminate the implementation of the ratification decision.

2.  Before the hearing, the Angola defendants indicated they would not pursue the application for the discharge of the interim receivers.  At the end of the hearing, the remainder of the application was dismissed with costs.  The following are the brief reasons.

Background

3.  The interim receivers were appointed by order of the court of appeal.  The background leading to that appointment, and hence to this application, has helpfully been summarized in the court of appeal’s judgment dated 24 November 2008.  The relevant parts are quoted below:-

“4.     Clarigain holds 50% of the shares in Zhong Xin.  The other shareholder is Angola Group Holdings Limited (“Angola”).  There is a joint venture agreement dated 1 December 2004 but signed on 21 December 2004 (“the joint venture agreement”) under which in return for a 50% interest in Zhong Xin, Angola agreed to provide the equivalent in USD of RMB 50 million to Zhong Xin.  An important dispute between Clarigain and Angola is over the nature of the RMB 50 million to be provided.  According to Clarigain, the RMB 50 million was capital.  According to Angola, they were only obliged to provide finance to the extent of RMB 50 million.  This is not the occasion to decide which version is correct.  For the purpose of the appeal, we cannot and do not make any finding of fact. 

5.      The persons behind Angola are Zhao Bing (“Zhao”) and Ng Chi Kong (“Ng”) and those behind Clarigain are Xie Her Ping (“Xie”) and his wife Madam Gao Hai Yan (“Gao”). 

6.      Xie and Madam Gao held the entire shareholdings in Zhong Xin on trust for Bai Jun.  They were appointed by Bai Jun to act as directors of Zhong Xin.  Since about 30 December 2004 and pursuant to the joint venture agreement, 50% of the shareholdings in Zhong Xin were transferred to Angola, and Zhao and Ng were appointed by Angola to act as directors of Zhong Xin.  Xie and Gao, and, Zhao and Ng, are the only directors.  It is common ground that there is a deadlock.

7.      The joint venture agreement envisaged the established a sino-foreign joint venture company in the Shaanxi Province, namely, Yulin Changlebao Mining Corporation Limited (“CLB”). 

8.      There is a sino-foreign joint venture agreement dated 12 December 2004 (“the CLB JV contract”) made between 榆林巿榆陽區常樂工貿有限責任公司 (“the Yulin company”) and Zhong Xin.  Under the CLB JV contract, the parties agreed to invest a total of RMB 71 million into CLB, of which the Yulin company was to contribute RMB 21.3 million for 30% of the capital, and Zhong Xin RMB 49.7 million for a 70% share.  Zhong Xin’s share of RMB 49.7 million was to be contributed by 3 instalments.  The 1^st instalment being RMB 20 million payable upon the registration of CLB, the 2^nd instalment to be provided after the establishment of CLB, and the remaining RMB 9.7 million to be provided two years after the establishment of CLB.  According to the applicants, the 1^st instalment was due to be provided by 18 January 2005, the 2^nd instalment 18 January 2006, and the 3^rd 18 January 2007.

9.      Under clause 2.2 of the joint venture agreement, Angola was to provide the equivalent of RMB 20 million to Zhong Xin for the 1^st instalment payment under the CLB JV contract. Although the joint venture agreement was not explicit about when the remainder of the RMB 50 million was to be paid, presumably they were to be provided in time for the payments under the CLB JV contract.  To cut a long story short, the 1^st instalment was provided to Zhong Xin, but by way of a loan from Achieve Goal Holdings Limited (“Achieve Goal”).  This is the subject of Achieve Goal’s claim in the present action against Zhong Xin. 

10.    We will not go into the detail regarding Achieve Goal’s claim nor the counterclaim which it has spawned in relation to the provision of the RMB 20 million.  Sufficient to state that in the applicants’ counterclaim, for example para. 29A(d), they have complained that because of the failure by Angola to provide any further finance for the 2^nd and 3^rd instalments:

“By 1^st and 2^nd February 2008, Bai Jun injected US$ 4,172,590 (equivalent to RMB 29,567,600) into CLB as injection in respect of the 2^nd and 3^rd Capital Instalments in satisfaction of the balance capital of CLB to be injected by Zhong Xin pursuant to the CLB JV Contract.”

11.    Para. 29A(e) of the counterclaim went on to claim, inter alia, that pursuant to clause 4.3 of the JV agreement, which provided that:

「若甲方（Angola）未能按期支付合资公司注册资本金余额，将由乙方（Bai Jun）出资补上，甲方在中信矿业公司（Zhong Xin）的股份则按比例相应降低。」

Angola was holding 59.49% of the 50% of the shareholdings in Zhong Xin on trust for Bai Jun. 

12.    The legitimacy of the payment of the 2^nd and 3^rd instalments by Bai Jun to CLB is the subject of dispute in the mainland.   The Yulin company has started proceedings in July 2008 in the陝西省榆林巿中級人民法院 (“the mainland proceedings”), with Zhong Xin as the 1^stdefendant, Bai Jun the 2^nd defendant, where the Yulin company claimed that the capital contribution in the sum of USD 3,560,000 made by Bai Jun in the name of Zhong Xin was invalid and that the Yulin company had the right to acquire 42% of Zhong Xin’s shares.

13.    Briefly stated, in the mainland proceedings, the Yulin company alleged that Angola had never given up its right （Angola公司從來沒有放棄其出資權利）nor authorise Bai Jun to provide capital on behalf of Zhong Xin.  It was also alleged that because Madam Gao had not given to CLB the外匯登記證, the 2^nd and 3^rd instalments had never been paid into the account of CLB and they were never available to CLB.  Furthermore, because of the failure to provide the 2nd and 3^rd instalments, Zhong Xin had already lost its right to provide the capital, and that the Yulin company had a right of pre-emption under certain mainland legislation as follows:

「…根据《公司法》第199条、第200条的规定，原告要求法院判决百浚天成的出资为虚假出资，出资无效，同时确认中信矿业违约出资、转让出资的情况下，原告根据《公司法》第72条之规定，享有股东的优先购买权。原告为此诉之法院，请法院依法受理，公正判决。」

14.    Not surprisingly, Bai Jun wishes to contest the Yulin company’s claim.  Angola has also been made a party to the mainland proceedings.  There is a deadlock over what role Zhong Xin should play.  Also, as will be seen, because of the deadlock, Zhong Xin was not in a position to instruct lawyers to defend its interests, should it be proper to do so. 

15.    That there is a deadlock in Zhong Xin is common ground.  The applicants have also alleged that Angola has sided with the Yulin company in trying to obtain control of CLB.”

4.  It is undisputed the interim receivers’ ratification decision (dated 6 March 2009) concerns the capital injection referred to in para. 10 of the court of appeal’s said judgment (“the Purported Capital Contribution”).

Merits of this Application

5.  The essence of the Angola defendant’s first complaint was that the ratification decision was not made in the interest of Zhong Xin.  This complaint was based on an alleged offer to settlement earlier made by the Yulin company.

6.  The ratification decision was made by the interim receivers to meet the claim pursued by the Yulin company in the Mainland (for details of the claim, see para. 10 and 12 to 14 of the court of appeal’s said judgment).  In November 2008, the first instance court in Shaanxi decided the claim in favour of Bai Jun (and against the Yulin company) (it should be noted the first instance court’s decision did not rely on the ratification decision).  The Yulin company has lodged an appeal which is pending hearing and determination by the higher courts in Shaanxi.

7.  The Angola defendants argued in this application that because the Yulin company had offered to settle its Mainland claim (since the first instance decision), the interim receivers ought not have rejected the offer and continued to resist the claim.

8.  I agree with the interim receivers (and Bai Jun) that this complaint should fail essentially because the facts on which it was supposedly based were incorrect:-

(1)     the alleged offer to settle was nothing more than an open acknowledgement and admission by the Yulin company its claim is weak:-

“根據 … 我公司律師的論証，認為我公司根據<合資經營合同> … 提出優先出資權 … 法律依據不是很充分 …

鑒於以上情況，我公司擬向陝西高院提出撤回 … 優先購買權的訴訟請求 … ” (letter from the Yulin company dated 20 March 2009 to Angola and Bai Jun);

(2)     the alleged offer was addressed to Angola and Bai Jun and not to Zhong Xin or the interim receivers;

(3)     the alleged offer was made by the Yulin company after the ratification decision has been made;

(4)     it did not contain any clear terms of an offer for settlement which were capable of consideration (or of being accepted);

(5)     any acceptance of a settlement offer must have Bai Jun’s prior consent (there has not been any consent);

(6)     the interim receivers have never rejected any offer from the Yulin company.

9.  The thrust of the Angola defendants’ second complaint in this application was that the ratification decision would prejudice their claim in this action.  The complaint was put forth as follows:-

“The Purported Capital Contribution is one of the core disputed issues in [this action].  Bai Jun alleges that since it has validly made the Purported Capital Contribution, it is entitled to reduce Angola’s (i.e. D2) shareholdings in [Zhong Xin] from 50% to approx. 20% pursuant to the provisions of the JV Agreement”;

“Although in correspondence, the [interim receivers have] claimed that [they had] not taken any stance on the parties’ respective rights and interests in [this action], the consequences of [the ratification decision] is such that Angola’s case would be irreversibly prejudiced at trial”

(para. 7 and 27, skeleton submissions of the Angola defendants).

10.  The complaint is unjustified.  As the interim receivers correctly pointed out, the ratification decision was made expressly without prejudice to the parties’ rights in this action.  The following statements in the document evidencing the ratification decision are relevant:-

“經接管人詳細研究及考慮上述百浚代中信出資行為之背景事實 … 及百浚同意如接管人追認上述代出資行為，並不代表接管人同意百浚因此可在中信內享有更多的股份或股權，亦不影響百浚或安哥拉各方或其他方於上述香港法院提出之訴訟內之任何爭議 … 一切仍須留待香港法院於該訴訟中作出的最後判決而定 … ” (para. 8 thereof).

Bai Jun has confirmed its agreement to the without prejudice nature of the ratification decision during the hearing of this application.

11.  The Angola defendants’ third complaint was in short the interim receivers lacked the authority to make the ratification decision.  The complaint can be summarized as follows.

12.  The contractual deadline for capital injection by Bai Jun was 5 February 2008.  The ratification decision itself was only made after the deadline has expired.  Where it was essential for an act to be done within a certain time, prejudice would be caused to third parties if the act could be ratified after that time has expired.

13.  Again, there is no merit in the third complaint.  Any right which might have arisen out of the capital injection delay would have belonged to the Yulin company; the Yulin company could have relied on it to terminate the CLB JV contract.  Not only has the Yulin company not done so, in its letter dated 9 December 2008, the Yulin company has invited the interim receivers to fulfill the capital contribution obligation.  It was not open to the Angola defendants to raise any complaint about this; no right has accrued to them prior to the ratification decision.

14.  The interim receivers have also put forth other arguments in their skeleton argument in answer to this complaint (especially at para. 3.13 thereof).  There is no need to set them out save to say I also agree with them.

15.  During the hearing, the Angola defendants raised another argument concerning the interim receivers’ authority.  This argument was premised on clause 3.2(2), 3.2(6) and 3.2(7) of the joint venture agreement.

16.  There is again no need to set out the last argument in detail except to observe that it overlooked the very purpose of the joint venture agreement which can be gathered from:-

(a)     the relevant surrounding circumstances at the time of the joint venture agreement (see especially para. 4, 7 to 11 of the court of appeal’s said judgment);

(b)    the other contractual provisions of the joint venture agreement (especially clauses 1.1 to 1.6 and 2.1 to 2.6 thereof).

There is no substance in the argument.

Procedural Defect

17.  The interim receivers also raised objection based on procedural deficiency in this application.  Strictly there is no need to deal with them because this application could be determined on the merits (see  above).

18.  The injunction orders sought were in nature final orders.  They were not directed against any of the parties to this action as such, but against the interim receivers only.  The interim receivers contended there were two possible ways to challenge a receiver’s improper act(s).

19.  The first possible mode of application is based on RHC Ord. 30 r. 7(1) which provides:-

“Where a receiver fails to attend for the examination of any account of his, or fails to submit any account, provide access to any books or papers or do any other thing which he is required to submit, provide or do, he and any or all of the parties to the cause or matter in which he was appointed may be required to attend in chambers to show cause for the failure, and the Court may, either in chambers or after adjournment into court, give such directions as it thinks proper including, if necessary, directions for the discharge of the receiver and the appointment of another and the payment of costs”.

20.  The second possible mode of application is to seek the court’s leave to bring an action against a receiver: Picarda: The Law Relating to Receivers, Managers and Administrators (2006) 4^th Ed., p. 494; Kerr and Hunter on Receivers and Administrators (2005) 18^th Ed., para. 6-52 (p. 162).

21.  If it were necessary to decide this aspect, I would have agreed with the interim receivers’ above contention.

Other Matters

22.  The stance adopted by the other parties in this application was:-

(1)     the plaintiffs (by counterclaim) supported the interim receivers;

(2)     the 1^st and 4^th defendants (by counterclaim) were neutral.

HCA 1987/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1987 OF 2005

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D E C I S I O N

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Introduction

1.  Various parties have been named in this action.  To facilitate the comprehension of this decision, the parties’ actual names will be used below.

2.  This is an application taken out by Clarigain Enterprises Ltd. (“Clarigain”), Zhong Xin Ore-material Holding Co. Ltd. (“Zhong Xin”) and Bai Jun Tian Cheng Ltd. (“Bai Jun”) (collectively “the applicants”) for the appointment of interim receivers and managers of Zhong Xin (“interim receivers”) until judgment or further order (and for other related orders).  It was taken out in September 2008, some 3 years after the commencement of this action.

3.  This application is opposed by Achieve Goal Holdings Ltd. (“Achieve Gold”), Ng Chi Kong (“Ng”), Angola Group Holdings Ltd. (“Angola”) and Zhao Bing (“Zhao”).  They are collectively called “the opposing parties” below.

Background

4.  The background has been helpfully set out in the judgment of Hon Fung J dated 6 March 2008:-

“5. CLB is a joint venture mining company in Yulin on the Mainland.  The joint venture shareholders are Yulin Company investing RMB 21.3 million (30%) and Zhong Xin investing RMB 49.7 million (70%).

6.  Originally, Zhong Xin was wholly owned by Bai Jun.  Bai Jun entered into a joint venture agreement with Angola whereby Angola was to invest RMB 50 million in Zhong Xin which would in turn be invested in CLB, and Angola was to pay Bai Jun RMB 7 million.  In return, Bai Jun would transfer 50% of the shares in Zhong Xin to Angola.  The 50% share transfer was completed, and Bai Jun also transferred the remaining 50% shares to Clarigain holding as its nominee.

7.  At present, the shareholders in Zhong Xin are Angola and Clarigain holding 50% each.

8.  Angola was supposed to invest the RMB 50 million in 3 instalments of RMB 20 million, RMB 20 million and RMB 10 million within 2 years, and Angola was to pay Bai Jun RMB 7 million in 3 instalments of RMB 2 million, RMB 2 million and RMB 1 million.

9.  Angola did not pay Zhong Xin the 1st instalment of RMB 20 million.  Instead, it procured Achieve Gold to make a loan of RMB 20 million to Zhong Xin.  Angola did not pay the 2nd and 3rd instalments of RMB 30 million.

10.    Angola paid Bai Jun the 1st instalment of RMB 2 million, but did not pay the 2nd and 3rd instalments of RMB 5 million.

11.    In July 2005, Bai Jun commenced HCA 1284/2005 against Angola for breach of the joint venture agreement in failing to make the 1st instalment.  The defence was that the RMB 20 million loan by Achieve Gold was supposed to be the 1st instalment.

12.    In October 2005, Achieve Gold commenced the present action against Zhong Xin for repayment of the RMB 20 million loan.  Zhong Xin and Bai Jun counterclaimed against Achieve Goal, Angola, Zhao (director of Zhong Xin whose wife is the only director of Angola), and Ng (4th defendant by counterclaim, director of Zhong Xin, Angola and Achieve Gold).  Bai Jun alleged that the loan agreement was induced by the misrepresentation that Angola had financial problem and Achieve Gold was an independent third party, but it turned out that Achieve Gold was related to Angola.  Zhong Xin and Bai Jun sought a declaration that the loan agreement had been rescinded, the RMB 20 million paid by Achieve Gold was in fact the 1st instalment, damages for fraudulent misrepresentation, and/or specific performance of the joint venture agreement by Angola.”

Yulin Company will be called “Yulin” below for convenience.

S. 21L, High Court Ordinance (Cap. 4)

5.  The applicants rely on s. 21L(1), Cap. 4 in bringing this application:-

“The Court of First Instance may by order (whether interlocutory or final) … appoint a receiver in all cases in which it appears to the Court of First Instance to be just or convenient to do so”.

6.  The legal principles are undisputed.  The court has recognised the need for circumspection in appointing interim receivers in relation to companies which are going concerns, because such appointment is an extremely serious matter for such companies: Re Chime Corporation Ltd., HCMP 4146/2001 (25 June 2003), para. 41.  Typically, such orders are granted in cases where a deadlock in management results in harm being caused to companies, such as the dissipation of their assets.

7.  Three grounds are put forth in support of this application:-

(a) interim receivers are required to properly represent Zhong Xin in a litigation commenced by Yulin in the Mainland and to properly present Zhong Xin’s defence therein;

(b)    Xie He Ping (“Xie”) has been Zhong Xin’s legal representative in the Mainland.  In 2005 and 2008, Ng sought unsuccessfully to have him removed from that office.  Xie has been kept in custody by the Mainland authorities since May 2008.  Because of the deadlock in Zhong Xin’s management, interim receivers are needed to take care of the affairs of Zhong Xin in the absence of its legal representative;

(c) A coal mine has been flooded in March 2008.  It has ceased operation ever since.  Interim Receivers are needed to drain the flood and resume its operation.

The applicants contend that the appointment of interim receivers is required as a matter of urgency.

PRC Litigation

8.  The urgency of the matters is built on the following facts.

9.  As stated earlier, Yulin commenced an action in the Mainland.  Yulin challenges the propriety of Zhong Xin’s contribution to CLB’s capital (of about RMB29.5 million paid by Bai Jun (through Clarigain) on Zhong Xin’s behalf).  Yulin claims therein that it became entitled to have a pre-emptive right to acquire 42% of CLB’s shares.  If Yulin succeeds in its claim, Zhong Xin’s 70% share interest in CLB would be substantially reduced (to 28%).

10.  Xie (as Zhong Xin’s representative) has instructed lawyers to defend the claim.  The deadlock in Zhong Xin’s management resulted in no board resolution being passed about the instruction.  The matter was worsened by the following developments.

11.  At a hearing before the Mainland court on 14 October 2008, Angola (being made a third party by Yulin) suddenly challenged the authority of the lawyer who appeared for Zhong Xin.  In addition, Angola deposed in the opposing affirmation that there was no need for Zhong Xin to enter an appearance in the Mainland.  And, for various reasons (also advanced in the opposing affirmation), the applicants argue Zhong Xin should adopt a neutral stance.

12.  As a result of the above, Zhong Xin was compelled at the said Mainland hearing to seek, and was granted, an adjournment for about 30 days to enable proper authorization to be given for lawyers to be engaged.

13.  Thus, Zhong Xin needs an order from this court for the purpose set out in para. 7(a) above.

14.  The opposing parties changed their stance at the hearing before me (albeit only after some encouragement from the court).  In short, they offer to give an undertaking in the following terms:-

“[The opposing parties] … agree to instruct a qualified PRC Lawyer to act for and represent the interests of [Zhong Xin] in the PRC Litigation currently ongoing against [Yulin] in the Intermediate People’s Court of Shaanxi Province, PRC (the ‘PRC Litigation’)”;

“In relation to [the] above, [the opposing parties] shall nominate one firm of PRC Lawyers known as ‘King and Wood PRC Lawyers’ to act for and represent the interests of [Zhong Xin] in the PRC Litigation”;

“[The opposing parties] further undertake to fully co-operate to cause the Board of [Zhong Xin] to formally instruct the said PRC Law Firm to represent and act for the interests of [Zhong Xin] in the PRC Litigation, and shall provide all necessary instructions to enable the said PRC Law Firm to defend the rights and interests of [Zhong Xin] in the PRC Litigation”.

15.  The applicants argue that the above undertaking is inadequate.  They contend that conflicting instructions would still be given by the opposing parties, making it impossible for any lawyer acting for Zhong Xin to present a proper defence in the Mainland.

16.  There is no evidence that such will necessarily be the case.  One, the main complaint in the supporting affirmation is the opposing parties’ challenge to the lawyer’s authority to appear, as well as the deadlock in management.  Two, the reasons given in the opposing affirmation for taking a neutral stance are unrelated to the merits of the Mainland litigation.

17.  Moreover, the undertaking offered by the opposing parties to:-

“provide all necessary instructions to enable the [PRC lawyers] to defend the rights and interests of [Zhong Xin] … ” (emphasis supplied)

should mean that any instructions which may be given ought to promote that end.  Giving conflict instructions to the lawyers is unlikely to meet the objective of that undertaking.  But whether the opposing parties will provide instructions consistent with those to be given by the applicants, or will merely refrain from providing instructions, is not a matter for this court to comment on.

18.  In any event, should conflicting instructions in fact be given by the applicants and the opposing parties, the appointment of interim receivers is unlikely to improve the situation.  It will be asking too much of the interim receivers to make them decide which of the conflicting instructions should be treated as Zhong Xin’s (as the applicants contend is what they should do).

Management of Zhong Xin

19.  I agree with the opposing parties that merely because there is a deadlock in management is not a sufficient ground for appointing interim receivers.

20.  Zhong Xin’s management has been at a deadline since at least May 2008 (if not earlier); that is, at least 4 months before this application.  Delay by itself is not a bar of an application of this kind, although it is a factor to be taken into account.

21.  The importance of the delay in this application is that there is no evidence that the interests of Zhong Xin have been prejudiced by the deadlock, whether by way of a dissipation of its assets, or any diminution in asset value, or a disruption to its daily operation: see Re Full Billion Shipping Ltd., HCMP 2423/2002 (28 March 2003), para. 35 to 42, especially para. 36.  (The flooding of the coal mine will be discussed under the heading “Resumption of Coal Mine Operation”)

22.  The above observations apply equally to the lack of a legal representative (of both Zhong Xin and CLB) since the incarceration of Xie in May 2008.

23.  Further, the opposing parties draw attention to the legal requirement in the Mainland that a company’s legal representative must be a Mainland resident.  It is undisputed the interim receivers proposed by the applicants are not Mainland residents.

Resumption of Coal Mine Operation

24.  An examination of the accident reports exhibited to the opposing affirmation discloses the following.

25.  Flooding occurred on 10 March 2008 at one of CLB’s coal mines as a result of water leakage.  An investigation report dated 29 March 2008 was compiled by CLB.  It was apparently submitted to the authorities soon after.  The report was referred to in a report dated 19 June 2008 compiled by the authorities in Shaanxi, which approved a number of the remedial measures recommended by CLB.

26.  The internal documents of CLB exhibited to the supporting affirmation show that remedial work has been carried out.  The difficulties in remedial work appear to be technical in nature, and not related to the deadlock in management.

Conclusion

27.  In view of the above matters, I do not consider it appropriate for interim receivers to be appointed.

28.  This application is accordingly dismissed.  To avoid doubt, the dismissal is subject to the opposing parties’ undertaking referred to in para. 14 above.

Costs Order Nisi

29.  The parties have made their respective submissions on costs.  The applicants appear to agree that the usual rule of costs following the event should apply, whereas the opposing parties seek those costs to be in the cause of this action.

30.  Having heard them, there is no proper reason to depart from the usual rule.  There will therefore be a costs order that the costs of this application be paid by the applicants to the opposing parties to be taxed in any event if not agreed.

HCA 1987/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1987 OF 2005

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